Most people are celebrating the drop in oil prices, but for oil company employees — and the credit unions that serve them — it's a whole different story.
Only a handful of CUs still serve the petroleum industry, with many SEG-based credit unions that historically served that market having either closed up shop all together or expanded their charter beyond their original sponsor group. But a few still remain, and Credit Union Journal reached out to them to find out how the downturn has impacted those institutions and their members.
While executives at a number of CUs serving the oil and gas industry said they and their members are used to dealing with often-cyclical fluctuations in oil prices, if those prices were to drop below the "tipping point," or stay low for too long, it could cause problems, and some oil companies have begun offering early retirement packages rather than layoffs to reduce personnel — a move the associated credit unions will need to monitor closely.
Members are "used to the peaks and valleys, just like real estate, just like anything else," said Irene Soles, CEO at $5 million Union Oil Santa Fe Springs Employees FCU in Brea, Calif. "It's gone a little bit longer, but unless this continues for a lot longer, it's just going to go through its normal ups and downs."
Jan Stanford, CEO at $5.1 million Amoco East Texas FCU in Longview Texas, noted that the oil industry is a cyclical one, and "anybody who's been in the oil industry for any length of time has seen several ups and downs. It's a cycle and it happens regularly." As a result of that, she said, credit unions and their members are well prepared.
So far, added Stanford, the downward trend of this cycle hasn't impacted the CU's strategic planning or its expectations for performance. Some local oil companies have begun offering early retirement packages rather than layoffs in an attempt to reduce their workforce, but the CU has not had to put in place any programs to help members — at least not yet.
The Tipping Point
Stanford predicted that delinquencies will go up eventually. They usually do this time of year anyway, she said, "but it doesn't have anything to do with the oil prices — it's more [the aftermath of] the holidays. But if the prices stay at $50 a barrel, I'm sure we'll see some [rise in delinquencies]."
Union Oil Santa Fe Spring Employees' Soles pointed out that $50 per barrel is very close to the tipping point for oil prices, and once the price drops too far below that is when people start to get nervous.
"The general consensus talking to people is that when it gets below $45 a barrel, that's when it's costing," she said. "That's when it begins to cost money for every barrel that goes out. When it gets below $45 per barrel, there are some companies that will just shut down — small ones. They'll say there's no livelihood there. The bigger ones, they're out there doing enough different things. They have natural gas, they might have gas, they might have jet fuel, there's a lot of different things they're into to get through all the peaks and valleys."
Plus, she said, gas prices have already started to go back up. But just because oil industry employees — and CU members — might feel the pinch when prices drop, that doesn't mean they're flush with cash when things are booming.
"When gas goes to $5 a gallon, it's not like everyone makes so much more money," explained Soles. When prices are high, she said, companies put those profits back into exploration, drilling and more.
"These are huge corporations. Really, it's not all it seems to be. It's not like it's just all this extra money and you can say 'Hey, we've got this extra cash,' and dole it out to everybody."
Retirees and Strikers
One factor that is also insulating some small CUs from the declining oil prices is the fact that many members at those credit unions have already retired from the industry. That was the word from Amoco East Texas, Metarie, La.-based Pan Amoco FCU, Amoco East Texas and Union Oil Santa Fe Springs Employees.
"We're not a very large credit union, so a lot of our members are retired, so it might affect their retirement, but it doesn't affect their savings here," said Soles.
The slide in prices hasn't hit the members at $662 million AMOCO FCU in Texas City, Texas, where the bigger concern is a strike at the local Marathon oil refinery, where many members are employed. The strike began on Sunday, Feb. 1 following contract disputes between Marathon and the employees' union. Local reports have called the strike the first major work stoppage in the city in more than 30 years. More than 1,100 employees are members of the union, which on Thursday rejected Marathon's offer.
AMOCO FCU CEO Shawn Bailey explained that the credit union has seen several strikes, including one in 1959 that almost shut down the CU, which got caught in the middle of bitter negotiations.
"One of the most difficult parts for the credit union is remaining bipartisan, as the credit union serves the company overall, and both union and non-union employees," Bailey wrote in an e-mail. "Beyond having members on both sides of the issue, we have board members and employee spouses impacted by the strike. While the concerns of delinquency, chargeoffs and runs on the credit union exist, the credit union's primary focus is to serve the financial needs of its members."
In order to help members dealing with the strike, Bailey continued, the CU is currently offering penalty-free CD withdrawals, deferred loan payments, rewrites or extensions of loan terms, financial counseling, loan consolidation and more.
"As far as oil prices, we have not seen the impact as of yet," wrote Bailey. "Again, this refinery and credit union has been in business for over 78 years and has lived the ebb and flow of oil prices."
Unless the strike drags on for months, it's unlikely that oil prices will be back to "normal" levels when refinery employees are back on the job. But at Amoco East Texas, CEO Stanford predicted that this will probably just be a temporary setback, and won't have a significant impact on the credit union's operations.
"It's one of those preparedness things," she said. "You have a five-year plan; every credit union does, and [the possibility for a decline] enters into your plan to begin with. Our five-year plan did not anticipate a drop to below $50 a barrel. It's been a larger, quicker decline than we anticipated, but it has already started to come back. I don't think it's going to last. It's a cycle and we just have to hold on and hope for the best. It's a roller-coaster."