Oil, gas industry hopes to rebound from ‘absolutely awful’ 2020

Oklahoma, McGirt, Tribal, oil

By: Janelle Stecklein – Pauls Valley Daily Democrat – The year 2020 has been the worst in recent memory for the state’s oil and gas industry, the head of the state’s Petroleum Alliance said Tuesday.

Brook Simmons, president of the oil and gas trade association, said there were currently 13 active rigs, which is actually up from eight or nine earlier this year. However, that’s significantly down from the 148 operating in 2018.

“It is absolutely awful,” Simmons said. “It’s awful for Oklahoma’s bedrock industry and the underpinning of the bulk of state economic activity and the tens of thousands of jobs that have been lost in Oklahoma just this year.”

Simmons said the last time Oklahoma had eight or nine active rigs was a century ago.

He described 2020 as a historic bust even for an industry that is prone to cyclical highs and lows.

“It is the worst in recent memory, and you’ve had people live through the bust in the 1980s,” Simmons said. “They cannot remember it being as bad as this.”

In an email, State Treasurer Randy McDaniel said gross production tax collections are down more than 50% from last year. He said natural gas prices are down over 35% and oil prices are down 30% since November 2018.

The number of active rigs dropped 90% during the same time from a high of 148 to 13, he said.

The industry, meanwhile, has shed over 20,000 jobs in the past two years.

“The pandemic continues to be a major challenge for both the health and financial well-being of Oklahomans,” he said. “However, we remain encouraged by the overall strength of the state’s economy during these difficult times.”

Russell Evans, professor of economics at Oklahoma City University, said while Oklahoma’s overall economy is becoming more diverse, the state’s economic success — particularly in western Oklahoma — is still tied closely to the fortunes of the oil and gas industry.

The industry generates a lot of secondary activity like retail consumption and business in hotels and restaurants.

The unemployment data sources probably underestimate the extent of the jobs lost. These figures don’t capture the employment losses in closely tied secondary industries like wastewater disposal and construction, Evans said.

All the federal COVID-19 relief flowing into the state, meanwhile, serves as a medicinal narcotic, helping dull and mask the pain from the most recent bust, he said.

“Things could get better and still worse,” Evans said. “You could get improving oil and gas, but at the same time as the medicines wear off, we could feel the pain of the contraction a little more acutely.”

He said the year has been “remarkably challenging” for the industry.

“It was challenging before the pandemic, but the pandemic just almost made it unprecedented,” he said.

He said Oklahoma’s current bust cycle happened in two waves. Before the COVID-19 struck, new drilling had already dropped by at least 60%. Then the pandemic struck and jet fuel demand collapsed along with petrochemical production. Both areas were fueling new oil demand.

“It’s really prompted a conversation about what the life cycle of oil demand is,” Evans said. “Will we have peak oil demand sooner than we expected? The thought was before the pandemic we would use more oil every year through 2030-2035, then we would use less oil every year.”

Now some big oil giants have said peak oil demand already may have happened, he said.

The good news is Oklahoma seems to have finally hit rock bottom.

“We do think 2021 will be better, but we don’t think it will be better quickly,” Evans said. “We think it’s a slow and methodical improvement. We do think the number will get better as we go through 2021, but I don’t think there’s a fast path back to just really robust.”

He said the price of crude would have to increase from about $45 a barrel to $70-$80 for the state to have robust activity again.

Simmons is also hopeful that 2021 will be better, but said the state’s oil and gas industry will probably never be the same.

“We remain optimistic, but we also recognize that as the energy industry in Oklahoma emerges, it is unlikely to look like what it has in the recent past, but we know there are grizzled veterans and new young people working in the industry that are coming up with tomorrow’s solutions.”

Simmons said he doesn’t know yet what those will look like.

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