Oil & Gas News

Oklahoma’s energy industry bounces along

Oklahoma, Oklahoma City

By: Jack Money – The Oklahoman – Tracking trends involving the continued economic impact of Oklahoma’s energy industry these days is like trying to follow the trajectory of a bouncing ball.

While Oklahomans have seen the industry pass through repeated boom and bust cycles over the past 50 years — most famously, a frenzied drilling boom that gripped the state in the late 1970s that collapsed in 1982 to leave the industry nearly catatonic for the following decade — those cycles have continued.

While recoveries following those periodic downturns generally have been strong, the industry historically hasn’t rebounded after each event to where it had been before.

An ongoing recovery after the industry’s latest collapse in 2020 appears to be following that trend, as well, and affairs happening both abroad and here at home could be exaggerating that effect, an economist who runs an oil and gas company says.

A key question in Steven C. Agee’s mind is whether Russia can find any buyers for the 5 million barrels of oil daily it had been selling on open markets before hostilities broke out between it and Ukraine.

“Are the Chinese going to bail Russia out and buy all its oil? That will have a big influence on global prices,” said Agee, who also is the dean emeritus of Oklahoma City University’s Meinders School of Business.

Still, Agee said he believes Oklahoma’s energy industry remains as important to the state’s future economic health today as it did before the pandemic, despite its recent recoveries.

“A lot of what we have been seeing recently is attributable to the many mergers and downsizings going on, but when you are talking about jobs, that’s not the whole story, especially when you are talking about exploration and production companies,” Agee said.

“They don’t need as many workers because they have gotten so efficient in terms of horizontal drilling and hydraulic fracturing. It has become a manufacturing process, rather than an exploration-based endeavor. I am hoping this year will be much better.”

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Industry changes tracked

Energy industry economic impact reports put together for the Oklahoma Energy Resources Board by RegionTrack illustrate how the most recent downturn impacted the state’s energy industry.

In Fiscal 2018 (July 1, 2017, through June 30, 2018), the industry:

• Contributed $37 billion to the value of Oklahoma’s Gross Domestic Product output.

• Enabled households across the state to earn more than $36.8 billion, representing more than 29.1% of total earnings inside the state.

• Directly employed 135,300 Oklahomans.

• Supported more than 221,850 related jobs.

• Paid $698 million in gross production and other taxes to the state, counties, and school districts.

It also:

• Exported a record amount of 115.2 million barrels of oil in 2019,

• Exported a record amount of 2.2 trillion cubic feet of natural gas in 2019.

• Paid $3.8 billion in royalties to owners of Oklahoma minerals in 2019.

In Fiscal 2021 (July 1, 2020, through June 30, 2021), the industry:

• Contributed $19 billion to the value of Oklahoma’s Gross Domestic Product output.

• Enabled households across the state to earn more than $16.5 billion, representing almost 12.8% of total earnings inside the state.

• Directly employed more than 85,000 workers.

• Supported more than 145,000 related jobs.

• Paid $720 million in gross production and other taxes to the state, counties, and school districts.

“The energy industry was the largest tax contributor to the state’s economy by a huge margin (in Fiscal 2021), even in a year where the business was in a down-cycle,” said Dara McBee, OERB’s senior communications director.

The state’s energy industry also:

• Exported 69.3 million barrels of oil in 2020.

• Exported 1.97 trillion cubic feet of natural gas in 2020.

• Paid $1.9 billion in royalties to owners of Oklahoma minerals in 2020.

What happened in Oklahoma, and why?

RegionTrack’s report issued in February states Oklahoma’s energy industry already was in a downturn before COVID-19’s arrival in North America because of abundant global/domestic supplies of both crude oil and natural gas and because investors were concerned about energy companies’ debt.

Closer to home, Oklahoma producers also were dealing with increased gross production tax rates.

Combined, those factors effectively redirected dollars spent drilling and producing wells away from Oklahoma to other, more profitable fields, its report said.

COVID-19’s arrival only made the problem worse, leaving less than a dozen drilling rigs operating inside Oklahoma at one point — “the fewest rigs operating in Oklahoma in the modern era of oil and gas exploration,” RegionTrack said.

At the same time, operators shut in a significant amount of their oil and gas production, further reducing top-line revenues, royalties, and production taxes.

State oil production in 2020 was clocked at 171.7 million barrels, off 20.4% from the record production of 215.6 million barrels the previous year. Natural gas production fared far better, falling only 8.2% in 2020 to 2.79 trillion cubic feet.

RegionTrack’s report states the industry began rebounding moderately in the last half of 2020, and then more strongly throughout 2021 as restarting economies increased global demands for oil.

Still, RegionTrack notes Oklahoma’s energy industry remains cautious in both production and hiring plans as companies continue to face uncertainties involving the pandemic, global energy demands, energy price volatilities, and government policies toward the industry.

Other risks remain from rising OPEC+ production targets, ongoing debt concerns, the possible permanent erosion of petroleum demand, inflation, rising interest rates, and a possible recession, RegionTrack’s report said.

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