Oil prices have moved significantly lower in recent weeks, which could mean some economic pain for Oklahoma if the trend continues.
“Certainly, the current pricing environment is hurting overall profitability,” said Chad Warmington, president of the Oklahoma Independent Petroleum Association — Oklahoma Oil and Gas Association.
“I don’t think we are at a tipping point, yet, but the outlook is not as rosy as it was even was a month ago. Our companies certainly can be profitable in this price range, but if you see a contraction in drilling in Oklahoma because of lower prices, that is going to bite the state.”
Local public energy companies reported generally robust profits in the most recent quarter as booming production coincided with the strong prices before the recent slide. Many energy firms also have some protection from the lower prices through derivative sales contracts.
The production and prices — along with a recent tax increase on oil and gas production — have boosted revenue to state government.
Gross production receipts for the past 12 months are up by more than 70 percent, while October receipts were almost double those of the same month last year, state Treasurer Ken Miller wrote in a recent report.
Throughout most of 2018, the price for West Texas Intermediate crude has been above $60 a barrel — more than what analysts had predicted, based on global supply and demand forecasts. The upward trend emerged even as oil and gas companies across the nation and in Oklahoma set numerous monthly records for crude oil production.
Analysts attribute that in part to the U.S. decision in May to withdraw from the Iran nuclear agreement with an expectation Iran would be barred from selling its oil into much of the global market this month.
Oil prices’ peak so far this year was $76.41 a barrel for West Texas Intermediate, set on Oct. 3. Since that October peak, oil has fallen about 25 percent, closing Thursday at $56.46 a barrel.
For now, the recent fall of oil pricing hasn’t generated a noticeable impact on Oklahoma’s oil and gas industry.
The industry typically slows this time of year anyway as companies complete planned current year expenditures and begin to build their 2019 budgets. Those budgets, however, depend on future prices.
A quarterly survey recently conducted by the Kansas City branch of the Federal Reserve Bank that polls oil and gas firms in Oklahoma and in other states indicates an average oil price of $55 a barrel is needed to remain profitable through the end of this year.
The industry’s productivity has climbed dramatically.
Chad Wilkerson, the Oklahoma City branch executive for the Federal Reserve Bank, has reported productivity doubled the past five years, with oil and gas production surpassing previous records set in 2015 while rig counts and oil and gas employment have remained well below previous peaks.
He credited that to improvements in technology, lower field service costs and companies getting more efficient in drilling and producing wells.
“These include longer horizontal laterals, multiwell pad drilling, walking rig systems and increased proppant concentrations in hydraulic fracturing. Firms also are making greater use of data analytics to increase drilling accuracy and create process efficiencies,” he wrote.
The upside of low oil prices has typically been lower gasoline prices for consumers, and that is playing out.
According to gasbuddy.com, the average price for a gallon of E10 gasoline in Oklahoma City has fallen from about $2.52 a gallon in October of 2017 to an average of just more than $2.14 a gallon on Thursday. At some stations, motorists could fill up for less than $2 a gallon.
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