In early March, Daniel Fine, associate director of the New Mexico Center for Energy Policy, told a gathering of tribal energy officials that the oil bust is officially on. Those gathered, however, sure as heck didn’t need an expert to tell them that. In the oil and gas patches it has become clear that the economic gains of the so-called shale revolution are being wiped away by one of the worst fossil fuel downturns in U.S. history.
Now, the oil companies are crying for help. First, they got the crude oil export ban lifted. Next they want proposed federal rules on methane emissions weakened or scrapped. As if any of that will help.
Back in 2010, the price of a barrel of Brent crude (the international oil price benchmark) topped $80. That made it profitable to extract oil from tight shale formations, which is especially costly. A drilling frenzy ensued, domestic oil production skyrocketed, oil companies raked in profits and oil patch communities prospered.
But all that new oil on the market, plus China’s slowing economic growth, began to dampen oil prices in the summer of 2014. Instead of curtailing production to keep prices afloat, OPEC’s leaders launched a thinly veiled price war, clearly aimed at putting U.S. producers out of business. Here are some indicators that OPEC won the war:
The U.S. rig count has collapsed to levels not seen since, well, ever. With both oil and natural gas prices at near-record lows, it simply doesn’t make economic sense to spend up to $10 million to drill a well. So the rigs are shutting down. In September 2014, 1,931 oil and gas rigs were operating in the U.S.; today there are just 476. That’s a 75 percent decrease, and it’s still some 50 percent lower than the 1987 count, which followed what was considered the biggest, baddest bust ever, until now. Tom Dugan, who runs an oil and gas production company in northwest New Mexico, told the Farmington Daily Times, “It’s the hardest bust I’ve been through and I have been in this business for 57 years.”
Even as unemployment declines nationwide, it’s going up in the oil and gas patches. Following the great Recession of 2008, the counties that were fastest to recover tended to be those with a lot of oil and gas drilling. Now, the opposite is true. North Dakota, whose economy soared between 2010 and 2014, is down in the dumps. Nearly 20,000 jobs have been lost in the state during the last year, most of them in the oil and gas and construction sectors. Wyoming saw one of the biggest unemployment rate increases in 2015 in the country, led by its fossil fuel hot spots. (Tourism-rich Teton County, on the other hand, has a jobless rate of just 3.7 percent). Nationally, the oil and gas extraction sector alone has shed some 21,000 jobs since late 2014, and the “support activities for mining” sector has lost 133,000 jobs. A recent analysis by the Brookings Institute predicts “much worse employment carnage in energy states” to come.
Energy-state tax revenues are crashing. A single oil or gas well can be a big moneymaker for state and local governments, generating royalties, severance taxes, gross receipt taxes and property taxes. Price shifts hit these revenue streams hard. During the last quarter of 2015, all the major Western energy-producing states saw significant decreases in severance tax revenues, levied on the value of produced oil and gas and minerals, compared to the previous year. North Dakota took in $400 million less — in just one quarter — than it did in the final quarter of 2014. As a result of these losses, four of these states saw total tax collections decrease, as well (Utah was the exception), despite the fact that nationally, state tax collections were up. While motor fuel sales taxes increased for every state, thanks to low gas prices, it wasn’t enough to offset the other tax losses.
Energy-state tax revenues are crashing. A single oil or gas well can be a big moneymaker for state and local governments, generating royalties, severance taxes, gross receipt taxes and property taxes. Price shifts hit these revenue streams hard. During the last quarter of 2015, all the major Western energy-producing states saw significant decreases in severance tax revenues, levied on the value of produced oil and gas and minerals, compared to the previous year. North Dakota took in $400 million less — in just one quarter — than it did in the final quarter of 2014. As a result of these losses, four of these states saw total tax collections decrease, as well (Utah was the exception), despite the fact that nationally, state tax collections were up. While motor fuel sales taxes increased for every state, thanks to low gas prices, it wasn’t enough to offset the other tax losses.