OKLAHOMA CITY – Oklahoma is approaching nearly two consecutive years of decline in its oil and gas industry as indicated by the latest Oklahoma Energy Index.
The Energy Index contracted sharply again in June as employment and rig activity fell to levels rarely seen in the 20-year window of the index.
What started nearly two years ago as a mild industry contraction matured into a bust of historic significance when paired with a global pandemic, according to the Index.
The most recent great oil boom concluded in the fall of 2014 before yielding to 20 months of contraction, with the energy index falling an average of 3.1% per month. The ensuing recovery was less than robust, restoring only a portion of the jobs and income lost in the downturn. The recovery then turned into contraction as 2018 turned to 2019 and is now 21 months long, with an average monthly index contraction of 3.4%.
“Unfortunately, it is increasingly difficult to see a quick path to a bottom and even more difficult to see a robust recovery in the near future,” said Dr. Russell Ev- ans, executive director of the Steven C. Agee Economic Research and Policy Institute at Oklahoma City University.
The index of oil industry activity was down 5.6% in May led by sharp falls in employment and rig activity.
The number of drilling rigs operating in Oklahoma has remained steady at 10 this month, compared to 93 a year ago, according to Baker Hughes Co. The Oklahoma rig count averaged 10 in June, as well, slipping from an average of 13 in May, records show.
“The industry is shedding jobs with new activity on hold,” said Brook A. Simmons, president of The Petroleum Alliance of Oklahoma. “It could be months until operators can identify an economic and price path forward in which they can have confidence. In the meantime, activity likely will stay muted while companies cut jobs, assets, and costs to better align with limited cash flow.”
The early response to the coronavirus pandemic was to close economic and social activity with safer-at-home and shelter-in-place orders. Crystal Laux, south regional manager with BITCO, said that one consequence of the policy was to immediately impose a broad-based recession on the U.S. economy.
“As states have moved to reopen, the hope is that any re- cession will go away as quickly as it appeared,” Laux said. “Those who hope for a quick return to economic normalcy, however, may be disappointed. Even without the current widespread increase in positive cases, the economic damage already incurred would take years to fully undo.”
The “unfortunate reality” for Oklahoma’s oil and natural gas industry is that the U.S. recession is just beginning, Laux said. “It will be months, at least, before the economy is firmly on the path to economic recovery and pulling with it demand for energy sufficient to provide prices that will support Oklahoma activity once again.”
The Petroleum Alliance is the newly formed oil and natural gas trade associated created by the merger of the Oklahoma Independent Petroleum Association and the Oklahoma Oil & Gas Association.