Friday the West Texas Intermediate price per barrel of crude oil was at a five-year low of $32.88.
As per-barrel prices continued to decline throughout 2015, many Oklahoma oil-and-gas-based companies laid off employees and tightened financial belts.
How did the price get so low?
Oklahoma Oil and Gas Association President Chad Warmington said the issue is fairly simple: supply and demand.
“In a lot of ways, the ingenuity and hard work of folks in the oil and gas industry — and in finding oil in quantities we didn’t think we could produce — we’re producing far more oil and natural gas than we have in the past,” Warmington said. “That’s good because it fuels our economy. But, in terms of world supply, we have more of it than we need right now so that’s impacting the price.”
Oklahoma Independent Petroleum Association spokesman Cody Bannister said because of technological advances, the U.S. was able to produce crude oil at levels the country had not seen in almost 30 years.
“It overwhelmed the crude capacity,” Bannister said.
Warmington said the oil and gas industry impacts other industries, like construction and agriculture.
“It’s been extremely difficult for Oklahoma to weather the storm and we’re beginning to see the impact of that now,” he said.
This week, SandRidge Energy Inc. stock was delisted from the New York Stock Exchange when the price fell to 15 cents per share.
Warmington said that isn’t just an issue for stock holders but for everyday Oklahomans.
“It will impact employment and the amount of capital expenditures in the state and it’s an issue when the whole sector has had a decline like we’ve seen,” he said.
Wunderlich Securities Analyst Jason Wangler said SandRidge is only running a few rigs. The state, which had more than 200 rigs several years ago, had 83 running rigs as of Friday.
Wangler disagreed with Warmington.
“The stock delisting of Oklahoma has little to zero impact; it’s just simply a company matter,” Wangler said. “Nothing changes in day-to-day operations. It makes it harder to raise equity but there is no change to the company.”
Wangler said if prices do not increase, more companies could have stock delisted or more.
Wangler said 40 to 50 oil and gas companies filed bankruptcy in the past year.
“If gas prices stay low, you could possibly see more bankruptcies in the oil and gas industry,” he said.
Oklahoma City University Economic Research and Policy Institute Director Russell Evans said in a written statement that if any energy company left the Oklahoma market completely, either through bankruptcy or an acquisition or merger, it would be a significant impact in Oklahoma.
“Oklahoma City has been resilient to the oil and gas weakness, as expected, but that resiliency seems to have yielded to reality in late fall of last year,” he said. “Oklahoma City is pretty exposed to whatever happens next in global and national markets, and even without losing a company the next six to nine months, for Oklahoma it will be tougher than anything it faced in 2015.”
Oklahoma is not the only entity hurting.
Wangler said if anybody saw the downturn in oil prices coming, they would have been worth billions.
“The U.S. got really good at producing oil and gas,” he said. “The shale plays started us on a growth profile when OPEC nations (Organization of Petroleum Exporting Countries) decided to have a price war.”
In previous years, when prices got low because of an oversupply of crude oil, OPEC would step in and regulate the oil production on its 13-country membership.
Those 13 countries include Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.
Last year, OPEC did not regulate production.
“Historically, OPEC would set quotas for each country so the market does not become saturated,” Bannister said. “The theory and belief is that they (OPEC) want depressed crude oil prices because it costs more to produce shale oil than it does to produce crude oil in Saudi Arabia or Venezuela. The process of extracting (shale oil) is more costly.”
As Oklahoma continues to weather the low-oil-price war, Bannister said the price will go back up and when it does, Oklahoma will be ready.
“Technology will continue to improve, and as it improves, cost comes down and we’ve already seen costs come down since 2011,” he said. “I think technology will play a part in rejuvenating oil and gas areas in the state. The oil and gas industry is just like any other industry — men and women involved in it are always looking for ways to maximize the return on their investment, and if one of those things has lowered, like exploration costs, and there are avenues to pursue those, then we will pursue those.”
Bannister said Oklahoma cannot control China’s economy or India’s economy or OPEC.
“All we can do is produce oil and natural gas in a profitable manner, in a manner they can keep their business operating.”