ENID, Okla. — A broad-based recovery is underway regarding the state of the oil and gas industry in Oklahoma.
Operators of all sizes are making investments right now, said Brook Simmons, president of Petroleum Alliance of Oklahoma, adding that the industry recovery is supported by higher commodity prices after a “challenging, multi-year readjustment of the shale business model and depressed prices.”
Simmons said the demand for oil and natural gas is exceeding supply, which drives the higher price and provides Oklahoma the opportunity to participate in that recovery.
“That is a good thing for the state of Oklahoma, from both an employment standpoint and an economic activity standpoint,” Simmons said.
This does result in higher prices at the pump, though, Simmons said, adding the only way to work through that is continued investment in producing crude oil and natural gas.
“Over time, we will find that the market will come into balance,” he said. “When that is I don’t know, but that’s generally the path that it’s taken. That’s the nature of the cycle.”
‘Picking back up’
In 2020, the price for a barrel of oil dropped into the teens during the early months of the COVID-19 pandemic, even getting down to the negatives, and in late March of last year, the price was in the upper $50 range.
Now, according to the United States Energy Information Administration, crude oil prices for West Texas Intermediate stood at $91.44 as of Thursday, Feb. 17, 2022.
Simmons said demand for oil and natural gas exceeds supply, which drives the higher price and provides Oklahoma the opportunity to participate in that broad-based recovery.
Several thousands of jobs in the oil and gas industry in Oklahoma have been added over the past eight months, Simmons said, after more than 20,000 jobs were lost in 2020.
John Donaldson, president of D&J Oil in Enid, said the oil and gas industry is “a lot better” than the previous two years, and in the past year the price of natural gas has increased.
“I think the oil and gas is picking back up, and COVID-19 is dropping off. Hopefully, things will get back to normal here in the next six months,” he said.
Concerns at the state level
Simmons said, nationally, headwinds to growth and job creation in the oil and gas industry include a “squeeze on investment capital and public policies designed to harm U.S. producers but empower OPEC+ competitors.”
“One can look at broad trends when it comes to some of these public policy risks, but the current administration is no fan of Oklahoma and no fan of the crude oil and natural gas industry,” he said.
“Bad” public policies at the federal level, Simmons said, can increase the costs of doing business in the oil and gas industry at the state level.
Oklahoma is challenged and always competing against peer states that might have more productive and more profitable resources, and Oklahoma has to compete against investments.
Simmons said Oklahoma is competing for that third- or fourth-dollar of oil and natural gas investment as family owned firms, private equity backed companies and publicly traded businesses rank their best opportunities for return on capital.
According to Baker Hughes, as of Feb. 11, Oklahoma had 53 rotary rigs running, coming just behind Louisiana with 54. New Mexico has 92, and Texas stood at 100.
“Those are the states against which we compete for drilling capital,” Simmons said, “and it doesn’t matter whether you’re a large, publicly traded company or a small, family-owned shop. You might have assets in those other states, and you have to make a decision about where you’re going to put your dollars to get the best rate of return.”
‘Maintain what we have’
Simmons said the oil and natural gas industry is the most important driver of the state’s economy and is responsible for more than half of the state’s annual real GDP growth every year, “far out-pacing every other sector of the state’s economy.”
He reminded state and local officials that booms and busts will continue to define Oklahoma’s shared prosperity and to not take for granted the state’s “highly specialized economy.”
“To do so would weaken the state’s pursuit to become a Top 10 state,” he said.
Simmons said it’s difficult to predict where the oil and gas industry will go in the next few years.
“I hesitate to guess, but I would just say that companies will continue to face current challenges and new challenges, and there will be twists and turns in the road,” Simmons said. “I hope that Oklahoma will continue to be able to compete in that environment.”
Donaldson said he hopes the next two years will be good, and, in the meantime, D&J Oil, which has 10 employees, is mostly focusing on re-completions and reworks of old wells, operating about 65 in Northwest Oklahoma at the moment.
Donaldson said the company would like to be operating 100 wells by the end of the year.
“We’re just trying to maintain what we have, and we’re always looking for smaller acquisitions where we can buy wells, re-complete them ourselves and put them on,” he said.
Read More: Oil and gas industry in Oklahoma recovering from COVID-19 | Progress