Oklahoma has 101 oil rigs in operation, which is 39 fewer than this time last year and the lowest the state has had since March 2017. Journal Record editor Russell Ray discusses what this means for the state's oil and gas industry.
Katelyn Howard: You're listening to the Business Intelligence Report, a weekly conversation about business news in Oklahoma. I'm Katelyn Howard, and joining me is Russell Ray, editor of The Journal Record. This week, I'd like to discuss the current state of the oil and gas industry in Oklahoma in terms of rig counts and oil prices. A recent rig count from the oilfield service company Baker Hughes shows that over the last year, our state has had one of the highest drops in active rig counts. Your intern Christian Tabak writes that Oklahoma has 101 rigs in operation, which is 39 fewer than this time last year and the lowest the state has had since March 2017. Can you tell us more about what this means?
Russell Ray: Certainly. Well, at around $200 million worth of economic impact generated per rig per year for Oklahoma's economy, the steady decline in rigs represents a very significant tax revenue loss for the oil and gas industry. Chad Warmington, who is the president of the Petroleum Alliance of Oklahoma, said the rig count is a very good indicator of the overall economic health of Oklahoma. And being down 40 rigs year-over-year is a pretty significant decline. Now nationally, the total active rig count is down 87 versus this time last year.
Howard: And Warmington says in the article that the impact of this drop on the economy has been partly masked by fairly steady oil prices.
Ray: Well, Warmington said legislators have focused on the year-over-year growth in the commodity price and production, but have really failed to take into consideration the importance of rig activity. Warmington also said the Legislature and state government doesn't really have a way to account for the lost revenue because they're just seeing the gross production data and the tax data.
Howard: It's no surprise oil prices are the main driver of rig activity, but what other factors determine whether oil companies add more rigs?
Ray: That's right. The price for light, sweet crude is currently hovering at around $54 a barrel. That's down from $75 back in October. As prices increase or decrease, oil and gas executives are continually evaluating whether or not it is economical to continue to drill and produce wells. Warmington said drilling activity is driven primarily by market prices. State taxes and regulation are an additional factor that Warmington said plays a role in whether oil companies launch a rig in Oklahoma or another state. As long as prices remain low, a decline in drilling activity should be expected.
Howard: And the lower cost of crude oil drives a drop in retail gasoline prices. Nationally, Oklahoma's the eighth-cheapest state for gasoline.
Ray: Yes, that's right. Gas prices in Oklahoma are averaging $2.45 a gallon, ranging from $2.72 in Coal and Woods counties to $2.31 a gallon in Tulsa County. According AAA, gas prices are declining nationwide with gas averaging $2.73 nationally. A full 18 cents cheaper than the same time last year, according to AAA.
Howard: And in the article, Warmington is quoted saying that cheap oil isn't good for Oklahoma due to the economic benefits of drilling for it, but what are the positives of lower oil prices?
Ray: Well while lower, Mark Madeja, a AAA senior specialist in public and government affairs for Oklahoma, said such gas prices can contribute to the economy by encouraging more Oklahomans to take weekend trips or increase their their summer driving. Conversely, it also has a negative impact by reducing revenue in the state's oil and gas industry.
Howard: Russell Ray is editor of The Journal Record. Thanks for talking with me today, Russell.
Ray: My pleasure Katelyn, thank you.
Howard: KGOU and The Journal Record collaborate each week on the Business Intelligence Report. You can follow us both on social media. We're on Facebook, Instagram and Twitter: @JournalRecord and @kgounews. You'll find links to the stories we discussed during this episode at JournalRecord.com. And this conversation, along with previous episodes of the Business Intelligence Report, are available on our website, KGOU.org. While you're there, you can check out other features and podcasts produced by KGOU and our StateImpact reporting team. For KGOU and the Business Intelligence Report, I'm Katelyn Howard.
The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.
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