Must It Bust?

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When wondering if the U.S. is in the midst of an oil bust, one must ponder what brought the boom, especially in light of recession riddling the economic landscape. Many published reports say the oil boom was in part due to technological advances in both hydraulic fracturing and horizontal drilling as well as to an uptick in shale oil and shale gas production – a finite resource.

With drilling operators complaining of excess production and energy companies statewide laying off workers, the argument for officially forecasting a bust gains momentum. 

“Supply has been outstripping demand, not because demand has been particularly weak, but because there was too much supply,”

While consumers enjoy lower pump prices, oilfield worker numbers are reduced. There are reasons to believe that Oklahoma will survive the ups and downs better than most other states, says Oklahoma Independent Petroleum Association (OIPA) Vice President of Communications Cody Bannister.

“Anyone who claims they know what will happen one, two or six months from now, is speculating,” says Bannister. “When we look at numbers recently, we are down about 18 percent in Oklahoma from the high in 2014 of drilling rigs, and also jobs associated with it. But Texas is down 28 percent, and North Dakota is down by 25 percent. Oklahoma has insulated itself from the impending downturn for now because of the good regulatory and tax environment that encourages drilling in Oklahoma.”

A recently published report by geoscientist Dr. David Hughes, Geological Survey of Canada, forecasts that production from the Bakken and Eagle Ford (one of the largest North American shale oil fields) will peak in approximately 2016. He says it is clear to those in the industry to not expect “decades of cheap and abundant domestic oil supply” and says this is likely why drilling companies are pulling back on production and reducing related jobs. Hughes’ report also quotes several analysts who do not believe this short-term U.S. shale revolution can be replicated throughout the world.

“Supply has been outstripping demand, not because demand has been particularly weak, but because there was too much supply,” Stephen Briggs, a commodities analyst at BNP Paribas SA, told The Wall Street Journal. “It looks like this won’t change anytime soon.”

Ups and downs are always expected in commodities trading, Bannister says, “the ebbs and flows of commodity prices are a part of doing business in the oil and gas industry. This downturn is a good example of the importance of having a tax policy that encourages oil and gas investment in Oklahoma. It is just that important for our state. Lower commodity prices reduce profit margins, and as it thins, producers will look to states where they will see greater return on their investment. The regulatory and tax environment, as set by regulatory authorities and legislators, benefits us in times like this because it encourages investments in Oklahoma oil fields.”

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