Oklahoma energy index continues to climb
The Oklahoma Energy Index’s steady climb the past two years continued in April, with improved spot prices for crude oil and natural gas being major factors behind its latest advance.
The index, a scale of zero to 300, increased to 212.9, up 1.9 percent compared to March and up 12.2 percent compared to the same time a year ago.
But Russell Evans, executive director of the Steven C. Agee Economic Research and Policy Institute, tempered Wednesday’s good news somewhat.
While recent gains in well drilling and completion rates through technological and operational changes could help blunt future slumps in the state’s oil and gas sector, he said, it would be unrealistic to expect there won’t be one again sometime in the future.
“Conditions are certainly favorable to carry the current expansion further, with the state enjoying the resulting spillover economic and fiscal benefits,” Evans said.
“Should that expansion materialize, policymakers will need to apply lessons learned from our recent experiences to better manage the next wave of economic fluctuations.”
In an interview, Evans explained his cautions are related to past actions Oklahoma’s Legislature took when the state enjoyed a boost in revenues from gross production taxes.
He said the Legislature expanded the state’s budget in 2008 before the oil and gas economy collapsed, and then opted to cut gross production taxes on oil and natural gas as
the economy was doing well in 2014.
“I think one way or the other, whether it is controlling your tax base or controlling your spending, policy makers will need to prepare themselves for the possibility they will face an environment where there are fluctuating revenues,” Evans said.
“Just because it appears you have plenty of funds in a moment, that moment is temporary — it is fleeting. It is an unsustainable expansion.
“You need to be careful about what you do, whether it be through spending or a tax cut.”
The institute works with the Oklahoma Independent Petroleum Association to put together the monthly index.
The index, created in 2000 to measure the state’s oil and gas industry, follows not only spot prices for natural gas and crude oil.
It also tracks employment by the state’s energy companies, which came in at 51,700 in April, and the level of employment at companies that support the oil and gas industry, which logged a number of 30,100 for the month.
The average weekly count of drilling rigs, which for April was 129, figures into the index as well, as is the combined value of stocks for seven different publicly traded industry companies in Oklahoma that are involved in everything from drilling to midstream operations.
All of those indexes showed an improvement for the month, although Evans said the April data suggests the pace of hiring in the oil and gas and support industries may slow somewhat during the latter half of 2018.
As for his comments related to how operational and technical improvements could blunt potential future industry slumps, Evans said those relate to the fact that oil production in Oklahoma continues to set records despite a smaller number of operating rigs out in the field. Baker Hughes reported on Friday that 142 rigs were operating in Oklahoma.
Evans said the recent high mark of 215 rigs set in mid-2014 is the most the state had seen operating at any one time since the Penn Square Bank collapse in 1982, when more than 700 rigs had been operating.
While he said it is difficult to quantify, Evans said 142 operating rigs in 2018 potentially could have the same impact on oil and natural gas production as 220 rigs might have had on that production as little as five years ago.
“Given how much more efficient our rigs are, production really could ramp up in a hurry,” he said.