Mar 17, 2015

Downturn in the oil patch brings layoffs

Wyomingites may be grinning at gas pumps, but lower gasoline prices mean people in the oil patch are out of work while the state of Wyoming reels in less oil revenue.

Thirty-two oil rigs were drilling in Wyoming on March 10, compared to 55 to 57 rigs on average in 2014, according to Bruce Hinchey, president of Petroleum Association of Wyoming in Casper.
Falling gas prices have resulted in reductions in oil field jobs.

“We’ve laid off probably 50 percent,” said Jerry Herweyer, manager of J & R Well Service in Powell.

Between 30 and 40 J & R Powell area employees recently have been laid off, and more layoffs are likely.

Greg Lynch, owner of Northstate Corp, an oil field service company in Powell, said he has laid off 11 employees.

“We are definitely seeing the layoffs in oil and gas,” said David Bullard, senior economist with Wyoming Department of Workforce Services office in Casper. “Clearly, the claims are way up, and we’re seeing layoffs around the state.”

In February, 906 people filed unemployment insurance claims in the natural resources and mining sector around the state, compared to 250 claims at the same time a year earlier, according to Workforce figures.

The natural resources and mining category includes some agriculture, mining such as coal, trona and uranium and oil and gas. But job losses were centered in one area.

“The increase is within oil and gas,” Bullard said.

The number of unemployment insurance claims filed last month rivals the number filed during the 2009 recession, Bullard said.

In February 2009, there were 1,094 claims in natural resources and mining, according to Workforce figures.

“Every oilfield business in the Big Horn Basin has been affected by the oil prices,” Herweyer said. “Everybody is pretty much in the same boat.”

“It’s going to have a pretty good ripple effect through the area — the whole state, really,” Herweyer said.

Wyoming’s average cost for a gallon of regular gas was $2.17 per gallon compared to the United States median of $2.42 on Monday, according to Gas.Buddy.com.

“On the New York Mercantile Exchange, crude oil for delivery in April plunged $2.21, or 4.7 percent, on Friday to end the week at $44.84 a barrel,” according to a March 15 Nasdaq article.

Cheap gas is good for consumers, but bad for Wyoming’s economy, Hinchey said.

“Four-dollar gas is a lot better for Wyoming than $2 gas,” said Lynch.

Cheaper gas prices also mean less tax revenue to the state and its counties.

“We’re down about 4 percent (in county revenue) right now,” said Pat Meyer, Park County Assessor.

Assessed valuation for this year will not see severe reductions, but next year may. He’ll know more about 2015 later this spring, and more about 2016 this fall, Meyer said.

Projected mineral severance tax revenue from crude oil in fiscal year 2015 is $248 million, while it was more than $322 million in FY 2014, according to Wyoming State Government Revenue Forecast fiscal year 2015 to fiscal year 2020.

In FY 2014, cities and towns were guaranteed a little more than $14.3 million, and counties a little more than $6 million, from state mineral severance taxes. For FY 2015, which ends June 30, cities and towns are guaranteed about the same amounts, according to the Wyoming Consensus Revenue Estimating Group’s revenue forecast.

“They get the money first,” said Wenlin Liu, principal economist with the Wyoming Economic Analysis Division. “The decline in severance taxes won’t affect them for this distribution.”

In addition, municipalities and counties are getting more in state appropriations this year.

Ironically, oil is plentiful at this time, Herweyer said.

Oil production has not slowed in the U.S., but oil exploration probably has, said Patrick DeHaan, GasBuddy.com senior petroleum analyst in Gaithersburg, Md. The U.S. had 449 million barrels of oil in its inventory on Wednesday; that is 79 million barrels more than a year earlier, on March 11, 2014.

Herweyer said he does not anticipate oil prices rising in the near future. “I’m thinking we’re in this for two years, at least,” he said.

Slumping oil prices are not prevalent in just Wyoming.

“It’s a global thing,” Lynch said.

DeHaan said there is less demand for oil, in part because China is in recession and demanding less oil.

Oil prices dropped in 1982, and it wasn’t until nearly year 2000 before the price of oil increased.

“I don’t want to see it like that again,” Hinchey said.

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