Jul 28, 2015

With oil on the decline, expect far-reaching impacts

Everything is affected by the price of oil, and as of Thursday, the price of oil was lower than it has been since the dramatic price drop at the start of 2009.

A year ago, oil was more than $100 per barrel, and now it is going for about $47 per barrel. Up until a couple of weeks ago, it had hovered around $60 per barrel before taking an unexpected nose dive around the Fourth of July.

Park County and Wyoming as a whole depends on the price of oil for tax revenue, employment and the benefits that come from having oil workers and their families reside here. When the industry takes a dive, the impact is far-reaching.

Fewer property tax dollars

The oil from Park County traditionally sells cheaper than other oil, topping out at $70 per barrel last year, said Park County Assessor Pat Meyer.

“The kind of oil in Park County is not the sweet stuff,” Meyer said. “Park County is mainly oil — oil is our big boom.”

The drop in oil prices hit Park County a little later than the rest of the country, with minimal impacts to the price in 2014.

“So this year I wasn’t too concerned; we were right where we were last year and not down much in oil production,” Meyer said. “The big hit was back in October, the last quarter went down quite a bit.”

Estimates from the first quarter of this year, January through March, were $32.84 per barrel in Park County, compared to $70.89 per barrel on average at that time in 2014.

“That is quite a drop in oil and gas,” Meyer said.

Meyer said he expects the county’s oil valuation to be about half of what it was last year, setting the county back to where it was in about 2006.

“It is not the end of the world,” Meyer said.

In 2006, local oil sold for $35.24 per barrel on average and brought in $363.7 million for the valuation.

“It is not the end of the world,” said Park County Attorney Pat Meyer. 

If the ongoing trends continue and oil remains under $60 per barrel nationally, and local oil stays at about $35, that would nearly cut the previous valuation in half, dropping from $475.5 million to roughly $275.5 million.

The Park County government which is just one of several local governments that collect significant amounts of property taxes from the oil and gas industry would see its overall property tax collections drop by about $2.5 million, Meyer said. That's a roughly 10 percent decline in revenue for the county government, under the assessor's predictions.

Assessor Pat Meyer
“We aren’t going to die, looking at previous year,” Meyer said.

Fortunately for Park County, the impact will be minimized, thanks to a $30 million increase in local valuation from houses, buildings, land and personal property. 

“It doesn’t balance it, but it helps,” Meyer said.

However, the estimates are based under the assumption all of the wells will continue producing, noted Tom Fitzsimmons of Cody, a commissioner on the Wyoming Oil and Gas Conservation Commission and chairman of the Wyoming Enhanced Oil Recovery Commission. Fitzsimmons noted that some oil wells will stop production when oil prices get too far below $50 per barrel.

“If they can’t afford to produce, the wells and the revenue goes away entirely,” Fitzsimmons said. “This week, we showed an increase in inventory. There is more oil coming on than we are consuming.”


Up and down is nothing new
This is not the first time oil and gas production and values have fluctuated greatly for Park County.

Residents need to understand that current county funding is based on revenue from oil was generated before the price dropped, so the impact won’t be felt for another year, Fitzsimmons said.

“That lag creates complacency, and citizens need to know that, a year from now, there is going to be a big cut to the revenue that comes into the county,” he said.

“Citizens need to know that, a year from now, there is going to be a big cut to the revenue that comes into the county,” said Tom Fitzsimmons, an oil and gas expert in Cody.

In 2009, the county’s valuation hit $1.03 billion when local oil was selling for an average of $75.29 per barrel, with oil making up about 66 percent of the county’s valuation at $678 million.

Just 10 years prior to that, in 1999, local oil only sold for $7.56 per barrel on average — making up 35 percent of the county’s valuation at $88.3 million.

The same cycle occurred in the 1980s as well, but at that time it was a much larger piece of the county’s total assessed valuation.

In 1982, local oil sold for $29.46 per barrel on average — making up 90 percent of the county’s valuation at $680.5 million. Then, just five years later, it dropped to $11.31 per barrel and made up 72 percent of the total county valuation at $233.5 million.

“The ’80s were terrible; they (the county) cut everything shortly after that,” Meyer said. “It was a big drop — we had to cut people from the offices, cut vacation times; they were just cutting everything.”

The downturn 30 years ago had an impact on the housing market as well.

“The ’80s were terrible; they (the county) cut everything shortly after that. It was a big drop — we had to cut people from the offices, cut vacation times; they were just cutting everything,” Pat Meyer said.

“In the ’80s there were foreclosures all over town and houses boarded up,” said Rocky Mountain Oilfield Services owner Dan Groves. “All the major companies left Powell and never came back.”

Now the county’s valuation is less dependent on oil and gas, having made up about half the valuation for the last decade or so. This means the impact from the drop will be less significant on the county’s overall valuation and there are places to cut back, such as road and bridge projects, Meyer said.

“They (the county) have strong reserves and other money coming in,” Meyer said. “Everyone wants roads to be nice, but you have to pick and choose.”

Gov. Matt Mead appointed Meyer to a task force to find a better way to value oil and gas production, he said. The board is filled with county assessors, treasurers, commissioners and legislators.

“The industry claims it is technical, but I don’t think it is, except for the transportation deductions,” Meyer said. “We are looking at coal now, because we have a better grasp on how to value it — everyone wants to stay neutral and not lose any money.”

Problems at the pump and beyond
Groves said consumers should be asking why gas is going up at the pumps since the price of oil is falling.

“They can get away with it,” Groves said, pointing out that current oil prices are where they were when they dropped in late 2008 and early 2009, and gas was $2 per gallon then. But, despite declining oil prices, the cost of a gallon of gasoline now is closer to $3 per gallon.

“All costs have skyrocketed,” Groves said.

Rocky Mountain Oil Services and other small companies are dealing with increased health care expenses in addition to supplies for conducting business.

“The price of tires, all of it, went up and the volume of business has gone down, and it is a double hammer,” Groves said.

“All costs have skyrocketed,” said Dan Groves, owner of Rocky Mountain Oilfield Services in Powell.

Rep. David Northrup
Typically, as demand increases in the summer months, so does the price. But that wasn’t the case this summer, because shale oil, such as from the Bakken and Eagle Ford, aren’t losing production, said Rep. David Northrup, R-Powell.

“It is hard to get a realistic picture,” Northrup said. “There are still six months left in the year, and you saw how fast it changed.”

There are positive repercussions for cheap oil, such as lower production costs for farmers and ranchers, and increased tourism, Northrup said. But, the increases in tourism probably won’t be around when winter hits.

The rule of thumb for Wyoming state revenue is, for every $10 drop in the price of a barrel of oil, the state loses $35 million from property taxes and $35 million from the school foundation account, for a total revenue loss of $70 million.

“Everyone is on pins and needles about the upcoming CREG (Consensus Revenue Estimating Group) report in October,” Northrup said. The report will provide a detailed picture of the state’s revenue forecast — and its expected downturn.

On the upside, the state’s capital gains are doing well and are helping to offset other revenue losses.

“They never project on those, because who knows what the stock market will do,” Northrup said. “The good news is, investments are doing very well and the bad news is, the property tax isn’t doing as well.”

Increased tourism can also help by increasing sales tax revenue, he said.

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