Oil and gas have been major drivers of the Wyoming economy since the Equality State achieved statehood. U.S. production of oil has risen in recent years, with Wyoming producers increasing the amount they pulled out of the ground from 2017-2019, according to the state geological survey. But as it has with so many industries, the coronavirus pandemic hit the oil industry hard.
The analysis of the impact of the fluctuating oil markets was recently released by the Wyoming State Geological Survey. While the full effect of plummeting prices is yet to be known, even with the much-discussed cuts to government agencies across the state, the report does give a window into how the cuts happened.
Factors like a warmer winter and falling costs for renewable energy drove down demand for oil and gas while production in the early part of 2020 stayed mostly steady. Combining that with the pandemic led to a drop in demand, so severe some producers were paying to have others take their oil.
Locally, the prognosis has been better than expected. Merit Energy, which operates in the Oregon Basin, said they have avoided cutting jobs as other companies have during the pandemic.
“People are our greatest asset, and providing a safe, stable work environment and prudent business model allowed us to weather this downturn with our people and their jobs intact,” the Texas-based company said in a statement.
The Wyoming economy was hit harder than perhaps any other state by the plummeting price of oil. Decreased demand drove crude prices into the negative column, and Saudi Arabia tried to regain some market share by increasing production in August of last year, further lowering prices, though the country has since backed off on production again.
Although a common talking point among environmentalists, the problems with production are not due to a lack of oil or natural gas, according to WSGS geologists.
“Wyoming is not hurting as far as reserves of oil or natural gas,” said Rachel Toner, one of the authors of the WSGS study. “If it gets to the point where it’s profitable to drill, they will drill and go to new wells.”
Wyoming has often gone through boom-and-bust cycles with oil production. After production peaked in 1970, it steadily declined until 2009 when new drilling techniques, including fracking, started seeing broader use. That caused a general upward trend in production until the pandemic struck in 2020.
Production fell off a cliff at the height of the pandemic, declining 60% from May 2019 to May 2020. All rigs in the state shut down, though four had reopened by December of last year. Monthly production had rebounded to 85% of pre-pandemic levels by September of last year, and while there are positive signs for the industry, WSGS does not predict statewide production will reach pre-pandemic levels until mid-year at the earliest.
Despite the drop in production, the state has had better economic numbers than expected. The most recent forecast from the Consensus Revenue Estimating Group, a subgroup of the state Department of Administration and Information, predicts the state will take in $131.8 million more in revenue from oil and gas for the general fund and reserve account, as well as some additional money from the CARES Act, than it had forecasted in October of last year.
“We’ve got a few more wells being drilled,” said CREG co-chair Kevin Hibbard. “We’re outperforming our assumptions from October. We’re doing well in sales tax largely because of several subsidies.”
Locally, Merit said that production is again ramping up and it hopes to be at 95% of their total production capacity by the end of the quarter.