Words like “struggle” and “shocker” come from energy expert Dr. Steven Agee as he speaks about the free fall of oil prices this week. And what happened has the attention of Oklahoma government leaders as well as they all wonder what kind of impact will be felt by the state government.
The bottom dropped out of the oil market on Monday leaving oil and gas companies from Oklahoma, Texas, New Mexico wondering how they might survive.
West Texas Intermediate crude fell at least 25% reaching $30.96 a barrel as set at Cushing, Oklahoma. Brent crude took a nose dive too, tumbling about 24% and reaching $34.53 in London trading.
“It’s really a stunning drop,” said Agee, Dean and Professor of Economics at the Meinders School of Business at Oklahoma City University. “We haven’t seen anything like this.”
In an interview with OK Energy Today, Agee said the oil and gas industry was already hit by two shockers, one being the fact that the world’s oil supply pushed more crude onto the market. The second shocker, he said was a slide in demand.
“The coronavirus shut down demand. So you have two huge shockers and both were negative on the oil and gas industry,” said Agee. “It really hurt the producers–they have been pummeled by this.”
If anyone benefits from it, it is the consumers. While OK Energy Today reached out to oil and gas operators in Oklahoma, none commented about what they intend to do.
Agee says the only thing they can do is cut expenses.
“They can adjust their capital expenditures internally.”
As for those publicly-traded companies, cap-ex cuts might be the order of the day. Agee took note of Continental Resources in Oklahoma City where founder Harold Hamm and his family still own much of the company.
“If I were them, I would seriously be thinking about making the company private by buying stock at a relatively low price,” said Agee.
But for companies like Devon?
“Gonna be a struggle as long as it stays in effect.”
And for Chesapeake Energy, an already struggling firm?
“It will exacerbate the company’s problem. They already announced a reverse stock split last week and now it might take more for the company.”
The plummeting value of crude oil certainly has the attention of Oklahoma Treasurer Randy McDaniel.
“The energy industry is very significant to Oklahoma’s economy,” he said in a statement made to OK Energy Today.
“We are monitoring the situation closely and are concerned about the potential spillover effect on other key revenue sources,” he added.
McDaniel said if there is a fortunate side of things, it is the $1 billion in reserve funds.
“This recent price downturn solidifies the wisdom of saving for future needs.”
Still, Agee at Oklahoma City University thinks legislative leaders should be aware and also pay attention to the crude oil market.
“I think it could affect this session and they should be prudent.”