The big news this week was the decommissioning of the last active drilling rig in the energy-rich nation of Venezuela, a flat-lining moment that is symbolic for the complete collapse of that once-wealthy nation’s entire economy.
Here in the United States, a similar flat-lining moment took place in the state of Wyoming a few days later. According to Baker Hughes
“It is historic, but not in a great way,” said Pete Obermueller, Executive Director for the Petroleum Association of Wyoming (PAW). “There are so many jobs attached to these rigs, and now, people are painfully learning so much revenue is attached too. It’s mind boggling and hard to capture the impact.” PAW estimates that each active drilling rig supports upwards of 100 jobs. Just a year ago, 37 rigs were active in Wyoming – that’s a lot of lost jobs, emblematic of the true depth of the current depression in the domestic oil and gas industry.
Those jobs are being lost all over the country as the number of active rigs continues to fall. The Baker Hughes weekly count hit another all-time low this past week, sitting at just 247 as of August 7. The Enverus daily rig count, which employs a slightly different method, was a little higher at 284 on the same day. That’s up by 16 rigs from a month ago when it hit an all-time low of just 268.
On Friday, the U.S. Bureau of Labor Statistics released the July jobs report, showing that the recovering U.S. economy had added 1.8 million jobs for the month. Significant gains were seen across every segment of the economy tracked by the BLS, save one: Mining. The Mining sector – which includes the oil and gas business – actually managed to lose a net 7,000 jobs during July, adding to the huge losses already accumulated from March through June.
So, the losses of jobs, along with oil and gas production, are spread throughout the country, but they hit Wyoming harder than most other states. The least populated state in the country, Wyoming is home to fewer than 580,000 residents. Thus, the loss of 3,700 jobs associated with the rig losses of the past year is a significant hit to the states employment picture.
The problem with a struggling oil and gas industry is not limited to jobs for Wyoming: The state and local governments are heavily reliant on oil and gas taxes and royalties for their funding. According to a report put out by PAW earlier this year, for example, oil and natural gas accounted for about 1/3rd of all of the local government property tax collections during 2018. Obviously, that percentage is likely to be substantially lower for 2020, given the dramatic drop in prices and production levels.
For the state government, the oil and gas severance tax poured $382 million into the state’s coffers during that same year. That’s a significant contribution to a state with an overall budget of around $9 billion annually, and it doesn’t include the industry’s contributions via sales taxes, gasoline taxes and other business taxes levied by the state.
Just as significantly, Wyoming also receives half of all the royalties collected from production on federal lands in the state, in addition to the royalties it collects from production on state lands. The Department of Interior reports that those federal payouts amounted to more than $641 million during 2019 alone.
Obviously, the collapse in oil prices and loss of production seen since March will lower the amount of revenues that the state and local governments can expect to collect from all of those sources during 2020. With the state’s rig count now sitting at zero, at least temporarily, the recovery from those production losses will be some time in coming.
The economic situation in Wyoming is obviously not nearly as dire as that in Venezuela, but no one should discount the major negative impacts the collapse of the state’s oil and gas industry will have on its economy and government. This is a very big deal.