Create a free Manufacturing.net account to continue

Could Wyoming's Oil Boom Be Over Before It Started?

Plunging oil prices are prompting companies to shelve expansion plans in the Cowboy State, raising doubts over the future of Wyoming’s fledgling oil boom. Industry executives and observers said they expect drilling in Wyoming to slow after a 40 percent drop in price, months of tepid global demand and news that the Organization of Petroleum Exporting Countries cartel will not curtail production.

CASPER, Wyo. — Plunging oil prices are prompting companies to shelve expansion plans in the Cowboy State, raising doubts over the future of Wyoming’s fledgling oil boom.

Industry executives and observers said they expect drilling in Wyoming to slow after a 40 percent drop in price, months of tepid global demand and news that the Organization of Petroleum Exporting Countries cartel will not curtail production.

“I think it is going to have a fairly dramatic impact if prices stay here,” said Peter Wold, president of Wold Energy Partners and CEO of Wold Oil Properties LLC. “The cost of tubulars and services, drilling rigs, roustabout crews. It all adds up to be expensive when you drill one of these horizontal wells.”

Prices on West Texas Intermediate rebounded 4.3 percent to $69 a barrel Monday, the biggest single-day increase in two years. But that followed a dramatic fall on Friday, which saw West Texas Intermediate slump to $63 a barrel, its lowest level since 2009.

The Powder River Basin area and Laramie County are home to a production surge in recent years. Output in the basin grew by 30 percent to 30 million barrels in 2013, according to state data. Laramie County recorded a 31 percent increase, with production reaching 1.4 million barrels last year. Both are on pace to exceed those levels in 2014.

However, those increases came when oil stood was trading for about $100 a barrel. West Texas Intermediate reached $107 as recently as June.

Yet development is more difficult in the current price rut, observers said, with the price tag of drilling one well often at about $10 million.

The challenge facing Cowboy State producers is twofold, executives and analysts said.

Eastern Wyoming’s fields are relatively new compared with their counterparts in North Dakota, Texas and Colorado. In many cases, companies are still exploring the geology and determining how to maximize the efficiency of their operations. That means production costs are higher in the Cowboy State than in other parts of the United States, observers said.

At the same time, a sputtering world economy means demand for oil has slackened even as new fields in America bring more barrels to market.

Joseph DeDominic, president of two Anschutz Corp. oil subsidiaries, said the company is bullish on its long-term prospects in the Powder River Basin.

While the basin has higher production costs than established fields, it is one of the more promising plays in Anschutz’s holdings, he said.

Still, the drop in prices has caused the company to change course. Anschutz will begin drilling six wells in Campbell County as planned next week. Beyond that, the company is not making commitments.

“Our plan was to be more aggressive,” DeDominic said. “Under the current situation, it will be hard to be more aggressive.”

Wyoming’s rig count has remained steady despite the drop in price. The state averaged 40 oil rigs through November, tied with October for the highest average of 2014, according to Baker Hughes, an oil services firm.

Rig counts often lag behind prices because drilling budgets are typically set for a year.

It is also uneconomical for companies to move or mothball a rig that has begun drilling, said Charles Mason, a professor of petroleum economics at the University of Wyoming.

Drilling trends in the state will ultimately hinge on global demand, he said. China’s economy has slowed in recent months, as has Europe’s. Drilling is likely to follow suit. Yet demand for oil should remain strong in the long-term as Asia continues to grow, Mason said.

American oil fields stand a good chance of posting production increases, though those gains could be more modest than those observed in recent years, he said.

“I see a lot of people here doing the ‘Chicken Little, the sky’s falling’ on the oil market,” Mason said. “I just don’t think that is going to happen.”

Wold, the local oil executive, echoed that sentiment. Sometimes the market needs to correct itself, with supply reflecting demand or vice versa, he said.

“One of the cures for low-priced oil is low-priced oil,” he said.

Then he added a caveat: “I can’t tell you how long it is going to be.”

More in Operations