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Oil price plunge doesn’t panic Wyoming service companies

December 3, 2018

CASPER, Wyo. (AP) — Josh Wilson’s uncle sometimes calls him to worry over the price of oil, but Wilson is not concerned. Ups and downs are the business of crude, and crude is the lifeblood for his business, Wilson Machine LLC — located in Douglas and, since February, in Casper.

With the national benchmark for crude, West Texas Intermediate, dipping under $50 a barrel on last Wednesday, and the international discussion of supply, demand and politics uncertain, one thing remains clear. Those in the Wyoming oil business, and those who depend on the oil business, are stubborn when it comes to panicking over plunging prices, ready instead to hope for the run up, the tick up, the long haul.

If you are always worried about the volatility of oil, you end up being Chicken Little, staring up at the blue and crying, “the sky is falling,” Wilson said.

Natural gas prices have crept up this winter. Henry Hub averaged $4.44 last week, while the Opal hub averaged a striking $5.97 for the week. Oil, meanwhile, has lost its legs with 10 weeks in a row of national inventory increases.

The possibility of a panic that trips the trend of investment is a real risk, said Phil Flynn, of PRICE Futures Group, in an investors’ note Wednesday.

“While we have been recently touting record U.S. oil production, the reality is that the oil that you have seen come to market recently was based on a price when oil was trading above $70 a barrel,” he said.

Flynn notes that some producers may have hedged at $70 a barrel oil and are riding this comfortably, but others are rapidly “burning through cash.”

“Inevitably, if oil goes sub-$50 a barrel basis WTI (West Texas Intermediate), we will see a pullback the same way we saw when prices crashed in 2015-2016,” Flynn wrote. “The economics of shale work best with stable prices, but crashing prices don’t work for anyone.”

Before the price slide, oil’s unusual stability had improved Wyoming’s outlook, boosting revenue projections, driving increased drilling and drawing a return of jobs that had disappeared during the downturn.

Jobs were up by 15 percent in Natrona County this summer compared to last year, said David Bullard, senior economist for research and planning at the Wyoming Department of Workforce Services.

Since last August, there has been a 1,700 rise in mining jobs, largely thanks to increased drilling.

“Things seem to be improving, we know that from the rig count, compared to a year ago there is more drilling activity and more employment,” Bullard said. “The rig count however remains at a fairly low level, so there is lots of room for growth there.”

For Bobbi Gerlock, whose husband co-owns 4 Aces Oilfield Repair, the $50 oil price isn’t as troubling as an environment that falls below that price point. The place where oil and gas can do well is lower post-downturn. People can handle lower prices up to a point, she told the Casper Star-Tribune.

Like a host of small companies that service the oil and gas fields, 4 Aces held on through the downturn despite finding little work. The company had a staff of 11. That’s down to five, three of whom are owners.

“Our story is probably the same as everybody else’s,” said Gerlock of the crunch. “We had to lay off a bunch of people, and we lost some money for a while.”

Work has been steady. With a smaller staff, business feels busy, she said. The ups and downs of crude haven’t shaken the business.

“Everybody in the oil field knows that tomorrow it could just drop,” she said. “You always live with a little bit of nervousness.”

Even with the price at $50, nothing is coming to an immediate halt, said Wilson, the Casper business owner.

The improving-to-steady price environment that lasted for about 18 months meant people put plans into action.

“Everybody has got everything in the works. They’ve got contracts. They got land leases, stuff that’s already been approved,” he said. “Natural gas is up, that’s better yet.”

Wilson started as a machinist at 19. He’s 36 now.

The shop he moved into in Casper is the same building where he first worked. It was the Cooter Jenkins shop, a long-time machine operation that closed during the downturn.

Wilson’s not new to the boom and bust, nor the risk to his expanding business. He opened in Douglas in late 2014. It was a boom year, but Wilson’s timing wasn’t perfect. The price turned and the bust started to roll in.

“We were hearing nothing but crickets,” he said. “It was a rough start.”

But what people outside the business don’t always understand is that fluctuation is the norm, he said. You can’t reevaluate oil by the day, he said. You have to watch trends.

“It’s a longer-term outlook,” he said. “People are looking at that short-term drop and I think they need to look a little bit further to see the big picture.”

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Information from: Casper (Wyo.) Star-Tribune, http://www.trib.com

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