Natural gas prices hit a 10-year low last week, and Oklahoma City’s Chesapeake Energy has announced plans to cut gas drilling by nearly half.
The Wall Street Journal reports that natural gas prices have declined 45 percent this year, due to a “glut” partly caused by the industry’s own success with horizontal drilling and hydraulic fracturing.
Economist and Oklahoma City University’s Meinders School of Business Dean Steve Agee told Oklahoman energy reporter Jay Marks a “perfect storm” of factors forced weak gas prices:
“… a record amount of gas in storage, rising production and a mild winter for much of the country …”
Low natural gas prices are affecting Oklahoma’s economy in three key ways.
1. Backing off ‘Fracking?’
As we reported last week, the fracas over hydraulic fracturing is a big deal for Oklahoma, where about one-quarter of all jobs are tied to the oil and gas industry. The state gets direct tax revenue from oil and gas drilled here, but the profits and payrolls of some of our biggest, best employers are linked to oil fields and gas plays in other states.
Oklahoma native and billionaire energy investor T. Boone Pickens told us low gas prices would likely curtail production and give the industry and environmental activists time to “catch their breath” and hammer out rules and regulation when it comes to hydraulic fracturing.
Backlash over hydraulic fracturing — even in other states — is bad for Oklahoma’s economy, Mickey Hepner, an economist and dean of the University of Central Oklahoma’s College of Business Administration, said.
“If there is a big environmental backlash against (hydraulic fracturing), that could certainly threaten the profitability of natural gas wells,” Hepner said, which would “negatively impact Oklahoma companies and the state’s economy.”
2. Back to Oil
Energy companies are concentrating on oil, which is trading near $100 a barrel. Chesapeake on Monday announced it would slash spending on gas drilling by $2 billion and shift that money to oil operations, according to the WSJ. Many, like OKC-based Crawley Petroleum, started the shift more than a year ago, The Oklahoman reported. Likewise, SandRidge Energy recently shifted its operations from natural gas to oil.
3. Less of a Land-Grab
On Monday, Chesapeake announced other cuts and changes, including trimming its land-buying budget by $2 billion and letting some gas leases expire.
Plans to spend less on land appears to be pleasing Chesapeake’s investors. The company’s stock rose 6.3 percent after the announcement, the WSJ reported:
“Tightening the spigot marks a dramatic turn for Chesapeake, which has a 22-year history of increasing gas production. In the last five years, Chesapeake has spent $19 billion on drilling rights that have brought its land holdings to three times the size of New Jersey, racking up $10 billion of debt, to the dismay of some investors and analysts.”