The Shale Reckoning Comes to Oklahoma

[cannon_fodder]

Bloomberg ran a devastating article yesterday on the oil bust in Oklahoma:

The Shale Reckoning Comes to Oklahoma

We all know that booms go bust. We have all been told that our economy is more diversified. The article points out that in 1982, 13% of Oklahoma workers' earnings were directly tied to the oil industry. When it went bust, Oklahoma had a recession that took more than a decade to fully recover from.

In 2015, 14% of paychecks in Oklahoma came from the oil industry. We aren't more diverse, we are more tied to oil and gas than ever. We went from the 4th Strongest GDP growth in the nation to dead last in six months. And the layoffs have just started. There was no diversification, more politician lies as they handed out more oil and gas incentives.

We have a $1.3 Billion shortfall now, in a state with an already poor education system and failing infrastructure...

Doom and gloom people. Someone post a puppy picture quick.

[Conan71]

"Energy independence" isn't all it's fracked up to be.  Mainly because there is zero sense of moderation whenever there is a boom in the energy industry.  It's as if most of the leaders in the industry slept through macro econ the day the concept of supply and demand was taught.

What did Aubrey Mcclendon honestly think would happen once Chesapeake drilled thousands upon thousands of gas wells, the price would rise?

How about Harold Hamm who has punched holes all over North Dakota?  Same thing.

It's not just these two, it's the mentality of the industry to go big when there's a new big play or new technology, not even thinking five or ten years down the road what happens when there is a severe glut of resources on the market.  

The worst part is, with the bottom out of oil, most of these companies have no choice but to keep on pumping, even at a loss, to pay bills and creditors.  It's not like they can shut the valve off and wait for prices to rise again.

An interesting side note though:

As I was coming into work this morning, they were reporting on the radio that Wal-Mart's primary customers still don't have as much discretionary income to spend with them.  I always figured when gas prices dropped out, that would have an automatic correlation to more money circulating in other areas of the economy.  Apparently, that has not happened.

[Breadburner]

Like any of this is new.....

[DTowner]

Bloomberg ran a devastating article yesterday on the oil bust in Oklahoma:

The Shale Reckoning Comes to Oklahoma

We all know that booms go bust. We have all been told that our economy is more diversified. The article points out that in 1982, 13% of Oklahoma workers' earnings were directly tied to the oil industry. When it went bust, Oklahoma had a recession that took more than a decade to fully recover from.

In 2015, 14% of paychecks in Oklahoma came from the oil industry. We aren't more diverse, we are more tied to oil and gas than ever. We went from the 4th Strongest GDP growth in the nation to dead last in six months. And the layoffs have just started. There was no diversification, more politician lies as they handed out more oil and gas incentives.

We have a $1.3 Billion shortfall now, in a state with an already poor education system and failing infrastructure...

Doom and gloom people. Someone post a puppy picture quick.

I think it is somewhat harsh to say Oklahoma did nothing to diversify its economy.  It would be interesting to see how Oklahoma's economic dependence on the energy industry changed over the last 10 years.  I suspect that number was much smaller and grew rapidly along with Chesapeake, Devon, Continental, Sandridge, etc.  No city or state government rejects that kind of growth or tells companies to go somewhere else so as not to upset our economic diversity.  Like everyone else, they simply ride the wave and hope it doesn't crash on the rocks.

Indeed, think of Tulsa's efforts at diversification - aerospace, telecommunications, and rental cars.  Worked for a while, but unfortunately a lot of it has disappeared in the last 10 years.

There is no doubt that we need to re-imagine and diversify our economy in a way that is less dependent on the energy industry.  But make no mistake, no matter what we do, energy will again become a big part of our economy when oil prices rise.

[Conan71]

I think it is somewhat harsh to say Oklahoma did nothing to diversify its economy.  It would be interesting to see how Oklahoma's economic dependence on the energy industry changed over the last 10 years.  I suspect that number was much smaller and grew rapidly along with Chesapeake, Devon, Continental, Sandridge, etc.  No city or state government rejects that kind of growth or tells companies to go somewhere else so as not to upset our economic diversity.  Like everyone else, they simply ride the wave and hope it doesn't crash on the rocks.

Indeed, think of Tulsa's efforts at diversification - aerospace, telecommunications, and rental cars.  Worked for a while, but unfortunately a lot of it has disappeared in the last 10 years.

There is no doubt that we need to re-imagine and diversify our economy in a way that is less dependent on the energy industry.  But make no mistake, no matter what we do, energy will again become a big part of our economy when oil prices rise.

With the buffoonery in the Oklahoma Legislature, it's going to become a tougher sell to get more diversity into our economy from the outside.

Why would anyone want to relocate their tech company to a hill-jack theocracy with chronically under-funded education and a qualified work pool that would prefer to move anywhere but back home after college.

[kingsy]

I'm surprised that none of the oil and gas companies in Oklahoma have started to try to make strides in other energy sources.  Seems they are wanting to continue to drill and drill until it's gone and not think about 10 to 20 years in the future. 

[cannon_fodder]

No one would have turned away the jobs oil and gas brings to Oklahoma. But we continued to have tax breaks and other incentives for them above and beyond other idnustries... why? They didn't locate here because of those incentives. They certainly didn't drill here because of the incentives, they drilled here because this is where the oil and gas was.

My real criticism is on the constant drum beat that we were working on diversifying our economy. That was true up through the early 2000s, but since then --- no we haven't. DRILL BABY DRILL! Even the lip service towards diversification dropped off. Even when we had <5% unemployment and were having trouble drawing in enough quality employees we did nothing to improve quality of life, education, infrastructure, or other things to try and draw people in. The new jobs we have attracted outside oil and gas are mostly call centers, warehouses, and new retail/fast food chains. 

Meanwhile, we have lost Hilti Corporate HQ, Dollar Thrifty HQ and then the Hertz employees that were left, Citgo (even oil and gas!), Semgroup, American Airline jobs, BizJet jobs, and what else? Hilti flat out said it was leaving because it cannot get enough qualified employees to move to Tulsa. If that isn't a slap to the face and a wake-up call, I'm not sure what is.

There are cities where companies want to move to, and there are cities that lose companies to those cities. The have-nots then have to give away tax dollars to try and attract second tier employers. Our Chamber of Commerce has the following basic sales pitch:

We will do what we can to pay you to move to Oklahoma. Our environmental regulations, workers rights laws, workes comp, and other regulations are at the bare minimum allowed by Federal law and our citizens work for cheap. We also have almost no taxes, so you won't even have to contribute to society!

On the whole, what kind of employers is that billboard trying to attract? Our home grown companies keep us propped up, a few national companies are here for market share or for cheap labor, but I'm hard pressed to remember an employer that moved here without significant bribes (as in, is it really worth it? level of bribes) and brought a decent portfolio of high paying jobs. We can't lower taxes any more, we can't strip away any more regulation/rights, and our workers can't accept even lower wages... so what is our sales pitch going to be now?

Maybe I'm just frustrated. And certainly I'm just whining, because I don't have a real solution. But the methods that we have been using for the last 10 years haven't worked. It was just a bit bet on the oil and gas industry, which our leaders felt for some reason would surely never go bust again. And our solution to the problem appears to be to cut taxes, cut education, and promise "business friendly" policies. I mean, those policies worked well enough to dig this whole, surely if we keep digging we will eventually hit daylight.

[Townsend]

No one would have turned away the jobs oil and gas brings to Oklahoma. But we continued to have tax breaks and other incentives for them above and beyond other industries... why? They didn't locate here because of those incentives. They certainly didn't drill here because of the incentives, they drilled here because this is where the oil and gas was.

The folks writing the tax breaks and other incentives for the oil companies are getting their bread buttered by those oil companies.

It's what any of us would do.  Find the folks who are easily manipulated by our money and buy them off.

Think about how dumbassed and crooked our exec and legislative branches are.  Easiest targets available.

[davideinstein]

Don't bash the oil industry, bring other industries in on top of that industry. Diversification is just that...diversification.

[TheArtist]

.

There is no doubt that we need to re-imagine and diversify our economy in a way that is less dependent on the energy industry.  But make no mistake, no matter what we do, energy will again become a big part of our economy when oil prices rise.

Well thats not going to be good because oil and gas are going to be a lot less a part of the over all economy period which does not bode well for us if what you say is true. 

Oil may go up somewhat again, but anyone can see that its just a matter of time before alternative energy sources become more and more competitive which will move the top price for oil to have to be lower and lower for it to remain competitive.  Then add to that electric cars beginning to come on line and then add to that the pressures from the Global Warming people to push us to use less and less oil. etc. etc.  Oil will likely never rise to where it was this last go around (barring a war) and will only face more downward price pressures every year that goes by.

Our state leaders have to know that and they have to begin looking for other ways to grow businesses in Oklahoma and not go blaming budget crisis on lower oil prices.  Like that has never happened before in Oklahoma and they couldn't have known to prepare for it?

[johrasephoenix]

Regions today compete on a) an educated, high skill workforce, and b) quality of life.

Any long term economic development package should focus on those two things.  Tax reductions, company-level incentives, etc are just lipstick.  Education and lifestyle are our pig.

The most vibrant business centers in the United States are located in high cost, high tax, often politically hostile locations like NYC, Chicago, Boston, Seattle, and SF.  This is because they provide a lifestyle that high skill workers want and companies ultimately follow workers.

Those two things are why UT being in Austin is such a coup for Texas.  It brings college town vibe and a great university to their capital city.  If OU was located in midtown Tulsa (like UT in Austin) then everything would be different.

[Breadburner]

It's always these fly by night pop up companies that love everything up......

[davideinstein]

Well thats not going to be good because oil and gas are going to be a lot less a part of the over all economy period which does not bode well for us if what you say is true. 

Oil may go up somewhat again, but anyone can see that its just a matter of time before alternative energy sources become more and more competitive which will move the top price for oil to have to be lower and lower for it to remain competitive.  Then add to that electric cars beginning to come on line and then add to that the pressures from the Global Warming people to push us to use less and less oil. etc. etc.  Oil will likely never rise to where it was this last go around (barring a war) and will only face more downward price pressures every year that goes by.

Our state leaders have to know that and they have to begin looking for other ways to grow businesses in Oklahoma and not go blaming budget crisis on lower oil prices.  Like that has never happened before in Oklahoma and they couldn't have known to prepare for it?

Oil will go back up without question. We need to diversify into wind power, etc. to offset the price fluctuations. We have tremendous natural resources here with oil, natural gas and wind that will always be a part of us.

[davideinstein]

Regions today compete on a) an educated, high skill workforce, and b) quality of life.

Any long term economic development package should focus on those two things.  Tax reductions, company-level incentives, etc are just lipstick.  Education and lifestyle are our pig.

The most vibrant business centers in the United States are located in high cost, high tax, often politically hostile locations like NYC, Chicago, Boston, Seattle, and SF.  This is because they provide a lifestyle that high skill workers want and companies ultimately follow workers.

Those two things are why UT being in Austin is such a coup for Texas.  It brings college town vibe and a great university to their capital city.  If OU was located in midtown Tulsa (like UT in Austin) then everything would be different.

Amen.

[Breadburner]

Oil is not going anywhere in our lifetimes.....Oil biz is a roller coaster of sorts....Some get too high on the highs and too low on the lows.....