Oil drilling

A rig operates in the vicinity of existing oil wells this May in the Powder River Basin. Oil prices hit close to $60 a gallon Friday, a good sign for Wyoming producers.

Christine Peterson, Star-Tribune

The price of oil pushed up against the $60 dollar mark Friday, landing about a buck short of the national benchmark of light, sweet crude.

In Wyoming, where the price for operators is always a few dollars less than the West Texas Intermediate, the positive direction in pricing has buoyed hopes for a strong end to the year and a better new year. It’s also surprised many who have been betting on a much slower return.

“I really didn’t expect this continued escalation of prices,” said Chuck Mason, an oil and gas economist at the University of Wyoming’s Center for Energy Economics and Public Policy.

Wyoming has held onto about 25 rigs for the last six months, up from single digits at the beginning of 2016 when the price fell below $30 a barrel, stifling production, drilling and interest.

The environment has improved this year, despite an unsettling valley mid-summer, and the state’s economy has now absorbed the benefits of increased activity in the oil fields, the consequent uptick in jobs and revenue, experts say.

Wyoming is waiting for good news to make up for the deep dive of years’ past.

Simply put, the price will have to be sustained to push operations further, said Mason, the UW economist.

“If we did believe that $60 or even a bit higher to be the new normal, I wouldn’t be surprised to see a gradual uptick in drilling in the state,” he said.

State revenue projections for the oil and gas sector, published in October, don’t predict a dramatic increase in price or production. State economists are cautious about overstating the numbers that dictate Wyoming’s budget and spending, Mason said.

Either way, $60-a-barrel oil prices are good for operators that are drilling in the Cowboy State right now, said Bruce Hinchey, president of the Petroleum Association of Wyoming. They’ll get a better return, he said.

“We’ve got a long way to go to catch up to where we were,” he said.

But operators will react to the stability of the price as much as the uptick. A sustained higher price will bleed into drilling improvement next year, he said, echoing Mason.

Diemer True, the former chairman of the Independent Petroleum Association of America, noted that many Wyoming operators have moved away from building drilling plans around price forecasts, instead developing an outlook based on the price they’ve locked in through hedging contracts.

In the long run, Wyoming’s place in an improving market will depend on the rock and the companies that explore and drill in the state, said True of Casper-based Diamond Oil and Gas said. Diamond isn’t currently involved in exploration or production, but in the buying and selling of producing properties.

While the broader picture of crude remains uncertain, analyst Phil Flynn of Price Futures Group in Chicago is bullish on what can happen in the coming year.

“We are seeing a market that is going from oversupply to tight supply in a very short period of time,” he said, noting the likelihood that international production caps from the oil cartel OPEC will be extended.

A lot of folks thought oil couldn’t come back from its $40-dollar range earlier this year, Flynn said. They predicted low economic growth, poor demand and a risk that shale producers would move into the gap left by international caps and further depress prices.

That’s not how things have played out.

Global economic growth exceeded expectations, he said.

“What I’m saying is that I think we are looking at a generational bottom on oil prices,” he said. “We are going to probably be a lot higher next year than we are this year.”

Follow energy reporter Heather Richards on Twitter @hroxaner

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Heather Richards writes about energy and the environment. A native of the Blue Ridge Mountains in Virginia, she moved to Wyoming in 2015 to cover natural resources and government in Buffalo. Heather joined the Star Tribune later that year.

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