Every time Nathan McLeland stayed overnight at his grandparents’ house in Newcastle as a child, he would make sure to wake up early enough the next morning to follow his father and grandfather out to the oil field to check wells.
Nathan’s grandpa, C.M. McLeland, known as “Mac,” and his father, Jim McLeland, had entered the oil business back in 1974, after rounding up just enough cash to drill one well. When it worked, the two men decided to drill another. Their persistence and luck eventually led to the establishment of M&K Oil Company LLC, now based in Gillette with operations in northeastern Wyoming.
Nathan eventually transitioned from his family’s oil fields to law school, before settling into private practice in Gillette. But when his father was injured in an oil field accident in 2016, Nathan didn’t hesitate before assuming the role as a managing member of the oil company. Nathan didn’t mind the change; he had always enjoyed the work.
“I’m the third generation to get into this business,” he said. “I grew up in the oil fields.”
Having become familiar with the volatility and risk of the business, Nathan thought he had seen it all — until this spring.
In March, a global oil price war broke out between Russia and Saudi Arabia and sent prices tumbling. Simultaneously, the COVID-19 pandemic brought the economy to a near standstill, chilling demand for fuel. By April, the glut in supply and drought in demand caused oil prices to go negative. West Texas Intermediate contracts for May sold at negative $40 per barrel, plummeting roughly 300 percent a day before the deadline to purchase them.
Only two months later, on June 26, Wyoming’s oil and gas rig count sank to zero for the first time in over 136 years. The series of events this spring and summer have devastated the U.S. oil and gas business. And in response, most independent companies like Nathan’s have had no choice but to shut in wells, shed workers and wait for better times.
Measures taken to stem the tide of COVID-19 infections slashed petroleum consumption to the lowest levels the U.S. Energy Information Administration has recorded since it began collecting this data in the early 1990s.
An estimated 76,000 direct oil and gas jobs were lost across the U.S. between February to June. The number of workers still employed in the sector hit a low not witnessed since around 2006. Though oil prices have rebounded since April, thousands of energy workers remain without work.
“It’s unprecedented,” Nathan said. “In all this time, I’ve never seen anything like this. It’s terrifying. Oil, gas and minerals are the backbone of our economy. It’s hard to know how this will affect things overall.”
The course of events this year forced Nathan to lay off about half of his staff and stop production at M&K Oil Company.
“That was tough, and those were hard days,” he shared. “It is still really tough, unpredictable times.”
Depending on energy
Wyoming is among the top 10 oil and gas producers nationwide, and it holds some of the country’s largest coal and trona mines. Thanks to these lucrative natural resources, Wyoming is one of few states able to rely almost exclusively on revenue from fossil fuels to fund critical public services.
For years, the public has called on lawmakers to diversify the state’s economy. Nonetheless, Wyoming continues to rely heavily on minerals for funding. In recent years, the state’s budget has become increasingly dependent on oil and gas for income as the coal sector contracts.
For many of the people keeping the oil and gas business in Wyoming afloat, that means their work becomes more than just a job.
“I think that the oil and gas industry is a vital part of Wyoming’s identity,” said Matt Smith, president of Vaquero Big Horn LLC. Smith studied as a chemical engineer out East before landing his first job in Rock Springs. He bounced around throughout the West, but ultimately wound up back where he started, in Wyoming. This time he settled in Cody to lead Vaquero. The company’s assets are dotted around the Big Horn Basin in northwest Wyoming.
Last year alone, oil and gas producers here provided $1.67 billion to state and local governments, according to the Petroleum Association of Wyoming. That breaks down to about $2,882 in government services going to every resident.
“We want to see the industry turn around and we don’t want to see it leave forever,” Smith lamented. “We want that rig count of zero to be temporary so we do have energy jobs in the state.”
Public education in Wyoming received $705 million from oil and gas taxes and royalty payments last year. The state’s general fund collected $621 million and another $157 million went to smaller municipalities like towns and counties, solely from oil and gas production.
“These numbers show what most of us already know — Wyoming thrives when industry succeeds,” President Pete Obermueller of the Petroleum Association of Wyoming said in a statement. “In K-12 education alone, contributions from oil and natural gas equated to sending about 43,000 of our children to school last year.”
Wyoming’s reliance on oil and gas also means that a crash in energy markets can send the state’s finances in a sudden downward spiral.
In response to the swift shift in the oil market, the Legislative Service Office overhauled its oil production forecasts in a revised report.
A preliminary report presented to Wyoming lawmakers in May revealed the state could face a $1.5 billion revenue decline between March 2020 and June 2022 in light of the COVID-19 pandemic and collapse in oil, significantly darkening projections made back in January.
Compared to the initial financial report released in January, the revised document slashed estimates for 2020 oil production by nearly 50 percent.
“Given the recent downturn in the industry,” Obermueller continued, “it is critical people recognize the contributions industry makes to Wyoming year after year and the importance oil and natural gas has for the future of Wyoming.”
Last week, workers laid down Wyoming’s only remaining gas rig in Sweetwater County, dropping the state’s total rig count to zero. It marked only the second time the state’s rig count had reached zero since 1884. At the time, Wyoming was still a territory.
The state’s rig count temporarily reached zero on June 26 as well, but inched back up to one rig the week after. It’s unlikely the rig could will stay at zero for long, according to interviews with several operators and service providers.
In fact, engineer Joe Corbett’s company started standing up a rig for a conventional vertical well in Niobrara County on Friday.
Corbett has been involved in the oil and gas business for close to 40 years. He is currently an engineer at Wyoming Energy Consultants, a small oil and gas firm in Casper. But he also works with Chipcore, LLC, a production company, started alongside the late petroleum engineer Scott Chipperfield.
“I’ve seen a lot of ups and downs, but this is by far the worst I’ve seen,” Corbett remarked. “But what can you do? You just keep working and hope things get better.”
Prices for West Texas Intermediate, a benchmark for U.S. oil, have recovered since plunging into negative digits in April, with prices lingering just above $40 a barrel on Friday.
“Forty dollars a barrel for oil, that pays the bill,” Corbett said. “The problem is if it drops below that. The instability is going to keep a lot of investors on the sidelines too. That’s really the big hiccup. The investor money is nervous, and I don’t know if they’re comfortable with $40 a barrel.”
Operators working primarily with unconventional wells in Wyoming may have a trickier time returning to the drilling arena when prices are this low too, Corbett added. But he remained unwavering in his hope for the future.“We’re a resilient bunch and we’re going to come out of this and be strong again,” the oil and gas veteran said.
Workers across the oil and gas industry overwhelming echoed Corbett’s resolute outlook.
“The minerals industry is the foundation of Wyoming’s economy,” said Paul Ulrich, vice president of government and regulatory affairs at Jonah Energy, a leading natural gas producer operating in Wyoming’s Green River Basin. “One of the foundations of our way of life. And to me, that’s where it hits home. It’s not just a job. It’s a way of life for a lot of us. It’s an industry and an occupation we take immense pride in.”
To others, the moment of crisis presents a necessary wake up call for Wyoming to consider how to better adapt for the future. Many called for a state economy that still supports the oil and gas industry, but doesn’t depend on it.
“I think it’s really a shame,” geologist Ronald Surdam said of the conditions facing one of Wyoming’s leading industries. “We at least need to keep some of the rigs, because there is still more oil and gas to be found.”The experienced geologist moved to Wyoming in 1966 to teach at the University of Wyoming. He recalls hearing his colleagues discuss with urgency the need to diversify the state’s economy.
“One of the first things I was told was, ‘You have to diversify your economy,’” Surdam commented. “And 50 years later, it hasn’t been diversified.”
In the immediate term, the governor and state lawmakers have called on Wyoming’s oil and gas commission to speed up reclamation, or cleanup, of orphaned wells. These wells can have environmental and public health consequences if left unplugged. The cleanup tasks are expensive and require a labor force. By accelerating the reclamation of orphan wells this year, the state could generate additional jobs for oil and gas workers, lawmakers said.
Meanwhile, some wells in Wyoming have continued to produce. In April, operators reported producing 7.2 million barrels of oil, 12% less than the year before, according to Wyoming’s Oil and Gas Conservation Commission.
But a full recovery for the families directly and indirectly affected by the downturn in oil and gas will take time, not to mention a full re-imagining of Wyoming’s economy.
“These are challenging times and so much of Wyoming’s economy is based on what happens outside of our state’s boundaries,” Gov. Mark Gordon said during a press conference on Wednesday. “If we don’t have good oil prices, it’s very hard for people to see a way here to start their drilling program in the state.”
“I am hopeful,” Gordon added. “I have been speaking with a number of operators who said they plan to start up their drilling again relatively soon, though relatively couldn’t come quickly enough.”
Third-generation oil worker Nathan McLeland of M&K Oil Company, has also tried to stay hopeful, but clear-headed about what’s ahead. His company drilled three wells last year and had plans to do the same amount in 2020. Now, he said it’s a matter of maintaining what they already have. He doesn’t anticipate starting any new wells this year.
“Oil, gas, coal, all these industries have been the backbone of the economy, provided jobs, provided revenue,” he said. “I think it’s unnerving to think about the state of the industry for Wyoming in general. But I’m confident Wyoming will get through this and Wyoming will thrive.”
Follow the latest on Wyoming’s energy industry at @camillereports
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