Start of a slowdown: Drilling ebbs in Wyoming's Powder River Basin as oil prices plummet



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DOUGLAS, Wyoming — A plunge in oil prices has been accompanied by an exodus of RVs from the Wyoming State Fairgrounds, where fifth-wheels recently competed for spaces at one of the few campgrounds in the area.

Part of the slowdown is seasonal. Drilling in Wyoming typically ebbs during the winter. But even by those standards, the past several months have been uncommonly slow, according to some 35 or so campers who remain.

News of layoffs are frequent occurrences. Rumors of jobs in states like Texas surface and are dismissed. And oil field hands, accustomed to making top dollar over the past two years, contemplate moving to other fields like construction, where a pay cut is all but assured.

"All last summer, we were working 80- to 100-hour weeks," said Bill Long, a 48-year-old dirt mover from Sheridan. "Now if we get 10 hours, we're lucky."

Through Thursday morning, he had worked one hour all week. He recently signed up for unemployment.

Long's friend William Bell, a truck driver from Colorado Springs, Colorado, agreed.

"Things have dried up," he told the Casper Star-Tribune (http://bit.ly/1DlmE7C). "You can tell by the lack of traffic."

Their tale is a common one here in Douglas, a small town at the southern edge of the once-booming Powder River Basin.

The town became a magnet for oil field hands over the past two years. Housing vacancies shriveled and rents soared. Trucks jammed the streets.

And Converse County tax collections skyrocketed. County sales and use tax receipts rose $9 million in the first six months of the fiscal year, from $25.5 million in fiscal year 2014 to $33.9 million in fiscal year 2015.

Life has slowed noticeably in the past several months, residents said, as prices on the American benchmark for crude slumped below $45 a barrel. Prices reached a high of $107 a barrel during the summer.

Wyoming's rig count has mirrored the decline in price. The state lost four rigs, two oil and two gas, to reach 42 the week of January 30. The state recorded 28 oil rigs, or 10 fewer than what Wyoming registered during the same week last year.

At the Depot Restaurant in the center of Douglas, business during the lunch hour rush was brisk. Diners packed the tables and waiters rushed busily to and from the kitchen.

Owner Linda York said the restaurant has yet to witness the impacts of the slowdown, but she said she is monitoring the situation.

"We don't share the whole 'Yeah, gas prices are going down'," York said. "You see people you know getting laid off or getting their hours cut."

David Sessions is one of those people. A 47-year-old welder from Lewiston, Montana, Sessions was laid off from his job Thursday morning. He called a friend and a few hours later was hired by another company. He expects the new job to be completed in 30 days.

Sessions said he was unfazed by the slowdown.

"You got to know going into it you're going to work yourself out of a job," he said, referring to the industry's cycles of boom and bust. "This is when the cutthroating starts. I took a cut in pay, but I don't have to go 5,000 miles to find something else."

Peter Wold, president of Wold Energy Partners and CEO of Wold Oil Properties in Casper, said his companies benefited from a stroke of luck: They were late to the drilling boom.

The Wold companies were in the process of permitting wells last year. If prices rebound in August, the companies will begin drilling.

"We're hopeful they will, but we're not holding our breath," Wold said.

The nature of Powder River Basin wells compounds the price issue, Wold noted. Many of the wells drilled in the past year produce at high rates during the first 12 months then drop off precipitously.

Many companies were relying on that first year production to pay off their drilling expenses. With prices projected to remain in the doldrums for much of 2015, those companies could now face difficulty, he said.

Firms' ability to withstand a period of low prices will depend on the strength of their balance sheet, Wold said.

"Undoubtedly, there will be some distressed sales that companies will be taking advantage of, I think," he said. "If you've kept your powder dry and you're able to ride this thing out, you might even take advantage of some distressed sales that may come about."

Some parts of the basin have yet to see a drilling slowdown. Oil rigs begin to appear on the horizon traveling north from Douglas on state Highway 59, the central artery of the Powder River Basin drilling boom.

A half-dozen water and fuel trucks could be seen parked at the Cheyenne River rest stop. In Bill, a tiny roadside community straddling Highway 59, 40 employees of the oil services giant Schlumberger checked into the Oak Tree Inn on Thursday, said Pandora Westfield, who works at the hotel diner.

"We haven't slowed down since September of last year," she said.

Farther north, in Wright, residents said drilling has shown no ill effects of low prices. A receptionist at the Wright Hotel said the inn has been booked for the past two weeks.

And at Hank's Bar and Grill, owner Hank Pridgeon said oil workers still make up the majority of diners every night. In March, he plans to begin converting the bar into a convenience store and gas station.

"I've been in business for 27 years in Wright, and every year has been better than the last," he said.

The disparity in activity between Douglas and Wright is likely due to contracts, said Charles Mason, a professor of economics at the University of Wyoming who tracks the oil and gas industry.

Some companies took steps to set long-term contracts in the fall, when it became apparent prices were in a pronounced slide. Those firms have insulated themselves against further drops in price, and they continue drilling, he said.

"It's insurance. They've bought themselves a little time," Mason said. "When they run out, whenever they run out, I think you will see these guys fold up — unless prices recover."

Oil supply now outstrips demand. A recovery in price will depend on the easing of the current surplus and on the economies of Europe, China and Asia, which have slowed in recent times, he said.

Back at the state fairgrounds, Long and Bell expressed hope the slowdown would be short-lived.

Bell, the truck driver, said he had been offered two jobs in construction, but he was not wild about the idea, given the prospects of a pay cut.

Long said he would go back to working road construction if jobs in the oil field dried up.

"Next week might be another 90- to 100-hour week. You never know," he said. "I'll try to hang in there as long as I can. Then I'll find something else to do."

In the meantime, both have car payments to make. Each man recently bought a truck.

Bell, looking over his vehicle, noted that oil prices seemed to drop the week after he made the purchase.

"I was kind of upset," he said.


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

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