Big Country conundrum

Reporter-News Photo by Ronald W. Erdrich
Ray Self, of Abilene, pulled into the Shell station at South 11th Street and Treadaway Boulevard on Thursday when he noticed the price of gas had dropped significantly.

Reporter-News Photo by Ronald W. Erdrich Ray Self, of Abilene, pulled into the Shell station at South 11th Street and Treadaway Boulevard on Thursday when he noticed the price of gas had dropped significantly.

The rapidly declining price of crude oil could have an effect on Big Country oil producers -- and the local economy.

Crude oil traded around $67 a barrel Thursday, the lowest price in more than 15 months and a far cry from the July peak of $147 per barrel.

Although drivers may be relieved to see rapidly dropping prices at the gas pump, the oil industry is left to wonder how much lower the price of oil per barrel will go.

"I don't think Abilene will notice a tremendous difference, but those in the oil industry are very wary," said Bill Stevens, executive vice president of the Texas Alliance of Energy Producers and an industry lobbyist. "They've been through the boom-and-bust cycle before. The industry just has to regroup."

According to the Abilene Industrial Foundation's 2008 Community Profile, oil and gas revenues generated $960 million in Taylor County and 16 other Big Country counties.

That makes it one of the larger industries in the area, one that affects more than just the employees and families of its workers.

"The price of crude doesn't just affect oil operators," said Jerry Stansell, a geologist with Cholla Petroleum. "It affects the amount of taxes a county gets, the rancher who gets a mineral check."

The concept of boom and bust, or the up-and-down cycles of the economy, is nothing to new to the oil industry. But when oil trades at a higher price per barrel, it's more profitable to produce, Stevens said. Companies are more likely to go into oil fields where it costs more to produce oil when prices are high.

When that price goes down, said Hardin-Simmons University geology professor Steve Rosscoe, the companies may pull back from some oil fields.

Meanwhile, as the price per barrel has risen, so have oil producers' costs of doing business.

Payroll is up, the cost of equipment, pipes and tubular goods have doubled this year, along with the cost of drilling rigs and completion units, Stevens said.

"As far as I can tell, right now the industry is carefully watching the prices and trying to determine if this will be a long-term or short-term decline in oil prices," Rosscoe said in an e-mail. "I've heard some grumblings that if prices stay below or even near $70 a barrel for a prolonged period of time companies may be forced to tighten their belts. Lower prices will likely slow growth if they do not recover."

Cholla Petroleum's Stansell noted that the amount producers pay per foot of drilling has dropped 25 percent in the past two weeks. When oil producers pay a lower footage rate, drilling activity can drop off if employees quit over the lower pay.

Stevens said there is no direct correlation between the price of a barrel of crude oil and the price of a gallon of gas.

"In the price of a gallon there's not just the price of crude, there's also refining, transportation from the field to the refinery, from the refinery to distribution centers and the cost of marketing. There's also taxes. Thirty-nine cents per gallon goes to state and federal taxes," he said.

Though the trading price of crude has little to do with the price of gas, local motorists are relieved that prices at the pump are rapidly falling.

"It's a big improvement when you drive 80 miles a day," said Kristy Wallace, who lives in Dudley. As Wallace filled the tank of her pickup, she said she's been saving as much as $40 a week as gas prices have dropped sometimes as much as 20 cents a gallon overnight.

Clyde farmer and rancher James Trammell said gas prices needed to drop. The retired high school principal filled the tank of his Ford F-150 pickup for $42.96 Friday and quickly calculated that he had just paid almost half of what he was paying when prices were at their highest.

The decline in prices will be at the forefront of discussion at an OPEC meeting today when members of the Organization of Petroleum Exporting Countries gather in Vienna, Austria. Officials from Iran and Venezuela are calling on the organization to slash production to help halt crude's slide, according to reports from The Associated Press.


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Comments » 3

bombsawy#284179 writes:

Keep on falling!!!! :)

BigBoots writes:

Conundrum???... You mean there's a question as to whether the ultra-rich not making obscene profits is worse than the farmers, ranchers and other hardworking people getting a break in gas prices?? I dont see any "conundrum.. It's a no brainer.. Keep dropping!!

whatif writes:

You can throw two thing out of the window.
1. Drill baby drill
2. Drill here, drill now
One other thing, who can we blame for the falling oil prices?
