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Drop in crude oil prices already hitting Montana oil producers

Drop in crude oil prices already hitting Montana oil producers
Posted at 6:35 PM, Apr 21, 2020
and last updated 2020-04-23 11:04:09-04

Petroleum industry leaders say the dramatic drop in crude oil prices over the last few weeks is already having an impact on producers in Montana.

“This is definitely the worst downturn that I’ve ever seen in our industry; I’ve worked in the industry for well over 40 years,” said Alan Olson, executive director of the Montana Petroleum Association.

On Monday, national media attention focused on the industry as the price for crude oil futures fell into negative numbers. That was the result of some unusual technical factors, but it pointed to a very real situation – high worldwide oil production combined with a drastic drop in demand for fuel, as people stay home during the coronavirus pandemic.

“Nobody’s going to be paying someone $35 a barrel to take oil; that’s just not a realistic expectation,” Olson said. “But we’re running out of room to store crude oil.”

Olson said, in north-central Montana, the price for a barrel of crude oil was about $54 a year ago. In the last two weeks, that price was down to about $14 a barrel.

With prices that much lower, it is less economical for companies to operate certain wells. Olson said the MPA has already heard from several companies around the state that have had to shut in wells and lay off workers, particularly in the north-central region.

“We’re not going to quit pumping oil; that’s just not going to happen,” he said. “Again, that’s economics – people have obligations that they need to pay – but you can definitely expect oil production to drop precipitously over the next few months.”

Olson said it’s not clear yet how many jobs have been affected in Montana, but that around 51,000 oil industry jobs were lost nationwide last month alone – and that the number could reach a total of up to 200,000.

A major drop in oil production could mean a large hit to the state budget. Olson noted that, in addition to production taxes, it would also impact royalties on state mineral leases and income taxes on companies and workers. He estimated royalty payments on state trust lands alone bring in about $20 million a year.

Olson said he’s hopeful Congress will be able to reach an agreement to provide some form of relief to the petroleum industry.

“Keep in mind that our industry does employ a large number of people in this country, and we pay well above average wages,” he said. “When you lose that disposable income and put all of those people in the unemployment line, that trickles down to the local economies – and it really doesn’t do anybody any good.”