`Oil patch' states tighten belts as oil prices drop. Many see end to era of oil as mainstay of state economies
Two years ago, when the Champlin Oil Refinery closed in Enid, Okla., C. E. Tiltom considered himself fortunate to hold on to a job. A pipeline mechanic, Mr. Tiltom was one of six employees -- out of nearly 400 -- whose jobs were saved when Mid-Contintental Pipeline bought the closed refinery's pipelines. Now, with oil prices having fallen by a third in less than a month, Tiltom says his future is once again uncertain.
``As the price goes down, we lose revenue real quick,'' he says, sitting with his buddies at the Country Kitchen in Garber, a town that lives primarily from oil and agriculture. A sign at the cash register tells the story of this and other communities across the oil belt where pipe fitters, drillers, and mechanics stop for lunch: ``We regret that, due to the economy, we can no longer extend credit.''
``I don't know what tomorrow will bring,'' says Tiltom, ``but it doesn't look too good.''
That sentiment is echoed across the nation's ``oil patch,'' those states from Louisiana to Colorado and up to North Dakota that have relied on oil and gas extraction to fuel development and keep their governments running.
While other states see the oil-price collapse as a boon, the energy-producing states are wondering just how hard -- and how long -- they'll be hit.
``Some people are trying to look on the bright side by saying the price of gas will go down,'' Tiltom notes. ``But when you don't know whether or not you'll have a job to drive to, it's hard to be up about it.'' Similarly, companies that could make money drilling $15 oil may hesitate for fear prices will plummet even lower; and states that anticipated tax revenues on $25 oil are now unsure just how bad their revenue shortfalls will be.
Oklahoma will be among the states that are hardest hit, with nearly 28 cents of every tax dollar coming from a production tax on oil and gas. Gov. George Nigh has recently announced a predicted revenue shortfall of $467 million -- more than 20 percent of the state's $2.3 billion budget. He has told state agencies to anticipate across-the-board cuts of 17 percent in their programs. Most difficult of all, in a state where two-thirds of all school funding comes from state coffers, the governor said that education can no longer be spared from accepting some of the burden of the shortfall.
Even before the oil price drop, Governor Nigh had asked Oklahoma's agencies to plan for a 9 percent across-the-board budget cut. After two consecutive years of tax increases, no one is calling for further hikes although some legislators are pushing for a state lottery. (Horse racing was approved last year.)
In addition, a further drop in employment by state agencies, which have been streamlined by about 2,000 positions in the past few years, appears certain.
Between 1982 and 1985, the state experienced a loss of 51,000 jobs, a trend that may now accelerate. In addition, two dozen Oklahoma banks have closed down over the past four years, and that number is expected to grow.
Other oil-patch states are also bracing for an economic downturn.
In Louisiana, where economic activity last year barely surpassed Oklahoma's flat performance, the latest price drops are expected to devastate offshore oil production and exacerbate the state's 11 percent unemployment rate.
In Texas, where every one-dollar drop in the price of oil results in the loss of $100 million in state revenue, Gov. Mark White has already asked state agencies to stop all unnecessary spending, refrain from filling vacancies, and prepare to cut budgets. The governor, who is seeking reelection, hopes to avoid calling a special session of the Legislature this year to raise taxes.
Economists say Texas, which has more jobs than Oklahoma, Louisiana, Colorado, Kansas, and Wyoming combined -- faces the loss of 175,000 jobs if the price of oil eventually stabilizes at around $18 a barrel. Even before the most recent drop in oil prices, business bankruptcies last year in oil-dependent Houston were up 33 percent over 1984.
Texas' public university system, the second-best endowed in the country after Harvard, is also directly affected. It is estimated that every one-dollar drop in oil prices cuts royalties from property owned by the university by $3 million.
Other states are having similar experiences.
``In a city where about 35 percent of downtown office space is rented by oil companies, you see how deeply this can hurt,'' says Alfred Humphries, a research analyst with Denver's Hanifen, Imitoff Inc., investment bankers.
For example, Arco has recently announced plans to close out its Denver-based Rocky Mountain-region operations.
Despite hardships the energy states face in the short term, many people foresee long-term good coming from the decline. They point out that the states are learning they must sever their dependence on the energy industry's tax dollars, and that investments must be made in economic development and education.
``We're at the end of the oil industry in Oklahoma,'' says Alexander Holmes, an economist at the University of Oklahoma. Noting that two-thirds of the state's oil wells are already ``stripper wells,'' producing less than 10 barrels of oil a day, he says state leaders ``have finally realized the future is no longer in the ground.''
Observing that the last oil boom a few years back ``brought us more activity than we could say grace over,'' State Sen. Tim Leonard (R) says today's more sober economic picture increases the attractiveness of economic development measures and state government streamlining which he advocates.
State Rep. Robert Henry (D) points to the state's first tax incentives for business, approved last year, and measures being considered this year, such as venture-capital funding and worker's compensation reform, as evidence that ``Oklahoma is ready to pay the price to get off the roller coaster of a petroleum-based economy.''
That spirit appears to be spreading to many of Oklahoma's citizens. Garber's Lloyd Long, a farmer, farm machinery dealer, and oil man, says the industrial development council he sits on in nearby Enid has had its enthusiasm primed by the latest knocks to the oil industry.
``We used to just show pretty pictures, but now we give the facts'' about the work force, incentives, and other attractions for business. The city's goal is to create 3,000 new jobs in three years, and, he adds, ``I bet we make it.''
Mr. Long's son, Ed, who has taken over much of the family business, says he sees eventual benefits for the state's farming sector from the drop in oil prices. ``In the immediate [future] it's going to hurt, but when the price of fuel and crop transportation and [natural-gas-based] fertilizer starts to fall, that's going to help a lot.''
That anticipation of the price drop's positive effects was echoed down the road in Oklahoma City, where a hair cutter in one of the city's shopping malls says she thinks there will be more benefit from falling oil prices than many in the state want to acknowledge.
``I know, being from Oklahoma, I'm supposed to think it's terrible, but personally I'll be happy to see the price of gas go down.''