This content is being provided for free as a public service to our readers during the coronavirus outbreak. Please support local journalism by subscribing to your local newspaper.
Kansas oil and gas operators hope for everyone’s good health and a speedy end to this pandemic. Like other businesses, we are doing our best to find a way through this difficult time. Perhaps it’s a good time to consider ways to improve our industry for a more resilient and productive post-coronavirus life.
First of all, it is no secret a significant consequence of the pandemic has been a collapse in oil and gas prices to levels not seen since the 1980s. The oil posting in Kansas is currently around $15 (vs $50-60) and the April natural gas index is $1.07 (vs $2-$4). At present, operators in Kansas are reluctantly shutting down hundreds, if not thousands, of wells and laying off or furloughing our experienced employees. The oil service industry and others in the supply chain are suffering, as well. Further complicating the situation is the mechanical concern wells may not recover oil production once shut down.
Before the current crisis, Kansas was home to approximately 41,000 wells whose cumulative value contributes to 118,000 jobs, $3 billion in family income, and $1.4 billion in state and local tax revenue annually. As we all know, oil industry ingenuity has thankfully brought our country to the holy grail of energy independence. Perhaps we take for granted the 6,000 products produced from petroleum which, like soap and plastic, contribute to comforts we all enjoy.
We will find a way to get by for now until we hopefully return to more reasonable oil and gas prices. However, to succeed in the future, we must confront and alter the pre-virus dilemma of an industry with rising costs, flat commodity pricing, and normal declining production. These are some of the many challenges we must overcome to do so:
1. We need more manpower. We cannot automate and need people willing to work in the oil patch.
2. We need to find a solution to the burden of high electric rates. Kansas rates are the highest in our region and Kansas consumers spend more than $1 billion per year more on electricity than just 10 years ago. With electric costs that are 30-50% of expenses, oil wells in rural Kansas could run for many years longer with more competitive electricity prices. Who will be left to absorb the high fixed costs that burden rates? Oklahoma rates can be more than 50% less than in Kansas.
3. The state has adequate renewable energy generation, and careful study is required before allowing more subsidies. Methane and carbon dioxide emissions are significantly down in the U.S. even as oil and gas production has dramatically increased. We must resist unduly penalizing and regulating the fossil fuel industry for political expedience.
4. Health, property and liability insurance costs continue to skyrocket, deductibles increase and exclusions expand. These costs need to be reduced as they affect all businesses in Kansas.
5. All industries have seen their property tax bills ratchet up, and we must find solutions.
Oil producers appreciate the Kansas tradition of hard work, resilience and ingenuity.
We have been a part of the Kansas story for more than a century and pledge to do our part to keep the Kansas economy thriving and growing for the next 100 years. We wish everyone a speedy and positive end to the current crisis.
Edward Cross is the president of the Kansas Independent Oil and Gas Association.