Oklahoma Energy Index Declines for First Time in Four Years

The Oklahoma Energy Index declined for the first time in four years in October, according to Karr Ingham, owner and president of Ingham Economic Reporting.
The decline was slight, just a tenth of a point from 215.3 in September to 215.2 in October 2006 and marks the first month-to-month decline since September 2002, Ingham said.
Due to the cyclical nature of the industry, once the index hit a hard peak like in October, there would be a nosedive in the other direction, Ingham said.
Not this time, he said.
“I believe this will be different,” he said. Although crude oil prices have fallen from their summer highs of around $70 per barrel, they only fell back to the $50 to $60 range.
Natural gas prices have remained in the $5 to $7 range.
While producers are happy to see high prices, “no one wants to see prices going to $80 (per barrel) of higher.”
The OIE is 12.5 percent higher than the October 2005 OEI of 191.3.
“That is down from a year-over-year growth rate of over 15 percent earlier this year, and well over 20 percent in 2003,” Ingham said. “As the index flattens out, growth rates will continue to decline, but again, hopefully the index, which represents the condition of the state’s oil & gas E&P industry, will not enter into a period of deep decline, but rather will simply level off while continuing to reflect high levels of activity.”
Index values for September and previous months were revised slightly downward based on updated price and production figures from the Oklahoma Corporation Commission.
The OEI is a comprehensive measure of the health of the E&P sector and has more than doubled since its creation in 1995, Ingham said.
The OEI, based at 100.0 in January 1995, topped 200 in February 2005.
It is a joint presentation of the Oklahoma Independent Petroleum Association and Oklahoma Energy Secretary David Fleischaker.
The last time the index was at its base level was 2000, Ingham said.
The index recovered following the watershed crash of 1998-99. Following another less severe contraction in 2001 and ’02, prices and activity began to rise and have not looked back, Ingham said.
After expanding for 48 consecutive months, the industry in Oklahoma is only pausing to catch its breath, Ingham said.
The various indicators used to calculate the OEI suggest that this may be the case.
Oil and natural gas prices have peaked, but have certainly not entered into any period of drastic decline and in fact, remain favorable from a production standpoint (the October gas price of under $4 appears to be an anomaly, the result of warm weather in the Northeast).
The state’s rig count topped out at 184 and appears to be settling into the 170-190 range.
“Encouragingly, the number of drilling permits issued continues to climb – the 566 ‘intents’ registered in October is the highest October total in the history of the OEI, and in fact is the third highest total for any month,” Ingham said.
Wellhead prices for oil and natural gas will dictate the course of the Oklahoma E&P industry in the coming months – industry activity is virtually entirely the result of the substantive price trends over time.
Most importantly, though, global supply and demand conditions are the primary driver behind long-term price patterns.
The significance is whether the root causes of the upward pressure on prices remain in place, Ingham said.
“So far, the market tells us they are, with crude oil prices remaining consistently in the $50-60 range, and natural gas prices generally remaining in the $6-plus range,” he said. “If that continues to be the case, the Oklahoma oil and gas industry should be able to maintain a high level of exploration and production activity, and the state should continue to enjoy all the benefits that come with it.” ?

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