With its coal sector crumbling, Wyoming is leaning heavily on its oil industry to make up the difference. But experts are signaling that the boom times are truly over for Wyoming's fossil fuel-dependent economy, and some politicians are taking note.
Though largely off the national radar, the nation's least populous state is ground zero for a rapidly evolving energy transition its politically conservative leaders don't really want, driven by markets out of their control.
This is an era of climate change protests, a warming Arctic, zero-carbon policy goals in California and Greta Thunberg on Capitol Hill. But Wyoming? It proudly depends on fossil fuels. At least, it has done. Now those markets are wobbling.
Gov. Mark Gordon (R) released a budget for the state yesterday that read less like a dry budgetary outline than a warning of a "storm on our horizon."
"Over the past few years we have witnessed an upheaval in the way energy is being generated, used, and developed," the governor wrote. "These changes seem to be accelerating and are not generally favorable to some of our most cherished industries."
The state draws as much as 60% of its budget from energy revenues. While oil income appears stable for now, its future is uncertain, and the state's coal industry continues to decline.
Workers at two of the state's largest coal mines recently returned to work following four months of furlough since the mines' owner, Appalachian firm Blackjewel LLC, filed for bankruptcy protection this summer. The idled mines were the on-the-ground results of crippling change to the national coal sector, as cheap natural gas and renewables have carved away the industry's market share (Climatewire, Nov. 5).
"Right now, oil is No. 1. It's the most important thing in terms of state budgets," said Mark Watson, supervisor of the Wyoming Oil and Gas Conservation Commission, the state regulatory agency overseeing exploration and production.
But even with oil, Wyoming is racking up a cumulative deficit that could eclipse $1 billion by 2024, according to recent modeling by the University of Wyoming on behalf of the governor's office.
Some revenue-minded lawmakers, a centrist governor and state economists are leery of letting Wyoming lean too much on oil in the long run.
"Even if we get out of this current downturn with oil bailing us out, the economy becomes more and more dependent on oil, which is the most volatile of all of the commodities and the one that we are least confident with forecasting into the future," said Robert Godby, director of the University of Wyoming Center for Energy Economics and Public Policy.
If anyone on the political map sees the gravity of Wyoming's concerns, it could be the new governor. He was the state's treasurer before winning the governorship last year and managed Wyoming's $20 billion portfolio of assets.
"Gordon gets it," said state Rep. Dan Zwonitzer, a Republican lawmaker from the state capital, Cheyenne, and co-chair of the state Legislature's Joint Revenue Committee. "I don't know how it translates into action."
State political insiders say Gordon has to find a way to make a transition away from fossil fuels without being seen as a "RINO" — a Republican in name only — or a left-leaning centrist.
Wyoming politics have lurched to greater extremes in recent years, mirroring national trends. The state was never one to invite taxes on people or businesses other than fossil fuel firms, with a number of its lawmakers signing pledges to that effect.
Gordon, who was not available for an interview by press time, walks a narrow ledge as a moderate. The rancher won the Republican primary in Wyoming last year by carrying a plurality of the votes. Most of the conservative electorate was split among other right-wing candidates who claimed similarities to President Trump and pledged to fight for Wyoming's fossil fuel identity.
The most consistent political barb thrown against Gordon during the 2018 election was that he'd once given money to the Sierra Club.
Gordon's budget, an outline that will be snipped and rearranged by legislators in the coming months, promises a "belt tightening" approach that conservative-minded voters and politicians in the state tend to favor over raising taxes.
His warnings yesterday suggested opposition to that approach alone for Wyoming. More so, he appeared to be trying to get ahead of an opposing argument: to hunker down until commodity environments improve.
"Cynics may suggest that Wyoming is accustomed to boom and bust cycles and we need only wait for the markets to turn around," he wrote. "This time though, we may well be experiencing a more fundamental change."
Still, the only mention of taxes in the budget statement refers to how fossil fuels have, until now, kept taxes low.
When asked about new taxes in a Capitol Hill interview, the governor's chief energy adviser, Randall Luthi, was noncommittal.
Zwonitzer said some lawmakers are in a panic over the seriousness of the budget shortfall. But legislators may be trying to kick the can down the road rather than raise the politically fraught idea of new taxes, Zwonitzer said.
Counting on crude
Wyoming isn't a stranger to empty coffers or fossil fuel downturns. Three years ago, more than 400 coal miners lost their jobs in one day following the bankruptcies of Arch Coal Inc. and Peabody Energy Corp. (E&E News PM, March 31, 2016).
It was called the worst day for coal in Wyoming memory. The governor held a somber press conference promising state help with health claims and unemployment insurance, saying it was poor consolation to those who had lost their jobs.
The state stuck to the idea that coal would rebound, if not to its previous heights, then at least out of the bust levels of 2016. But the industry has continued to decline precipitously. Production in the state last year was 25% lower than average. Miners produced the least amount of coal in 20 years during the third quarter of this year, and total production for 2019 could be half of 2007's high of about 400 million tons, according to the most recent federal count.
The three largest taxpayers in Wyoming are coal companies, said Luthi, the governor's energy adviser, a former Interior bureaucrat-turned-lobbyist for the offshore oil and gas sector.
Luthi took a fairly optimistic look at the long-term prospects for the state's budget, however, because of oil's chance to improve.
Things may be tough for a few years, but there are some positives if oil prices rise down the line, he said in an interview on Capitol Hill recently.
The state's revenue forecast includes similar assumptions about the oil outlook.
2019 may be the highest production year for Wyoming crude since the early '90s, said Watson, the state's chief oil and gas regulator.
Powder River Basin factor
Wyoming's Powder River Basin — the center of its oil resurgence — is at odds with the narrative nationally, where the shale revolution's never-ending growth is predicted to slow.
Chesapeake Energy Corp. — a shale pioneer carrying heavy debts — shook the sector when in an early November filing to the Securities and Exchange Commission it stated that survival would be unlikely without improved prices.
But though Chesapeake is one of Wyoming's largest operators, Watson said he doesn't believe its woes are a harbinger of deeper troubles in the state's oil sector.
Sameer Panjwani, director of E&P research at Tudor, Pickering, Holt & Co., echoed that confidence in an interview with E&E News.
Some of its largest operators, like Devon Energy Corp., Occidental Petroleum Corp. and EOG Resources Inc. — often nicknamed the Apple of the oil business — have already figured out how to return cash to shareholders in lower prices, he said.
Watson said oil production and activity in Wyoming look to be fairly stable, though growth may slow down.
It's an outlook shared by the state's Consensus Revenue Estimating Group, which produces a biennial revenue forecast to set the state budget.
The group, which counts Watson among its members, reported in October that oil production gains and potential future gains from horizontal drilling were "difficult to overstate" for Wyoming. But the forecast wasn't all rosy, as it included a nearly $200 million drop in expected income for the next two years.
Wyoming producers are "price takers," according to the report, meaning they're dependent on prices staying high enough to encourage new drilling that can replace rapidly depleting wells of today.
And volatility in the price of oil is extreme: The national benchmark, West Texas Intermediate, swung $20 between its highs and lows this year, settling most recently at around $57 per barrel.
One more boom?
While Wyoming is familiar with the ups and downs of the oil market, relying on crude production as an economic cornerstone carries other risks.
Neither state revenue forecasts nor academic models have taken into account carbon regulations that are sure to increase, said Godby, the University of Wyoming economist.
"Oil is potentially in the crosshairs," he said.
Multiple Democratic presidential hopefuls have made promises to assault the oil sector's hold on the U.S. economy, end hydraulic fracturing, or cease to lease for oil and gas production on public lands.
It's "lunacy" to Ron Auflick, a longtime oil and gas operator and co-owner of Wold Oil Properties Inc. in central Wyoming.
"You'd see Wyoming and a couple of other states split from the Union," he joked, when asked what would happen if a Democratic president stopped or limited drilling on federal land.
The presidential race presents a real uncertainty for the future of Wyoming's Powder River Basin, where "a good chunk" of the best acreage is federal, said Panjwani of Tudor, Pickering, Holt & Co.
Companies have begun to address this unfavorable outlook.
EOG Resources, one of the leading operators in Wyoming, disclosed in its third-quarter earnings report that 95% of its prime acreage in the Powder River Basin is federal. The company signaled that it is "flexible" with acreage in other nonfederal areas of the country.
Several other companies have promised investors that they could easily pivot away from federal lands in states like New Mexico, should a presidential shutdown prove effective.
Auflick expressed confidence that despite price and political concerns, the need for oil is just too strong to eliminate the business anytime soon.
"The American standard of living is based on what we do for a living," Auflick said.
Others are less certain for Wyoming's future oil prospects.
Watson, the oil and gas regulator and a former oil engineer, said a long-term question for Wyoming is, "Where does the world want to go as far as hydrocarbons?"
Zwonitzer, the revenue-minded lawmaker, said he fears a market change that disrupts oil to the degree it disrupted coal.
"We might have one more boom that gets us through," he said. "After that, oil is going, too."
Wyoming is not broke. It has a rainy day fund of some $1.5 billion from boom-time dollars. The state's investments are its fourth-largest source of income after the big three fossil fuels: oil, gas and coal.
But a political fight is brewing over how much of those savings to actually spend, instead of finding other sources of revenue.
Godby said that Wyoming is starting to take its economic vulnerability seriously and have a discussion about what to do next, not just in terms of taxes, but in terms of what kinds of services the state needs to pay for.
The state will once again look at Medicaid expansion, something that has been ensnared in partisan battles in years past, leaving $577 million of federal money for health services on the table since 2012, according to reporting by the Casper Star-Tribune.
Some are estimating that Wyoming's budgetary needs due to energy declines may weigh on lawmakers this time around.
"I think especially within the context of the precipitous decline of the coal industry, I think it's become apparent that Wyoming is in transition, and I think it's causing everybody to look at things through a slightly different lens," Chris Merrill of the Equality State Policy Center told the Star Tribune.
The state is moving forward with a corporate tax bill — one largely aimed at out-of-state companies. A number of other tax ideas have fallen by the wayside.
Wyoming has considered all the "low-hanging fruit," Zwonitzer said.
"I don't think the average person out on the street realizes this is a crisis," he said. "My fear is that it will all come crashing down at once."
Correction: A previous version of this story misstated the amount of savings in Wyoming’s rainy day account. It is $1.5 billion.