Earlier this week, crude oil prices reached historic lows, even dropping into negative territory last Monday. 

Nicole Koelsch, a CPA for Adams, Brown, Beran and Ball who specializes in oil and gas industry accounting, said the short- and long-term impacts could devastate a local economy heavily dependent on the oil and gas industry for both employment and taxes.

Koelsh says the drop is a case of oil supply far outweighing demand, and is actually attributable to a number of factors.

First, said Bradley Lane, associate professor of public affairs & administration at the University of Kansas, the stay-at-home orders have meant less automobile miles traveled for work and leisure, as well as significantly less airline miles traveled, which has driven the demand for gasoline down, and had at least some impact on the significant drop in prices at the gas pump. 

“Historically, we see an elastic, but significant, relationship between fuel price costs and the amount of travel that we have,” Lane said. He estimated gas prices are at their lowest levels in 12-14 years in real terms, and adjusted for inflation are at some of their lowest levels ever.

While the decline in travel due to stay-at-home orders issued in response to COVID-19 has played a significant role in the drop in oil prices, Koelsch said the oil price crisis actually began before the height of the virus’ spread. Around the beginning of March, she said, Russia and Saudi Arabia flooded the oil market with excess supply. 

The result, Koelsch said, is, “Our storage facilities are reaching their capacities a lot sooner than anyone had really anticipated.”

With nowhere to left to store the oil that is being produced, she said, and very little leaving those facilities, one result with a direct impact on the Golden Belt’s economy is many oil drilling and exploration companies have had to effectively shut down operations. 

“Their drilling rigs are just sitting in the yard, there’s not any work for them to be found,” Koelsch said. “Economically, at these prices, it doesn’t make sense to operate these wells.”

Koelsch said this is because operating costs, even for larger companies, is higher than what they are able to bring in with storage facilities already at capacity with prices so low.

And with a significant oil and gas presence in the area, and the amount of people that depend on a healthy industry for a paycheck, the impact on the local economy is “huge.”

“A lot of families rely on a paycheck from somewhere in the oil patch,” she said.

“This price collapse means services to the properties could be suspended and therefore affects the pumpers, chemical companies, water haulers, repairs (service companies), etc. Also, companies that are active in seeking new exploration have put this type of activity on hold. That means this affects drilling companies, roustabout companies, electricians, dirt contractors, engineers, cementing companies, supply companies, etc.,” she said. 

With many companies having to curtail services, there is a potential for significant workforce reduction in the oil and gas industry, though.

According to Kansas Oil & Gas Resources Fund (Kansas Strong) Executive Director Warren Martin, 118,000 jobs statewide are directly tied to the oil and gas industry, producing over $3 billion in family take home pay, so any cut to the industry’s workforce as a result of the downturn would mean a significant hit to the area’s economy as well as the state’s economy.

Koelsch said some companies may qualify for the Payroll Protection Program through the Small Business Administration. She said this could help some companies for a couple of months if the downturn is short-lived. According to the SBA, the PPP is, “a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.”

But the impact to the local economy, she said, would go well beyond the loss of jobs. 

According to Martin, of the 89 counties in Kansas that produce oil, Barton County is the fourth leading county in oil production, and of the top ten - two, Russell and Stafford counties, share borders wtih Barton County. 

“With shutting in wells and/or slowing production, it will lead to low valuations from the oil and gas industry thus impacting our local governments such as counties and schools,” Koelsch said. 

Each individual the Tribune spoke with for this story indicated, though, just how much impact the area’s economy will feel, and just how many jobs might be lost, is hard to gage at the stage, because there are so many unknowns, particularly in regards to how long it will take the market to recover, just how business in the industry respond, when the economy will begin to open back up, and what shape daily life will look like as the COVID-19 crisis subsides.

“No one can project how long this will go on,” Koelsch said. 

Lane said travel and commerce restrictions will most likely be slowly phased in.

“Anything resembling a full economic recovery could be probably 12 to 18 months away,” he said. “It might be a little ‘three steps forward, a couple steps back’.”

As of Friday morning, according to oilmonster.com, crude oil prices in Kansas ranged from -$0.80 to $12.00 a barrel, with the Kansas Common price being listed at $4.46.