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Energy index decline rare: Industry has a big impact on the Oklahoma economy

Dec. 24, 2008 (McClatchy-Tribune Regional News delivered by Newstex) -- The Oklahoma Energy Index dropped in October for only the second time since 2002, and many area oil and gas producers fear the industry's "unprecedented" six-year expansion has played itself out.
The composite measure of price, production, exploration and employment came up short from its September level. The monthly index's fall was its first since January 2007.
"It's a good reflection of the industry as a whole," Dewey Bartlett Jr., president of Tulsa-based Keener Oil and Gas Co, said Tuesday. "The prices have dropped like a rock in such a short time."
Everything from oil and gas prices to rig counts and volume fell from September to October, according to the OEI. Projections tied to the worldwide economic crunch and falling energy demand could keep the index on a downward trend, officials say.
"The decline in the energy index most likely signals the end of what has been a six-year growth cycle in Oklahoma's oil and natural gas industry," said economist Karr Ingham, who compiles the report.
In fact, crude oil prices are approaching lows not seen since late 2002. The furious rise up to $147 per barrel in July was followed by an equally fast-paced collapse to below $40.
And that drop affects rig counts and future drilling intentions, Bartlett noted. Oil and gas producers have little choice but to slow down when their costs reflect headier times but their benefits do not pay the difference.
"It's definitely in their best interests," he said. "At today's prices,
the projects are certainly not affordable. "
The Baker Hughes Inc. (NYSE:BHI) rig count dropped to 168 last week, a double-digit decrease from one year ago.
Oklahoma Independent Petroleum Association Chairman John Pilkington warned that the price and production collapse is bad for the state's business. Oklahoma's energy sector accounts for about 15 percent of the total state economy, more than double its impact from six years ago.
"As Oklahomans, we should all hope that the decline in the oil and gas prices is not long term," said Pilkington, who is also a Tulsa independent producer. The OIPA sponsors the Oklahoma Energy Index.
Some forecasters see even darker times for the worldwide energy industry next year. The U. S. Department of Energy predicts that global demand will drop by 450,000 barrels per day in 2009, while Deutsche Bank (NYSE:DB) and Goldman Sachs (NYSE:GS) anticipate 1 million to 1. 7 million falloffs.
Bartlett does not share that pessimism. Energy consumption might be helped along by lower prices, but most of it depends on the overall economic health of nations.
"What we're seeing now will probably last 12-18 months," he said, adding that demand might even grow if things turn around.
The biggest factor in the Oklahoma Energy Index's rare fall is that oil and natural gas prices rose way too high way too fast, Bartlett conceded. The state's oil and gas production and pricing glories since 2002 were unparalleled and maybe unsustainable.
And so is the collapse.
"In a short word, that was nuts," he said. "In a short word this is nuts, too."
Rod Walton 581-8457 rod. walton@tulsaworld. com