Despite softening natural gas prices, the Oklahoma Energy Index (OEI) has been on the rise after leveling off and taking a bit of a breather in recent months. May saw a new record for the index, which was launched in 1995, and expectations are that its upward trend will continue based on strong regional energy patch fundamentals.
"The present rate of growth is much more moderate than it was during the four-year expansion that came to an end last fall," said economist Karr Ingham, who compiles the index, "but it does signify continued strength in some important statewide energy exploration and production indicators."
The OEI increased by a full point each of the last three months, and now stands at 222.2 based on data compiled in May. That's up from 221.2 in April and up 6.7% from one year ago.
The index has generally trended upward from 100 in 1995 with two noteworthy exceptions. The index hit a low of 83.6 in July 1999 and a valley of 114.5 in September 2002 after coming off a historic high of 144.2 in August 2001. With the exception of the first part of this year, the index has trended upward consistently since September 2002.
The energy index is a comprehensive measure of the state's oil and gas production economy established to track industry growth rates and cycles in one of the country's most active and vibrant energy producing states. The OEI is a joint project of the Oklahoma Independent Petroleum Association (OIPA) and the office of state Secretary of Energy David Fleischaker.
OIPA President Mike Terry told NGI that the association expects the upward trend in the energy index to continue, despite softening natural gas prices. Oil prices and rig counts remain strong, he said, as do "intents to drill" and producer share prices, despite the recent market wide correction in stock prices. Additionally, industry employment figures in the region are robust and are expected to remain so, Terry said.
The statewide rig count climbed to a monthly average of 186 in May, the highest monthly rig count in 2007 after dipping below 180 for most of the early part of the year. The rig count topped out at 195 in August of 2006 before falling to as low as 175 in January. Registered intents to drill continue to lag behind last year's total, but 2007 remains the second most active year for drilling permits in the history of the OEI behind 2006.
Ingham said the price outlook has also improved for crude oil and natural gas, with crude oil prices paid to Oklahoma producers averaging more than $60 after being below that level in January, February and March. Natural gas prices were well above $7, a 21% improvement over the May 2006 average price. In fact, the May 2007 gas price is the highest average monthly price paid to producers since January 2006.
In May the monthly average gas price was $7.25/MMBtu, up from $5.97/MMBtu in the year-ago period and up substantially from the $1.38/MMBtu average for May 1995, the index's base year. However, year-to-date gas prices have averaged $6.62/MMBtu, down 5 cents from the year-ago period. Monthly gas production climbed to 110.72 MMcf in May, up from 103.89 MMcf in the year-ago period. Year-to-date gas production was off, having reached 672.28 MMcf in May, down from 674.02 MMcf in the year-ago period. While the value of May's gas production was nearly $802.75 million, up substantially from nearly $620.22 million in the year-ago period, the year-to-date value is off at $4.44 billion, down from nearly $4.57 billion in the year-ago period.
"Oil and natural gas prices remain the primary determining factor with regard to exploration and production activity," said OIPA Chairman John Pilkington, an independent producer from Tulsa. "Prices increase as demand increases. Demand nationwide for crude oil and natural gas continue to increase, driving prices upward. Higher energy prices benefit the state in the form of increased tax receipts and a growing work force."
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