Current commodity prices are below forecasters' expectations for 2015, and the severity of reduced oil and gas revenues will vary considerably by state among oil and natural gas producing regions, said Fitch Ratings analysts Marcy Block and Laura Porter.
The severity will be determined by the degree of deviation from forecasted natural resource revenues to states' operating budgets and also by oil and gas contributions to state employment.
Producers have slashed drilling activities in the Bakken formation yet North Dakota has maintained one of the nation's lowest unemployment rates.
Continental Resources Inc. operated 23 rigs, including 8 in the Bakken and 15 in Oklahoma but executives noted that Continental had no completion crews active in the Bakken in early November.
"If low commodity prices persist in 2016, we have additional Bakken rigs coming off contract, so we can further reduce capital expenditures," said Harold Hamm, Continental chairman and chief executive officer.
Hess Corp. has said it plans to operate 4 rigs in the Bakken in 2016 compared with an average of 8.5 this year.
Fitch Ratings expects that industry's production cuts and continued soft prices for oil and gas will extend weak revenue prospects for producing states well into 2016, lowering sales and personal income taxes.
"While these vulnerabilities to commodity markets exist, Fitch notes that the states as a whole generally have extensive financial flexibility to adjust to changing conditions and an extensive record of doing so," Block and Porter said in a Fitch special report entitled "Sustained Low Natural Resource Prices Will Slash State Revenue Forecasts."
States that receive significant revenues from commodities often maintain sizable reserves to offset transitory changes in resource-derived operating revenue, Fitch analysts said.
"However, if an extended slump in commodity markets continues into fiscal 2017 and a long-term impact to state revenues becomes evident, Fitch would expect the impacted energy states to identify fiscally prudent strategies to address a persistent low-revenue scenario," the special report said.
Rig count dropping
The US drilling rig count dropped for the 10th time in 11 weeks during the week ended Nov. 6, losing 4 units to 771, again its lowest point since Apr. 26, 2002, said statistics from Baker Hughes Inc. (OGJ Online, Oct. 30, 2015).
The Energy Information Administration expects crude oil production in December from seven major US shale plays will drop 118,000 b/d to 4.95 million b/d.
EIA's Drilling Productivity Report (DPR) projected a 93,000-b/d decline for November.
The DPR focuses on the Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian, and Utica, which altogether accounted for 95% of US oil production increases and all US natural gas production increases during 2011-13.
The Bakken was projected to drop 27,000 b/d to 1.11 million b/d for November while the Niobrara was projected to fall 22,000 b/d to 356,000 b/d.
The Eagle Ford accounted for most of the projected oil output losses since EIA began anticipating monthly declines from US shale. For December, EIA expects Eagle Ford production will fall 78,000 b/d to 1.28 million b/d. Continued growth was seen in the Permian, which was projected to rise 11,000 b/d to 2.02 million b/d during November.
Since Aug. 21, Baker Hughes said the rig count has fallen 114 units after a short-lived summer rebound. Compared with early November a year ago, the count has lost 1,154 units.
Oil-directed rigs declined for a 10th consecutive week as of Nov. 6, losing 6 units to 572, down 996 year-over-year and hitting their lowest level since June 11, 2010.
BHI also reported on Nov. 6 that the average overall US rig count for October was 791, down 57 from September and down 1,134 from October 2014.
In their 11th straight week of decline, land-based rigs dropped 4 units to 734 as of Nov. 6, down 1,125 year-over-year. Rigs engaged in horizontal drilling increased for the second time in 3 weeks, jumping 8 units to 585, down 777 year-over-year. Directional drilling rigs lost 5 units to 81.
New Mexico led the major oil- and gas-producing states in losses with a 5-unit drop to 37, down 59 year-over-year and its lowest point since June 19, 2009. One land-based unit in California also went offline, bringing the state's overall rig count to 12.
Wyoming lost 2 units to 24. Oklahoma and Louisiana each edged down a unit to 83 and 70, respectively. The Cana Woodford dropped 4 units to 32 while the Arkoma Woodford increased 2 units to 10.
Texas, North Dakota, and Kansas each edged up a single unit to respective totals of 340, 63, and 10 for the week ended Nov. 6. It marked Texas's first gain in 10 weeks and North Dakota's first gain in 11 weeks.
A 3-unit rise in the Permian to 232 offset a 3-unit loss in the Eagle Ford to 72, while the Williston gained 1 rig to 64.