LUSK – When you live in a state like Wyoming, one that ranked eighth in crude oil production in 2018 accounting for nearly 3% of US total crude oil output, everyone knows someone who works in or around the oil field.
Niobrara county is no different. The mining industry – which includes oil and natural gas production – is directly responsible for an estimated 25,000 jobs in Wyoming. Construction and service industries related to mining account for tens of thousands of additional jobs in the Cowboy State.
Niobrara County currently supports more than a dozen different oil field service companies and has several production fields including those in northern and eastern areas of the county.
As the world watched COVID-19 numbers grow, the United States – in particular Wyoming – watched oil prices drop to negative futures at the end of April. Oil companies began laying off record numbers of workers as rigs were turned off, development bids were withdrawn and pipeline and construction plans were halted.
Many of those directly employed by oil companies were sent home, not knowing if or when they will have the opportunity to work in their chosen industry again, including many Niobrara County residents who were traveling for work.
When contacted, JP Oil, based out of Louisiana and a long-time employer in Niobrara County, refused to comment on any production changes or speculated lay-offs. Other local oil-field based employers also declined to comment for this article.
However, several contractors in oil field support services like pumper trucks, construction and others, watched their invoices go unpaid as companies tried to stretch their cash flow by pushing the limits on their invoices to the six month maximum.
These are all familiar scenarios for anyone that has been aware of the oil and gas industries for very long. The ebb and flow of oil prices is what has contributed to the state’s reputation as a “boom and bust” economy. According to U.S. Energy Administration, Wyoming produces 15 times more energy than it consumes, and is the biggest net energy supplier among the states.
The state’s large energy producing sector and small population makes the state second in per capita energy consumption and also gives it the second most energy-intensive state economy, both after Louisiana. What many do not understand, is how this ebb and flow impacts more than just the money spent at the grocery store or Walmart. It has potentially negative ramifications for most counties and the state on many levels beyond workers who can’t pay the mortgage.
In Niobrara County, 41% of the assessed valuation is paid by energy production companies, specifically oil companies for the production of oil on property in the county via the ad valorem tax. This tax is money that is redistributed to the 16 different mill levy and general fund entities located within Niobrara County. That 41% also impacts the overall assessed valuation for the rest of the county.
This number is based on total production tracked and reported to the county and is based on a system set up by state legislation. By May 10, oil companies were due to pay for their oil production reported in 2018. As oil prices and futures dropped, many oil companies began slowing production, significantly impacting their cash statements. And cash flow from 2019 and 2020 impacts how they will pay for their 2018 ad valorem assessments.
Niobrara County Treasurer Keri Thompson said she has not yet received any notifications from companies they are unable to pay their tax debt owed. But in places like Campbell County, where mines already owe thousands in back-taxes to the state and county, the addition of oil companies unable to pay their taxes could have dire consequences for school districts, municipalities, county government, hospitals and more.
The impacts to Niobrara County don’t stop there. Ideally companies will be able to pay their taxes based on 2018 production. But if cash flow remains low as 2020 progresses, the odds of companies being able to pay those taxes next year on their 2019 production continues to decrease.
The state of Wyoming has received notification that some companies are unable to pay their sales tax that is owed. If they can’t pay sales tax owed, it would follow that unpaid ad valorem taxes
These oil production changes with rigs closing down will also impact the county’s ability to budget in the future. Even if prices come back up in the second half of calendar year 2020, it still would take weeks for companies to rehire and ramp production back up. This means that for 2020, the production numbers that will be assessed and then collected in 2022 will be well below those assessed for 2018 and 2019 production.
This drop in assessed valuation for oil also impacts the rest of the county’s assessed valuation resulting in lower tax appraisals across the board. That means a further decrease in all taxes collected by the county for support of government services, schools and the special districts like the senior center, hospital, fair grounds and more.
Severance tax, taxes imposed on companies for the extraction of non-renewable resources intended for consumption in other states, is also going to be down. Thompson says county residents should be prepared to see these numbers reflected in significant changes to the county budget in both the direct funding and in the funding that is allocated to the town and county from the state tax systems, as well as the specific taxes earmarked for road and bridge in a separate allocation.
Volatile markets like the energy sector make budgeting a nightmare for most counties. While Wyoming has been incredibly blessed over the last 40 years to generally come out ahead, the double punch of COVID-19 impacting everything from cattle prices to tourism and then the decrease in oil prices combined with a drop in consumer demand means that Wyoming residents, and Niobrara County should anticipate many changes in budgets and funding for the next three to five years.