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Research Brief January 2021

COVID-19’s Impacts on ’s Oil & Gas Industry By Thomas Holst, M.B.A., Senior Analyst, Kem C. Gardner Policy Institute

At the onset of the COVID-19 pandemic, the oil and gas sector group, failed to reach agreement on crude oil production was caught unprepared for the global shock of diminished targets in March. Saudi Arabia, the de facto leader of OPEC, had energy demand by shelter-in-place and stay-at-home policies. At previously adjusted its own production levels to accommodate the same time, two OPEC+ members battling for market share the hard currency needs of other cartel members. However, oversupplied global energy markets, creating an unanticipated when Russia refused to decrease production, Saudi Arabia hit shock and sending crude oil prices into a tailspin. back with a price discount and increased its own production These combined shocks threatened the viability of oil and gas levels. Markets reacted immediately to the oversupply, driving companies lacking the robust balance sheets needed to remain crude oil prices down to $30 per . COVID-19 shelter-in- solvent until normal market conditions return. place orders dampened demand for and jet . In the The magnitude of the coronavirus shock to energy demand is United States, year-on-year consumption of gasoline and jet forecasted to be the largest in the seven decades since World fuel showed decreases ranging from 48% to 80% as travel by 30% $70 War II. The H1N1 influenza pandemic of 1918 spread worldwide automobileSpanish and u airplaneWorld Wardwindled. II FirstBy contrast, dieselGlobal fuel, $60 oil shock Financial $50 in four waves and infected nearly 500 million people, causing used in trucks and trains that transport consumer Crisisproducts, 20% $40 Great Second 50 million fatalities. By contrast, the 2009 H1N1 influenza dropped only 25%, showing resilience in supporting increased $30 Depression oil shock pandemic was muted by a vaccine developed seven months e-commerce during COVID-19. Diesel fuel is the largest $20 10% after the outbreak. component of distillate shown in Figure 2. $10 $0

A crude oil supply shock and an energy demand shock, COVID-19 supply and demand shocks affected the price of Price per Barrel 0% -$10 caused by COVID-19, occurred in March 2020. On the supply West Intermediate (WTI), the marker crude oil for the -$20 side, members of the Organization of the Exporting western hemisphere. A marker crude is a fungible, highly traded -$30 Countries (OPEC), along with their partners in the larger OPEC+ -crude10% oil used as a for setting prices of other -$40 Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20% May-20 Figure 1: Annual Change in Global Energy Demand, Figure1900 2:1910 Year-Over1920 1930 Change1940 1950 in1960 United1970 States1980 1990 2000 2010 2020 Projected range of WTI prices needed to cover 1900–2020 Petroleum Consumption, 2020 vs. 2019 operating expenses

30% 20.0%$70 Spanish u World War II First Global 10.0%$60 oil shock Financial 0.0%$50 Crisis Wasatch 10.2% 20% -10.0%$40 Great Second -20.0% $30 San Juan 9.5% Depression oil shock -30.0% $20 -40.0% 10% Grand 9.4% -50.0%$10 -60.0%$0 Price per Barrel Uintah 9.4% 0% -70.0%-$10 -80.0% -$20 Tooele 9.2% -90.0%-$30 -10% -$40 Duchesne 8.5%

Gar eld 8.5% Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 May-20

-20% Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Projected range ofMay 08, 2020 WTIMay 22, 2020 prices needed to cover Uinta BasinGasoline operating expensesDistillate Jet Fuel Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Source: International Energy Agency, Global Energy Review 2020 Source: U.S. Energy Information Administration, U.S. Weekly Product Supplied 0.0% 20.0% $80 10.0% $70 -5.0% 0.0% $60 Wasatch 10.2% -10.0% $50 -20.0% Kem C. Gardner Policy Institute 411 East South Temple Street, Salt Lake$40 City, Utah 84111 801-585-5618 gardner.utah.edu -10.0% I San Juan I I 9.5% -30.0% $30 -40.0% $20 Grand 9.4% -50.0% $10 -15.0% -60.0% $0 Uintah 9.4% -70.0% -$10 -20.0% -$20

-80.0% Daily Spot Price per Barrel Tooele 9.2% -90.0% -$30 -$40 -25.0% Duchesne 8.5% Uintah Duchesne Uinta Basin

Gar eld 8.5% Jul-20 Jan-20 Oct-20 Oct-19 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Dec-19 Nov-20 Nov-19 Aug-20 May-20 Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 May 08, 2020 May 22, 2020 Brent WTI Gasoline Distillate Jet Fuel 7,000 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 0.0% $30 $80 6,000 $70 -5.0%$20 $60 5,000 $50 $10 4,000 $40 -10.0% $0 $30 3,000 $20 Well Count -15.0%-$10 $10 2,000 $0 -$20

-$10 Nominal Price per Barrel -20.0% 1,000 -$20 -$30 Daily Spot Price per Barrel -$30 -$40 -$37.63 0 -$40 -25.0% Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 4/1 4/3 4/5 4/7 4/9

Uintah 4/11 Duchesne4/13 4/15 4/17 Uinta4/19 Basin4/21 4/23 4/25 4/27 4/29 Active Oil-Producing Wells Shut-in Oil Wells Active Gas-Producing Wells Shut-in Gas Wells

Jul-20 WTI Paper Contract WTI Physical

Jan-20 Oct-20 Oct-19 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Dec-19 Nov-20 Nov-19 Aug-20 May-20 Brent WTI

$607,000 40 $30 $55 $506,000 35 $20 $45 5,000 30 $40 $10 $36 25 $354,000 $30 $32 20 $0 $28 $253,000 $26 $26 Well Count $23 15 -$10 Price per Barrel $20 $152,000 10 -$20 $10 Nominal Price per Barrel 5 1,000 Yearly Average of Rotary Rigs -$30 $5 $0 0 -$40 -$37.63 0Eagle Ford Delaware Midland Bakken Other Non-shale Jan.(TX) Feb. (TX)Mar. Apr.(TX)May Jun.(ND) Jul.PermianAug. Sep.(USA)Oct. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4/1 4/3 4/5 4/7 4/9 4/11 4/13 4/15 4/17 4/19 4/21 4/23 4/25 4/27 4/29 Active Oil-Producing Wells Shut-in Oil(TX) Wells WTI Paper Contract WTI Physical Active Gas-Producing Wells Shut-in Gas Wells

$60 40 $55 $50 35 $45 30 $40 25 $35 $36 $30 $32 20 $28 $25 $26 $26 $23 15

Price per Barrel $20 $15 10 $10 5 $5 Yearly Average of Rotary Rigs $0 0 Eagle Ford Delaware Midland Bakken Other Non-shale (TX) (TX) (TX) (ND) Permian (USA) (TX) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 30% $70 Spanish u World War II First Global $60 oil shock Financial $50 Crisis 20% $40 Great Second $30 Depression oil shock $20 10% $10 $0 Price per Barrel 0% -$10 -$20 -$30 -10% -$40 Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20% May-20 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Projected range of WTI prices needed to cover Uinta Basin operating expenses 30% $70 Spanish u World War II First Global $60 20.0% oil shock Financial $50 10.0% Crisis 0.0% 20% $40 Great Second Wasatch 10.2% $30 -10.0% Depression oil shock -20.0% $20 10%San Juan 9.5% -30.0% $10 -40.0% Grand 9.4% $0 -50.0% Price per Barrel -$10 -60.0% 0% Uintah 9.4% -$20 -70.0% -$30 -80.0% -10%Tooele 9.2% -90.0% -$40 Duchesne 8.5% Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20% May-20 Gar eld1900 1910 1920 1930 1940 19508.5%1960 1970 1980 1990 2000 2010 2020 Projected range of WTI prices needed to cover Jul 03, 2020 Jul 17, 2020 Jul 31, 2020

Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Uinta Basin operating expenses Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 May 08, 2020 May 22, 2020 Gasoline Distillate Jet Fuel 20.0% Figure 3: Global Oil Prices Plummet sales outletsJan. inFeb. the mid-continent,Mar. Apr. May UtahJun. crudeJul. oilsAug. areSep. pricedOct. on 10.0%0.0% their0.0% quality differential to WTI. Figure 3 shows the precipitous $80 Wasatch 10.2% $70 -10.0%drop in crude oil prices during March and April. -20.0%-5.0% $60 San Juan 9.5% $50 -30.0% -40.0% $40 Coronavirus’s-10.0% Impact on Utah Oil and Gas Producers Grand 9.4% $30 -50.0% -60.0%The curtailed crude oil demand, coupled with global crude oil $20 Uintah 9.4% -70.0% $10 -15.0% -80.0%oversupply, put stress on the business models of oil and gas pro- $0 Tooele 9.2% -90.0%ducers. However, the wide diversity of their business models af- -$10 -20.0% -$20 fects producers’ ability to respond to and survive the current crisis. Duchesne 8.5% Daily Spot Price per Barrel -$30 At one end of the spectrum are the government-directed -$40 -25.0% Gar eld 8.5% Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020

Uintah Duchesne Uinta Basin Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020

producers such as Saudi Arabia and Russia,Aug 14, 2020 Aug 28, 2020 with large hard- May 08, 2020 May 22, 2020 Gasoline Distillate Jet Fuel

Jul-20 currency reserves to sustain a price war or period when oil Jan-20 Oct-19 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-19 Dec-20 Nov-19 Nov-20 Aug-20 May-20 prices fall below production costs. Russia is believed to have a Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Brent WTI 0.0% $80 1 Note: Brent is the marker crude for the eastern hemisphere. $430 billion war chest compared to Saudi Arabia’s $490 billion. $707,000 Source: Energy Information Administration At$60 the other end of the spectrum, oil and gas producers in the -5.0% $30 United$506,000 States fall into three categories: $20 $40 -10.0% regional crude oils. For example, Utah’s Uinta Basin waxy crude • $305,000Vertically integrated majors such as ExxonMobil and $10 $20 oil value is set at a differential to WTI based on sulfur, API gravity, $104,000Chevron have large portfolios, enabling them to take a -15.0% and $0metals content. While Uinta Basin waxy crudes do not have $0long-term view of allocating resources at different geo- 3,000 Well Count -$10 -20.0% -$10 -$20 Daily Spot Price per Barrel 2,000 -$20 -$30 -$40 -25.0% Nominal Price per Barrel 1,000 Uintah Duchesne Uinta Basin Why-$30 Did Crude Oil Prices Go Negative on April 20? Jul-20

-$37.63 0 Jan-20 Oct-19 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-19 Dec-20 Nov-19 Nov-20 Aug-20 -$40 Jan. Feb. Mar. Apr. MayMay-20 Jun. Jul. Aug. Sep. Oct.

4/1 4/3 4/5 4/7 4/9 Brent WTI The crude oil markets suffered4/11 4/13 4/15 a supply4/17 4/19 shock4/21 4/23 when4/25 4/27 a glut4/29 Figure 4: WestActive Texas Oil-Producing Intermediate Wells PhysicalShut-in and Oil Wells Paper of oil entered theWTI market Paper Contract due to a disputeWTI Physical between Saudi Contract Prices,Active April Gas-Producing 2020 Wells Shut-in Gas Wells 7,000

Arabia and Russia over global market share. Compounding $30 6,000 the supply shock was a demand shock caused by COVID-19 $20 5,000 reducing$60 demand for motor gasoline and jet fuel. Too many 40 $55 $10 35 4,000 $50 of crude oil overwhelmed diminishing demand, $0 $45 3,000 causing WTI prices traded by hedgers and speculators to fall 30 Well Count $40 -$10 25 into$35 negative territory on April 20 (see Figure 4). $36 2,000 $32 -$20

$30 Nominal Price per Barrel 20 Crude oil trades on a physical market$28 in which buyers and 1,000 $25 $26 $26 -$30 sellers exchange$23 barrels of WTI crude oil by pipeline, rail, or ship. 15

Price per Barrel $20 -$40 -$37.63 0 $15A “paper” crude oil market exists on the Chicago and New 10 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 4/1 4/3 4/5 4/7 4/9 York$10 Mercantile Exchanges for the benefit of speculators and 5 4/11 4/13 4/15 4/17 4/19 4/21 4/23 4/25 4/27 4/29 Active Oil-Producing Wells Shut-in Oil Wells $5 Yearly Average of Rotary Rigs WTI Paper Contract WTI Physical Active Gas-Producing Wells Shut-in Gas Wells hedgers$0 (i.e., people seeking to lay off risks of price changes). 0 Eagle Ford Delaware Midland Bakken Other Non-shale Each paper(TX) contract(TX) requires(TX) either (ND)the deliveryPermian or receipt(USA) of Source: U.S. Energy Information Administration; S&P Global Platts 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1,000 barrels of WTI crude oil into Cushing, Oklahoma,(TX) tank $60 40 storage. Speculators and hedgers close out their paper Did$55 the value of physical WTI crude oil go negative? No. The 35 contract positions on the day of the trading month to figure$50 shows the divergence of WTI paper contract prices $45 30 avoid accepting or delivering physical barrels of WTI. from$40 WTI prices on the physical market. Values for physical $36 25 What happened on April 20? A few speculators or hedgers crude$35 oil remained positive while the WTI paper contracts $30 $32 20 $28 $25 $26 $26 who bought paper contracts of WTI did not have storage market tanked.$23 15 space to take delivery of physical crude oil barrels. Cushing, Price per Barrel Under$20 normal conditions, physical market prices converge $15 10 Oklahoma’s storage capacity of 76 million barrels was full due with$10 the paper market prices on the last day of the trading 5 Yearly Average of Rotary Rigs to the crude oil glut. When these unfortunate speculators month.$5 However, in this extreme case, a few speculators and $0 0 and hedgers sold their WTI paper contracts, they paid buyers hedgersEagle learned Ford Delawarea costly lessonMidland aboutBakken closingOther out theirNon-shale paper (TX) (TX) (TX) (ND) Permian (USA) a premium of $37.63 per barrel in order to close out their contract positions well before the final day(TX) of the trading 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 paper contract positions. month.

January 2021 I gardner.utah.edu 2 INFORMED DECISIONSTM 30% $70 Spanish u World War II First Global $60 oil shock Financial $50 Crisis 20% $40 Great Second $30 Depression oil shock $20 10% $10 $0 Price per Barrel 0% -$10 -$20 -$30 -10% -$40 Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20% May-20 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Projected range of WTI prices needed to cover Uinta Basin operating expenses

20.0% 10.0% 0.0% Wasatch 10.2% -10.0% -20.0% graphical locations and points along the hydrocarbon value SanThe Juan Federal Reserve Bank of Dallas recently9.5% surveyed 95 oil -30.0% -40.0%chain. Their portfolios include exploration and production, producers in six U.S. basins about the minimum West Texas Grand 9.4% -50.0% pipelines, and downstream refining assets. Intermediate (WTI) price needed to cover operating expenses. -60.0% Uintah 9.4% -70.0%• Large and medium-size exploration and production Average responses ranged from $23 to $36 per barrel. Variation -80.0% companies with larger capital budgets allocated amongTooele basins in the minimum viable WTI9.2% crude oil price is -90.0% across multiple geographical regions. expected due to basin-specific geologic and stratigraphic Duchesne 8.5% • Small exploration and production companies are often features. However, variation in the minimum viable WTI price focused on one basin, with limited alternatives to market withinGar eld a given basin was also8.5% large (see Figure 5). A possible Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 crude. Often companiesMay 08, 2020 inMay 22, 2020 this category are thinly explanation is the size of the company and field acreage, each financed and needGasoline to produce Distillateto survive. ManyJet FuelUinta contributing to economies of scale. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Basin companies fall into this category. Utah0.0% waxy crude oils incur additional costs to crude oils $80 produced in the basins shown in Figure 5. These additional Of$70 the Uinta Basin producers, Ovintiv, EP Energy, Finley -5.0% Resources,$60 Berry Petroleum Company, and Caerus have costs arise because of the following: $50 operations$40 in other U.S. basins as well. However, some producers 1.-10.0% Utah waxy crudes’ high paraffin content requires insulated rely$30 solely on their Uinta Basin activities to provide cash flow. trucking, which is more expensive than . $20 During$10 periods of reduced revenue generation, companies 2.-15.0% Refineries processing Utah waxy crudes require additional rely $0upon their balance sheets to weather financial crises, with upgrading units. As a result, many refiners demand a -$10 -20.0% the-$20 greatest exposure borne by the smaller exploration and discounted price. Daily Spot Price per Barrel production-$30 companies. -$40 Utah-25.0% waxy crudes have received approximately a $12.50-per- Setting aside any contractual obligation of a producer to barrel discount to theUintah benchmarkDuchesne WTI crudeUinta Basinin 2020. Applying make monthly deliveries to a buyer, each producer must take

Jul-20 this $12.50 to the range of average minimum viable WTI prices Jan-20 Oct-20 Oct-19 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Dec-19 Nov-20 Nov-19 Aug-20 account of its operational productionMay-20 costs, including: Brent WTI in other basins, the WTI breakeven price needed to cover Uinta • Lifting costs: costs to operate and maintain wells and Basin operating expenses would be $36 to $49 per barrel. Since 7,000 related equipment and facilities. March 2020, WTI prices have been below the upper threshold, $30 • DD&A: Depreciation, Depletion, and Amortization. $49 6,000per barrel, presenting some Uinta Basin producers with $20 Depreciation is the systematic expensing of the cost of difficulties5,000 in covering operating expenses (see Figure 6). $10 buildings, equipment, and vehicles. Depletion is the When4,000 oil prices fail to cover operating expenses, negative systematic$0 expensing of the cost of natural resources. cash flows force producers to furlough employees, reduce oil 3,000 -$10Amortization is the systematic expensing of bond issue production,Well Count or shut-in wells until prices rebound. Companies 2,000 -$20costs and organization costs. with thinly financed balance sheets will react immediately to

• Nominal Price per Barrel G&A: General and Administrative expenses, including lower1,000 crude oil prices. -$30 wages, rents, and utility costs. -$37.63 0 -$40 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 4/1 4/3 4/5 4/7 4/9 4/11 4/13 4/15 4/17 4/19 4/21 4/23 4/25 4/27 4/29 Figure 5: WTI Prices Needed to Cover Operating Expenses Figure 6: WestActive Texas Oil-Producing Intermediate Wells CrudeShut-in Oil PricesOil Wells in 2020 WTI Paper Contract WTI Physical Active Gas-Producing Wells Shut-in Gas Wells in Selected U.S. Oil Basins 30% $70 (High, Low, andSpanish Mean) u World War II First Global $60 oil shock Financial $50 $60 Crisis 40 20%$55 $40 Great Second $3035 $50 Depression oil shock $45 $2030 10% $40 $10 25 $35 $36 $0 $30 $32 Price per Barrel 20 0% $28 -$10 $25 $26 $26 $23 -$2015

Price per Barrel $20 -$30 10 -10%$15 -$40 $10 5 $5 Yearly Average of Rotary Rigs Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 0 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20%$0 May-20 Eagle Ford Delaware Midland Bakken Other Non-shale 1900 1910(TX) 1920 1930(TX) 1940 1950(TX) 1960 1970(ND)1980 Permian1990 2000 2010(USA)2020 Projected range of WTI prices needed to cover (TX) 2010 Uinta2011 Basin2012 operating2013 expenses2014 2015 2016 2017 2018 2019 2020 Source: Federal Reserve Bank of Dallas. Survey polled 95 exploration and production companies20.0% with the question, “What WTI oil price does your firm need to cover operating Source: Energy Information Administration (Cushing, OK WTI Spot Prices FOB) expenses10.0% for existing wells?” 0.0% Wasatch 10.2% -10.0% -20.0% TM INFORMED DECISIONS 3 San Juan gardner.utah.edu9.5% January 2021 -30.0% I -40.0% Grand 9.4% -50.0% -60.0% Uintah 9.4% -70.0% -80.0% Tooele 9.2% -90.0% Duchesne 8.5%

Gar eld 8.5% Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 May 08, 2020 May 22, 2020 Gasoline Distillate Jet Fuel Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 0.0% $80 $70 $60 -5.0% $50 $40 -10.0% $30 $20 $10 -15.0% $0 -$10 -20.0% -$20 Daily Spot Price per Barrel -$30 -$40 -25.0% Uintah Duchesne Uinta Basin Jul-20 Jan-20 Oct-19 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-19 Dec-20 Nov-19 Nov-20 Aug-20 May-20 Brent WTI

7,000

$30 6,000 $20 5,000 $10 4,000 $0 3,000 -$10 Well Count 2,000 -$20

Nominal Price per Barrel 1,000 -$30 -$37.63 0 -$40 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 4/1 4/3 4/5 4/7 4/9 4/11 4/13 4/15 4/17 4/19 4/21 4/23 4/25 4/27 4/29 Active Oil-Producing Wells Shut-in Oil Wells WTI Paper Contract WTI Physical Active Gas-Producing Wells Shut-in Gas Wells

$60 40 $55 $50 35 $45 30 $40 25 $35 $36 $30 $32 20 $28 $25 $26 $26 $23 15

Price per Barrel $20 $15 10 $10 5 $5 Yearly Average of Rotary Rigs $0 0 Eagle Ford Delaware Midland Bakken Other Non-shale (TX) (TX) (TX) (ND) Permian (USA) (TX) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 30% $70 Spanish u World War II First Global $60 oil shock Financial $50$70 30% Crisis 20% Spanish u World War II First Global $40$60 Great Second oil shock Financial $30$50 Depression oil shock Crisis 20% $20$40 10% Great Second $10$30 Depression oil shock $20$0 10% Price per Barrel 0% -$10$10 -$20$0 Price per Barrel -$30 0% -$10 -10% -$40-$20 -$30

-10% Jul-20

-$40 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20% May-20 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Projected range of WTI prices needed to cover Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20

Uinta Basin operating expenses Aug-20 -20% May-20 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Projected range of WTI prices needed to cover 20.0% Uinta Basin operating expenses 10.0% 0.0% 20.0% Wasatch 10.2% -10.0% 10.0% -20.0% 0.0% San Juan 9.5% -30.0% Wasatch 10.2% -10.0% -40.0% -20.0%Employment Impact Grandunemployment insurance claims exclude9.4% self-employed -50.0% San Juan 9.5% -30.0% -60.0%The Department of Workforce Services has been tracking workers. Within the oil and gas workforce, self-employed -40.0% Uintah 9.4% -70.0% Grand 9.4% -50.0%unemployment insurance claims in Utah during the COVID-19 workers account for up to two-thirds of total jobs. -80.0% -60.0%pandemic. Qualified recipients must meet state-mandated • TooeleDeclining manufacturing employment9.2% in Tooele County -90.0% Uintah 9.4% -70.0%thresholds for either earned wages or time worked in a stated contributed to its 9.2% rate. -80.0% Duchesne 8.5% Tooele 9.2% -90.0%base period, as well as a determination that the recipient is Total covered nonfarm employment dropped in Uintah and Gar eld 8.5% unemployed through no fault of their own. Figure 7 shows Duchesne 8.5%

Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Duchesne in April 2020 to 11,394 and 7,476, respectively—12.5% Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 seven counties in Utah withMay 08, 2020 theMay 22, 2020 highest insured unemployment Gasoline Distillate Jet Fuel andGar eld 4.3% below their levels 8.5%a year ago. Uinta Basin employment

rates at the onset of the pandemic. Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 $70 May 08, 2020 May 22, 2020 has recovered somewhat since then, but as of September 2020 30% Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Spanish u World War II First Global • $60Employment declinesGasoline in the leisure/hospitalityDistillate Jet sector Fuel it was0.0% still down by 9.0% in Uintah and 7.4% in Duchesne from oil shock Financial $80$50 Crisis $70were the primary contributor to the insured last year.Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 20% 0.0% $60$40 -5.0% Great Second $80unemployment rates of Wasatch, San Juan, Grand, and Depression $50$30 30% oil shock $70$70 $40$20Garfield counties. Shut-In-10.0%-5.0% Oil and Gas Production 10% Spanish u World War II First Global $60$60 $30$10 oil shock Financial • $50$50Declines in the natural resources sector were the chief As crude oil prices have slumped, international oil and gas Crisis $20 20% $40$0 -10.0% Price per Barrel $10$40contributor to insured unemployment rates of Uintah and companies-15.0% have taken asset write-downs, also known as Great Second $30-$10 0% $0$30 Depression oil shock $20-$20Duchesne counties. One thousand people in the natural impairments, in response to the expectation of lower crude oil -$10$20 $10 -20.0%-15.0% 10% -$20-$30resources sector were laid off. However, this prices. British Petroleum and Shell announced write-downs of Daily Spot Price per Barrel $10 -10% -$40$0 -$30$0 -$10unemployment rate is understated because $17.5-25.0%-20.0% billion and $22 billion respectively, responding to internal Price per Barrel -$40-$20 0% Daily Spot Price per Barrel -$10 company forecastsUintah of continuedDuchesne lower near-termUinta Basin crude oil prices. Jul-20 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20

-$30 Nov-20 Aug-20 -$20 May-20 -20% -25.0%

-$40 Jul-20 Jan-20 Oct-20 Oct-19 Jun-20 Apr-20 Feb-20

-$30 Sep-20 Mar-20 Dec-20 Dec-19 Nov-20 Nov-19

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Aug-20 Projected range of WTI pricesMay-20 needed to cover Uintah Duchesne Uinta Basin -10% -$40 Uinta Basin operating expenses Figure 7: Highest Insured BrentUnemploymentWTI Rates in Utah Figure 9: Utah Oil and Gas Well Status in 2020 Jul-20 Jan-20 Oct-20 Oct-19 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Dec-19 Nov-20 Nov-19 Aug-20 During COVID-19 May-20

Jul-20 7,000 Jan-20 Oct-20 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Nov-20 Aug-20 -20%20.0% (Weeks 12 through 19) May-20 Brent WTI 10.0%1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 $30 Projected range of WTI prices needed to cover 6,000 0.0% 7,000 Wasatch Uinta Basin operating expenses 10.2% -10.0% $20 $30 5,000 -20.0% 6,000 San$10 Juan 9.5% -30.0%20.0% $20 4,000 -40.0%10.0% 5,000 Grand$0 9.4% $10 3,000 -50.0%0.0% Well Count Wasatch 10.2% 4,000 -10.0%-60.0% -$10 Uintah$0 9.4% 2,000 -20.0%-70.0% 3,000 San-$20 Juan 9.5% Well Count -30.0%-80.0% Nominal Price per Barrel -$10Tooele 9.2% -40.0%-90.0% 1,000 -$30Grand 9.4% 2,000 -50.0% -$20 Duchesne 8.5% -$37.63 0 -60.0% Nominal Price per Barrel -$40 1,000 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Uintah-$30 9.4%

-70.0% 4/1 4/3 4/5 4/7 4/9

Gar eld 4/11 8.5%4/13 4/15 4/17 4/19 4/21 4/23 4/25 4/27 4/29 -80.0% -$37.63 0 Active Oil-Producing Wells Shut-in Oil Wells

Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 -$40 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020

Apr 10, 2020 Apr 24, 2020 Tooele

Feb 14, 2020 Feb 28, 2020 9.2% Sep 11, 2020 Sep 25, 2020 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 -90.0% May 08, 2020 May 22, 2020 WTI Paper Contract WTI Physical Active Gas-Producing Wells Shut-in Gas Wells Source: Department4/1 4/3 of4/5 Workforce4/7 4/9 Services, Workforce Statistics—Unemployment Gasoline Distillate Jet Fuel 4/11 4/13 4/15 4/17 4/19 4/21 4/23 4/25 4/27 4/29 DuchesneInsurance Claims 8.5% Source: Division ofActive Oil, Gas, Oil-Producing and Mining monthlyWells productionShut-in reports Oil Wells Active Gas-Producing Wells Shut-in Gas Wells Jan. Feb. WTIMar. PaperApr. ContractMay Jun. Jul.WTI PhysicalAug. Sep. Oct. Gar eld0.0% 8.5% $80 $60 40 Jul 03, 2020 Jul 17, 2020 Jul 31, 2020 Jan 03, 2020 Jan 17, 2020 Jan 31, 2020 Oct 09, 2020 Oct 23, 2020 Jun 05, 2020 Jun 19, 2020 Apr 10, 2020 Apr 24, 2020 Feb 14, 2020 Feb 28, 2020 Sep 11, 2020 Sep 25, 2020 Mar 13, 2020 Mar 27, 2020 Dec 04, 2020 Dec 18, 2020 Figure 8: Year-Over Change in Uinta Basin Cumulative Oil Nov 06, 2020 Nov 20, 2020 Aug 14, 2020 Aug 28, 2020 $70 May 08, 2020 May 22, 2020 $55 Figure 10: Rotary Drilling Rig Count in Utah, 2010–2020 -5.0%$50 35 $60 Gasoline Distillate Jet Fuel Production,$60 2020 vs. 2019 40 $50 $45$55 30 $40 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 35 $40 -10.0%0.0%$50 25 $35 $36 $80$30 $45 30 $30 $32 20 $70$20 $40 $28 -15.0%-5.0%$25 $26 $26 25 $60$10 $35 $23 $36 15

$50$0 Price per Barrel $20$30 $32 20 $28 10 -$10$40 -10.0%-20.0%$15$25 $26 $26 -$20 $23 15 Daily Spot Price per Barrel $30 $10

Price per Barrel $20 5 Yearly Average of Rotary Rigs -$30$20 $15$5 10 -$40$10 -15.0%-25.0%$0 0 $10 Eagle Ford DelawareUintah MidlandDuchesne BakkenUinta BasinOther Non-shale 5 $0 Yearly Average of Rotary Rigs $5 (TX) (TX) (TX) (ND) Permian (USA) -$10 -20.0% 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Jul-20 $0 (TX) Jan-20 Oct-20 Oct-19 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-20 Dec-19 Nov-20 Nov-19 Aug-20 -$20 May-20 Daily Spot Price per Barrel Eagle Ford Delaware Midland Bakken Other Non-shale -$30 (TX) (TX) (TX) (ND) Permian (USA) Brent WTI 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -$40 -25.0% (TX) Uintah Duchesne Uinta Basin 7,000 Source: North America weekly rotary rig count by state

Jul-20 Source: Utah Division of Oil, Gas and Mining monthly production reports Jan-20 Oct-19 Oct-20 $30 Jun-20 Apr-20 Feb-20 Sep-20 Mar-20 Dec-19 Dec-20 Nov-19 Nov-20 Aug-20

May-20 6,000 $20 Brent WTI 5,000 January 2021 gardner.utah.edu 4 INFORMED DECISIONSTM $10 7,000 I 4,000 $30$0 6,000 3,000 Well Count -$10$20 5,000 2,000 -$20$10 4,000 Nominal Price per Barrel 1,000 -$30$0 3,000 -$37.63 Well Count 0 -$10-$40 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 2,000 4/1 4/3 4/5 4/7 4/9 -$20 4/11 4/13 4/15 4/17 4/19 4/21 4/23 4/25 4/27 4/29 Active Oil-Producing Wells Shut-in Oil Wells Nominal Price per Barrel 1,000 -$30 WTI Paper Contract WTI Physical Active Gas-Producing Wells Shut-in Gas Wells -$37.63 0 -$40 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. 4/1 4/3 4/5 4/7 4/9 $60 4/11 4/13 4/15 4/17 4/19 4/21 4/23 4/25 4/27 4/29 40 Active Oil-Producing Wells Shut-in Oil Wells $55 WTI Paper Contract WTI Physical Active Gas-Producing Wells Shut-in Gas Wells $50 35 $45 30 $40 25 $60$35 $36 40 $55$30 $32 20 $28 35 $50$25 $26 $26 $23 15

Price per Barrel $45$20 30 $40$15 10 25 $35 $36 $10 5 $30 $32 Yearly Average of Rotary Rigs 20 $5 $28 $25$0 $26 $26 0 Eagle Ford$23 Delaware Midland Bakken Other Non-shale 15

Price per Barrel $20 (TX) (TX) (TX) (ND) Permian (USA) 10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $15 (TX) $10 5 $5 Yearly Average of Rotary Rigs $0 0 Eagle Ford Delaware Midland Bakken Other Non-shale (TX) (TX) (TX) (ND) Permian (USA) (TX) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Uinta Basin operators have responded to lower crude oil gas wells were shut-in due to COVID-19 supply and demand prices by either decreasing or stopping production. By June shocks, shrinking the number of active producing 2020, year-to-date Uinta Basin oil production was down 19% wells by 6%. from 2019; as of October it was still 17% lower (see Figure 8). Another measure of oilfield activity is drilling rig count, Ovintiv, the operator of Monument Butte, temporarily shut-in indicative of exploration activities. Crude prices above $70 per field production. Monument Butte, a legacy field occupying barrel from 2011 to 2014 spurred mobilization of more than 25 over 110,000 , began production seven decades ago. While drilling rigs to Utah to explore for . When robust stopping production allows time for a potential bounce-back in production exceeded demand in early 2015, prices declined crude oil prices to cover all operating costs, uncertainty exists and rig activity slumped (see Figure 10). More recently, Utah’s rig that previous production levels will be achieved. Basin operators count fell from eight in the last week of March and first week of face the risk that shutting-in production may decrease future April 2020 to zero as of May 1st, reflecting expectations of energy production levels when field operations resume. The number of demand and prices during the coronavirus pandemic. In the shut-in oil wells nearly doubled from 1,462 in January to 2,828 latter half of October there were three active rigs in the state. in June, shrinking the number of active producing wells by 29% (see Figure 9). Since June, however, shut-ins have declined to Conclusion 1,796 in October and active wells have increased to 4,416, still COVID-19 caused reduced demand for motor and air 8% below January’s count. transport, activities supplied directly by the . in the United States declined in 2020 due Global oversupply of crude oil concurrent with the COVID-19 to lower demand from the electric generation sector. pandemic sent crude oil prices to historic low levels. Utah’s oil Natural gas prices are projected to strengthen through year- and gas industry experienced an unemployment spike as end 2020 due to cold-weather seasonal demands and increased producers shut-in crude oil production in response to lower liquefied natural gas exports to European and Asian markets. energy demand. Unknowns about secondary COVID waves Over the first 10 months of 2020, an additional 334 Utah natural prevent a clear line of sight to an outcome.

Endnote 1. Bank of Russia data listing international reserves of the Russian Federation. Saudi Arabian Monetary Authority data cited in Reuters News Service on 31 May 2020.

INFORMED DECISIONSTM 5 gardner.utah.edu I January 2021 Partners in the Kem C. Gardner Policy Institute Advisory Board Community Conveners Cameron Diehl Cristina Ortega Ex Officio (invited) Lisa Eccles Jason Perry The following individuals Michael O. Leavitt Governor Spencer Cox Spencer P. Eccles Ray Pickup and entities help support Mitt Romney Speaker Brad Wilson Christian Gardner Gary B. Porter the research mission of the Senate President Board Kem C. Gardner Taylor Randall Kem C. Gardner Policy Institute. Stuart Adams Scott Anderson, Co-Chair Kimberly Gardner Jill Remington Love Representative Brian King Legacy Partners Gail Miller, Co-Chair Natalie Gochnour Brad Rencher Senator Karen Mayne Brandy Grace Josh Romney The Gardner Company Doug Anderson Mayor Jenny Wilson Deborah Bayle Clark Ivory Charles W. Sorenson Mayor Erin Mendenhall Intermountain Healthcare Cynthia A. Berg Mike S. Leavitt James Lee Sorenson Clark and Christine Ivory Roger Boyer Derek Miller Vicki Varela Foundation Wilford Clyde Ann Millner Ruth V. Watkins KSL and Sophia M. DiCaro Sterling Nielsen Ted Wilson Larry H. & Gail Miller Family Foundation Mountain America Credit Union Kem C. Gardner Policy Institute Staff and Advisors Corporation Leadership Team Jennifer Leaver, Senior Tourism Analyst Salt Lake County Natalie Gochnour, Associate Dean and Director Levi Pace, Senior Research Economist University of Utah Health Jennifer Robinson, Associate Director Shannon Simonsen, Research Coordinator Joshua Spolsdoff, Research Economist Utah Governor’s Office of Shelley Kruger, Accounting and Finance Manager Economic Development Colleen Larson, Administrative Manager Paul Springer, Senior Graphic Designer Laura Summers, Senior Health Care Analyst WCF Insurance Dianne Meppen, Director of Survey Research Pamela S. Perlich, Director of Demographic Research Natalie Young, Research Analyst Zions Bank Juliette Tennert, Chief Economist Faculty Advisors Nicholas Thiriot, Communications Director Executive Partners James A. Wood, Ivory-Boyer Senior Fellow Matt Burbank, College of Social and Mark and Karen Bouchard Behavioral Science The Boyer Company Staff Adam Meirowitz, David Eccles School of Business Elena Patel, David Eccles School of Business Salt Lake Chamber Max Backlund, Senior Research Associate Samantha Ball, Senior Research Associate Nathan Seegert, David Eccles School of Business Mallory Bateman, Senior Research Analyst Sustaining Partners Senior Advisors Andrea Thomas Brandley, Research Associate Clyde Companies Marin Christensen, Research Associate Jonathan Ball, Office of the Legislative Fiscal Analyst Dominion Energy Mike Christensen, Scholar-in-Residence Gary Cornia, Marriott School of Business Staker Parson Materials and John C. Downen, Deputy Director of Economic Wes Curtis, Community-at-Large Construction and Public Policy Research Theresa Foxley, EDCUtah Dejan Eskic, Senior Research Fellow Dan Griffiths, Tanner LLC Emily Harris, Demographer Darin Mellott, CBRE Michael T. Hogue, Senior Research Statistician Chris Redgrave, Community-at-Large Mike Hollingshaus, Senior Demographer Wesley Smith, Western Governors University Thomas Holst, Senior Energy Analyst Meredith King, Research Associate

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