The Anatomy of an Oil Boom and Bust
From pumping oil to paving roads
In 2010, Catarino “Cat” Castro had a great job working in the oilfields around Douglas, a city in Converse County, Wyoming. He started working for an energy company in 1999, and after several years, the company had promoted him up the ranks. Life was good for Cat Castro in Converse County. And he wasn’t alone. Converse County was a great place to live in 2010.
Although the financial crisis affected small towns to entire states across America, large portions of Wyoming remained mostly unscathed. Converse County in particular thrived on one of the state’s most diverse economies. While oil and gas development rose and fell throughout the years, our coal mines formed a rock of stability; the uranium mine’s managers were considering expansion, and the county’s fourth wind farm was about to come online.
In the second half of 2010, the Wyoming Oil & Gas Commission received 62 oil and gas permit requests for exploration in Converse County’s portion of the Powder River Basin. That number almost tripled by the first half of 2011, more than doubled again by the second half of 2013, and peaked in the first half of 2015 at 1,072 requests. By the end of 2014, 1,497 completed oil and gas wells fueled Converse County’s economy.
As national unemployment topped ten percent in late 2009, the county’s rate was under seven percent. And while hiring had slowed, the energy boom ensured the sector’s jobs still accounted for one of every six, and growing, of the county’s jobs. Those jobs — in the coal mine, the uranium mine, the railroads serving coal shipments, oil and gas fields, or the coal-fired power plant — were relatively high-paying, with annual wages averaging over $60,000. The standard of living was high; the cost of living, low.
A stable job market also meant a stable community with a growing population, rising numbers of children in classrooms, and – most important to the County’s government – a stable tax base. The County had just experienced its seventh consecutive year of rising revenues; although income was projected to be flat in 2010, projections for 2011 suggested a seven percent increase in property tax and sales tax revenue.
Property tax valuations surged, rising from $505 million in 2007 to a record $693 million in 2010. The tax revenues allowed the County to invest in infrastructure, roads, and employees. Although the County was in good financial condition, as the recession across the U.S. continued, economic worries began to surface.
In the Fiscal Year 2010 budget, the Commissioners noted, “County departments and outside agencies were cautioned during the budget work sessions that next year will likely see a significant decrease in valuation; therefore, the County will probably not be able to fund programs at the same level as this year.”
Those concerns never materialized. Instead, the county valuation jumped 18% to another record of $851 million in 2011, fueled in large part by the surging oil and gas play in the Powder River Basin.
The boom resounds throughout Converse County
Cat had moved to Williston, North Dakota, away from his family, to take advantage of the oil boom there. But in 2014, Cat saw the changes the energy boom was bringing to Douglas, with new building and new shops. Douglas wasn’t as busy as Williston, but there were lots of employment opportunities with oil companies. He decided to return to Douglas. Even though he would take a pay cut, it was worth it to be home every night and be with his family.
Cat wasn’t the only energy-sector employee to move to Converse County. Past 2010, employment in Converse County surged.
The impacts started with traffic. Trucks and crews began hauling rigs, materials, and workers along corridors in the northern half of the county. Highway 59, the main route north to Campbell County and Gillette, became the focus of safety concerns as the personal vehicles of those headed to the mines in Gillette sometimes collided with large trucks hauling oilfield materials. The results of these accidents were often deadly.
According to the Wyoming Department of Transportation, the Annual Average Daily traffic count on Highway 59 increased 43% from 1,720 vehicles per day to 2,458 between 2004 and late 2013. In a one-month stretch from October 25 to November 25, 2014, the Wyoming Highway Patrol reported 31 crashes between Douglas and Gillette, with one fatality and fourteen injuries. On December 7, 2014, the Casper Star-Tribune wrote that the Wyoming Highway Patrol added more troopers on Highway 59 to address “unsafe highway conditions.”
The traffic wasn’t just on highways and paved roads. When wellhead locations are overlaid onto the county transportation system map, it becomes clear that the majority of drilling activity was occurring in areas that were miles from any paved road. County roads that were lonely and rural prior to the oil and gas development became bustling truck routes, seemingly overnight. Bill Hall Road, in northern Converse County, saw an average of 5 trucks a day in 2011, 800 in 2013 and 1,300 trucks per day in 2014. County roads not designed for commercial use endured thousands of trucks daily; the County Road & Bridge department struggled to keep up.
Converse County’s Road & Bridge department expanded its workweek to include mandatory overtime. Their departmental overtime budget ballooned from $12,264 in 2011 to $31,696 in 2014. Like other departments and businesses in the County, Road & Bridge struggled to find and keep employees. If someone could operate heavy equipment, they were more than likely working for an energy company and making twice what we could offer.
Housing shortages became the next issue. The influx of workers drove vacancy rates in the county from almost 7% in late 2009 to 1.9% in the fall of 2013. Our school districts hired teachers to keep up with increasing enrollment, but couldn’t find them places to live. Hotels sold out every night; people filled every campground. Many employees commuted from Casper.
Elevated housing demand boosted housing prices. According to the Wyoming Cost of Living Index, apartment rent in Converse County increased 22% from the 4th Quarter of 2012 to the 4th Quarter of 2013. It wasn’t unusual to see advertisements for houses renting for $1,200 per month — double what a resident would have paid in 2008.
Rising housing costs were just part of the inflationary picture. The prices of fuel and groceries were also higher than in surrounding counties. As lines grew and patience shortened, local businesses struggled to meet demand and find workers. Suddenly, Converse County became one of the most expensive places to live in Wyoming.
Converse County responds to citizen complaints with financial transparency
Increasing prices brought our government more revenue. Countywide sales tax revenues doubled from $34 million in 2011 to $68 million in 2013, then rose to $89 million in 2014. Every week, the local newspaper ran stories touting the record production and county revenues.
In the November 2012 election, voters approved a sales tax increase to fund three projects totaling $31.7 million: a remodeled library branch in Glenrock, a new library building in Douglas, and a new branch of Eastern Wyoming College in Douglas. The tax was estimated to raise $500,000 a month for six years; instead, it averaged $1.1 million in revenue each month, paying off the projects in 31 months.
As the Treasurer’s Office began preparing to bill the 2014 property taxes for a record valuation that just topped $1 billion and the county began preparing a budget with record revenues and expenses, citizens grew frustrated.
Concerned about soaring living costs, upset with gridlocked traffic, and exasperated at the hassle that comes with living in a bustling boomtown, residents began asking questions. What was the County doing with all of the money? Would the County lower their taxes? How much were energy companies paying in taxes? When will roads be fixed?
Policymakers used to the boom and bust cycles of an energy economy were putting record numbers into reserves but struggling to explain that need to citizens who focused on the millions of dollars being pumped into the local economy. Although the County published a budget book with pages of figures that detailed revenues and expenses, citizens used to finding answers in seconds on Google were unlikely to scour a PDF budget book.
Interest in the energy boom spread beyond the county’s borders and even the region, as stories about the exploration in the Powder River Basin appeared on major newswires and newspapers across the country. The Treasurer’s Office began fielding several calls a week from reporters wanting more information about the revenues, the impacts, the long-term sustainability, and the changing landscape of the newly-industrialized rural areas of the county.
There had to be a better way to tell the story of the boom and to show citizens how the County was using hard-earned tax dollars to repair roads, upgrade schools, and encourage inclusive economic growth. We wanted a way to demonstrate both how the oil boom impacted public finances and that we were putting their money to good use.
In October 2014, we announced a partnership with OpenGov – a management reporting and transparency company based out of Silicon Valley. For the first time, interested citizens could see the visual, interactive story of how the oil boom affected County’s finances, including what revenue came into the County and where it went. They could see that although revenues doubled, so did the costs of maintaining roads, retaining employees, housing additional prisoners, and combating higher crime.
Journalists from anywhere in the state, or the world, now had instant access to the numbers they needed to investigate, track and spread the message of what an energy boom means to a small county. The County Treasurer began referring inquiries about the county’s finances to the OpenGov site instead of providing data verbally or emailing documents.
Editors from one of the largest newspapers in Wyoming, the Casper Star-Tribune, attended a county commissioners meeting to thank the county for the OpenGov site, expressing their hope that other government entities would follow suit and usher in a new era of transparency and accountability.
The OpenGov platform helped tell the story of the boom and how we were dealing with the revenues and expenses so that County Commissioners and residents could work through the issues together and explore what benefits would come from living in the hottest energy town in the state.
From boom to bust
Then our boom fell apart.
In June of 2014, fourteen oil rigs operated in Converse County and the price of crude oil was over $105 per barrel. By November, only three rigs were drilling oil wells in the county – and the price of oil fell below $45.
By March 2016, the rigs and workers were gone.
In the winter of 2015, the dramatic dip in oil prices caused the company Cat was working for to suspend all drilling. Cat was laid off. “It was stressful,” Cat says, feeling the immediate pressure of not being able to find work and watching the nest egg he worked so hard to build during the boom being depleted. He tried to find a job in the Douglas area but found it “impossible.”
The County’s unemployment rate doubled from 3.2% to 6.3%. And not only was the promising oil boom over; the coal mines that formed the county’s economic bedrock were also about to come under fire.
On August 3. 2015, as the price of oil crashed, President Obama released his Clean Power Plan that specifically targeted coal-fired power plants and set new emissions standards.
As the power industry redoubled efforts to transition from coal to cheaper, more environmentally-friendly natural gas, demand for coal plummeted. In 2014, Converse County’s mines produced over 33 million tons of coal. The Energy Information Administration estimates that coal production in 2015 was 10% lower than 2014 – and the lowest since 1986. Powder River Basin production in 2016 is already down approximately 28%.
The bust sets in
In March 2016, Wyoming’s (and America’s) two largest coal mines announced layoffs. Arch Coal cut 15% of its workforce, or 230 people, and Peabody Energy cut 235 people at North Antelope Rochelle mine. In April, Alpha Natural Resources followed suit and laid off workers from their Belle Ayr and Eagle Butte mines. By the end of April, the largest coal producer in the United States and operator of the coal mine north of Douglas, Peabody Energy, filed for bankruptcy.
Cuts in coal production and shipping cascaded to the railroads. Union Pacific announced that in the fourth quarter of 2015, they shipped 22% less coal than in the same quarter of 2014, and were putting 1,200 locomotives in storage nationwide. U.P. also shed 4,100 jobs nationwide, some of those in Converse County.
The economic damage was immediate. Sales tax collections that had peaked at over $10 million per month in February 2015 plummeted to $1.9 million in April 2016.
In July 2016, the Wyoming Department of Workforce Services announced that Converse County had one of the largest jumps in unemployment statewide between June 2015 and 2016, from 3.9% to 6.8%.
The County’s assessed valuation dropped over $300 million, from $1.8 billion to $1.5 billion; and the Fiscal Year 2017 budget process became all about guessing when we would hit bottom and how to deal with a General Fund that would receive 20% less revenue.
Citizens asked questions – and transparency answers them
Citizens now asked how the County would sustain services, how far revenue would fall, and how the commissioners planned to prioritize expenses and projects.
To answer these questions, we turned again to OpenGov.
First, after a letter to the editor in the local newspaper asked where the county spent all the money from the boom and why more wasn’t put into reserves, we promoted the Checkbook Report that showed every check the County issued throughout the year, so that citizens could see for themselves where the money went. We saved views that showed the county spent over $400,000 to purchase and transport gravel for county roads and another $350,000 to a machinery company for equipment and repairs.
Next, when news stories about the oil and coal company bankruptcies created concerns about whether property taxes would get paid and whether the bust would create a deluge of delinquent tax accounts, we created a report comparing delinquent tax amounts for 2015 against prior years. The report provided visual reassurance that delinquent property taxes for tax year 2015 were similar to prior years, lessening the worries about budget shortfalls in the current fiscal year.
The OpenGov platform was also vital in explaining how and why sales tax collections could drop so far, so fast – from a high of $96 million in countywide collections in Fiscal Year 2015 to $26 million in Fiscal Year 2016. We published a report to the OpenGov portal showing sales tax collections by industry sector, so the public could see that the Mining sector dropped from $46 million to $12 million and how the loss of population and jobs affected Retail sales, which fell from $14 million to $6 million.
The platform became a method for the public to see the anatomy of the boom and the bust: a visual telling of the rise and fall of the Powder River Basin oil and gas play and the crash of the coal market.
Cat is now looking for work back in North Dakota. Even though he’s not looking forward to being away from his family again, he knows he’s got to go where the work is. His future in the oilfield seems uncertain. Like most, he’s hoping for a resurgence in oil prices, but knows the energy sector could become even more depressed, depending on the whims of the market.
Cat’s story is not unique.
Some businesses have closed; others are for sale. Some families moved out of the community to find work elsewhere, while others seek employment opportunities in different labor sectors, or hope oil prices will recover and things will pick up soon.
Long-time residents just shrug and accept the ups and downs as just part of the boom-bust cycle common to places that rely on the energy industry to drive the economy.
The County, like many residents, will rely on the reserves they built during the boom to ride out the current energy down-cycle and wait for better days.
As a bumper sticker on the back of an old truck parked downtown says, “Please, Lord, just give us one more oil boom. We promise this time we won’t waste it.”
Joel Schell is Converse County’s Treasurer. Kim Hiser is Converse County’s Deputy Treasurer.
Category: Customer Story