DocHoc – Back, Back, Back to the 1980s

Editor's Note: I'm happy to announce that my old college professor Dr. Kurt Hochenauer (a.k.a. DocHoc) is joining the TLO team as a regular contributor. It's part of a new weekly series that we're going to call "Intellectual Elitist Thursday."

Dr. Hochenauer is one of the leading (if not only) liberal voices in Oklahoma. You may be familiar with his work on his leftist blog OkieFunk.com, in the editorial pages of the Oklahoma Gazette, or as the lead moderator in the Oklahoma City Craigslist limerick discussion panels. 

Overall, Doc Hoc's stuff may be a little different from what you're used to reading on this site (intelligent, insightful, non-chauvinistic), but that's not necessarily a bad thing. I like to mix up our content and make TLO as difficult as possible to explain or describe to your neighbor, co-worker or Red Dog waitress. Enjoy...

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I’m bummed my inaugural post in The Lost Ogle is going to be gloomy and doomy, but Oklahoma City and the entire state is facing a storm that, oh, is threatening our very lives today and could lead to a major financial downturn here.

We need to start talking about it and preparing for it. Maybe it won’t happen. I will gladly risk looking like an idiot for this specific post if suddenly the economic situation brightens here. I sincerely do NOT want to go through another 1980s-experience in the Oklahoma City area. But we need to talk about it realistically now. Things are not looking good for our economy. What can we do?

A world oil glut caused primarily by the hydraulic fracturing, or fracking, boom here in Oklahoma, Texas, North Dakota and other parts of the country has driven down prices from more than $100 an oil barrel last summer to around $50 today. There has been a slight increase in barrel prices in the last two weeks or so, and that’s great, but not a big enough of increase to make a difference.

There are arguments and natural fluidity about how high oil prices must remain in order for fracked oil to break even. Here’s an interesting Forbes article on that topic. The gist is that it’s anywhere from $50 to $80 per barrel to break even on fracked-produced oil, but no decent, high-rolling oil wildcatter just wants to break even, right? I don’t blame the Wildcatter Lady GaGa for wanting to make money. Barrel prices have even dropped below $50 in recent weeks as I predicted months ago and which has gone, as usual, unacknowledged in local mainstream media outlets.

Hydraulic fracturing, or fracking, is the process in which water laced with toxic chemicals is injected into the ground releasing oil and gas from fissures in rock formations. The wastewater from this process is then often injected by high pressure into what are known as disposal wells. Scientists now argue the disposal-well process has led to a dramatic surge in earthquakes here in Oklahoma.

So let me issue all the qualifiers before I go on. I’m against the negative environmental impact of fracking, and I’ve written about my concerns in the past, most recently when an oil and gas company wanted to frack near and under Lake Hefner, one of Oklahoma City’s main water supplies. Some environmentalists, and I’m one of them, claim fracking can lead to water contamination.

Yet I’m also very much against people I know and care about losing their jobs in a major economic downturn. I know good, decent people in the Oklahoma city area either connected directly or indirectly to the oil and gas industry here. I don’t want to see them or their families get hurt.

For any Devon employees reading this, yes, I will be flying in airplanes using copious amounts of jet fuel in the near future to travel to both New Orleans and Dublin, Ireland for job reasons. I do believe in developing renewable energy sources, such as solar and wind power, but I accept the sustained importance of fossil fuels on a planetary level for years to come and especially here in Oklahoma, an energy state. I also do like to fly in airplanes and travel around the world because of my job and that requires jet fuel.

So the issue is that Saudi Arabia won’t and probably shouldn’t at this point reduce oil production in order to push up prices. Some analysts argue Middle East oil producers need only an average of $40 or even less a barrel price to break even. Why should they just concede the market to Oklahoma and Texas frackers? Geopolitics can come into play here, of course, and I’ll discuss that later, but just on basic free-market principles, why would one company, state-owned or not, just voluntarily reduce its profits so another company could increase its profits or just stay in business?

Drill, baby, drill, has been the conservative mantra for “energy independence” from the world and freedom for people to drive Hummers again without embarrassment for displaying their “wasty ways”, as American novelist James Fenimore Cooper’s character Natty Bumppo would describe it. Yet drill, baby, drill, has put Oklahoma at risk once again. Drill, baby, drill? Why are we bringing “babies” into this muddle of geopolitics and neo-American colonialism? How about, drill, wasps, drill?

Oil and gas companies and related-energy companies in Oklahoma are announcing cutbacks of about 20 to 25 percent. Chaparral Energyrecently cut 121 positions. Helmerich and Payne, based in Tulsa is cutting 2,000 jobs. Halliburton and Schlumberger have announced layoffs. Oklahoma Labor Commissioner Mark Costello puts it this way: “The party is over.”

In addition to layoffs, there will probably be a steep drop in oil and gas production tax revenue. The state is already facing a $300 million budget shortfall, which is expected to increase. Gov. Mary Fallin has already announced budget cuts and hiring freezes.

So to simplify it: People will be spending less money around here because of job layoffs or even in fear of possible layoffs, which affects all businesses, and our state’s tax collections will probably drop steeply in the coming months.

It’s a dismal scene, really, and it probably reminds many of us, ahem, mature people—okay, “old geezers,” if you must—of the 1980s when an oil glut drove down prices and led to the collapse or reorganization of several banks, most notably Penn Square Bank right here in Oklahoma City. The boom went bust big time. All businesses suffered, not just oil and gas companies, because no one was spending money because they didn’t have any of it. People involved in the oil and gas industry moved from Oklahoma in droves because there were no jobs. The sarcastic T-shirts said it this way: “Will the last person leaving Oklahoma please turn out the lights.” It wasn’t funny then. It’s not funny now.

I lived through that as a young working journalist at the then The Daily Oklahoman, The Okarche Chieftain, which I owned briefly with my former wife, Kelly Dyer Fry, now the executive editor of The Oklahoman, and then as a journalist at the Tulsa Tribune, an afternoon paper—remember those?—that had a joint operating agreement at the time with the Tulsa World. I then went on to get a Ph.D. and became the world renowned professor I am today, but by then the Oklahoma economy had stabilized and had supposedly become more diversified.

We all survived it one way or another, but it did limit opportunities for many people here. It depended on your age and your class status at the time. I was very lucky.

So are we about to relive it all again? I hope not. The experts quoted in the local mainstream media are arguing that oil prices will rebound by the end of the year. This premise seems to be based on the idea that local oil and gas companies will now lower their rig counts and produce less oil, thus prices will rise. Okay, so then what? How much will barrel prices rise? What if companies increase their rig counts and rehire people and oil prices drop again? The fundamental reasoning here seems unsound.

Some experts claim, as I mentioned earlier, that our economy is more diverse now so it should technically be easier to weather a major downturn in the oil and gas industry. I question the fundamentals of this argument as well. I simply don’t see that much more diversity in fundamental employment and major industry since the 1980s. By all means, Oklahoma City is a more vibrant and interesting place than it was in 1984 and, yes, we’re more diverse in a retail business sense, but it’s not like we’ve become big players in, say, computer chip manufacturing. I’ve heard of no plans that Microsoft or Apple plan to relocate their headquarters here, or that a new Disney World built just outside Shawnee is going to attract millions of tourists to our state.

Other industry experts are blaming OPEC, the Organization of the Petroleum Exporting Countries, and especially Saudi Arabia, for not fixing the glut problem by reducing their own production, but it was the fracking boom that caused the problem.

Some industry experts see the glut as an opportunity to restrain Russia from its antics in Ukraine because Russia’s and the world’s glut of natural gas is driving down prices and hurting that country’s economy. But, again, the fundamental reasoning here doesn’t add up. We live on a planet that is separated into countries. We, in all our countries that can possibly do so, have simply generated too much fossil fuel production and reserves. How come this never gets openly stated?

Can I engage in some top-secret leftist conspiratorial hyperbole? This is, after all, my inaugural piece in The Lost Ogle. (A quick aside: I’m not going to let Patrick Riley pigeonhole me as the “intellectual-Thursday” guy. Btw, like all you, I love pigeon pie, but I shed few tears over Joffrey’s demise in the Game of Thrones.) So what might it take for oil prices to rebound to $250 a barrel or more so the wildcatters are living the high life of champagne of beers again and all the great local restaurants like Taco Bell are filled to capacity on a Saturday night? Well, the answer to that question reminds me of these song lyrics:

As I’ve written for years and years, what Oklahoma and this country needs is a sensible energy policy that focuses on maintaining adequate supplies of fossil fuels, developing renewable energy sources, such as wind and solar power, and increasing conservation efforts to use less gasoline in our cars. We need to expand public transportation in a major realignment about how we think about getting to work or the bar or the mall. This has the added benefit of lowering the planet’s carbon emissions, which is a main cause of global warming.

Kurt Hochenauer, also known as DocHoc, is a former little league baseball and soccer coach. Coach Hochenauer’s 1994 St. Elizabeth Ann Seton Catholic School Cardinals came in second place in one of the early-grade age divisions of the Archdiocese of Oklahoma City student school soccer league.