The Bust: A Difficult Cycle To Break

Dec 19, 2014

Credit Rebecca Martinez

Oil prices have been in freefall in recent months, dropping by more than half since June. For energy states like Wyoming, that’s bad news. As Governor Matt Mead pointed out recently, the state has a lot of money riding on oil.

This is not the first time Wyoming has weathered a downturn. In fact, for those who can remember all the way back to 2009 and crashing natural gas prices, today’s news may seem like deja vu. Booms and busts are part of the state’s economy. But do they have to be?

At the Cyclone Drilling offices in Gillette, Wyoming, brothers Patrick and Paul Hladky are arguing over who should to talk to the reporter. They laugh and trade barbs, finally settling on Patrick as a spokesman, but Paul continues to jump in anyways. They're in surprisingly good spirits, given that it has not been a very good month for them. Cyclone is one of the largest drillers in the state, but falling oil prices have forced them to start idling rigs. More than a quarter of the company’s rigs could be sidelined in 2015.

“I’d say that I’d feel fortunate if [a quarter] was all we see idling,” Paul Hladky said.

But they're less worried about that than you might expect. 

“When you’re in oil and gas you realize that there’s going to be highs and there’s going to be lows and you prepare yourself for the lows," Paul said. "If you’re not prepared, you’re not going to be in business very long.”

That’s a lesson states like Wyoming, North Dakota and Alaska have taken to heart. These days, they all have sizeable saving accounts for when prices drop, but a few decades ago, things were different. Author and journalist Samuel Western learned that at a party several years back, when someone told him that at one point in the 1970s, Wyoming had just $100 in its bank account.

“And I said, ‘that’s got to be apocryphal, that just can’t happen. And yet, when I interviewed former governor Stan Hathaway, it was not $100, it was $80 in the general fund. So I kind of said, ‘how could that possibly be with all our mineral resources?’"

What we are today is going not to be good enough for what we need to be tomorrow.

It was around that time that Wyoming started saving some of its mineral revenues, to even out the cycle. Western says those in power haven’t forgotten that history though, and the memory of it has shaped a survivalist mentality about the economy.

“You become a stasher, you want to hide your money in coffee cans -- and we still do that in Wyoming," he said. "We’re still afraid that we’re not just not going to have enough that we’re going to survive and that we won’t go back to those old days again.”

In Western's view, all that stashing just hides the underlying problem — namely, that the economy of the state runs on one thing: minerals. He argues that getting out of the cycle takes more than saving and points to Texas, which back in the 1980s was almost as dependent on mineral wealth as Wyoming is today.

“They’ve [done] exactly what I would hope society would do. Take revenues, oil revenues, and then build societies and industries and business that are not related to energy,” Western said.

It's not just Texas that’s diversified and become less dependent on minerals. Stephen Brown is an economist at the University of Nevada who has studied the impact of oil prices on state economies. His analysis shows that virtually every state has become less dependent on mineral revenues since the oil crash of the 1980s.

“What we’re seeing is that states are becoming more and more alike and less driven by these boom and bust cycles,” Brown said.

But a few states still stand out for their reliance on mineral wealth — Alaska and Wyoming being at the top of the list. Bill Schilling, the president of the Wyoming Business Alliance, wishes that would change. His organization has its roots in the coal industry and he says the energy industry has been great for the state, helping pay for everything from roads to new schools.  But he also thinks the state needs to diversify.

“There are some clouds on the horizon,” he said.

Diversification is a tricky thing though and everyone interviewed for this story had a different excuse for why Wyoming hasn’t managed that trick yet, along with a different strategy for getting there. Most agree though that in states like Texas and Colorado, investing heavily in education helped.

“We need people who can be programmers, we need people who can build things, we need manufacturing. I mean, we need all of those things,” Schilling said. And he sees Wyoming heading down that path, albeit slowly. Schilling points to the Hathaway Scholarship and the expansion of the University’s business school as positive developments, but says more of that is needed.

“What we are today is going not to be good enough for what we need to be tomorrow,” he said.

With Wyoming's main economic drivers — coal, oil and natural gas — all in a slump,  tomorrow may be here sooner rather than later.