In A State Of Winners, Indiana Producers Losing Out On Dropping Oil Prices

Jan 25, 2016

Credit Paul Lowry / https://www.flickr.com/photos/paul_lowry/

For the most part, people in Indiana are reaping the benefits of record-low oil prices at the gas pump without having to deal with the fallout. But when it comes to economics, a true win-win situation is rare.

In Indiana, the companies hit hardest by low oil prices are the same ones as in Texas or Louisiana—the producers who get the oil out of the ground and sell it to refineries. CountryMark CEO Charlie Smith says the number of wells being dug in Indiana has plummeted.

“It’s probably five percent of what it was two years ago,” Smith says. “Those that are hurt the most are those who are operating the wells and owning the wells and producing the oil, because if it’s costing them $30.00 to operate the well and the oil is $35.00, you’re only getting to keep five of it.”

Most of the state’s oil production is from small wells located in the southwest corner of the state. The so-called “Indiana oil boom” is long gone, and most producers rely on what are referred to as “stripper wells”—a (somewhat unfortunate) name for a well that’s nearing the end of its lifespan and producing only a few barrels a day.

The Department of Natural Resources estimates the state’s 10-thousand wells produced about 2.2 million barrels in 2015- about as much as Texas produces daily.

Still, the Indianapolis-based CountryMark, which produces only around 8 percent of the oil it refines, has made budget cuts and fired 20 people since last year. Industry experts say the effects on smaller, local producers are even more extreme. Companies such as Pioneer Oil lease land from farmers or other landowners, who then get a cut of the royalties. The people left on the hook are these middlemen, suffering without a significant profit to offset the cost of a lease and equipment.

On the flip side, experts say manufacturing, one of the state’s largest industries, is holding stable, even if companies such as Caterpillar aren’t selling big pieces of oil drilling equipment anymore. Indiana Manufacturer’s Association Vice President Andrew Berger says the sector is diversified enough that it’s not feeling a significant sting.

“Because it’s a supply glut, those industries connected to the production of gasoline because there’s no need to pump more,” Berger says. However, Berger says “Indiana’s got a very diverse manufacturing base” so a decline in a single manufacturing sector is unlikely to make a huge dent in profits.

“In fact, all the economic data shows manufacturing is still very strong,” he continues.

But…try telling that to the 250 Caterpillar Employees in Lafayette who lost their jobs last year after the company announced decreased orders for engines that support the oil and gas industry.