Wyoming tries to prepare for life beyond oil

Marketplace Contributor Jan 8, 2015
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Wyoming tries to prepare for life beyond oil

Marketplace Contributor Jan 8, 2015
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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 and appear to be in surprisingly good spirits, given that it has not been a very good couple of months for them. 

Cyclone is one of the largest oil drillers in Wyoming, but falling oil prices have forced them to start idling rigs. More than 25 percent of the company’s rigs could be sidelined in 2015. “I’d say that I’d feel fortunate,” if 25 percent was all he had to idle, Paul says.

But the Hladkys are 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 says. “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 savings accounts for when prices drop.

A few decades ago, things were different.

Author and journalist Samuel Western learned at a party that at one point in the 1960’s, Wyoming had just $100 in its bank account. “And I said, ‘that’s got to be apocryphal, that just can’t happen,'” Western says. “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?’”

It was around that time that Wyoming started saving some of its mineral revenue in order to even out the cycle. Western says those in power have not forgotten the 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 says. “We’re still afraid we’re just not going to have enough that we can survive and we won’t go back to those old days again.”

In Western’s view, all that stashing just hides the underlying problem, that Wyoming’s economy depends on only one thing: minerals. 75 percent of Wyoming’s revenue comes from oil, coal and natural gas.

Western argues that getting out of the cycle takes more than saving and points to Texas, which back in the 1980’s was almost as dependent on mineral wealth as Wyoming is today. Texas took oil revenue and built “societies and industries and businesses that are not related to energy.”

It’s not just Texas that has diversified and become less dependent on minerals. Stephen Brown, an economist at the University of Nevada, 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 1980’s. “What we’re seeing is that states are becoming more and more alike and less driven by these boom and bust cycles,” Brown says.

A few states, however, 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, wants that to change. His organization has its roots in the coal industry. He says the energy industry has been great for the state, helping to pay for everything from roads to new schools, though he also thinks the state needs to diversify. “There are some clouds on the horizon,” he says.

Diversification is a tricky thing, though, and everyone interviewed for this story had a different excuse for why Wyoming has not managed that trick yet: the cold, the lack of people, the isolation. Even so, most agree 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,” Schilling says. “I mean, we need all of those things.” And he sees Wyoming heading down that path, though 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.”

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

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