Colorado overall will fare better than other states in the oil patch if crude prices remain low, but the same can’t be said for Weld County, according to a report Wednesday from Wells Fargo Securities.
“Weld County is likely to suffer the worst in the state. Denver may also face some downside risk, as it serves as a hub for the energy business in the surrounding state,” said Mark Vitner, a senior economist with Wells Fargo Securities.
A barrel of crude oil sells for less than half of the near-term peak of $107 it reached in June and is below the break-even point where many domestic producers can afford to keep drilling.
“We feel that Colorado will hold up relatively well given the slide in energy prices,” Vitner said in a conference call.
The state ranks as the nation’s seventh-largest oil producer and has the 10th-highest concentration of workers employed in oil and gas. But it has a more diversified economy that went into the oil slump with momentum.
About 1.2 percent of the state’s workforce is in oil and gas extraction and supporting industries. In North Dakota and Wyoming, more than 6 percent of workers make a living directly from petroleum.
An additional 0.5 percent of workers in Colorado are employed making mining and oil and gas equipment. Among all those people employed as equipment makers, about 80 percent work in Texas, Oklahoma or Louisiana.
What sets Colorado apart from other oil patch states is how concentrated oil and gas production is in just one county. About 80 percent of Colorado’s oil output comes from Weld County, whereas even in North Dakota, the top county accounts for a third of production, and in Texas, the top county accounts for less than one-tenth of overall production.
When prices reached their near-term peak in June, Weld County was registering a 41.5 percent annual jump in mining employment and an 8.9 percent jump in overall unemployment. The county had the in the second quarter.
Unlike the fields of North Dakota and rural Texas, where many workers live in temporary housing and are expected to go back to wherever they call home if activity slows, workers have put down deeper roots in Weld County.
Building permits in Weld County last year were running at triple the pace of 2012, contributing to a 21.1 percent jump in construction employment through the second quarter.
“If the energy business does dry up, we may find that the multipliers on the downside are even larger than they were on the upside,” the Wells Fargo Securities report warned.
The report noted that drilling-rig counts, which held up through December, are plummeting nationally this year. Colorado, however, is faring better than most states in that regard, which should buy Weld County a little more time.
Vitner noted that Denver’s position as a hub for regional oil and gas operations could cause professional service employment to decline as companies pull back.
Unlike those who forecast a quick rebound, Wells Fargo Securities is calling for oil prices to remain depressed for an extended period.
Vitner said Tuesday’s rebound to above $53 a barrel won’t last, and he expects oil to retest the $41 low reached in January and spend some time in the $30 range.
Wells Fargo is forecasting oil to average $50 a barrel in 2015 and $60 in 2016. Vitner said layoffs, mergers, bankruptcies and a lot of disruption are likely on the way to reaching a bottom and he doesn’t see the market finding its balance until mid-2016.
“It is way too soon to expect prices to have bottomed,” he said. “We haven’t seen the kind of carnage you would expect to see in a market that has been oversupplied.”
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or twitter.com/aldosvaldi
