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Cover story: For good or bad, Oklahoma is an energy state

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Jason Roberts, "Driller" on a Devon natural gas drilling rig in the CANA field near Calumet Oklahoma, looks down through the drilling deck, preparing to guide a tool through.  mh
  • Jason Roberts, "Driller" on a Devon natural gas drilling rig in the CANA field near Calumet Oklahoma, looks down through the drilling deck, preparing to guide a tool through. mh

Sitting on a platform at the top of Boone Pickens Stadium, minutes after Oklahoma State University’s back-and- forth game with Kansas State ended in a 52-45 win, ESPN commentator Kirk Herbstreit’s eyes grew wide as another television anchor was asking a question about the big game.

Herbstreit waited until the end of the question and then admitted he hadn’t heard a word. Instead, he had been distracted by the intense vibration of the stadium.

“As I’ve been talking to you, we just had, I think, an earthquake,” Herbstreit said into the camera. “I literally thought the stadium was rocking like people were stepping down off this platform I was on.”

It was Nov. 5, 2011, and the state’s largest ever recorded earthquake had just taken place 40 miles away in Sparks as a 5.6 magnitude quake could be felt beyond Oklahoma’s borders into Kansas and Texas.

Herbstreit’s reaction was similar to thousands across Oklahoma, many of whom had never before felt the ground shake like that. Fast forward three years and the experience has become commonplace as Oklahoma has quickly become home to more earthquakes than any state besides California, according to the U.S. Geological Survey.

The increase in seismic activity originally drew theories that the state’s increase in underground injection well drilling was to blame, and this year, a study by Cornell University and the University of Colorado published in the journal Science backed up that claim.

Energy sector officials responded with their own rebuttals that the study was not inclusive of all facts, and the Oklahoma Independent Petroleum Association said more research was needed. Since then, more earthquakes have hit the state and suspicion over the link between drilling and quakes has grown. This month, Gov. Mary Fallin announced the creation of the Coordinating Council on Seismic Activity, which she said would be charged with further exploring the cause of earthquakes in Oklahoma, which has seen more earthquakes of a 3.0 magnitude or higher this year than all previous years combined.

“We want to be able to know what the facts are, what the science is, and bring the experts together,” Fallin said.

The council Fallin will rely on to offer further insight into the matter is made up of state officials working with the energy sector, along with representatives from the Oklahoma Independent Petroleum Association and the Oklahoma Oil and Gas Association, organizations that advocate for the growth of oil and gas drilling.

“We need to hear from some people who don’t depend on the oil and gas industry for their livelihood,” said Sen. Jerry Ellis, D-Valliant, about the council’s

inclusion of oil and gas professionals who might not want to find a link between drilling and earthquakes.

If the inclusion of oil and Devon Energy Cana Field natural gas drilling rig. gas professionals in the discussion of policy that could impact their bottom line sounds a bit like a conflict of interest to people like Ellis, it isn’t anything new in state in which a quarter of all jobs across the state are tied to the energy sector and the growth rate of new oil wells is second only to Texas. A sophisticated and highly funded lobbying effort from the state’s energy sector has helped oil and gas companies sway policy decisions on everything from regulations to taxes.

“We have been unwilling to tax the energy industry properly in Oklahoma,” said David Blatt, executive director of the Oklahoma Policy Institute. “And this year, we failed to fix it.”

The left-leaning think tank pushed lawmakers this year to raise the horizontal drilling tax of 1 percent closer to the 7 percent tax that is typically levied on oil and gas production. It had support from dozens of lawmakers early in the 2014 legislative session, and Blatt’s organization commissioned a poll that showed 64 percent of Oklahomans were against tax breaks for oil and gas companies.

However, oil companies pushed for a 2 percent tax that the Legislature eventually approved, despite the fact that the state’s budget continues to underperform based on needs in transportation, corrections and education.

“We talk about how the energy sector is growing and how well the economy is doing ... but we continue to be confronted by sluggish [tax] revenue growth and budget shortfalls,” Blatt said.

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Energy education

In North Dakota, another state experiencing a boom in oil and gas production, the state budget has seen double-digit percentage increases thanks to a taxing rate that is more than twice as high as Oklahoma’s. While Oklahoma has made some of the biggest cuts to education in the nation since 2008, North Dakota made the biggest increase, according to Center on Budget and Policy Priorities.

Lower taxes might mean a higher return for Oklahoma energy company shareholders, but its impact on education spending could create challenges for those same companies looking to hire local workers in the future.

“Science and technology education are paramount for us in looking for [new workers],” Lance Robertson, vice president of Marathon Oil, told an audience at last month’s Governor’s Energy Conference in Oklahoma City. “We would like ... those to come from the state.”

Workers with high levels of education in science and math are viewed as important to the energy industry, especially as new technology is implemented. However, those are two academic subjects Oklahoma has ranked below average in, according to the National Center for Education Statistics.

The education of the local workforce becomes more important as energy companies look to move to the region.

General Electric (GE) plans to open an oil and natural gas technology research center in Oklahoma City, a one-of-a-kind facility that is expected to add 130 high- paying jobs to the local workforce.

“We picked Oklahoma City because it is in the heart of the oil and gas space,” Mark Little, GE’s director of global research, said last year when OKC was selected.

The facility represents the region’s role as an energy hub, but it also highlights the evolution of an industry that is becoming more tech-based.

“The next wave of [oil and gas] innovation is going to be open innovation and technology,” said Eric Gebhardt, chief technology officer for GE. “But one of the challenges is that the skills of the team we have developed [at the new facility] is based on the model of today. Having that culture of continuous learning and continuous change [is a challenge].”

Oklahoma is underperforming in the academic subjects that the energy sector needs, and the state is also struggling to produce workers with the specific skills that are required.

“The skills gap in Oklahoma is one of the things we spend a lot of time talking about,” said Greg Winters, superintendent of Canadian Valley Technology Center in Canadian County. “People talk about the process of education all the time ... but quite frankly, I don’t think we spend enough time talking about the product of education.”

Canadian Valley features several programs related to the energy sector, including classes in becoming a wind energy technician, which is a growing field in the state. Other schools have launched energy-related degree programs, like the Master of Business Administration in Energy program at the University of Oklahoma City.

“[Students] are petroleum engineers or geologists or geophysicists, but they don’t know about business,” Meinders School of Business Dean Steve Agee told The Oklahoman this year. “They don’t know how to read financial statements, and they don’t know about balance sheets or energy economics.”

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Private economy

While lawmakers have been criticized for not helping the tax base benefit more from the state’s large energy sector, the economic gains in the private sector are hard to ignore.

Oklahoma’s 4.7 percent unemployment rate, which is 11th best in the nation, has been credited as a product of the energy industry’s growth over the past decade.

The growth of drilling in western Oklahoma has sparked new life in rural communities, as 2,600 wells were completed in 2013, according to the Oklahoma Corporation Commission. Towns like Woodward and Weatherford have seen dramatic increases in residents and development in recent years.

“Mining, quarrying and oil and gas extraction industries were the most rapidly growing part of our nation’s economy over the last several years,” said U.S. Census Bureau Director John H. Thompson in a report that named the two western Oklahoma towns as part of the top-10 fastest growing small towns in America. “A major reason was the energy boom on the Plains.”

Oklahoma City’s population gains in recent years are related to energy, but also other sectors like retail, technology and construction, which are also performing well. However, the fingerprints of energy companies located in the metro are all over developments, cultural institutions and sports teams that are new to the city.

“The impact that the Devon headquarters has had on Oklahoma City and our overall perception of ourselves is huge,” Cathy O’Connor, president of the Alliance for Economic Development in Oklahoma City, said about the construction of Devon Tower.

O’Connor said she believed energy companies that have recently constructed new headquarters, such as Devon Energy, Chesapeake Energy and SandRidge Energy, have raised the standards for development in OKC. Those new facilities have also sparked economic develop in downtown and the Classen Curve area.

But O’Connor doesn’t credit the energy industry for all of OKC’s recent economic growth.

“The average wage in Oklahoma City have risen, and a lot of that is due to the energy sector, but I think we have a more diversified economy than we were 10 or 20 years ago,” O’Connor said.

Also, the city’s energy companies, two of which are on the Forbes 500 list, are also regular contributors to nonprofit organizations like the Oklahoma City Ballet, the Oklahoma City Museum of Art and the National Cowboy & Western Heritage Museum.

(By Christopher Street)
  • By Christopher Street

Future of energy

For good or bad, earthquakes or economic development, the energy sector is a force in Oklahoma, and the region’s future might be closely tied to the rise or fall of an industry that employs thousands, spends millions and earns billions.

Traditional oil and natural gas production continues to dominate the landscape, but the state is also experiencing the growth of alternative forms of energy, and that has created clashes between residents and big business in some places across the state.

Oklahoma ranks seventh in the nation for electricity produced by wind generators, according to the American Wind Energy Association (AWEA), and the wind energy industry is expanding across the state each year.

“The electricity generated by American wind power has more than tripled since 2008 not only due to significant growth in new wind projects but also technology innovation leading to more productive wind turbines,” said Elizabeth Salerno, vice president of industry data and analysis for the AWEA.

Massive wind farms have been constructed in western Oklahoma, but new farms built closer to the metro have raised ire from residents of more suburban communities who are concerned that 400-foot tall wind turbines pose a safety risk and are a nuisance. Residents in Canadian and Kingfisher counties formed an opposition group two years ago against a proposed wind farm near Piedmont, and the group successfully delayed construction and won an agreement from a major wind energy company to put proposed turbines farther away from some residential areas.

The debate has also drawn the attention of state lawmakers who have said the growth of wind farms in populated areas needs to be monitored.

“I am a supporter of wind energy, but they don’t have very much regulation in [Oklahoma], and they are moving in towards the metro area very fast,” said Rep. Rob Johnson, R-Yukon.

The grassroots organization calling itself the Central Oklahoma Property Rights Association was successful in altering construction plans for a wind farm near Piedmont and showed an organized group of citizens can win in a fight against the energy sector.

Another grassroots effort against energy is a petition seeking to overturn a bill that allows electricity companies to impose fees on property owners that choose to generate their own electricity.

“From the moment I heard about this, I thought, ‘This is a bad deal,’” said Bob Waldrop, a volunteer with the No Sun Tax group that is collecting signatures.

The group is trying to collect 51,000 signatures by Oct. 9 in order to allow voters in November to overturn Senate Bill 1456. Passed by the Legislature earlier this year, the “solar surcharge” bill permits utility companies to charge customers with solar panels or wind turbines a special fee.

“Someone who invests in their own solar cells is making a capital investment that the electrical utilities have nothing to do with,” Waldrop said.

Some of the region’s biggest successes are tied directly to the energy industry, and the future economic growth of Oklahoma City will rely heavily on future production of oil, natural gas and wind energy. Atthe same time, some of the biggest challenges facing Oklahoma, such as budget shortfalls, environmental protection and earthquakes and a shortage of skilled workers are directly tied to the energy sector.

Print headline: Power up: From earthquakes to the state budget, the energy sector is as much a part of our state as natural gas and oil is to the ground under our feet.

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