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Should You Buy Into This Oil Rally?

Should You Buy Into This Oil Rally?

Technical and fundamental factors are…

Michael Kern

Michael Kern

Michael Kern is a newswriter and editor at Safehaven.com, Oilprice.com, and a writer at Macro-Investing.com. 

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The Cowboy State Is Hurting As Low Oil Prices Persist

The Cowboy State is struggling. Low demand for oil, gas, and coal is crippling the local economy, and lawmakers are scrambling for solutions. Production has been limited and exploration for new wells has come to a grinding halt. But is there some relief on the horizon?

COVID-19 has taken a major toll on the oil and gas industry as a whole, but Wyoming, a state highly dependent on its abundance of natural resources, is really feeling the sting. And the dominoes are already starting to fall.  The rig count in Wyoming fell from 30 rigs in March to just two rigs in early June. Experts estimate that for every rig lost, around 100 oil and gas jobs cease to exist. And though oil prices have rebounded in recent weeks, a full recovery of Wyoming's oil and gas industry appears unlikely in the short or even medium term. 

Even one of the Cowboy State's top producers is throwing in the towel. At least for now. 

One of Wyoming's top oil producers, Ultra Petroleum Corp., filed for Chapter 11 bankruptcy Thursday evening. This is the result of months of financial problems sparked by the COVID-19 fueled downturn in energy markets. 

Brad Johnson, Ultra Petroleum’s CEO explained, “After several months of liability management efforts and careful consideration of how best to navigate a challenging low commodity price environment and our debt levels, Ultra’s Board of Directors determined that a voluntarily filing for Chapter 11 reorganization provides the best outcome for the entity,” adding “This financial restructuring will result in an enterprise with very little debt, good liquidity and significant free cash flow that is underpinned by a large-scale, low-cost base of natural gas and condensate production.”

Related: The True Impact Of COVID-19 On Natural Gas Demand

And that's bad news for Wyoming as a whole. 

As one of the top producers - and taxpayers - in the state, Ultra's insolvency puts Wyoming's entire revenue in additional jeopardy.

Adding to the pain, Texas and New Mexico have had a significant advantage in this market. The nature of drilling in the south means that Permian producers are able to pull up natural gas as a free byproduct of oil production. This has made it difficult for producers in Wyoming who deal exclusively with gas.

While most of the natural gas in the U.S. comes from oil drilling operations, the collapse in energy demand worldwide makes it even more difficult for producers who only pump gas because they have nothing else to fall back on. 

By Michael Kern for Oilprice.com 

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