Edmond and Energy

I am a former banker, and the current president of a financial services firm. Both roles require attention to the trends in our energy industry in Oklahoma. But yesterday as I met with CEO’s of small oil and gas companies, I wondered how $45 a barrel directly affects Edmond.

Obviously, low oil and gas prices crimp the state budget in a big way. Almost daily we are getting new reports of a serious declines in state revenues, which in turn hurt education, roads and bridges. Clearly all these issues are serious to Edmondites, as we pride ourselves on being a top-ranked city in all of these categories.

Edmond Public Schools are dear to the hearts of families all over Edmond. Lower oil and gas prices mean less state revenue which trickles down to less money for schools. The silver lining to that dark cloud is that Edmond has never been treated fairly by the state’s funding formula – Edmond gets less per student than a majority of other schools in Oklahoma. In a really weird, twisted sort of way, lower oil and gas prices will have less impact on Edmond schools than others in Oklahoma. Since we get less of the state’s education funding, there is less of it to lose.

As for roads and bridges, Edmond relies on the Oklahoma Department of Transportation to help fund pieces of our growing infrastructure. We will see a direct effect here. Projects will be on hold or in question.

We could see a big hurt on our small businesses and on our city services. Small businesses rely on purchasing power of consumers. Many former Chespeake employees live in Edmond, and if families have less money to spend, then local businesses have less revenue. Edmond, like all Oklahoma cities, relies on sales tax as its largest source of revenue. Without it, parks are not built, roads are not repaired, and many projects are put on hold.

A very real consequence is access to capital. In the financial meltdown of 2008, as a banker, I couldn’t find loans that the federal regulators would approve. Longtime customers got calls from their bankers telling them that their loans could not be renewed. Fierce regulations forced community banks out of the mortgage business, and left new home buyers struggling to find a mortgage. Because real estate markets were undervalued in Arizona and California, regulators painted with a broad brush and assumed the rest of the country was having similar issues. They made perception a reality.

At a recent banker’s conference, every regulator agreed that energy downturn had them antsy not only about energy sector loans, but about small banks’ lending portfolios overall in states where energy plays a big part. Very telling in all these recent meetings was the first question asked by every single regulator: “What do you see in the energy sector in your home state of Oklahoma?” Translation to you and me: If regulators are nervous, banks are nervous.

Refreshingly, when I talk with both large and small energy companies, they are prepared. Unlike the banking regulators’ pessimism, the energy guys are ready. As one gentleman said yesterday, “this ain’t my first rodeo.” The industry has seen bad times before, and is ready to forge ahead for the next 6-9 months until prices rise. They not be drilling now, but when price per barrel hits $60, they are ready to go again.

Don’t let federal regulators turn a perception into a reality. The real answer is that Oklahoma is much more stable that it was in 1983, and so are the banks. Oil and gas companies have more cash on hand and less debt. Likewise, the city of Edmond’s finances are solid. Our long-time treasurer, Stephen Schaus, makes sure of that.

We are a resilient state, and Edmond can weather this storm. We have cinched up our belts before, and we can do it again.

 

 

Patrice publishes a regular column in Edmond Life & Leisure which covers everything from politics and culture to family.  She is also a regular guest host on KWTV’s Flash Point.