The Oklahoma Energy E&P EconomyWho is John Galt?

Karr Ingham, Economist

Annual Meeting of the

Oklahoma Independent Petroleum Association

June 8, 2008

The Oklahoma Energy Index

A Partnership Presentation ofThe OIPA and Oklahoma Secretary

of Energy David Fleischaker

The Oklahoma Energy Index

Composite index, based at 100.0 in Jan 1995

Calculated using a comprehensive group of Oklahoma E&P indicators

Tracks growth rates, cycles and trends in Oklahoma energy E&P industry

OEI Components

Crude oil and natural gas prices paid to producers Rig count, intents to drill Volume and value of Oklahoma crude oil and

natural gas production Industry employment Energy E&P Stock Index

-

50.0

100.0

150.0

200.0

250.0

300.0

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

Ind

ex (

Base

=100 J

an

199

5)

Oklahoma Energy IndexApril 2008

249.1

March 1997 July 1999

Aug. 2001 Sept. 2002

“Gambling is illegal at Bushwood, sir – and I NEVER slice.” Judge Smails, Caddyshack - 1980

Monthly Average Crude Oil Price Paid to Oklahoma Producers 1995 - 2008

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

Pri

ce

/ b

bl

April 2008 $122.45

“Strikeouts are boring, and besides that, they’re fascist. Throw some ground balls. They’re more democratic.” Crash Davis, Bull Durham 1988

Daily Crude Oil Posted Prices April – June 2008

$80.00

$90.00

$100.00

$110.00

$120.00

$130.00

$140.00

Peak?

“Now go away, or I shall taunt you a second time!” French Castle Guard, Monty Python and the Holy Grail - 1975

Natural Gas Prices Paid to Oklahoma Producers, Monthly 1995 - 2008

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$/m

mB

TU

“Fear? That’s the other guy’s problem.” Louis Winthorpe III, Trading Places, 1983

Monthly Value of Oklahoma Crude Oil & Natural Gas Production

$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

$1,400.0

$1,600.0

$1,800.0

$2,000.0

$ M

illi

on

s

“What hump?” Igor, Young Frankenstein - 1974

Oklahoma Monthly Rig Count

0

50

100

150

200

250

“I’m so rich, I wish I had a dime for every dime I have.” Arthur Bach, Arthur - 1981

Oklahoma Energy E&P Payroll Employment

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

“I AM serious. And don’t call me Shirley.” Dr. Rumack, Airplane - 1980

Oklahoma Energy Production Stock IndexChesapeake Energy, Devon Energy

Unit Corp., XTO Energy, Newfield Exploration, Apache Corp.,

St. Mary Land & Exploration, Quest Resource Corp.

846.2

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1,000.0

19

95

19

97

19

99

20

01

20

03

20

05

20

07

IND

EX

(B

ase=

100

Jan

199

5)

April 2008

“There’s a man in the toilet selling after-shave. Now, what’s that all about?” Hank Gordon, Doc Hollywood - 1991

(Who IS John Galt?)

Oklahoma Total Employment andEnergy E&P Employment (April)

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Millio

ns

Total

O&G

“You’re KILLIN’ me, Smalls.” Hamilton Porter, The Sandlot - 1993

Oklahoma Energy E&P Employment as %of Total Employment 1995 - 2008

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%1

99

5

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

“Roses are red, violets are blue, I’m schizophrenic and so am I.” Bob Wiley, What About Bob? - 1991

Oklahoma Year-Over-Year Job Growth(April )Total Emp. and Oil & Gas Industry Emp.

11.9

36.0

27.2 27.3

2.7 3.2

5.94.1

6.3

37.7

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2004 2005 2006 2007 2008

Th

ou

sa

nd

s

“Baseball is like church. Many attend; few understand.” Leo Durocher

Oil & Gas Jobs Added as % of All JobsAdded Over Last Five Years in Oklahoma (April)

23%

8%

16%15%

23%

0%

5%

10%

15%

20%

25%

2004 2005 2006 2007 2008

“No soup for you!” The Soup Nazi, Seinfeld - 1995

Oklahoma Job Creation 2003-2008

140.1

22.2

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Total O&G

Th

ou

sa

nd

s

“Seven years of college, down the drain.” John “Bluto” Blutarski, Animal House - 1978

Oklahoma’s Energy E&P Industry Drives Oklahoma Economy and Employment

• DIRECT energy E&P jobs added result in indirect job growth many times over

• Assuming an industry employment multiplier of 4.0, total job creation as a result of energy E&P activity in Oklahoma is over 88,000 jobs over last five years

• Direct and indirect employment as result of energy E&P activity in Oklahoma accounts for over 60% of all jobs created over last five years

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

$ M

illio

ns

Total

O&G

Oklahoma Total Economy andEnergy E&P Economy

“This is U.S. History. I see the globe right there.” Jeff Spicoli, Fast Times At Ridgemont High - 1982

Oklahoma Energy E&P Economy as % of Total Economy

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

“I spilled spot remover on my dog. Now he’s gone.” Steven Wright, Comedian

Gross Production Tax as Percent ofAll Oklahoma State Taxes Collected

(FY Ending June)

5%

7%

12%

7%

10%11%

13%

15%

12% *

0%

2%

4%

6%

8%

10%

12%

14%

16%

1999 2000 2001 2002 2003 2004 2005 2006 2007

Agnostic, Dyslexic Insomniac: Lays awake at night and wonders if there really is a dog.

All Taxes Paid by Energy E&P Industry as Percentof All State Tax Collected (Est., FY Ending June)

8.8%

12.3%

22.2%

12.6%

19.0%

21.5%

26.0%

30.0%

25.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007

“It’s about time, Benny. My clothes are goin’ outta style.” Michael ‘Squints’ Palledorous, The Sandlot - 1992

3 – 15 – 30Oklahoma’s Energy E&P Industry,

comprising 3%

of total employment, makes up

15% of the state’s economy, and pays

30% of all state taxes.

Who is John Galt?

Or, more appropriately,

Who is Ellis Wyatt?

John Galt

Central character and male heroin Ayn Rand’s 1957 classic novel

ATLAS SHRUGGED

Other ‘Atlas Shrugged’ Heroes

Dagny Taggart – Taggart Railroad

Hank Rearden – Rearden Steel

and, of course Ellis Wyatt – Wyatt Oil Company

The heroes are industrial giants and

economic contributors

The Looters and the Moochers

Politicians, bureaucrats, media, members of the ‘cultural elite’, and even others in industry who exist on the backs of the contributors, and engineer policies designed to punish the successes of the contributors and ‘equalize’ the economic landscape in the name of the ‘greater good’.

Original Title“The Strike”

One by one, the contributors remove themselves, their talents and their production from society and from the economy, to a secret community where they benefit from one another’s contributions, but the broader economy/society does not.

The Industry is Under Fire Politicians, consumers and the cultural elite

are indignant Entitlement mentality Apparent lack of understanding, much less

appreciation Ceaseless proposals to disrupt functioning

markets “BIG OIL” routinely hauled in front of Congress

to account for their purported unethical, perhaps even fraudulent activities and profits

Food Prices Are Increasing(due in part to Ethanol)

When will

“BIG CORN”

be called to account by Congress?

Housing Prices Increased Dramatically (that bubble is bursting)

When will

“BIG WOOD”

be asked to explain its contempt for the working people of America?

What If……..

…the talents, contributions (and production) of the nation’s energy producers were instantly removed from the marketplace?

…there was no gasoline at ANY price?…the switch is flipped, but the lights don’t

come on?…the things we take for granted are no longer

available to us?

And What If……..

… producing states were instantly denied the tax revenue provided by the industry?

(Strangely, only in energy is PRODUCTION taxed, in addition to consumption)

Sound Energy Policy

Ditch the taxes

GET OUT OF THE WAY

“There’s no crying in baseball!” Jimmy Dugan, A League of Their Own, 1992

The Oklahoma Energy E&P EconomyWho is John Galt?

Karr Ingham, Economist

Annual Meeting of the

Oklahoma Independent Petroleum Association

June 8, 2008

“…unless you’re a Rangers fan.” Karr Ingham, 2008