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North Dakota: The Oil Boom

posted on March 23, 2012

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Two years after the worst downturn since the Great Depression supposedly ended, America continues to claw its way back from the economic abyss. 

There is one place, however, where unemployment is virtually non-existent; state coffers are bursting and a diverse economy is growing almost exponentially.  Welcome to North Dakota – the state the recession forgot…

With an annual economic impact of nearly $7 billion, agriculture accounts for 30 percent of the state economy.  But an oil boom in the western part of the state now is bringing big trucks  -- and big hopes – to North Dakota.  And nowhere is that more apparent than in the formerly sleepy town of Williston.  

Ward Koeser, Mayor, Willison, North Dakota: “Obviously there is some real challenges and, and, you know we would like to grow a little slower if you could control what is happening.”  

Ward Koeser has seen dramatic changes in his 17 years as mayor of Williston. But nothing could prepare him for the seismic shift that began when the first commercial rig drilled deep into the Bakken Shale Formation in 2006. 

In the ensuing five years, more than 200 rigs took root in the western part of the state.  Rumors now are circulating that 50 more oil wells could soon be drilled in the region, and Koeser is a bit concerned for the 20,000 people who now call the Williston area home. 

Ward Koeser, Mayor, Williston, ND: “Each rig brings anywhere from eighty to a hundred workers with it and then you get all the extra things that you need the stores, the restaurants, and all the things there. We just - we really are being pushed to the limit. A big increase in rig count would really challenge us.”

In addition to drilling rigs, countless oil jacks dot the otherwise mostly barren landscape, working around the clock pumping black gold from deep within the earth.  But it's the technology deployed on the drilling rigs that has set up a classic oil play in the Bakken. 

New – and in some respects, controversial – horizontal drilling and fracturing methods are unlocking billions of barrels of heretofore inaccessible crude.

The procedure, more commonly known as fracking, begins by drilling vertically until workers reach a zone of interest. They then gradually drill to a 90 degree angle. Cement casing is then installed and small fractures are created. Finally, sand and water are injected into the voids allowing oil or gas to flow into the wellbore.

Ron Ness, North Dakota Petroleum Council: “This technology being able to go two miles and out two miles with the technology put that drill bit inside a coffee can down and out two miles - four miles total has really changed the game.”

 As head of the North Dakota Petroleum Council Ron Ness has seen the North Dakota oil industry expand dramatically in his 13 years on the job. And he says the growth is accelerating. 

Ron Ness: ND Petroleum Council: “Now I didn't think this industry would be where it was six months ago today.  We keep having to recreate ourselves.  The expansion - the ability to take a basin that is producing a hundred thousand barrels of oil a day and now go to probably four-fifty.This is serious oil and we’re just getting started.”  

Though virtually nonexistent 5 years ago, oil production accounts for about 25% of the state’s economy, but its share is growing every day. 

Oil speculators, however, aren’t exactly new to North Dakota.  The state enjoyed similar booms in the 50s and late 70’s. But as the holes dried up, so did the economy.  This time around though, officials say things are different. 

Lynn Helms: Director of Dept. of Mineral Resources, North Dakota: “We think it is going to take about 33,000 wells to produce this oil field and so we're not even ten percent of where we need to be at the end of this drilling phase.”

As director of the Department of Mineral Resources, he oversees regulations, permits, and surveys of oil and natural gas sites.  And Helms predicts things are going to be “Rockin' in the Bakken” for quite a while.

In May of 2008, when North Dakota’s total oil production was estimated at four billion barrels, Helms delivered what he calls his “This Is Going to Be Enormous Speech.”  His outlook was criticized at the time for being too optimistic, but Helms says he actually understated the future of fracking.   

Lynn Helms, Director of Dept. of Mineral Resources, North Dakota: “That speech actually underestimated what is happening by about fifty percent. Our estimate of the amount of oil in this Bakken formation just in ND is a hundred seventy billion barrels.  Right now with the technology we have we think we can get about 11 billion of those barrels out. If someone can come up with a way to just increase the recovery of this oil 1% that will be another billion barrels that we will take out of the ground.  So this - this thing has a very long life to it.“ 

But the blessings of oil are not without their own set of burdens.  Housing is a major problem.  Campers are parked on just about every available space because New developments are under construction, but builders can't complete them fast enough.

In the last fiscal year, the city of Williston issued $220 million dollars worth of building permits...Ten times the state average for a community of its size.

But for those lured by the call of crude – and lucky enough to find housing -- opportunities abound.

Trucks literally outnumber workers in Williston. There are no vacancies at any of the local hotels and infrastructure is being stretched to the breaking point. 

Roads are deteriorating, crowded and -- by some accounts -- dangerous. Nearly $2 billion in newly allocated state funds will help, but will likely be insufficient to accommodate the Bakken’s enormous potential.   While state coffers are brimming, officials are reluctant to sign blank checks.    

State Sen. Tony Grindberg, R – Fargo, ND: “We had an 8,000% increase in our Department of Transportation budget and a large amount of that was one time infrastructure spending to meet the demands and so you know I mean it is, you’ve got to be prudent in your decision making.”

Fresh water supplies are ample thanks to Williston’s proximity to the Missouri River, but the local water treatment facility is woefully inadequate. 

Mayor Ward: “We - we literally  have sewage coming out of our ears.  We have grown so rapidly and we need to be expanding and we are trying to expand our plant.”

Rather than wait for government solutions, some companies are taking matters into their own hands. 

Ron Ness: “Got a company in  Watford City, North Dakota, Badlands Power Fuels in 2007 he bought the business.  He had twenty trucks and forty employees.  Today he has got six hundred trucks, eight hundred fifty employees.  He is building four hundred and some apartments, houses."

While the potential is not without pitfalls, North Dakota officials are aggressively embracing the call of crude.  And with the nation's lowest unemployment rate and an economy that is the envy of virtually every other state, they claim prospects for prosperity also are high.   

Lynn Helms:  “ The thing that I always drive home thinking about is that we're only ten percent into this thing and ninety percent of the work is in front of us. Ninety percent of the production is still in front of us.

While it is difficult to overstate the economic impact of the oil boom in North Dakota, experts say increased U.S. production has little effect on retail gasoline prices.

Next week we’ll examine why efforts to extract more crude from domestic locations could fail to alleviate the pain at the pump.

For Market to Market, I’m Paul Yeager. 

Tags: economy environment farmers fracking midwest news North Dakota oil production