Posted 10/06/15 (Tue)
By Amy Robinson
Farmer Staff Writer
Before the oil boom exploded in the Bakken, Watford City was a bedroom community of approximately 1,500 people. Today, the city’s population has multiplied six-fold with expectations of continued growth over the next 10 years.
Watford City boundaries embraced 882 acres pre-oil boom. Since 2010, annexations and expansions have increased that size to encompass an acreage total of 5,459 acres. And over 20 developments have gone through and completed the entire planning and zoning process, representing more than 2,800 acres.
“We’re coming on more stable times,” stated Gene Veeder, executive director for the McKenzie County Job Development Authority. “And our trend in growth is still upward here. Our numbers are still real strong here. People are waiting to see those numbers change, and they haven’t.”
While the oil industry remains strong, Watford City is still not seeing the price of rental housing fall to the levels being seen elsewhere in the oil patch.
McKenzie County’s Oil and Gas Industry to Remain Stable
“It’s pretty evident that looking at all of the oil-producing counties, McKenzie County doubles the closest county in terms of gross oil production,” states Veeder. “Oil production will be quite strong in the county, even at $20 to $30 a barrel. These numbers will be above 350,000 barrels of oil a day. You’ll see some depletion, but still pretty strong.”
While there is concern from many that anticipated low oil prices will hurt drilling activity, in western North Dakota, Veeder says that with McKenzie County’s low breakeven point for well profitability, drilling activity has and will remain strong in the county.
The breakeven point for McKenzie County wells is $27 a barrel and with oil prices in the low to mid-$40s a barrel, there is still room for profits. Which is why McKenzie County remains the epicenter for new drilling activity in the state.
As of Sept. 9, 2015, McKenzie County had 25 of the state’s active rigs, followed by Williams County at 15, Mountrail County at 14, and Dunn County at 13.
“Oil production numbers are steady in our county,” says Watford City Mayor Brent Sanford. “Only until prices go up again, then it will boom again. And the best producing wells are in our area.”
According to Lynn Helms, North Dakota Department of Mineral Resources director, he expects to see 25 rigs drilling at the $20 to $30 a barrel level with 19 frac crews working in McKenzie County in 2015. If that $20 to $30 level stays consistent over the next two years, that would still leave McKenzie County with 16 rigs in 2016 and 19 rigs in 2017. In 2015, McKenzie County would have 3,248 active wells, 3,575 in 2016, and 4,031 in 2017. The interesting thing to note is that at the $20 to $30 level, both Mountrail and Williams counties would be hit pretty hard in 2016 and 2017.
Mountrail County would have no rigs in 2016, all the way down from 14 in 2015, and Williams County would also have zero rigs in 2016, down from 15 in 2015. That means neither county would have frac crews working, which would hurt the oil and gas industry tremendously in those counties.
“If we stay at the $20 to $30 a barrel level, it’s not going to be easy,” said Veeder. “But it’ll be much easier for us to get through this slowdown than other counties. The big number is the gross production number for McKenzie County. No matter what level we are at, whether it’s $20 to $30, $30 to $40, or $40 to $50, McKenzie County will be producting 400,000 barrels of oil a day, which is almost double any other county.”
Veeder says that regardless of what the price level is, McKenzie County will stay above 430,000 barrels of oil a day. He adds that the production piece will keep the county moving forward.
“Those numbers of production stay pretty steady,” states Veeder. “The number of wells will go down, but we’re producing more oil. And no matter what, it’d be fair to say we’d have between 15 and 20 rigs drilling here, which gives you an idea of how much truck traffic would continue here. From a job perspective, the production piece is going to stabilize here. And from a job perspective, it looks better because we’re in McKenzie County. Our jobs will stay pretty steady. The production side of it will probably stabilize things here.”
Job Outlook Good
“I think families are trying to plant roots here,” states Sanford. “The long-term production oilfield jobs are coming online rapidly as more wells are completed. As are the indirect jobs like teachers, professional, and service jobs.”
According to Veeder, as production holds stable through 2017, the jobs that support the oil industry will remain pretty stable.
“There are jobs here,” says Sanford. “However, we might have less overtime or people may be taking lower paid jobs.”
Currently, there are 38,000 production jobs in the state of North Dakota and McKenzie County has approximately 30 to 40 percent of those jobs. And by 2025, that amount could grow from 38,000 to 100,000 production jobs in the state of North Dakota.
“Going from 38,000 oil production jobs in 2015 in the state of North Dakota to 100,000 in 2025 is a way to think positively,” says Veeder. “And if McKenzie County has 30 to 40 percent of those production jobs, that’s very significant. It’s a positive because most of the production jobs could be in McKenzie County.”
Veeder also says that McKenzie County isn’t even close to getting all of its pipeline infrastructure, so that is going to be out there for a while with those jobs as well as production jobs.
Despite the Drop in Oil Prices, Development Continues
“I think it’s fair to say right now that we are feeling that we haven’t met the housing needs of the public yet,” stated Veeder. “The trend is on the production side of the oil and gas industry and the needs are for family homes. The production side has more of a permanent population as opposed to the exploration side, which has a more transient population. So if that stays even, we still need places for people that need long-term housing. The increase in production type jobs is what we wanted to see and build homes for.”
According to Sanford, rents in Watford City have come down a lot, but are still higher than elsewhere partly because construction is now slower than expected.
“Builders are slowing their apartment construction,” says Sanford. “We’re still not putting up enough single family homes. However, single family home construction is picking up. And some rents have come down as much as $1,000 a month. Hopefully, contractors keep building so the rents can keep coming closer to statewide rents and home prices. People are starting to be able to move into housing that is affordable and appropriate for their situation.”
Despite the housing, retail, and commercial development lagging behind, this past summer was the busiest yet for construction in and around Watford City.
According to a demographics study, a population of 20,000 is projected for Watford City. And based on that number, the city needs 10,000 housing units within the next five years. Out of those 10,000, half should be single family homes, but so far the city has only added around 50.
“The housing market shows that we need 10,000 units around here,” said Veeder. “ We’re not even close to that. We just need to figure out what people want and then meet those needs.
Apartment complexes were the first to be constructed as developers were competing for $3,000 and $4,000 per month rental rates. However, rents have come down to the $1,600-$2,200 range in recent months. But if an increase in drilling occurs, people can expect rates to follow.
According to Katie Walters, part-owner of Homestead Management in Watford City, Madison Heights was at 40 percent occupancy just this past June-July, and with the decrease in rental fees, their occupancy has gone from 40 to 75 percent in just a couple short months.
“The owners of Madison Heights did drop their prices,” stated Walters. “They want people to move into their place. What started out at $2,800 a month for a two bedroom/one bathroom apartment is now $1,900 a month. That is significantly less and everyone is getting more competitive. Our owners for Madison Heights want people in their units. They want families in there. They are willing to negotiate with people.”
Another housing development manager, Kyla Chamberlin, says they have also brought their rental rates down as well.
“The drop in oil and gas prices has definitely affected us,” said Chamberlin. “When I first moved here two years ago, we were at full occupancy. Now, we’re at about half. In the past couple of months, we’ve had to move our rental prices down. What was once $3,000 a month for a three- to four-bedroom unit is now down to $2,250 a month. And we recently rented a two-bedroom unit to a woman for $1,000 a month. We’ve tried to be really good about working with our people. We are a very family-oriented place and we’re trying to find a way to lower our rates to get full occupancy.”
Veeder says it’s fair to say that developers are wondering what is going on here with the oil and gas market. As a city and county, Veeder says everyone is trying to take a long-range approach, not just a short-range approach here.
“Once people get established in a community, people try to figure out how to stay,” said Veeder. “That’s why we try to do community-type investments. People get attached to recreation, schools, jobs, church, etc., and then people want to stay.”
“No one knows where this market is going,” adds Veeder. “It’ll be kind of a ‘gut-check’ year for people, but we remain fairly optimistic with the production levels. I’m pretty comfortable to be in McKenzie County, not these other outlying counties.”