January 23, 2013

Study: Decades of oil development ahead

By Neal A. Shipman
Farmer Editor

There is not going to be any letup in the number of drilling rigs operating in McKenzie County anytime in the near future. Nor is there going to be any significant drop-off in the number of people flooding into the county seeking jobs in the oil patch.
In fact, according to a recent study that was presented to city and county leaders last Thursday, the number of rigs drilling and operating in McKenzie County is only going to increase between now and 2025. And so will the number of workers that it is going to take to fill all of the oilfield jobs.
“We are looking at a very rapid growth in communities like Watford City, because of the continued  development of the Bakken Shale reserves,” stated Dick Gardner, a resource economist based in Boise, Idaho, who presented the data that has been compiled by the North Dakota Department of Minerals, as well as population and workforce projections completed by North Dakota State University.
According to Gardner, based on a development model for future oil well development, 2,000 wells a year will be drilled in the Bakken Formation in northwestern North Dakota for the next 18 to 20 years. And McKenzie County will be a major hub of that drilling activity with Lynn Helms, director of the North Dakota Department of Minerals, projecting the county to have 60 rigs operating through 2016, and the number of wells in the county peaking at 8,636 in 2025.
“North Dakota is producing 733,000 barrels of oil today,” stated Gardner. “It is estimated that this number will increase to 900,000 barrels a day for six to10 years under the most probable scenario, and that it could be producing 1.25 million barrels a day for 10 years under the most possible scenario.
Those well numbers would indicate that communities like Watford City, and counties like McKenzie County, which are forecast to be the major players in the Bakken, will continue to see huge population increases as well as increased demands for housing for the next several decades.
According to job projection numbers, every drilling rig creates 120 jobs. And of those jobs, 25 percent are for truckers hauling water, while 36.6 percent of the jobs are trucking related.
“That’s why the roads are as crazy out here as they are,” stated Gardner. “But as pipelines are constructed and water systems are completed, the number of trucking jobs will be reduced.”
But even when some of the trucking jobs are taken out of the equation, there are going to be a whole lot of people in McKenzie County who are working in oilfield jobs.
“The number of oilfield jobs in McKenzie County will be from 12,000 to 14,000 from 2013 to 2015 and then peak in 2019,” stated Gardner. “And from then on until 2050, the number of oilfield jobs in McKenzie County will hold steady at around 9,000 workers.
And all of those oilfield jobs, as well as the secondary jobs that are being created as a result of the boom in the oilfield are going to mean a big growth in the number of people living and working in McKenzie County.
“There is going to be a lot of growth in population in McKenzie County in the future,” stated Gardner. “You will see it grow from the estimated 8,800 people today to more than 20,000.”
And along with an increasing population will come an increased demand for housing.
“You will definitely see a shift away from temporary to permanent housing in the future,” stated Gardner. “We estimate that the number of permanent housing units in the county will double from 3,672 units today to 8,956 by 2036.”
While Brent Sanford, Watford City mayor, is encouraged by what he hears as to the projected future of the oil play in McKenzie County and its associated impacts on the community, he disagrees completely with the population and housing projections.
“The population numbers that they are using are way too low,” says Sanford. “It doesn’t make sense to say that the county’s population is only going to be 20,000 people when you look at the number of rigs that are going to be drilled here and the number of oilfield jobs that are going to be in the county.”
According to Sanford, the study’s premise seems to be that those people who are working in McKenzie County aren’t going to be living here.
“If we, Watford City, have the infrastructure and the housing, why wouldn’t the people working in the oilfield want to live here,” questions Sanford. “It doesn’t make sense. Why wouldn’t people want to drive 10 minutes to work instead of commuting here from Sidney, Williston or Dickinson.”
Sanford thinks that the study group didn’t approach the housing study logically.
“They determined that in the past the county only provided “x” percent of the housing for oilfield workers and then used that same percentage to determine how much housing we’d have in the future,” stated Sanford. “That’s wrong. We need to know how many people are going to be working in the county and then you can figure out how many are going to be living here and base the housing on that number.”
While the growth in the number of oilfield jobs can be a good thing, Gardner noted that communities such as Williston and Watford City are becoming more energy dependent. And when that happens, a “crowding out” of other industries and jobs by high-paying oilfield jobs can occur.
According to NDSU’s population analysis, the Williston planning region, which includes McKenzie County, has become the most energy dependent region of the state when it comes to energy-related jobs.
“The Minot region has only 11 percent oil jobs and the Dickinson area is at 27 percent,” stated Gardner. “But the Williston region is at 57 percent and you are going to see some “crowding out” at that level.
According to Gardner, the trouble with crowding out is that it squeezes out people, especially the elderly, who can no longer afford to live in the community. But it also affects virtually every other non-oilfield business that can’t afford to pay the higher oilfield wages.
“In the short term, you can’t build enough new stores to serve the growing community because they can’t afford to pay the high wages,” stated Gardner. “And in the long run, other industries can’t grow and expand. At the end of the boom, you may find you have a less diversified community. It’s a real danger.”
Likewise, Gardner noted that the level of growth that is occurring in Watford City and McKenzie County is at an almost overwhelming rate.
“Between now and 2020, we are projecting a 7.9 percent average annual growth in the county,” stated Gardner.
According to Gardner, a two to three percent annual growth is nice and something that a community or county can plan for. However, what  is happening in McKenzie County right now is overwhelming.
“When you get to eight percent average annual growth like what you have now, it is unprecedented growth,” stated Gardner. “You have to build so fast that it is overwhelming on local government. I’m very sympathetic to your situation.”
While neither the North Dakota Dept. of Minerals’ study nor the NDSU study included any projections of what could happen should the boom bust unexpectedly, Gardner warned that unforeseen events could change what is projected.
“The wildcards in all of these numbers could be changes in the hydraulic fracing laws that would lengthen the well permitting process, tax reforms that would strip away incentives, a continued sluggishness in the U.S. and world economies, or a major drop in oil prices,” stated Gardner.
But should none of those events occur, it is Gardner’s belief that the current oil development is nothing like the area has ever seen before.
“This boom is not like the 1980s spike,” stated Gardner. “This development is going to see a protracted increase in employment and population that will change the region for decades.”