DOWN, BUT NOT OUT: Oil business slows, but some call it temporary
The term in economics is “boom and bust.” But while the “boom” may be quieting a bit in the oil towns of the West, no one’s ready to say “bust” yet.
In the first decade of the new millennium, crude oil prices made it well past the $100 mark, providing plenty of incentive for oil development. Those prices evened out at $80-100 a barrel over the last few years, but started dropping last fall, to around $50, the lowest price since the fall and winter of 2008, when $145-barrel oil took a $108 price cut in six months.
Prices rebounded then, and many in the oil fields think they’ll rebound again. Greg Percevich, a partner in Eaton Construction, a company that puts in oil and gas pipeline in North Dakota, calls the economic climate in the oil fields “tenuous” right now.
Percevich’s company works about nine months behind the drilling rigs, so they’ve got that much time before they feel the effects of a slowdown.
“It doesn’t take these oil companies long to adjust,” he said. “When the price starts falling like it has they push the panic button and adjust right away.”
He estimates the companies he works with are “stacking out” about a quarter of their rigs—meaning once they’re done drilling, they’re sitting idle, not moving on to another job.
Wade Bail owns Wade Works, LLC, a trucking service and roustabout crew, which gets the oil wells ready for production and maintains them afterward. He’s been in the business since the 1970s, and has been in North Dakota since the boom started in 2006.
“We’ve been through this before, in ’08 and ’09,” he said. “We weren’t as big, but the same thing happened. But the Baaken wasn’t rolling as hard as it is now. I see it coming back, but I don’t think anybody can predict when.”
In the last few years, Bail was working with his largest crew ever, employing about 150 people.
About three weeks ago they laid off 16 workers, but he thinks that’s the extent of the layoffs they’ll see for a while, unless prices don’t come back up by spring.
Percevich says his company has reduced their prices on the roustabout side, but has been able to keep all their employees so far, and not reduce their wages. “We’re just making less money,” he said.
One issue oil companies have to contend with in the Baaken – the oil producing area of North Dakota, Montana, Manitoba and Sakatchewan – is the cost of transportation. Bail says it costs about $25 a barrel to transport the crude oil, whether that’s via truck, rail or barge. “If oil is at $48 a barrel, you can figure you’re not going to be making much money.”
According to some in Wyoming, if prices drop to $40 a barrel, they’re going to have to walk away. It costs between $8 and $9 million to complete an oil well location from start to finish, so not many companies can afford to continue with prices below $50.
Oil and Agriculture
The oil boom has been difficult for many landowners whose families arrived by covered wagon and decided a landscape with a far horizon and unbroken sod could be “home.” The development that arrived with the oil boom has changed that landscape, and it may never be the same.
For some, though, the oil business has brought the ability to diversify and to stick to the lifestyle their ancestors chose.
Jeff Berger is one of the latter.
In August of 2006, he says, a hailstorm nearly ended his days of farming and ranching on the plains of western North Dakota. That coincided with the beginning of the oil boom, so Berger brought a truck and started selling and hauling water for the oil industry. “Basically the oil industry has allowed us to save our ranch by being able to work in the industry. By diversifying our operations we’ve been able to grow our agricultural side and petroleum side simultaneously.”
Now, less than ten years later, he has expanded to ranches in Montana as well.
He runs a dryland crop and haying operation, but also has irrigation rights. For the last several years, though, the water has provided a bigger return by being trucked to the oil field than watering crops.
With oil well locations around his land, but none on it, Berger can earn income from the oil field without having to modify his ag operation at all.
He points out that he has to have a lot of help to run his businesses, and the combination of an ag business and oil business gives his employees training in both industries, allowing them to gain skills that will still be marketable if either industry experiences a slowdown.
During the interview for this article, Berger was feeding his cattle and had to take a call from one of his oil field drivers. “That’s a pretty good idea of how it goes,” he said.
Berger’s family drilled one of the first domestic oil wells in 1950, so oil has always been part of his life. He’s done a lot of research and occasionally speaks about it, and is convinced the nation’s security–both financial and physical–depends on developing oil domestically.
However, he’s been disappointed in the country’s lack of support for the industry, and he says cheap prices at the gas pump are the least of the reasons to support U.S. oil.
“We’ve achieved oil independence, which allows us to live in a safer place. We don’t require outside oil. We don’t have to send kids to war. We can take care of ourselves. The only way that happened was private oil developers went out there and found the oil and developed ways to get it out of the ground. That allows all of us who live in this country, and the landowners, to continue that way of life.
“I’ve seen ranchers badmouthing the oil industry every day and then going to the bank and cashing their oil check. That’s got to stop because everybody needs everybody. It’s America’s oil, not just North Dakota’s.”
Dick Lisco, a rancher from the Douglas area, agrees that the oil boom can benefit both the oil companies and the landowners, but clear, open communication is vital to the success of the relationship.
“There must be mutual respect in place, as well as open lines of communication in order for the experience to be a positive one,” Lisco said.
Berger knows how important communication and understanding the agreements are. He sometimes serves as a liaison between ranchers and oil companies, and also helps ranchers market their water. “There have been times that I’ve been able to help ranchers work with oil companies to be able to communicate better within the oil company and be treated better, allowing them to maintain their operations,” Berger said.
While the economic benefits of the oil industry are apparent–property taxes in North Dakota have dropped since the boom, Berger said–some question if the trade-offs are worth it.
“Watching surface damages occur is probably the hardest part for most landowners,” Lisco said. When the mining operation is done, reclamation can take years and often it is never the same, thanks to erosion and other changes in the landscape.
The communities that have hosted the oil booms have also felt the effects. Though the additional revenue and associated businesses have brought economic benefits, they have also added pressure to the employment and housing markets.
Schools and non-oil-related businesses have a hard time competing with the wages the oil companies offer, and housing and services, like daycares, ask much higher rates than in surrounding areas.
According to Sperling’s Best Places, it costs 24 percent more to live in Dickinson, North Dakota, which is on the edge of the oil field, than in Jamestown, just 200 miles east on I-94. The major difference is the housing cost, which is 60 percent higher in Dickinson. Williston, which is in the center of the oil boom, sees housing costs that are 48 percent higher than the national average.
In 2014, the New York Daily News reported that apartment rent in Williston, North Dakota was the highest of any in the nation, including New York, Los Angeles and Boston. Not just a little higher–nearly 50 percent higher, at $2,394 a month for a 700-square-foot, one-bedroom apartment.
Percevich and Bail both say they haven’t seen a drop in the construction of homes and apartments in the area, but that will probably follow if oil prices don’t rebound.
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Outtagrass Cattle Co. cartoon by Jan Swan Wood for the Oct. 23, 2021, edition of Tri-State Livestock News