Oil Bust in North Dakota
Ernest Scheyder of Reuters wrote an article on how the oil price slide is creating a slowdown in the North Dakota Bakken. Below is a summary of his article; North Dakota’s Oil Patch a Humbling Comedown May 22, 2016.
Looking back to when oil prices started to slide in late 2014 to May of 2016 and the North Dakota Bakken is undergoing a slowdown, not a bust. The U.S. energy boom changed by the hydraulic fracturing or fracking had made North Dakota’s economy the fastest-growing in the nation. Their gross domestic product of roughly $50 billion in 2014 was more than double that of 2002 levels.
During the third quarter of 2015, North Dakota’s economy shrank 3.4 percent, weakest performer in the nation. Forecasts for North Dakota to have a brighter economy any time soon do not look good. More than 80,000 people came to the North Dakota oil patch and now those who have not packed up and left face a bust reality of small budgets, fewer residents and a building boom that has left behind many empty apartments.
- The Walmart in Williston had cut hourly pay 15 percent.
- The Salvation Army reduced gasoline and food assistance by a third.
- Statewide, oil and gas tax revenue is down nearly 70 percent from last year.
- Prices for industrial real estate, have dropped 40 percent in the past year.
North Dakota has lived through cheap oil prices in the past, the 1950’s and 1980’s left communities in debt. Williston finished paying off their debt from the 1980’s boom in the early 2000’s. During this shale oil boom Williston’s debt and liabilities quadrupled from 2008 – 2014 to $158 million and their ability to pay off debt and liabilities took a hit when sale, tax receipts fell 47 percent in March 2016 from March of 2015.
All state agencies were ordered to cut 4 percent to offset a $1billion budget gap. The state will no longer offer free vaccines for children because of budget cuts and the University of North Dakota System is laying off 130 employees.
During the height of the boom demographers predicted Williston’s’ population to hit 50,000 by 2020. Since the summer of 2015 Williston’s population has shrunk 16 percent to 26,533. United Airlines ended a direct flight form Williston to global oil hub Houston in April 2016. FedEx has only one delivery plane to Williston, down from three a year ago.
At one apartment complex in Williston half of the 330 unit remain empty even with rates cut in half from 2014 rates. Williston has 2,300 hotel rooms and only a third are full on any given night. The average hotel rate is $99, which is down 23 percent from the fall of 2015. Williston school district is opening a new $57 million high school this fall and it was built to house 1,500, enrolment is only expected to reach 1,000.
The Bottom Line
Cheap oil prices have left Williston and the North Dakota Bakken hurting for sure, however, there is a silver lining: the oil is still in the ground and because of the low break-even cost of oil production within several counties in the Bakken Formation, companies are still able to drill and extract oil with at $25 – $27 per barrel oil price. Infrastructure needs, such as pipelines, are now able to catch up with the demand.
Source: Paul Thares, South Dakota State University