Falling oil prices have spooked Wall Street and even parts of Texas. But in North Dakota’s booming oil patch, the crude-fueled party carries on.
Since June, the price of crude oil has fallen 30 percent to about $75 a barrel, raising fears that oil production would slow across the United States. But you wouldn’t know it here. The state’s economy remains the fastest growing in the nation, thanks to more than 1 million barrels of oil produced each day.
Billions of investment dollars continue to flow to new wells, apartments and shopping centers, a bet that development of the state’s prolific Bakken shale formation, which the U.S. government believes could hold more than 7 billion barrels of oil, will abide.
“The oil price drop is a topic of discussion here,” said Joel Lundeen, an owner of The Bakken Club, a $5,000 initiation fee dining establishment in Williston, the de facto capital of the state’s oil boom “But people aren’t freaking out.”
One reason: The price of oil would have to fall considerably before a major impact. While analyst projections vary widely – some focus on costs to continue drilling; others to build new pipeline – state officials consider $42 per barrel the price at which most production would cease. That’s about $35 below the current price for benchmark American crude, a level many are betting won’t be reached due to insatiable global energy appetite.
Simply put: community leaders and industry executives are confident – despite two previous oil busts – that the oil and natural gas buried miles underground here will remain profitable to extract for years to come.
That confidence reveals itself in a number of ways.
In the industry, Schlumberger NV, the world’s largest oilfield service provider, is inking a two-year lease for 45 Williston apartments. The company, which drills and hydraulically fractures wells for Statoil and others, opted against a back-out clause for this latest employee housing deal, agreeing to pay the full lease even if it pares down its North Dakota workforce.(Each apartment’s cost? More than $2,000 per month.)
Continental Resources Inc, the state’s largest oil producer, decided earlier this month to stop hedging the price of oil, a surprising bet that the sharp decline in crude oil prices will reverse course.
As for development, Williston is slathered in cocoa-colored dirt from dozens of construction projects. City officials plan to spend $1.04 billion through 2020 on a new airport, high school, roads and water-treatment plants. Menards, a Midwest rival to Home Depot Inc, is building a mega-hardware store.
KKR, Brutger Equities and dozens of other firms are building massive residential construction projects filled with scores of single-family homes, condos and apartments. More than 15,000 housing units – on top of the roughly 25,000 in the city today – will need to be built in the next six years to accommodate a population that is expected to almost double, according to North Dakota State University.
Consumer spending? No evidence of any cutting-back.
Some examples: At Eleven, a popular Williston restaurant and speakeasy, a hodgepodge of diners sporting outfits ranging from Carhartt to Calvin Klein still jostle most nights for a $47 plate of grass-fed bison or the $49 stuffed lobster. Want a $40 haircut? It’s a two-week wait.
There are some reasons to be cautious about the area’s economic prospects.
North Dakota’s two previous oil busts, in the 1950s and 1970s, left Williston with more than $25 million in debt that it wasn’t able to repay until 2001.
The oil price dip has also led some North Dakota producers not to spend as much on new wells next year. One North Dakota oilfield executive, granted anonymity to speak freely, expressed concern the state’s breakneck growth is too tenuously tied to oil price fluctuations.
“Its something I think about a lot,” he said.
But it’s hard to find skeptics.
For Williston and vicinity, it’s full speed ahead. More than 35,000 oil wells are still expected to be drilled in North Dakota by 2030, bringing the total to 50,000.
“Even at current prices or below,” said John Hess, CEO of Hess Corp, one of the state’s largest oil producers. “there are still many areas for attractive investment in the Bakken.”