Posts Tagged ‘North Dakota’

North Dakota passed Alaska in March to become the second-leading state in crude oil production, trailing only Texas, according to officials from Alaska and North Dakota.

An oil rig near Williston. (Photo by Lindsey G via Creative Commons)

© 2012 E&E Publishing, LLC
Reprinted with permission

By Scott Streater

North Dakota does not have the policies in place to reap the full economic benefits of the Bakken Shale oil boom, according to a new study that warns the state could face significant problems in the coming years if it does not start planning for life after the oil rush.

The study, conducted by Bozeman, Mont.-based research group Headwaters Economics, concludes it would be beneficial if the state funneled more oil and natural gas tax revenues to communities in the pathway of the Bakken play and hints increasing the tax rate on oil and gas development could help these growing communities pay for roads, schools and other infrastructure.

The study, which is part of a larger research effort led by Stanford University analyzing the true benefits of energy development to Western communities, also recommends the state pump more oil and gas revenues into a recently established “legacy fund” for education and economic development projects that should help ensure the state does not suffer after the Bakken boom subsides.

While North Dakota has agreed this year to make a one-time transfer of $885 million for local infrastructure improvement projects, the state directly allocates 8 percent of the total oil and gas revenues it receives to local governments, according to the study.

That is far less than the 63 percent of revenues Colorado sends to local governments. Montana allocates 39 percent of state oil and gas revenues to local governments, and Wyoming 35 percent, according to the study.

“North Dakota stands out among its peers for providing the least direct funding for oil-impacted communities,” according to the 24-page study.

The state needs to address the issue quickly, said Mark Haggerty, an economist at Headwaters Economics and the study’s lead author.

“They need to get the distribution system right and make sure these communities are getting what they need,” Haggerty said.

The latest study comes at a time when officials in North Dakota and across the Northern Plains are grappling with the sudden impacts of intense oil development, and it is sure to fuel the ongoing debate over the true economic benefits of the rapidly growing Bakken play.

Oil production in North Dakota has increased dramatically in the past eight years, going from 2.5 million barrels per month in 2004 to more than 16.5 million barrels per month by the end of 2011. North Dakota is now the nation’s third-largest oil-producing state behind Texas and Alaska.

U.S. and Canadian law enforcement officers say they expect as many as 30,000 workers to arrive in Montana, North Dakota and Saskatchewan in the next few years to work the Bakken Shale, and they are bracing for a spike in crime (EnergyWire, April 24).

There are also mounting infrastructure needs. As shale oil production continues to grow strongly in emerging areas, the oil and gas industry is creating bottlenecks for itself, pumping more crude out of the ground than can be moved out through either existing pipeline infrastructure or by truck and rail (EnergyWire, April 10).

“Intensive oil extraction creates the need for expensive improvements to road, water, and sewer systems and increases demand for public services such as police, fire, and emergency response, social services, and — significantly — housing,” according to the study.

But the oil and gas industry disputes concerns that the Bakken boom could cause financial problems.

Ron Ness, president of the North Dakota Petroleum Council in Bismarck, N.D., said the growing oil boom is an absolute economic benefit to the state.

The key issue is infrastructure, “and you can’t build superhighways overnight, and you can’t build housing developments overnight,” Ness said.

“Growth comes with challenges,” he said. “If those challenges are economic activity and growth and needing more homes and more roads and more schools, then those are challenges many states would love to have.”

A complex issue

The situation in North Dakota is complicated by the fact that the unconventional shale oil resource found in the Bakken necessitates “complicated extraction” efforts that require, among other things, hydraulic fracturing, or fracking — the technique of injecting water, sand and chemicals underground at high pressure to create fissures in tight rock formations that allows the oil to flow freely to the surface.

And unlike conventional drilling practices, which are “premised by ‘sticking a straw in the ground’ and watching valuable resources flow out,” unconventional oil extraction is “characterized by an ongoing cycle of drilling, fracking, and often re-fracking of producing wells” for years, increasing impacts to infrastructure and the environment, according to the study.

“What this means for communities is that they’re going to see more activity because the technology is different, and the production level of each well, on average, is not as significant, so you need to re-frack or drill more wells,” said Chris Mehl, Headwaters Economics’ policy director.

The study also questions North Dakota’s tax rate on oil and gas development.

North Dakota’s effective tax rate — a measure of the actual taxes paid based on gross production value — was only “average” when compared to three “peer energy-producing states,” Colorado, Montana and Wyoming.

In 2010, North Dakota’s effective tax rate on oil and gas was 10 percent, which ranked behind Wyoming (11.4 percent) and Montana (10.5 percent) but ahead of Colorado (4.4 percent), according to the study.

“Higher effective tax rates collect more revenue from extraction with no effect on prices and little effect on industry investment or production,” according to the study.

Ness, the North Dakota Petroleum Council president, disagreed strongly with that notion.

“Industry’s already paying one of the highest tax rates in the nation in North Dakota, and the state has a $2 billion surplus,” he said. “So they’re completely wrong if they’re calling for higher taxes.”

But if North Dakota wants to ensure the current oil boom helps to make the state “a better place to live,” then the study recommends that it needs to begin using more oil and gas revenues to invest “in education, restoration to improve natural amenities, transportation and communications infrastructure, and other economic development strategies that will help the region compete in a post-oil economy.”

Click here to read the study.

Streater writes from Colorado Springs, Colo.

Mobile food trucks are popping up in western North Dakota to satisfy the appetites of an influx of new workers. But not all communities have embraced the lunch wagons.