Low oil prices raise alarm in North Dakota oil patch

MATTHEW BROWN, Associated Press
In this Dec. 17, 2014 photo, workers tend to oil pump jacks near Watford City, N.D. High crude prices catapulted North Dakota into the top tier of the global oil market and helped double or triple the size of once-sleepy towns that suddenly had to accommodate a small army of petroleum workers. But now that those prices have tumbled, the shifting oil market threatens to put the industry and local governments on a collision course. (AP Photo/Eric Gay)
Copyright 2014, The Associated Press

WATFORD CITY, North Dakota (AP) — High crude prices catapulted North Dakota into the top tier of the global oil market and doubled or tripled the size of once-sleepy towns that suddenly had to accommodate a small army of petroleum workers.

But now that those prices have tumbled, the shifting oil market threatens to put the industry and local governments on a collision course. Farming and ranching communities that committed to building homes, roads and schools for the swelling population are worried about how they will pay for those improvements as oil-related tax revenue evaporates.

"Everyone is asking the same question: Holy cats, where do we go from here?" said Dean Bangsund, an economist at North Dakota State University. Bangsund has tried to help oil-rich McKenzie County gauge its needs, with an eye toward balancing growth against revenues. But none of his economic models were pessimistic enough to match how low oil prices dropped.

For now, the oil extraction goes on. Despite the price plummet, drilling remains profitable in the heart of the state's Bakken oil patch, due to the sheer volume of crude flowing from so-called hot-spots.

And so the building continues in Watford City, a century-old town that once marked the end of the line for the Great Northern Railroad. Roughly 60 rigs are drilling in surrounding McKenzie County — 40 percent of the rigs statewide. New neighborhoods and retail centers creep ever deeper into former wheat fields.

"We're making a new, 15,000-person city in the middle of a pasture," said Brent Sanford, mayor of Watford, the county seat. "The question is if we get money put into the pot to do it."

The county, which a decade ago had a population of about 5,000, has become a magnet for "man camps," where newly arriving workers and their families live in trailers, RVs and just about any other structure that can stand up to North Dakota's whipping winds.

The pace of growth over the past decade has been "hyperventilating," slackening only slightly as oil prices have fallen, Sanford said. "You can't catch a breath."

With oil prices hovering near $100 a barrel for most of the past four years, ambitious plans were laid out to transform the city from a chaotic, sprawling crash pad for transient workers into a larger, more livable community. Sanford and other local leaders drafted a long wish list — more housing, more schools, better roads, a new water treatment plant and expanded law enforcement.

Developers eager to cash in started construction of thousands of apartments and single-family homes. A new high school and civic center began to take shape. A new bypass was built to the south of town to ease traffic jams.

Then oil prices began to drop, falling to roughly $50 a barrel now.

Daniel Kuo, vice president of a Chinese-backed real estate company that's building a 2,000-unit housing complex on the outskirts of Watford, keeps a close eye on oil prices. He's met with McKenzie County economic-development agents to soothe any worries that the company might pull back.

"You're in too deep to let a price blip derail you," Kuo concluded at the end of one meeting. He shared the optimism expressed by Sanford and many others in Watford that oil prices will rebound.

Leaders in the North Dakota Legislature have pledged to keep public-works improvements as a priority. Whether that's sustainable depends on how long oil prices stay down. Oil and gas revenue forecasts for the state already have dropped $4 billion, reducing earlier projections by roughly half.

Watford and McKenzie County have joined other western North Dakota counties in seeking help from the state. Politicians and business leaders from the region flocked to the Capitol in Bismarck to press the Legislature for a larger stake of what's left of the oil revenues.

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