Plummeting oil prices have fracking states like North Dakota on edge

By Clarissa Hawes, Land Line staff writer | Tuesday, February 03, 2015

As consumers revel in lower fuel prices at the pump, the dramatic plunge in oil prices over the past few months has the oil and gas industry in North Dakota, as well as the United States, on edge.

As a result of falling oil prices in the U.S., oil services provider Schlumberger Ltd. announced it was cutting 7.5 percent of its workforce, or 9,000 jobs, in early January. Many of those jobs are in the top two oil producing states in the country, including North Dakota and Texas.

In the past three months, the production price for sweet crude oil in North Dakota has dropped from nearly $69 per barrel to around $29.25 per barrel, according to a report issued by Lynn Helms, director of the North Dakota Industrial Commission, Department of Mineral Resources. The report states that the all-time high price per barrel in North Dakota reached $136.29 in July 2008.

Helms’ report also states that since October 2014 the number of operating rigs in North Dakota has dropped from 191 to 156, the lowest number of operating rigs since December 2008. The highest number of operating rigs in the state reached 219 in May 2012.

One oil industry worker told Land Line in early February that the oil and gas industry is closely monitoring falling oil prices and the impact they are having on economic conditions in North Dakota. His company has laid down four rigs in the past three months as a result of dropping oil prices.

He said nearly 1,400 workers have lost their jobs as a direct result of the 35 rigs being laid down or closing in recent months. He said on average it takes around 40 people to man each oil rig.

Industry on edge as oil prices drop
James Dowis, an OOIDA member from Palco, Kan., was among the thousands of truck drivers and oil industry workers who flocked to North Dakota because of the hydraulic fracking boom.

Dowis, who hauls production water and fresh water used for fracking to oil rig sites near Tioga and Stanley, N.D, told Land Line he is fortunate that the company he works for is “staying busy” as other companies slow down or are pulling trucks from the state.

“So far, so good,” Dowis said. “I know others have not been so lucky.”

Dowis isn’t new to the oil and gas industry. Prior to heading to North Dakota three years ago, he previously worked for an oil company in Kansas.

“The price of oil is affecting a lot of people,” Dowis said.

Thanks to the oil boom, North Dakota has been the fastest-growing state economy for the past five years, building housing, apartment complexes, supermarkets and schools to keep up with the growing population. However, many are worried about what happens to the state’s tax base if more jobs are cut, oil production drops, and the need for housing and other services declines.

Dowis said he once stayed in a camper when he first moved up to North Dakota three years ago. His lot rent was around $800 per month for “not a big spot of ground.” He now stays in his truck to lower his living expenses in the oil patch.

“My brother-in-law has a water truck company in Kansas, and his business has slowed down considerably,” Dowis said. “And where I live in Kansas, there are a lot of people getting laid off there, too.

Oil surplus blamed for plunging prices
In 2009, a year after record-high oil prices led to a recession that many economists have compared to the Great Depression, the oil and gas industry in the United States began to take a look inward to develop other oil options. Their focus turned to exploring fracking, horizontal drilling and renewable fuel sources as an alternative to foreign oil.

Oil billionaire T. Boone Pickens, chairman and CEO of BP Capital and author of the “Pickens Plan,” has been one of the largest players in the movement to decrease the country’s dependence on foreign oil.

“We agree the market is oversupplied, largely because of increased shale production and the success of the domestic industry,” Jay Rosser, vice president of public affairs for BP Capital and T. Boone Pickens’ chief of staff, told Land Line recently. “Global oil demand has been below projections. Our view is that low oil/gasoline prices will increase demand and prices will move back toward previous levels later this year or early in 2016.”

The U.S. is now at its highest production output since the 1970s, according to the U.S. Energy and Information Administration. This oversupply of oil has led to dropping oil prices, currently around $50 per barrel.

In its monthly Short-Term Energy Outlook in October 2014, the EIA predicted the U.S. would increase its daily oil production to more than 9 million barrels per day in 2015, nearly double its daily production of around 5 million barrels per day in 2008. Fracking and horizontal drilling have played a huge role in the U.S. nearly doubling its daily oil production in the past few years.

As for now, Dowis said he will continue hauling water in the oil patch, but will continue to closely monitor oil prices in the state and around the country.

“Dropping oil prices is going to have a trickle-down effect on everything,” Dowis said. “Typically, the oil fields pays really well compared to other regular jobs. Those guys who have been making all of this money are going home and spending it, which helps the economy. If these guys get laid off, it’s going to affect everything and everyone.”

Copyright © OOIDA

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