I just got home from a long trip into the Bakken Formation oilfield. My last trip there was when snow was still on the ground - but that was just a few months ago. Winter lasts forever "up there." The whole area is hopping, but it seems even more active now than then.
We hear about how our regulatory agencies restrict drilling for oil all the time. I know this is true. But when I read someone bitching about how we really need to open up the Bakken for more exploration so the .gov should relax the regulations - well, while I'm all for relaxing what I consider to be unnecessary and restrictive rules that have never been voter reviewed, I'm not sure how that is going to help that area.
The major area of concern is the northwest corner of North Dakota. The eastern border of Montana has a lot of activity, and Canada has a lot of drilling going on right across the border to the north. Everything north of Interstate 94 and west of Bismarck is a madhouse right now. Everywhere you see billboards at fast food places begging for help. There are huge billboards on the outskirts of Minot and Williston advertising new apartment complexes expected to open soon and are now accepting reservations (some motels, too). Traffic is heavy - and it's oil service industry trucks. Mud hauling pneumatics. Water and oil tankers. Frakking trailers. Rigs on the move. Flatbeds with drill stem loads. End, belly and side dumps. You name it.
US Highway 2 is a four lane highway from Minot to Williston. I've been on it several times, but this time the traffic was unreal for such a deserted looking rural area. The traffic in and around Bismarck and Minot is pretty impressive for such a "backwater." I got into a sort of rush hour in Williston - the little truck stops there were backed up to the street with trucks waiting to fuel. When I went through Watford City, the tiny convenience store with two lanes to fuel big rigs had them waiting five or six deep.
Housing and motels? Lots of new trailer houses on the move. When I got off US2, I saw collections of camping trailers surrounded by cars and trucks parked out near some farmer's shelterbelt - home sweet home to them (I hope they had a sewer system at least). I saw an ad for a sheds converted to dormitory style rooms (complete with satellite tv, kitchenettes and shared bathrooms) for rent or lease.
Oh, and motels? Booked ahead for weeks. Bad news for the hapless and uninformed traveler planning on stopping in that area on a whim - they might have to drive for hours to find a place. We do. Our guys that go there every week stay in Belfield because the motel there keeps some rooms for them. We give them a lot of business. Lately, the work is about a three hour drive from that motel, so the workday includes a solid six hours of driving time before getting to the site. We can't take our wide loads there directly, because of road construction and the last round of flooding started some sinkholes on another north/south corridor (North Dakota Highway 22 north of Killdeer), so it's closed. We take our loads from Belfield east to Bismarck, north to Minot and then back west within sixty or so miles of Williston. Ideally, since our customer is in that area, that would be the best place for our operations to center, but it ain't happenin.' We were working north of Killdeer earlier, so Dickinson would have been the logical choice. We've also set a bunch of batteries in the New Town area in the past. But we, like everyone else, have no choice.
It's no different for any of the roustabouts, roughnecks, construction crews, or any other industry the oil boom needs. The motel parking lots are full of fairly new pickups, many with service beds and all dirty. The better grade motels have more pickups without service beds - supervisor trucks. Dirty. The eighteen wheelers all need a bath. Our trucks kinda stand out up there, because we're required to keep 'em clean, and if we get up there without getting rained on, they're pretty shiny. We've got a stellar rep for the quality of our tanks, plus we've got the best lookin' rigs in the oil patch.
At any rate, I've got to wonder just how this area could stand some more stimulus. Where are the new drilling rigs gonna come from? How about some more labor? Can't get enough as it is. Where the hell are they gonna eat and sleep? How are the roads going to be able to handle the extra traffic? How are they gonna handle the extra oil? The systems handling the crude are maxed out now.
You'd have to get the feds involved. That's an idea I'm not especially fond of, because of the stellar record they enjoy in these matters. Yeah, the CCC worked in an era when one could conceivably conscript workers who were willing to work. Now?
And to be fair, the local and state governments are stepping it up. North Dakota has made their state business friendly, plus they are working on that infrastructure thing. There are only so many roads you can turn into four lanes in a short period of time. Plus, let's be fair. Let's say you are a member of a city commission. Would you be in favor of borrowing a ton of money to expand your sewer and water systems, plus expand your streets and so on and so forth if you weren't sure just how long this gravy train is gonna run? There is a reason this is called a boom, because it's generally followed by a bust. No one wants to get hung out to dry with a bunch of bonds coming due for improvements that required a greatly increased population that didn't pan out. No business owner wants to have a brand new motel with no guests, or a McDonalds with no customers.
From what I see, we need new refineries and the pipelines to feed them more than anything else. That is where the .gov needs a fire lit under their posteriors. Supposedly there is more crude coming out already than the closer refineries can handle.
So the next time you get an email or read an article going on endlessly about how the Bakken could keep the country going with oil imports, but it's a Big Secret or something and the .gov is doing all it can to prevent it or restrict it and if we could just get the .gov off it's ass and out of our way the free market could get down to bidness and use that there massive oil reserve - welp, I gotta ask just how the hell can an unregulated market do it faster? As I've said before, it's maxed out now. Don't get me wrong, this is no endorsement of the regulatory maze currently in place. The sky isn't falling in this case.
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7 comments:
You said it and very well said. It makes you wonder and think and of course as far as the gov is concerned well that also pretty much explains things in its self!
Good to hear at least some small part of the country is doing well.
Of course as soon as the Feds and the 0bummer find out, they'll start some nefarious plan to shut it all down!
They might be some disease carrying gnat that needs to be "protected" in that area!
About "what's more free market can do?":it should be examined, I think, before saying" not much".
From what you witnessed, I conclude that the major block on expansion and development is government/municipal/state authorities. State - because the condition of road infrastructure they are in charge of is not up to the level of activity in the area. Local - because they do not give building/construction permits quick enough for GC and developers to supply the oil industry workers demands.
Maybe if the agencies in charge of these things were not 100% government but of some transitional, semi-private and structured on bid-principle they would churn process quicker?
Another thing, about boom-bust cycle: why is it necessarily so? This is not a brand new problem, is it? Why not look at other oil-reach places, not only in US (TX etc) but in the world (Norway, fi) - the key is to invest the proceeds from an oil boom, why the getting is good, into other industries with long term potential, not waste them on vanity projects like in Dubai. That includes crude refineries, of course. And this is best done by free market and private enterprise.
Besides, why you expect that bust will follow this boom? What are the estimates of the amount of commercially-viable oil reserves? I read somewhere that in the area it is considered enough for a few decades, if not longer (for an uninterrupted development).
Anyway, I think there are professionals whose specialization is just that: long-term strategic planning of oil-rich lands and investment. Certainly they belong to private sector, not to government.
It is not the local and state governments holding "progress" back. They are encouraging the business. North Dakota gave a lot of the oil companies some major tax breaks to draw the expansion out of Montana, and it has worked.
Let's say we do have the State of North Dakota suddenly decide that all the roads in the area will now be made into four lane highways. Exactly where are they going to get the construction companies to do this? They're already busy. Ok, let's build more motels. Again, where will you find the construction crews to do it? Let's have the state subsidize new housing. Again, just who's gonna build those houses? Who is going to house and feed the workers?
And my point is if the EPA and the Department of the Interior allowed more drilling, it would be difficult to make it happen faster. I've read that there are 179 drilling rigs running in that area, up one from last year.
There are a lot of factors that brought this oil boom into play - two of the major players is the advances in drilling technology and the current price of crude. Hydraulic fracturing or "frakking" has come a long way, and added to that is the ability to drill directionally. The wells actually curve from vertical to horizontal. The formation and the oil within has been known for some time, but being able to get it out was another matter. That this boom is happening in spite of the Obama administration's efforts to limit oil exploration makes me giggle. In this case, the market pretty well overwhelmed the brilliant Obama Harvard economists that can't seem to keep their grubby paws off free markets.
There is by necessity a delay in improving our infrastructure as well - all this oil being pulled out of the ground has started increasing the tax base considerably, but it's just now starting to come in. The oil drilling had to happen first before the money was available to make improvements happen.
As far as a bust is concerned, this is usually caused by an extreme drop in crude pricing. This happened to the oil industry as a whole just a couple of years ago, and it really set back the expansion happening in northeastern Utah and NW Colorado. It hurt our business because we had a lot of contracts canceled. It even hurt the Bakken area for a while - it seems humorous now, but one of our customers in that area canceled a large contract (forty or fifty, can't remember) for four hundred barrel fiberglass tanks, then six months later they were calling us up hoping we'd gone ahead and made those tanks anyways, because they needed 'em yesterday. We had not - why in the world would we have?
People really remember the oil bust in the eighties when it pretty well wiped out the Texas Panhandle. I remember driving by the outskirts of some of the larger towns with mile after mile of closed oilfield supply yards, and shuttered businesses all over the downtown areas. Those pictures haunt the memories of people who have to wonder how long the ride will last. Plus, at some point, there will be enough wells drilled and running, so the industry will shift into maintenance mode. All those companies specializing in oil exploration won't be needed along with all the other associated businesses and laborers.
I see your point - there surely should be a better way. I sort of doubt that North Dakota really realized how much things would change when they started working on attracting more oil business. When technology advances are involved, all bets seem to be off.
Makes sense - but I know precious little of these matters, so it'd be better to ask qualified people like Tim Newman (a UK expat oil engineer) or Craig Pirrong (an economist, Energy Markets Director @ University of Houston) for their opinion.
From what I learned on Tim's blog, exploration crews are mobile bunch of people, moving around the globe on international contracts with oil companies. He, for example, has worked in Kuwait, UAE, Sakhalin (in Russian Far East), and now works in Nigeria. Oil companies usually hire local crews - and if that might present (and did) a problem in Sakhalin or in Arab peninsula, US has much better human resources, I am sure. Why, even when my dad used to manage construction of a gas pipeline in socialist Tatarstan (Central Russia), he could find qualified welders/rough-hands for his crews! I'm pretty sure hiring good people in capitalist market is not such a big problem (especially in current economy).
Same goes for construction companies, either in residential or industrial sector. ND is not fenced out against other States, right? So I don't see a reason why developers from across state borders could not come over and build in place, be it motels or refineries. It all comes down to permits and inspections, I think.
It makes sense, about the price of crude - that's why the policy should be longterm, allowing for fluctuation of sales/demand. That's where industry strategists come in.
In any case, it was a very interesting reportage you provided. If only the journalists wrote more like you, instead of constant bickering on petty topics...
Oh, yeah, they're a mobile bunch. I've often found crews with quite a diverse bunch of guys - more often for pipeline companies like DCP Midstream, for instance. And yeah, borders don't stop North Dakota from hiring companies from other states, which is why a lot of those companies are using up the motel rooms and temporary housing already for their crews!!! Or like the trucking companies I saw living out of travel trailers parked in farmers' shelterbelt of trees. Mobile home parks are overwhelmed in that area as well - from people moving in to work for local companies to company provided crew housing.
Oh, in case you don't understand what a shelterbelt is - they are strips of trees planted to help break up the wind and hold the soil from blowing. They were a post Dust Bowl innovation. Putting a bunch of travel trailers on the lee side of a shelterbelt is pretty good thinking, rather than having them out in the open where the wind can get at them.
I hope you don't think I'm condescending towards you - it occurs to me when I'm trying to explain something I wrote about that you grew up in a society I doubt I'd understand at all. I admire your ability to parse things you've no familiarity with and have no problem trying to provide some sort of insight. I sure as hell am not gonna become bilingual much less be able to communicate in a technical manner in another language. I admire your pluck and your thirst for knowledge.
I remember reading a news article about the boom and it's effect on the locals but I'll be damned if I can find it now. I thought it was from the NYT but I can't find it - it might have been the WSJ or similar. Anyways, it was mostly about the local businesses being skeptical about the long term viability of the boom and included the particular small town's mayor and a restaurant owner.
My opinions are based solely on impressions from what I've seen and read, so is what I'm saying the truth? It is in my world, but my world is biased. From what I've read, the reluctance to add to the infrastructure is more a reaction of Great Plains conservatism and pessimism towards change - resisting it - than state and local permitting hindrances. Generally speaking, if you've got the bucks and the land, you can build that new motel or restaurant. This isn't downtown Berkeley or New York City trying to keep Wal Mart outta town.
Oh trust me, you would learn another language when your survival depends on it - like my Dad did; he immigrated when he was 55, so it was either speak it and know the professional lingo or die. He didn't die, and he learned sufficiently enough to work as a senior engineer for a big conveyor company till his retirement at 67yo.
I appreciate you spending time and explaining things to me; people either don't bother or tell me to "google it" (or worse). You have a gift for making complicated things understandable, and you do it in a friendly manner - which I appreciate very much.
Besides, I love to expand my vocabulary!
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