Hard times could be ahead for North Dakota's oil boom towns

As prices at the pump drop, so do prospects for a happy new year in the Bakken oil fields.

A million barrels of oil a day pump out of North Dakota's Bakken shale. Oil that used to sell for $100 a barrel and now fetches barely half of that. Oil that pumped billions into the North Dakota economy, drove the state's unemployment rate down to almost nothing, and turned sleepy farm communities into Wild West boom towns.

The North Dakota oil boom isn't going bust. Not yet. But with oil prices at a five-year low and dropping, the state is bracing for bad economic news that could ripple far beyond its borders.

"I think we're going to see a fairly significant correction," said Ron Ness, president of the North Dakota Petroleum Council. "You're going to see a tremendous number of pink slips over the next quarter and into the following quarter. And if we're having this discussion in June, it will be that much more severe."

North Dakota oil companies can still turn a profit on oil at $52 a barrel, or less. But already, drilling operations have shuttered in the outlying counties, where the oil is harder to reach and the profit margins are narrower. In late 2014, there were 182 rigs in production. Now there are 163.

Some oil companies have slashed their 2015 budgets in half. The state of North Dakota is in the process of revising a budget forecast that it had pinned on oil selling above $70 a barrel. The Organization of the Petroleum Exporting Countries (OPEC) has declined to cut its own production in the face of the oil flooding out of the Bakken, making it hard for market watchers to predict how prices will play out.

"It's a great time for consumers, essentially thanks to the Bakken and what that has meant to American energy production," said Ness, putting the most gracious spin possible on the cratering oil market. "Happy New Year from the Bakken."

And for now, the new year is still looking bright in places like Watford City.

There's a new $50 million high school under construction, with plans for another grade school to accommodate all the students who overflowed the classrooms and spilled out into half a dozen portable units on school grounds. The city, which ballooned from a farm town of 1,500 to a population of 12,000 and counting in the space of five years, is finalizing plans for a $101 million event center, complete with conference and performance spaces, two hockey rinks, a 135-foot water slide and an indoor lazy river.

New businesses have opened all over town to cater to the crowds. The new South Park shopping plaza boasts two new hotels, a western wear outfitter, a tractor supply company, a tattoo parlor and a Japanese steakhouse. There are new housing developments springing up all over town. The local newspaper, the McKenzie County Farmer, predicted even more developments in 2015, including massive new highway projects, a new water treatment plant south of town and plans for more housing, more commercial development, maybe a new industrial park to go with the new highway bypass.

"Nothing has changed quite yet," said Steve Holen, superintendent of McKenzie County Public School District No. 1.

Watford City sits in the epicenter of the oil patch in western North Dakota, and as of the new year, new workers are still coming, businesses are still hiring and the school district is still enrolling new students. The district, home to 500 students before the boom, has three times that many now and Holen went from barely having enough students enrolled to stave off teacher layoffs to having barely enough space to teach them all.

Everyone is watching the price at the pump and wondering, he said.

"There's some nervousness, obviously," said Holen, a North Dakota native who came to Watford City five years before the boom. "We're just sort of waiting this out to see the long-term effect, if there is one. We're not too worried yet, because we believe in the long term it's going to resolve itself and we'll be back to the way it was before."

If anything, some say, a brief cool-down in the economy might give North Dakota a chance to catch its breath, and catch up. Maybe then there will be fewer news stories about oil workers with six-figure salaries who had to sleep in their cars because there wasn't enough housing to go around.

"If there is a little bit of a lull, it'll probably provide an opportunity for some of the infrastructure to get built out, and give some time for a little bit of catch-up," Holen said. "I don't think anybody's assuming that it's just all going to go away."

Right now, North Dakota has the strongest economy in the nation and an unemployment rate so low it almost requires an act of will to be out of work — 2.8 percent statewide, 1.1 percent in McKenzie County.

In downtown Watford City, the Nordby Vision Center is hiring. Susan Sampsel, the office receptionist, moved up from Texas with her husband, who works in the oil industry. All the new stores and restaurants in town were a welcome development for newcomers who spent their first few years in town facing high prices and few choices.

There are still plenty of patients, new and old, coming into the shop, and, so far, oil prices haven't been low enough long enough to become a topic of general conversation or concern, Sampsel said.

"The town is growing. They're adding more shopping possibilities, gas stations; things that weren't easy to get before, like go get your oil changed or go grab a sandwich," she said.

At the McKenzie County Job Development Authority and Tourism Board, executive director Gene Veeder is fielding a lot of worried questions these days from workers wondering about their pay checks and businesses wondering whether it's a good idea to go ahead with a new venture in the oil patch.

"We're in the sweet spot, here in McKenzie County," said Veeder, who lives on a ranch his grandparents built a century ago. "We haven't really reached a target where we'll see a great slowing down. I think we'll see a reduction in some rigs."

North Dakota has ridden out oil booms and busts before. In the '50s. In the '80s. Veeder sees no sign of this boom going bust yet.

"We have a little bit of room to go before it really affects us," he said. The city's budget for the upcoming year tops $100 million and the state has squirreled away billions in oil revenue into funds it can tap for years to come to pay for future infrastructure, education and legacy projects. "Mainly what they're telling us is to sit back and take a look at this thing. We were really fast-paced. We had a hard time keeping up. So we think it's just normalizing."

Jennifer Brooks • 612-673-4008