The Bakken and beyond

Oil production levels lift North Dakota to fourth in the nation

By Cecile Wehrman

Just off US Highway 2, on the outskirts of Stanley, lies a destination some call “Bakken Central.” On any given morning over the past two years, oil field workers might stand as many as 20-deep waiting to pay for the fuel and food they need to get to and through another 12-hour day in the nation’s hottest oil play.

The local co-op’s gas station and convenience store presents a microcosm of a story playing out all over western North Dakota – jobs are plentiful and well-paying, a huge influx of workers need services, businesses can’t keep up with the demand, in a state where oil tax collections could be more than $100 million ahead of projections by the end of the biennium.

For Stanley Farmers Union Oil General Manager Gary Koschmeder every day brings a new amazement. “I’ve never been any place where you couldn’t keep up with the demand,” he says. “We do a zillion small personal pan pizzas. There are just so few places to eat. For a huge number of people we’ve become both breakfast and lunch. People gotta have fuel. They gotta have food.”

That’s why the co-op is reconfiguring its fuel islands to better accommodate customers. But that’s not the only improvement involved. “We just opened our 27-foot register counter with four new registers behind it,” and still the check out line can run several people deep.

A bathroom remodel is in the works, bringing the addition of showers and more capacity to handle an ever-expanding clientele. “We just don’t begin to meet the need,” Koschmeder says. “It’s scary because the demands require a huge capital infusion. Even though we’re making money, it’s a huge risk for the co-op board to go out and do the things we need just to accommodate and get by.”

Koschmeder has been told drilling could expand to double what it was in 2009, and stay at that level for 10 years. “We’re strongly considering another huge addition on the west side of the store,” he says, if he can find a cook to crank out a daily special to supplement the “grab and go” food items workers stuff in their pockets to eat later.

“We’re looking at possibly changing our name from ‘Farmers Union Oil,’” to better reflect the co-op’s function. “You feel like you’re ‘Bakken Central’ because, probably, that would describe our function better than anything else.”

Even the agriculture side of the business is changing, as royalties to mineral owning farmers provides the capital allowing them to bring in crops pampered with the best farming practices oil money can buy.

It all sounds like a dream come true – but managing the growth, as ever more workers demand services is stressful. Add the limitations of a small town’s service work force, and it’s a constant headache for guys like Koschmeder.

“Ads run every day,” he says, to try to attract the reliable adult employees the co-op needs. Gone are the days when a couple of teenagers might run the till to ring up the purchases of the few folks traveling a lonely stretch of North Dakota highway on any given school night.

“There’s too many millions of dollars involved,” Koschmeder says, to hand the keys over to a 16-year-old.

State projections soar

Pam Sharp, director of North Dakota’s Office of Management and Budget, presides over a financial picture unlike any other state in the nation right now.

Last year, the legislative forecast assumed the general fund would receive $40.4 million of oil taxes from July through December. Actual collections for that time period amounted to $120 million. The first $71 million of the state’s oil collections each biennium goes into the general fund to benefit every facet of state government, and by extension, every resident of North Dakota. Anything over that $71 million goes into the state’s Permanent Trust Fund.

In fiscal year 2009, counties received $48.3 million from oil and gas production tax and at the current pace, could almost double that figure this year. “It just gives you a little idea how much further ahead of the game we are,” Sharp says. “We do have a very bright financial picture.”

All indications are production will keep growing, says Lynn Helms, director of North Dakota’s Department of Mineral Resources. North Dakota only recently leap-frogged over Louisiana to become the nation’s fourth largest oil producer – behind Texas, Alaska and California – a ranking Helms says the state has never attained before.

“Not even close.”

Oil production is now three times what it was in 2003, while other oil and gas producing states have seen production declines of five to 10 percent. “This is the play everybody wants to be in,” Helms says, because tapping the productive Bakken and Three Forks formations through advancements in horizontal drilling and fracture stimulation is virtually a no-lose proposition. Dry holes are almost unheard of – a good thing when the typical well costs $5 million to $6 million to drill.

North Dakota’s recoverable oil reserves are currently estimated at 3.1 billion barrels, Helms says, “And they’re telling me that’s too conservative. It’s not my job to hype things, but some estimates go as high as 6.7 billion.”

This boom, he adds, is unlike any North Dakota has seen in the past. “There’s way less geologic risk,” Helms says, compared to the boom of the late 1970s and early 1980s, when conventional oil structures were targeted. Ninety-nine percent of all Bakken and Three Forks wells drilled are successful. “That makes it very attractive to big companies with a lot of capital to invest.”

Not a lot of testing has been done on the edges of the 14,000 square miles of the Bakken Formation in the state. Already, however, one new county has joined the oil and gas producing club – Mercer. Helms says there could be others in the future, as well as a resurgence of oil income in counties like Adams and Hettinger, where only minimal activity has occurred in the past.

Mountrail County has been the hot spot of the Bakken play for going on three years – ever since EOG Resources brought in a mammoth well in 2007. But activity has been steady in McKenzie, Dunn and Williams counties for a couple of years – the city of Williston is even sharing royalties on a recently completed well.

As activity continues in those locales, exploration companies are ramping up this spring in counties like Divide and Burke. Lodging and restaurants in towns like Tioga and Crosby are already at or near capacity, leaders are trying to address long term housing needs and the shortage of workers to support the services the oil field workforce demands.

“Where is everybody going to stay?” asks Brenda Ekness, of Ekness Super-Valu grocery store in Crosby. Housing in Crosby is already at capacity. The grocery store has not seen a noticeable increase in business yet, but “I guess we better get ready.”

The Crosby Economic Development Council is pursuing a venture to build two single family spec homes. The Crosby Housing Authority has overseen construction of eight townhome units and eight assisted living units in the past three years – projects that freed up a few homes for incoming teachers and border patrol workers, but doesn’t begin to address the need for the oil field.

Helms put Divide County officials on notice several months ago to start looking to develop an industrial park to lure oil field service operators. The suggestion has also been made that Crosby needs to develop a temporary “man camp” like one set up in Stanley last year – a mini city of skid shacks to house the men who work on the rigs.

But it’s the old chicken and egg dynamic – city officials are cautious about pouring too much money into infrastructure when they know the world economy can change on a dime. If oil falls below $65 per barrel, or if the feds impose new taxes on fossil fuel production, all of the money and all of the jobs could disappear as quickly as you can say “cap and trade.”

Careful growth

City leaders in Parshall and Tioga are well aware of just how quickly the good times could come to an end. But they’re trying to position themselves to be left with better infrastructure for the future.

Parshall Mayor Richard Bolkan says his town will have at least two major improvements as a result of this boom – a new regional water plant, and a new city building with a library. The water plant is being funded with a grant from the state and the construction of the city building will be funded from the profit on water sales and oil tax revenue.

Prior to the Bakken play, Bolkan says, the city talked about improvements like a new water plant or a new library, “but we didn’t have money to do it.” Now city coffers have gone from break even to surplus. With prudent spending, the community can build infrastructure during the boom to serve people long after any bust.

Both Parshall and Tioga are working with Lutheran Social Services on housing projects, including some income-based units, for people who don’t make $25 an hour in the oil field. Ground will be broken in Tioga this spring on a 37-unit apartment complex. “If you’re trying to get people to move to your town, you have to have a place for them to live,” says Tioga City Auditor Jamie Eraas.

Tioga also recently purchased land to develop an industrial park with two tenants ready to set up shop as soon as lots are prepared. One of those companies, Murex Petroleum, has offered to host the annual “Oil Can” event in Tioga this summer, during which the North Dakota Petroleum Council brings in hundreds of oil industry people for a one-day symposium. “Normally, 1,200 attend the event,” Eraas says, allowing Tioga to showcase itself. “We’re just trying to get some of the growth while we can.”

In the past year, Tioga has seen a new $10 million office complex for the Hess Corporation open up on the outskirts of town, and an expansion of the rural water association it shares with the nearby town of Ray. But it’s the little things, Eraas says, that really add up when an oil boom comes knocking. “Like, our landfill filling up faster, people moving to town and fixing up old houses,” she says.

Property values have increased, on average, 30 percent. “Everything seems to be positive right now,” she says, including new people bringing fresh ideas to a region too long focused on a population growing older and smaller.

As Sharp says, “We are so fortunate to be living in North Dakota.” With careful growth and wise use of oil income on the state and local levels, that statement can hold true for decades to come.

Cecile Wehrman is the editor of  The Journal of Crosby and The Tioga Tribune. She has been employed by Journal Publishing since 1999, gaining state and national recognition for her writing. She is currently researching a book, “The Brothers Krimm,” about a serial bank robber who targeted at least 11 banks in the region over the past five years. Wehrman began covering the oil industry in northwestern North Dakota as a television reporter in Williston in 1985. She can be reached at cecilew@crosbynd.com.

People of the Oil Patch in 2010

By Andrea Winkjer Collin

Lynn Helms

One of the most sought-after people in North Dakota is Lynn Helms, director of the state’s Department of Mineral Resources. Reporters from around the world call with questions for news stories. Oil companies, people seeking employment and land and mineral rights owners have constant questions of him and his office.

He has been in his position since 1998, and Helms has watched new technology change the industry. “Horizontal drilling has really made a difference,” he says. “We are now nearly 100 percent dependent on it here.”

Helms credits the state reaching the 100-plus milestone of operating drilling rigs to the significant investment national oil companies have made in perfecting successful drilling techniques in the state’s oil fields. “It has been a pleasant surprise to see this success, and it’s been wonderful to work with the oil companies that have made such a commitment to the state.”

While the Bakken Formation has commanded the attention in recent years, Helms says two other oil plays in the state are showing promise for their potential. The Three Forks-Sanish formation is made up of sand and porous rock and sits directly below the Bakken Shale, and the Spearfish play, which has proven successful in Manitoba, and is also emerging in Bottineau County. While smaller than the Bakken, Helms says both could have recoverable reserves as high as 2 billion barrels each.

His office, he says, is “in the very thick of it every day. We monitor every month’s production flows, and the many legal aspects of this play. We also work to ensure that landowners’ rights are being protected. But, beyond that and our regulatory responsibilities, we want to assist the oil companies and not be in their way.”

Helms is very much aware of the impact the success of this industry is having in the state. “We calculate that each operating oil rig brings into the state one dollar a second in revenue through capital, wages, sales taxes and infrastructure development.”

Wes Norton

 “We always knew there was a lot of oil here,” says Wes Norton, the former director of North Dakota’s Oil and Gas Division, now known as the Department of Mineral Resources. “But because of its low permeability in areas like the Bakken Formation, we couldn’t get the oil with traditional vertical wells.”

Norton grew up in rural Morton County near Mandan, and began work as a petroleum geologist in the state in 1960. He headed North Dakota’s regulatory office between 1981 and 1998. During his years of watching the ups and downs of the industry, Norton, now retired and living in Bismarck, waited for a breakthrough. “We hoped it could and wished it would happen, but we didn’t know.”

Norton says the first well in the state to successfully try the horizontal drilling technique was done in the 1980s by Burlington Resources, now known as ConocoPhillips. “That was the start.” Other successes by companies like Continental Resources in 2003 to successfully drill horizontally in the Middle Shale of the Bakken Formation followed. “Horizontal drilling technology and completions have made the difference.”

North Dakota’s oil industry will continue to increase and will spill over into other counties not already producing oil, Norton predicts. “The rig count will increase to 150 in the state in the next two to three years, and from there will go considerably higher. It will continue to light up North Dakota’s landscape. It has become the lifeblood of the state.”

Harold Hamm

Oklahoma native Harold Hamm likes North Dakotans. “They are lot like Oklahomans – they work hard, and the ranchers have names for all their cattle, just like I have names for all my wells.”

Hamm, who owns Continental Resources, Inc., based in Enid, Oklahoma, changed the emphasis of his company in 1988 when the price of natural gas was low. He decided to focus on crude oil. He was the only operator in the world experimenting with horizontal drilling in the Cedar Hills prospect area in southwestern North Dakota, when he started leasing in 1993, and he started drilling in the Red River B formation in 1995. Hamm was the first to drill a horizontal well in the Middle Bakken in North Dakota, which was in 2003.

“When we started drilling in the Bakken, we wanted to find a large oil field. We went over the top with that one,” he says with a smile. “It almost gives me chills to think that today the Bakken’s the largest oil field in the country’s lower 48.”

His company has drilled 625 wells and invested more than $2 billion in the state. Today, Continental Resources has the most leased acres and is the state’s third largest producer, behind ConocoPhillips and EOG. Last September, it announced the completion of a successful well in the Lodgepole play in Stark County, the first significant discovery in the Dickinson area since the late 1990s.

Over the past three decades, Hamm has spent considerable time in North Dakota. In January he was back in the state to announce a $1.8 million donation from his company for the expansion of the North Dakota Heritage Center in Bismarck. When completed in time for the state’s 125th anniversary in 2014, the state museum’s largest exhibit area, the Inspiration Gallery, will bear the company’s name.

“North Dakota has such a rich heritage. I’m proud of our little role we play here,” Hamm said about his gift. “There’s so much generosity with the people in our business, and it’s important to give back to the states where we find oil.”

The Next Generation of Hunts

Traditions run deep in this family since the legendary H.L. Hunt made oil the family business in the 1920s. Today it is a global energy company based in Dallas and known as Petro-Hunt LLC. Then known as Hunt Oil, the company took out its first lease in North Dakota in 1948, and it was one of the first to strike oil in the early 1950s near Tioga. H.L.’s son, Herbert, first came to North Dakota to work in 1951.

The company has remained in the state ever since, pioneering new technology and production advancements, such as the first medium-radius double-horizontal well with each horizontal having dual laterals, which it drilled in North Dakota in 1998.

Herbert’s sons, Bruce, Doug and David, who now head Petro-Hunt, all worked in North Dakota to gain experience in the business. And today, four members of the fourth generation of Hunts are doing the same thing.

“It’s a family tradition to spend time here learning about the oil and gas business,” says Bruce’s son, Marshall, 25. He, along with his brother Carter, 24, and cousins Austin and Davin, both also 25 and the sons of Doug, are working out of the Bismarck district office and traveling throughout the Williston Basin doing primarily land work.

“Several other cousins have also been here recently,” says Davin. “Bismarck is like a second home to us.” Raised together in Dallas, these cousins have recently earned degrees at colleges around the country. “Now we are trying to figure out where our interests will lead us in the company,” says Austin. “We each have our own strengths and weaknesses.”

They are proud of their family’s legacy that began with their great-grandfather’s discovery of oil in El Dorado, Arkansas, in 1922. And, they take equal pride in how their company has met today’s oil industry challenges. “In 2004, we drilled the best-producing Bakken well in the state,” says Carter.

A family that is big into owning Labradors, the dogs now count some 17 between about 30 family members – including a rare Red Lab puppy that Davin recently added to the pack. And with their affection for this breed of dog has come a love of hunting, especially during the North Dakota’s pheasant and duck seasons.

During winters on the Northern Plains, they are proud of the driving skills they have mastered, and can be found ice fishing on frozen lakes and learning the fine art of sweeping a large rock across a sheet of ice with a broom at local curling clubs. “We are not saying we are good at curling,” says Austin, “but at least we are trying.”

Carter, Davin, Austin and Marshall don’t know how long they will remain in North Dakota. At this point in their professional lives, they will go where there is work for them in the company. “And, right now there is plenty of work here,” says Carter.

Pyi Thein Kyaw

North Dakota’s oil industry has drawn new residents to the state, many who have become longtime residents. For others, however, their stay has been short. Pyi (James) Thein Kyaw is among the latter.

Kyaw moved to Williston in November 2008, about a year after earning a mechanical engineering degree from Arizona State University. Working in the oil industry and living in North Dakota was not something he ever envisioned, but Schlumberger, the global oilfield services company, was hiring in an economy where many were not.

As a field engineer for his company’s well services division, he specializes in cementing, working in both the cement quality control lab and at drilling sites. “So far I have been focusing on my job and learning all that I can,” he says of his first years at his job.

Kyaw is a native of Rangoon, the capital city of Myanmar, formerly known as Burma. Joining him in the Williston office were co-workers from around the country and also France and Mexico.

“Living in Williston was a tough, yet interesting change,” says Kyaw. The state’s lone telephone area code surprised him. And, compared to the large cities where he had lived most of his life, he observed, “there were not many things to do.” The population of his hometown is 4 million, and a cool day there is 60 degrees F. To be worrying about frostbite during a work shift on a Northern Plains winter day was a new experience for him.

In February he was transferred to the company’s office in Rock Springs, Wyoming, where he has been training at sites in that region. Still in his twenties, Kwai, whose parents are still in Rangoon and whose only sister lives in Australia, muses about where his life experiences will lead him. Wherever that is, he already is planning on how he can regale his grandchildren with stories about living for a few years in exotic North Dakota!

Tom Rolfstad

The life of Williston’s Economic Development Director has paralleled the history of North Dakota’s oil industry. Tom Rolfstad was born in Williston in 1952, one year after the discovery of oil 45 miles away near Tioga. His father, Telmar, then a young lawyer, was among the city’s professionals who adapted to the new opportunities that came to their city, in his case helping clients with mineral leasing, landowner rights and royalty payments. His clients included the Bakken family, a name now closely tied to today’s oil activity. He was raised in a house north of 11th Street East, then on the town’s northern edge, in a new subdivision developed to accommodate the families who moved to town with Amerada, the company that drilled the first well. He came back home to work in economic development in the late 1970s, moved to Bismarck for five years when that oil boom waned, and returned in 1990 to take his current position.

“During the lean years, we were hardly aware of the oil people here in town,” says Rolfstad. “Today there appears to be so much more longevity to the industry, and although we are tempered by the past, we are optimistic about the future.”

He said the industry’s impact to the state is now more widespread, both economically and geographically. “There are businesses in Fargo manufacturing oil tanks.”

And, as with past oil booms, Rolfstad says today Williston’s “biggest challenge is to grow a community rapidly without putting taxpayers at risk. In the early 1980s high interest rates were one of our obstacles. Today, because of the difficulties with national financial markets, “we have become very focused on private sector investments.” This includes meeting housing challenges, about which Rolfstad says “we are making headway, even though it is taking time to catch up.”

In addition to individual landowners, this town of now 15,000 people located 18 miles from the Montana state line and 75 miles from Canada, is the owner of a producing oil well on city-owned land southwest of town. “It is bringing us income that will help us meet the challenges of the future,” he says.

Yet even today, when the oil industry is as hot as ever, Rolfstad continues to put diversification of the area’s economy as one of his goals, especially value-added agriculture. “It will help us benefit from this growth even more.”