Bakken 2.0: ‘The Best is Yet to Come’

By Rob Lindberg

Over the past 12 months, I have had a favorite line I tell people who ask what’s happening in the Bakken. It is a combination of cheeky and honest: “We’ll be at $60 per barrel in six months and someday, I’ll be right.”

Of course, the latter qualifying statement was added after a year of misplaced confidence that a recovery was imminent, during which we watched prices slide again and again to levels unimaginable in 2014 and a bottom of only $26 per barrel.

While the line is meant to add humor to a tough period, it is paired with another message given with a cold seriousness. “This is not a bust and the best is yet to come.”

The North Dakota oil and gas industry has consistently been measured by its tax revenues and drilling rigs. Consequently, when rig counts fall to the 20s and falling tax revenues cause budget shortfalls, the public gets the impression that the industry has gone bust. The truth is much different. Though the industry kept its spot as the largest taxpayer, sending $3 billion to the state’s coffers in the 2015-2017 biennium, the industry continued to employ nearly 50,000 North Dakotans directly at an average salary of over $98,000 per year, keeping its spot as the top employer by headcount and pay in the state.

Surviving the longest dip in oil markets made for a tough two years and those who survived hold a certain balance of luck, fortitude, talent and gratitude.

Yet, strangely, the industry and its people have only scratched the surface of what is to come. Bakken 2.0, that is.

In fact, the celebration of 1 million barrels of oil per day (bopd) might not be the only million mark the Bakken ever hits. The latest projections from the federal government’s Energy Information Administration say the Bakken will grow production to 1.3 million bopd by 2019 and to 2.3 million bopd by 2040. Local industry experts don’t doubt it. Companies operating in the Bakken have called it their No. 1 or No. 2 asset in the world as West Texas Intermediate prices cross $60 per barrel. (Other U.S. shale formations produce more gas along with their oil, giving another revenue stream during low oil prices.) The North Dakota Department of Mineral Resources also sees the production climbing to 1.5 million to 2 million bopd with recovered prices.

Whether maximum production is reached at 1.5 million or 2.3 million bopd, the industry will need to drill 50,000 to 90,000 new wells in addition to the 13,000 wells currently operating. It represents hundreds of millions of dollars of investment and, more important, will double the employment base of the industry to 100,000 or more. Note, this is direct employment without consideration of the thousands of engineers, manufacturing workers, construction crews and more that service the industry. Today, the number stands around 20,000 for the 50,000 direct workers.

Most important, the promise of Bakken 2.0 means another generation of growth and opportunity. Unsurprisingly, most growth will occur around Bismarck and west (an area now with 46 percent of the state’s population), yet the opportunity will be statewide. The west will gain steady jobs servicing the wells and maintaining pipelines, while the east has nearly unlimited opportunity to grow its business presence in manufacturing, engineering, technology and finance.

Finally, Bakken 2.0 will come with more control. Many hope to see a booming economy, but few want The Boom repeated. This time around, we’ll have the capacity to handle an influx of activity and workers. The roads, apartments and hotels are built. Our regulators are more prepared and will likely better their structures and processes through the session. The industry will better see where it is headed and will have more infrastructure — hopefully to include the Dakota Access Pipeline — to less expensively and more safely get product to market.

While these factors show a bright future for the industry’s growth, the success of its workers, and, yes, state tax revenues, no one truly knows how the future will unfold. By this time next year, my prediction of $60 oil could be doubled or halved, the former granting my prediction at least one day of accuracy. PB