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Bakken No Longer Booms, but It's Beyond the Bust

11 Jun 2017 11:00 am
By Erin Ailworth 

WATFORD CITY, N.D. -- Radio stations here are again running ads from oil-field companies seeking drivers and mechanics. A store is serving up an alligator-and-crawfish lunch to welcome workers from the Gulf Coast. New rigs are rising across the sprawling prairie.

Drillers are inching back to action in North Dakota's Bakken shale region, a sign the recovery of the American oil and gas sector is spreading beyond the Texas and Oklahoma fields, where production is cheaper because there is more oil that is easier to tap.

The revival after a nearly three-year bust is welcomed by local industry leaders, officials and merchants, who are grateful to see new signs of life in places such as Watford City, a community of about 6,400 people that was booming just a few years ago. The area is expected to get a boost from the June 1 start-up of the Dakota Access Pipeline, another conduit for oil out of the region. But some are concerned that too much too soon could send oil prices plunging once again.

"It's a nice level of production that we hope will be sustainable," said Kari Cutting, vice president of the North Dakota Petroleum Council.

Hess Corp., Continental Resources Inc. and Oasis Petroleum Inc. are drilling new wells here or finishing ones earlier left uncompleted. Yet despite technological improvements and cost cutting, only some producers can afford to drill in the Bakken at today's oil prices.

And while shale companies are slowly recovering, prices remain volatile -- crude has declined 9% in the past three weeks, moving decisively below $50 a barrel.

While some Bakken producers can break even at $40 oil, according to consultancy Wood Mackenzie, most need upwards of $50 and wouldn't significantly increase activity until oil approached $60.

Locals believe $60 or $70 oil would be enough to keep the Bakken humming at a reasonable pace. Anything more, they fear, might bring back the chaos of the boom, when a huge influx of people and oilfield traffic overwhelmed parts of North Dakota.

As oil climbed over $100 in 2014, North Dakota's unemployment rate -- already consistently the lowest in the nation -- fell as low as 2.6%. The population grew more than 2% annually from 2012 to 2015, adding 55,000 residents, a big influx for a state that even now has only about 758,000 people, federal estimates show.

Some workers were making six-figure salaries and regularly dropping hundreds of dollars on shots of Louis XIII cognac in restaurants like the Williston Brewing Company. But skyrocketing rents forced many to live in trailers, tents and boxy, no-frills "man camps."

In Watford, residents remembered traffic so heavy that some people couldn't make left turns out of their driveways. Things are calmer now, though many of the returning rigs are in surrounding McKenzie County.

"The man camps around here still have people in them," said Stephen Stenehjem, chief executive of First International Bank & Trust, based in Watford. "There's more traffic...more rigs in the county, more frack crews in the county, more pipeline getting laid."

It is far from the peak of 218 rigs five years ago, but North Dakota's rig count has rebounded from a low of 27 in May 2016 to 51 today, state data show. Oil output has again topped 1 million barrels a day, after wobbling below that point at the start of this year and for a few months in late 2016.

A recent job fair in nearby Williston, a city of about 26,400 people, boasted 60 booths for employers with 1,500 openings, more than twice the number of job seekers that attended, said Cindy Sanford, a manager with the local branch of Job Service North Dakota, a state employment agency.

"Tons of jobs, not enough people," she said.

The increasing activity was apparent at a site about an hour east of Williston, where Hess began operating a rig known as the B04 in March. A crew worked on one of five wells planned for the site, as a trio of pump jacks nodded nearby.

Hess has four Bakken rigs in place and plans to have six by year-end. It says it has nearly 3,000 locations left to drill in the area -- half of which generate a 15% rate of return at $50 oil.

"We compete very well with the Permian," said Mike Turner, senior vice president of global production at Hess, referring to the region of Texas and New Mexico where much shale drilling has concentrated during the downturn in prices.

Daniel Stenberg, McKenzie County's economic-development coordinator, said Watford is ready for any additional workers that arrive as a result of the Bakken's recovery. The city has a new high school next to its new sports and convention complex, and several newer housing developments.

Williston is more developed, too, though declining sales-tax revenue after oil went bust caused the city to take on more than $200 million in debt to finish necessary infrastructure projects. While residents are happy about the amenities sudden oil money brought, including newly paved roads and a fancy recreation center, few want to see the boom return full force.

"It's a nice place right now," said Todd Williams, chief executive of S.I.R. Q LLC, a company that heats water for fracking, as he enjoyed a steak at Outlaws' Bar and Grill.

Write to Erin Ailworth at Erin.Ailworth@wsj.com

(END) Dow Jones Newswires

June 11, 2017 07:00 ET (11:00 GMT)

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