Getting Advice on "Once in Lifetime Opportunity"

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Created on Friday, 20 July 2012 12:54

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"Think big and bold. If not, you are selling yourself short."

Such is the advice for would-be entrepreneurs in the Bakken, from Steve Slocum of First National Bank and Trust of Williston, ND. Slocum was one of several business people comprising a panel discussion about how Billings area businesses can get a foothold in the fast-paced, booming oil business of the Sidney, Montana and Williston, North Dakota areas. The panel was moderated by Steve Arveschoug, Billings, Director of Big Sky Economic Development, the agency which recently hosted two tours of the area.

The movement of western Montana businesses and laborers eastward is the beginning of a new era in the state. It's a watershed moment in the history of both Montana and North Dakota – nothing will ever be quite the same.

It's a "once in a lifetime opportunity," claim most observers, one that is already reaching deep into the economic foundation of Billings. "It is critical that Billings take advantage of it. It will have a large impact on Billings," said Kevin Heaney, another member of the panel. To find a way to "take advantage of it," is just what many members of the tour group were interested in doing.

Having a presence to develop personal relationships, and being able to overcome the housing hurdle were two reoccurring themes in the conversation among panelists, which also included Kevin Heaney, a partner in the Commercial Department of Crowley Fleck, PLLP, Billings; Garth Sjue, Williston, also with Crowley Fleck; and Rick Leuthold, Director of Business Development for Sanderson Stewart, Billings.

To introduce prospective business developers to the phenomenon that is the Bakken oil fields and to see firsthand the economic impacts on surrounding communities was the primary purpose of the tours. Billings is a primary support center for the oil field activities and for the infrastructure building that is going on in Williston, Sidney and other eastern Montana communities.  Billings is "strategic to energy" of all kinds, pointed out Arveschoug, in introducing the panel.

Besides being a store-house of all fossil fuels, Montana is considered second in its potential for wind energy, said Arveschoug. Billings is central to the development of those energy resources, as well as the infrastructure to serve them.

In fact, looming in its potential, for that infrastructure and to create more jobs and business opportunities, is the building of the Keystone XL Pipeline, which Arveschoug said he has been assured by Keystone representatives, will happen. President Barak Obama currently has a regulatory hold on federal permitting of the project, which would help get Bakken oil to market.

In his advice to the group, Heaney said, "You want to assimilate how to take advantage of what is happening." Figuring out how to capture that business is much of what Heaney does for his law firm, which has had offices in the region since 1995. "We are uniquely situated to take advantage of all this," he said. The firm today has offices in Williston and Bismarck, North Dakota, and Casper and Sheridan, Wyoming, as well as in six Montana cities. "We are strategically situated to be one of the players in the energy development boom. We have a very large market share of the region."

"It is difficult to recruit into these areas, because it is expensive to live here," said Heaney. It is also expensive for his company to add a new lawyer to the firm – "It takes a lot of training to bring a new lawyer on line."

"In Billings, we are working with lenders in making some unique loans," said Heaney. For example, they are working with the Highland Projects, a Sundre, Alberta-based company, which is building storage tanks in Billings. "They are looking to make a substantial investment," in either buying or building a manufacturing center."  His firm has also been "talking to a company in Canada that provides equipment to deal with the flaring – "something that requires a lot of heavy equipment."

"The residential real estate market in Billings is making somewhat of a recovery," said Heaney, "and I think that is being impacted by the activity in this region."

There is a lot of commercial real estate and industrial properties that are being "gobbled up," as well.

Health care providers are also being impacted in Billings, and there is opportunity for them to expand into the Williston Basin area.

Because of all the spin-off businesses that oil development is spurring, "there is a tremendous amount of wealth being generated," said Heaney, which creates a need for legal services regarding taxes and tax planning, which Heaney's firm is poised to address for clients.

What about the historical nature of the oil industry, of the "boom and bust," cycle?

"It is important to come to grips with the issue," said Heaney, "All of us wanting to invest were worried that oil prices may drop." But Heaney came to the conclusion that "this is a once in a life time opportunity to invest in what is probably the epicenter in the world."

"If you look at it in its totality, this has some legs – no guarantees, in life but this is a good place to invest – a good bet," said Heaney.

In doing business in the Bakken, "relationships and partnerships are important," Heaney continued, "If you know businesses already here, tap into some of those resources for information and networking. You need to be here. You need a presence – it doesn't have to be large, but it's important for people to get to know one another."

"You can do the work elsewhere, where things are slower paced. With email and other communications, there aren't many things that can't get done."

Heaney's cohort with Crowley Fleck, Garth Sjue, told the attendees, "A rising tide lifts all boats" and those boats include Billings, Minot, Bismarck and Dickenson – all are communities benefiting from the activity in the oil patch. Crowley Fleck represents "most of the oil companies doing business here," said Sjue.

"We hear from companies that there is going to be two or three phases in development," said Sjue, "Right now it is almost like a gold rush because people are trying to buy up the leases" – paying $1000 to $1500 per mineral acre. "It's a big investment."

There are layoffs in the landman segment of the industry, "that tells us that the companies have all the lease positions they want," said Sjue, "They are now going like bats out of hell trying to develop the leases." That will take another two to three years.

What this activity impacts the most is the service industry, "then the bean counters will come and there will be a contraction of rig count," said Sjue.

Among the businesses providing the support services, "there are obscene amounts of money being made, right now," said Sjue, "which will continue until the oil companies get back in control" – perhaps in three to five years.

Fracking companies are being drawn from all over the country.

Sjue said that Harold Hamm, CEO of Continental Resources, believes the number of service providers has stabilized. But it is still a vendors markets. "It is what it is," said Sjue, "The oil companies do not ask 'How much?' but 'How soon can you be here?'"

"I have bankers who are always asking for referrals," said Sjue, "If you want to be part of the community it helps to have a presence. If you are working with local leaders, you need to have relationships because they want to work with people they know and trust."

Sjue said that Williston is "missing a lower middle class" from whence service workers usually come – "they run off and go to work in the oil fields." That leaves many needs for services unmet.

Since most of the workers are young, with young families, besides housing, the next greatest needs are for day care and education. Sjue said that there are 2400 kids in Williston that need daycare.

Steve Slocum, with First National Bank & Trust in Williston, said that Williston banks are stressed. People are always bringing in checks thinking that a mistake has been made – they have too many zeroes.

"You are all here to make money and this is a good place," he said.

Slocum explained how the Willliston Basin is a different kind of oil play. It is a stratigraphic column with layer upon layer. At the middle of the basin, the layers are deeper and thicker, and as it nears the edge of the basin, they taper closer to the surface and become thinner. Sort of like a bowl. The Bakken is just one of 19 known oil and gas zones in the Williston Basin.

"Hydraulic fracking is not the problem here like it is in the Marcellus (shale gas formation) in Pennsylvania," said Slocum.

The major oil companies have the best engineers in the world. They figured out how to drill 600 feet (horizontally in a geological layer) and make it pay, explain Slocum. "Now they are opening up 10,000 feet of pay zone. It is a total game changer."

When it comes to wondering if the industry will figure out how to get more of the resource extracted – "to think they won't figure out a way – you are crazy," said Slocum.

It's been recommended that there will need to be $1 billion spent on infrastructure needs in western North Dakota, for each of the next five years. "That is huge," exclaimed Slocum.

He went on to say, "The top ten oil companies are here. They have made huge investments."

"There would be 400 rigs drilling if they had the full infrastructure needed."

"Warren Buffet, Haliburton, Schlumberger, Baker Hughes — all think this is a good investment, "I'm going with that, said Slocum.

Slocum said that he would like to get the oil companies in charge of building the needed infrastructure – "these guys get it done. When it takes the highway department two years to get it done, these guys have it done by lunch tomorrow."

Rick Leuthold, Billings, lamented that more people, nationally, don't know what is happening in the Bakken – "People don't know it exists." But, he went on, oil development of the Bakken began 42 years ago and "it will be going on when I'm dead and cold in the ground. My grandkids will be benefitting from this."

"There will be a population shift," predicted Leuthold, about the future of the Bakken. Leuthold's firm, Sanderson Stewart, eased into the oil fields with the beginning of the recession in 2008, when they began looking for new opportunities. His experience in the Bakken has led to the conclusion that "It is not business as usual. If you are set in your way it is not going to perform very well."

As a consequence of the activity in the oil industry, "things are ramping up in Billings," said Leuthold, "The last six month I have seen our Billings business ramp up. We could put another 6 to 12 people to work and keep them busy in the Bakken, and another 6-12 people in Billings."

"You would think hiring in this economy would be an easy thing," said Leuthold, "but it is not. It is  hard to find the right people. You could go to Arizona or Los Angles to hire but you are in a constant revolving door." The issue is other than money – it's a matter of "the first zero degree day they head south again."

Again, Leuthold underscored that relationships are important working in the Bakken. "That's why I'm here, two to three days a week. Face to face relationships are needed. North Dakota is old school, when it comes to doing business."

The benefit of the relationships is that "development agreements get put together next week. You don't have all that overhead process. If they have confidence in you, you are golden."

"That is great. They are not jaded."

Sjue said that there is "a world of difference" in the business environment in North Dakota.

"Send your best people over or do it yourself," advised Leuthold.

Finding people to work in the Bakken is hard. "It is a tough environment for housing and to get people to live in the heat, humidity, cold, and mosquitos," said Leuthold, but "there are the beautiful sunrises." Their best luck has been in finding people who have family members who moved away and want to come back.

Leuthold said that his company has bedrooms, and a couple of mobile homes to provide to people who "come and go," — people who come to perform inspections, etc.

When it comes to providing services, "there are a tremendous amount of needs – "think bold and out of the box," he said. "Things that wouldn't be a service in other areas are needed here. They have unique needs."

Large national firms don't understand what is happening in the Bakken, either. Part of Leuthold's efforts on the part of clients has been to help educate lenders – lenders whose "eyes glaze over when you tell them how quickly a motel can pay back."

When it comes to accommodations – "we are behind the curve by 6000 units over the next 8 to 10 years. It is hard to communicate that to lenders."

"Bottom line is, this is the real deal," said Leuthold.

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