Billings Businesses Look to the Oil Patch

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Created on Monday, 04 July 2011 13:37

The Bakken is booming, and so are Billings businesses.

How much opportunity is there in the Bakken for businesses in Billings or other areas of the state?

That was the question for a group of people who went on tour of the Bakken recently, sponsored by the Big Sky Economic Development Authority (BSEDA).

They came away stunned.

 

Even if one thinks they have an idea of what is going on in eastern Montana and western North Dakota, it’s hard to fully grasp the dynamics of some 350 oil companies drilling in the largest reserve in the US, for the world’s highest quality oil, in some of the smallest and most remote communities in the country.

The business leaders came away knowing that they had just seen the most economically vital hot spot in the nation.

They came away realizing that one of the most “unique” events in the history of this country is unfolding on the eastern Montana border.

They came away concluding that most people in the state do not realize what is happening in their back yard.

They came away believing that that lack of understanding means many opportunities are probably being missed.

They came away believing that there needs to be more awareness among legislators and government, in both states, about the desperate need of these counties to be able to retain their tax revenues in order to build desperately needed infrastructure.

“Capacity is the limiting factor of The Bakken,” said Doug McCreedy of XTO Energy, Some companies have backed away from investing in The Bakken because of it.

“What do you need?” was a reoccurring question posed to the speakers and leaders in Sidney, Montana and Williston, North Dakota.

“We need pretty much everything,” said Tom Rolfstad, Executive Director of the Economic Development Agency in Williston.

Williston Mayor Ward Koeger said that while they get inquiries from all over the nation, they are “elated” welcoming people from within the region, “because we know they understand our community better.”

One thing’s, for sure, if you are going to visit The Bakken, make sure you call ahead to make a hotel reservation, he advised, making reference to one of the biggest problems that confronts The Bakken – housing.

It’s actually hard to determine what is their biggest problem, housing or roads?

“It’s a crisis situation,” said the Mayor of Sidney, Bret Smelser.

With between 2000 and 3000 job openings on any given day, most paying handsome wages, housing stands as the primary barrier to attracting workers – and hence poses the biggest problem for businesses wanting to come to The Bakken.

But, demanding every bit as much attention is the need for improving roads and building new ones. It turns out that developing oil is all about transporting water, sand and gravel. The roar of trucks and pickups on every street corner, and the vision of truck caravans lumbering over hill and dale, on highways for as far as the eye can see, is evidence that “This industry has to run on roads,” said Tom Rolfstad.

“I think every gravel truck in the world is here,” said Doug Hill of Stockman Bank, Sidney.

It takes 600 semi loads of water to drill one oil well. It takes 3000 gallons of uniquely-sized sand, which comes from Minnesota by rail and is trucked to the well site.

But besides the issue of how a construction company can house the workers which they need to build homes or motels, or to build roads, there is the question of how confident investors should be in the longevity of this “play.” The fact is these communities have been here, and done this before. Many of them lost fortunes, just a few years ago, when a hiccup in oil prices put the brakes on development in The Bakken. And, beleaguered taxpayers who had to pay off public debts which were incurred when the promise of huge tax revenues seemed certain, are saying “not again.”

However, most of the speakers, heard by the tour group, in Sidney and Williston, said that this time is different. “This boom is not a boom, it is an industry,” said Mayor Smelser.

Oil wells in The Bakken reach break-even at $55 a barrel, said Greg Heller of Stallion Oilfield Services, Williston. “If oil doesn’t drop below $70 to $80, there will be a lot of business for a long time. It is here for awhile,” said Heller.

“You just can’t walk away from 2000 oil wells” commented another, “There will always be a production sector left here in Williston.” 2000 is the number of leases in North Dakota that must be drilled before they expire. It’s been predicted that the basin will host some 65,000 wells, when all is said and done.

It takes more people to drill an oil well, nowadays. Drilling a well takes 55 to 75 people, and once drilled, it takes eight people to maintain it over a 20-30 year period. Do the math — that’s what people who believe that Williston could grow to a city of some 100,000, are doing. Williston has already grown from 12,000 to 18,000 according to the last census, and is probably closer to 20,000, now.

In his publication “The Bakken,” Nick Smith reports that at a recent Canadian oil conference, where all things were “Bakken,” the consensus of opinion is that it’s a play that will be played out. The New Yorker reports that industry experts are saying it will take 20 years to play out. 

“Who knows? No one knows,” said one tour speaker. As always, there are risks associated with doing business, anywhere.

But, to whatever extent the “doubting Thomases” are impacting the production in The Bakken, there’s still more demand for materials and services than is available locally, and that poses opportunity to far-flung surrounding communities, especially trade hubs like Billings.

In fact, there are hundreds of Billings businesses already doing business in The Bakken. Some of the sponsors of the bus tour were Billings businesses who already have a foothold in The Bakken, Sanderson Stewart Engineers, the law firm of Crowley Fleck, the accounting firm of Anderson ZurMuehlen, and Allied Industries.

Scott Chester, Billings, has already expanded his company, CMG Construction, to Williston. He was able to keep his employees employed following the construction crash, in the rest of the state of Montana, by adjusting to meet the needs of The Bakken, and establishing a base of operations in Williston.

“We thought we would take it slow, but it doesn’t work that way,” he said. They also built a campground for RVs for their employees. Chester announced that although his company will continue to do business in Billings, he is building a home and moving to Williston. “That tells you how I feel about the Bakken play,” said Chester, “I wouldn’t put money into this play, if I didn’t think it was going to last.”

There is so much work to do in The Bakken and the pace in doing it is so intense that Chester usually has no idea what day of the week it is. “What day is this?” he asked. Weekends, weekdays, holidays all blend together as the paramount focus becomes getting the job done.

Asked if he subcontracts to other construction companies in Billings, or if he would encourage them to go to The Bakken, Chester paused a moment and then said, “I don’t know of a construction company in Billings that isn’t already here.”

Tom Rolfstad said, “Off the top of my head I could name you 50 Billings businesses here, and if I can do that you know the number is several times greater.”

Many of the Billings business owners explained that they have established satellite offices in the area, staffed with core people, who are farming work back to their people in the main office.

In discovering the degree to which Billings businesses are already doing business in The Bakken, there emerges a clear understanding of exactly why Billings is as strong, economically, as it is. Even though it’s located some 280 miles away from The Bakken, Billings is an oil town.

Oil in Eastern Montana is not a new phenomenon. Billings is used to hearing about oil in Fallon, Richland, Blaine and Roosevelt counties. The industry in Montana has had its ups and downs, but things have changed. Improving technology is rapidly ramping up the prospects of one of the biggest oil resources known in the world. Frequently called a “world class resource,” The Bakken is “a twenty-five-thousand-square-mile sea of oil,” which has been estimated by some to have almost 500 billion barrels of oil. If only 10 percent of it is recoverable, that’s a lot of oil by any standards. For comparison Saudi Arabia is a 262 billion barrel resource. (And, there are other oil-bearing formations below The Bakken.)

Estimates as to recoverable oil from the US Geological Survey are conservative and often frustrating for the very optimistic, but even those estimates are escalating. In 2006 the government issued an estimate of 3.65 billion recoverable barrels, that has increased, yearly, to some 11 billion; and now many are saying that they expect to see revised estimates of 24 billion barrels of oil. At today’s prices that’s worth $2.6 trillion.

The increased projections are being driven by improving technology.

Not only is the technology increasing the amount of oil that is recoverable but it is reducing the cost of operations. An oil well that used to cost $10 million to drill, is now coming in closer to $5 million. And such things as “dry wells” are increasingly rare. The oil companies are reporting a 99 percent success rate. They can drill multiple wells from one well head. And, they are getting more oil from each well.

A year ago record wells were 3800 or 4000 barrels a day. Now, its 5300. “If it’s not over 5,000, now, you don’t even hear about it,” said Greg Heller.

Last year North Dakota produced 113 million barrels of crude oil, more than five percent of total US production. Montana produced 25,321,700 barrels of oil in 2010.

Oil has always been good for the Billings economy, but never before have the opportunities been so dynamic. With wages for truck drivers in The Bakken ranging from $45,000 to $75,000, “If you can think and breathe, you are working on an oil rig,” explained Rick Leuthold, of Sanderson Stewart Engineering of Billings. His company is one of those that already has an office in The Bakken, and Leuthold is familiar with the tempo and temperament of business there.

Retail businesses are finding it hard to compete for labor and many are making-do, short-handed, which usually restricts their capacity and sometimes the quality of service. Others have simply closed their doors. That leaves the field open to outlying communities like Billings to fill the growing needs.

The availability of good food is considered by some as being at a crisis level. Eating out isn’t something the locals do any more, and feeding workers is a challenge, since restaurant workers are quickly enticed into the oil fields.

Leuthold said he has heard stories of businesses sending out delivery drivers, only to have them waved down along the road, offered a job, which they take on the spot, and park the delivery vehicle.

He said one Billings businessman visiting Williston had his vehicle break down. He was told that they couldn’t even take time to diagnose the problem for several months, so busy were the repair shops dealing with oil field equipment. The visitor had to load the vehicle onto a flatbed and take it back to Billings. “If your vehicle breaks down here,” said Leuthold , “You buy a new one.”

Another story is that a Billings landscaping company was offered $750 just to go to Williston to give a bid on a project.

Leuthold pointed out that the eastern Montana border is about mid-way between Minot, North Dakota and Billings, so when businesses and residents in the oil impacted communities make a call, or make a trip for shopping or entertainment, they have a choice between the two.

 “If we can do it better than Minot, then they will go to Billings,” said Leuthold.

Doing business in The Bakken has a lot to do with relationships, it was said many times. If you know someone already doing business there, that is where to begin, they advised. But even if you don’t know anyone, you will still be given a fair shot, said Leuthold, “How you perform — at the levels these folks are requiring — will determine if you get a second project.”

But don’t go if you don’t have a place to stay.

Throughout the Bakken – on lots that have stood vacant for years, along the edges of hay fields, or on construction sites, one sees the most common solution to the housing problem – RVs. Come winter, the RVs will be wrapped in insulation as the workers endure the long months when temperatures frequently dip to minus 40 degrees. Many of those from Florida and California, didn’t make it through this last winter,” noted one speaker.

How to manage the housing problem is tough. One speaker commended the leaders for dealing with the problem in a realistic manner. They have tried to accommodate the temporary solutions as much as possible. The skid units, the trailer courts, the man camps and the RVs. While it’s not what they hope to see in the long term, they understood that if they attempted to shut them out of the city they would “sprawl out” into the county in every space they could fine.

There are all kinds of reality at play in The Bakken. A lot of the people who are moving into area are often from the ranks of the nation’s unemployed who are struggling to overcome financial problems, and don’t have the ability to acquire more expensive housing. Trailer houses are the most that they can afford.

In order to get and keep workers, several of the oil companies, have purchased property and are building their own housing. Several are utilizing the services of “man camps,” a term which is not well liked by those at Target Logistics. “We prefer to call them lodges,” said Travis Kelley, in giving a tour of one of their camps in Williston.

Back ground checks and drug testing are required of everyone staying in the camps, and those who work in the camps—men and women. Target Logistics has a camp at Tioga, another at Stanley, and two at Williston – housing a total of 750.  They are expanding the one at Tioga from 250 to 1300 which will make it the largest temporary facility in the lower 48 states. Another at Williston is being expanded from 250 to 1000.

The accommodations are provided in contracting with the company which employs the people who stay there. The focus of the camps is to cater to the workers’ every whim…and, that they never have to take out their wallets, said Kelly.

“We pride ourselves on setting the bar when it comes to standards – new facilities will provide saunas, tanning beds and masseuses,” said Kelley. The employees for one of their additions will be those building a natural gas plant.

Residents can eat whenever they want and as much as they want, and great effort is made to make sure the food is very good. Maid service is provided weekly, laundry service is available, computers and internet, television rooms and game rooms. The rooms vary from one or two occupancy. Some units actually have their own small kitchens.

The development of the Bakken also demands power – and lots of it. They can improve power lines to get more power, but they will reach a point – very soon— where there is no more power to get.

Rolfstad pointed out that the needs they are trying to address involve an area that is as large as some states. “Today it is power lines; tomorrow it’s power plants,” said Rolfstad.

Projections are that the area around Williston will need two power plants.

The Mountrail Williams Electric Co-op, which was originally built to serve agriculture was using 30 megawatts of power three years ago, and is currently using about 120 megawatts. By 2015 they are projected to need 180 megawatts and by 2025, 1.2 gigawatts. There is little doubt that the company will meet the rising needs of oil production, since today it is 95 percent owned by oil companies.

It takes 10 years to permit a power plant and five years to build it, noted Rolfstad, so planning is being done now.

Refineries too must be on the horizon for the Bakken. The claim was made that the refineries would be needed to produce diesel when Bakken annual production reached 350,000 to 400,000 barrels.  Production now stands at 1.2 million barrels.

The growth and impacts of the burgeoning industry are not just isolated to Sidney or Williston. In Montana the communities of Glendive, Wolf Point, Culbertson, Glasgow, Baker, etc. are all caught up in the “boom.” Sixty townships are being impacted in North Dakota, and 20 in Montana.

“We need to help these communities to deal with this kind of growth,” said Leuthold, “This is a state project.”

As one approaches Sidney, long before reaching the town, one begins to see RVs and campers of all sorts parked in the hay fields along the highway. In Sidney every available open spot is similarly filled, and pickups and trucks, if not moving, are parked in any remaining spots. For all the trucks, the community has no truck stop.

Also, evidence of the liberal cash flow that oil is bringing to the communities are new civic and school buildings and other public structures. But, that doesn’t mean there aren’t many needs that still need to be met. A sewer system is of dire concern and important to meeting future housing needs.

When it comes to developing infrastructure in Sidney, “We have a crisis, not a problem,” said Leslie Messer, Richland County’s economic development director.

The new industry is a “mixed blessing,” said Sidney Mayor Smelser. There are families who, after struggling on dry land farms for generations, to make ends meet, are suddenly rich. “Those riches are trickling down into the community, but the money isn’t always going where it’s needed the most,” he said. “Things don’t happen fast enough,” he lamented.

A 3.3 percent unemployment rate in Richland County puts “extra pressure on retail businesses that can’t afford to pay $25 or $35 an hour, said Messer. To compensate they are reducing inventory and reducing their hours.

The City of Sidney has trouble hiring people to pick up garbage because they can make better money diving trucks for oil companies, and the city lacks the budget to increase wages.

Anyone who can pass a drug test and has a CDL license can make $50,000 to $80,000 a year, and in a couple of years over $100,000. There is such a demand for CDL licenses that the drivers’ licensing agent for Richland County can’t keep up. One company, said Messer, takes a load of job applicants to Billings to get them licensed, at considerable time and expense. Messer has requested the governor to send licensing agents from others areas of the state, on a temporary basis, to help out.

But for all the activity in Sidney, it only intensifies as one goes across the border into Williston. Williston is the preferred place to do business,” said Rolfstad. His conclusion is not much different than those in Sidney.

Sidney Mayor Smelser didn’t mince words in saying that all things are not equal in how the oil business gets done between Montana and North Dakota.

Leuthold, too, expressed amazement at the difference in attitude found in just crossing the state line. Working on projects for city governments, Leuthold said, things that take years to get accomplished in Montana, take but a few months in North Dakota. And, he said, they don’t give anything up in terms of doing it right, it’s just a different attitude about the importance of getting it done.

Predictability is important, said Hill from Sidney. “There is a real difference from state to state. In Montana even though it takes a long time, there is still lack of predictability. You can get near the end and still not be assured you are going to have an approved project. It makes it difficult to decide to make the investment.”

Three new motel chains are locating in Sidney; but attracting businesses to Sidney is a challenge. “We are compared to North Dakota,” said Messer, and the comparisons are not often to Montana’s benefit. Montana’s workers compensation and “various tax structures,” said Messer, “make it a challenge to compete.”

“Everything is rolling out of Williston,” said Smelser, referring to a tax that encourages companies to locate in Williston and drive to Montana, because it’s less expensive to “park” the vehicles in North Dakota.

“If you have 10 projects” said Rolfstad, “I would bet nine of them will happen on the North Dakota side. It’s an attitude, thing. We try to be accommodating.” In North Dakota, the question asked is “How can we getter’ done?”

‘You can’t stand in the way,” said the Mayor of Williston, explaining the drive in a market in which a $5 million investment in an oil well is frequently capturing a return in 18 months. 

On both sides of the border there were complaints that state governments were quick to expropriate the tax revenues generated by the oil production, but not nearly so quick to respond to requests for help in building the infrastructure that is desperately needed to sustain production.

“In our mind it’s an issue of fairness,” said Smelser, “We would like to have seen some of that money come back here, but that didn’t happen. The state decided not to fix the truck route, he lamented, explaining that its condition is “not conducive for trucks.” “Give us a chance to bring business here,” said Smelser, in reference to an act of the recent state legislature that took a portion of the oil counties’ tax revenues to distribute to other areas of the state.

But North Dakota is getting it right.

The State of North Dakota is assisting the Williston area to build a $200 million water project which will serve five counties and provide frac’ing water. Williston is also spending another $40 million to expand its water and sewer system.

The state has also committed to building a new truck route that will go around the city of Williston. (It was also noted that the oil companies themselves are “stepping up” to help maintain and build some of the roads.)

It’s not all taxes and regulations that make for 163 rigs in North Dakota, while Montana has only ten. Some of it has to do with geology and timing. Montana’s time is coming, said Mayor Smelser. He hopes they will be ready.

Currently, companies are completing leases in North Dakota. They will be moving operations back into Montana, soon, it is predicted. Even though historically, The Bakken saw its beginnings in Montana, but it dissipated as wells in North Dakota began producing more. The new technological advances are expected to bring new life back to Montana fields, and they may produce every bit as much as in North Dakota.

In the end, while taxes and policies might influence where a company headquarters, it’s probably not going to keep them from pursuing potential oil wells. According to Greg Heller of Stallion Oilfield Services, some companies are already starting the move.

 

Indicative of the problems for producers, that seem to manifest themselves in Montana, was reflected in a discussion of the proposed rules being considered by the Montana Oil and Gas Board, which happened to be in session during the tour’s visit in Sidney. (The board declared that they will not meet again in Sidney until more accommodations are available.)

Rules are being proposed to require companies to publically disclose the chemicals that are used to drill an oil well – an issue that has been raised to national awareness as environmentalists have expressed alarm about potential risks.

Most industry representatives are fine with the rules except for the timing of them. They are being asked in Montana to stipulate far in advance of the actual drilling what they will be using. The proposed rules ask for disclosure at the time it is necessary to get permissions and permits, which is months before the company actually knows what the conditions will require.

“We are all for transparency,” said Lisa Winn of XTO Energy, “but we don’t want the regulations to restrict what we need to do, or to add the necessity of waiting for another permit.” She noted that the industry has created a website (fracfocus.org) where companies are voluntarily posting their additives. Winn said that they would like the Montana Oil and Gas Board to adjust the proposed rules to allow a company to provide initial information based upon generalities, with more precise, well-specific information, included in the notification that they are required by law to provide to the landowner, when they start to drill.

Some companies are concerned about full public disclosure as to what they are using as additives, because they consider it a trade secret, but most have no objections.

Contrary to the prevailing public perception that the additives are highly toxic and pose serious health risks, most of the additives are “common household products” – things like rubbing alcohol, borax (a soap), Guar gum (thickening agent for foods), citric acid, methanol, acetic acid, salt etc.

Even at that, the amounts are miniscule. 99 percent of what is pumped into the wells is fresh water. “It’s like adding drops of bleach to drinking water to kill bacteria,” said Winn.

In addition, considerable measures are taken to protect aquifers which are almost always located within the first 1000 feet of the surface, while the wells are almost two miles below the surface. The risks of contaminating the aquifer in The Bakken, as a result of frac’ing are minute to the point of being nonexistent, according to industry representatives.

In all the years of frac’ing, said McCreedy, there has never been an instance of contamination to an aquifer.

As the tour group listened to the speakers they came to the conclusion that there is a lot of information about the oil industry in Montana that needs to be conveyed to the public and especially to political leaders. Many comments and questions were raised about how to put Montana on more of an equal footing with North Dakota. There is really no reason that Montana shouldn’t be as desirable a place to do business as North Dakota, was a common theme in the conversation on the return trip.

Stated Doug Hill, if all things were equal the blue-collar workers would prefer to live in Montana. “They want to get an elk permit.”

 

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