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Bravado, dread and denial as oil-price collapse hits the American fracking heartland

The Washington Post logo The Washington Post 3 days ago Will Englund
a small boat in a body of water  

A species-jumping virus in China, an angry prince in Saudi Arabia, an implacable oil ministry in Russia unwilling to cede ground or market share: Taken together, they add up to tough times for Watford City, N.D.

Drillers, frackers, excavators, builders and haulers all face the consequences of a simultaneous price war and a collapse in demand for the oil they extract from the Bakken Formation deposits. So do restaurant workers, janitors, checkout cashiers and college professors.

“Everybody’s kind of freaking out right now,” says Katie Grant, the chief operating officer at Wright Excavating.

Not at all, says Paula Hickel, who runs the state job placement center in nearby Williston. The small, locally owned companies at work in the oil fields “don’t have the option to freak out.”

“We are very optimistic. We are hiring,” says Edna Turner, the chief financial officer for Bulldog Services, an oil field company. “We are thankful that we operate in a conservative region where responsibility and accountability is still a focus.”

“A lot of people get in over their heads. Everybody here has these tricked-out pickup trucks,” says Jesus Torres, a truck driver who made $120,000 last year. “Now, people are stressing out.”

There is no one voice, one narrative, that speaks for the Bakken oil region of North Dakota. Some there are optimistic, some pessimistic, some whistling in the dark. Everyone understands a storm is coming, but how ferocious will it be and how tenacious will they be? A week of recent phone conversations revealed a mixture of strong nerves, bravado, anxiety, dread — and sometimes a pretty good sense of humor.

“One of the great things about North Dakota and being an American generally is, you fight through these things,” says Kenley Nebeker, the regional director of the TrainND Northwest office in Williston.

“It’s cheap to store oil in the ground,” says Dale Patten, a retired banker now the Republican state senator for McKenzie County, which produces more oil than any other county in America, explaining why production will be tailing off. “That’s where all the pain is going to come in.”

Grant’s husband was laid off after Thanksgiving as the health of the industry was already drifting downward and hasn’t found a job since. The couple has a 3-year-old daughter.

“Do we need to try and plan for a few weeks, or a few months, or will it be longer than that? Simply because of the economy — boom — your life changes. Just like that,” she says. “We’re Christians, and we’re praying things will pick up.”

“The Bakken, dollar for dollar, is one of the best places anywhere to put a dollar,” says Ron Ness, who runs the North Dakota Petroleum Council. “The work continues today. Those wells are going to keep producing. But certainly, there’s going to be a retraction at some point.”

“You learn to ride with it,” says Jon Lankford, also at Wright Excavating. “They may slow down, but it’ll never stop. There’s still a lot of work to be done. There’s a lot of crude here, some of the best crude in the world.”

Pat Bertagnolli is one of the few people in Watford City who worries more about the novel coronavirus than he does about the price of oil. That’s because he runs an event center, and even in rural North Dakota, gatherings are being put on hold left and right amid the outbreak of the virus that causes the disease covid-19. “Everybody’s in standby mode,” he says.

“If you don’t drink, there’s really not much to do. I don’t drink,” says Torres, who moved here from Las Vegas so he could make the money to build an “eco-lodge” in Colombia. But a trip there that he was planning for next month will have to be postponed. “I stay in my own trailer. I work graveyard. I maybe see a person once a week. It’s like I’m already in self-quarantine.”

Now, because of the coronavirus pandemic, says Hickel, of the job placement office, the library has closed, the recreation center too. She had hoped to keep the jobs office open, because she knew there was going to be a need for it. But by Friday, it, too, had to close. She and the others there are still taking inquiries and applications by phone.

(Dial their number and you’ll hear this: “If you’re calling about the many jobs in North Dakota, press 2.”) 

On March 5, Russia rebuffed a Saudi move to reach an agreement on production cuts. Two days later, the Saudis turned around and announced they were going to flood the market with oil, launching a price war against Moscow. Russia responded in kind, promising more production. A barrel of West Texas Intermediate was trading at just under $60. This week it was at about $24, up a couple of dollars from the week before.

The companies at work in the Bakken region were quick to start cutting their budgets for new wells and rigs. Hess, which runs six of the 56 rigs in North Dakota, announced that it is taking five of them out of production. A local firm that hauls salt water for fracking, MBI Energy Services, informed Hickel’s office that it was laying off more than 200 workers. (The company did not respond to requests for comment.)

“The bottom has just dropped out,” North Dakota’s mineral resources director, Lynn Helms, said at a news briefing last week. “It’s just impossible to predict at this point how long this price war is going to go on.”

He is proposing new rules that would allow oil companies to keep wells on an inactive basis for longer than is currently permitted.

“I think the commission needs to send a signal to the industry and to the markets that it doesn’t make good business sense to force North Dakota Bakken crude oil into a market that’s already priced well below break-evens and below really what long-term world demand says the market should be at,” he said. “We’re going to look at 50 or 60 percent retraction [in cash flow].”

That’s not good news for the state budget, which derives more than half its income from production and extraction taxes.

Sen. Kevin Cramer (R-N.D.) has asked President Trump to impose an embargo on crude oil from Russia, Saudi Arabia and other OPEC nations. “We must send the immediate signal; the United States will not be bullied or taken for granted,” he wrote last week.

Most of the oil producers in the Bakken region have hedged a significant portion of their 2020 sales, typically at $50 or $55 a barrel, Patten says. That will defer some of the pain until next year. But with investors having turned their backs on oil, lower cash flow means less money for future drilling.

A typical well costs about $4 million to drill and about another $4 million to frack, Patten says. Last summer, when oil was at $76, a company could recover its money in 10 to 14 months. “That’s what allows them to drill another well.”

Now, with oil at less than a third of that price, it could take more than three years to have the cash to start another one. (The actual cost of pumping is about $10 a barrel, so even at a sales price of $20, there’s still some cash flow.) This means fewer jobs in a sector that accounts for 9 percent of North Dakota’s employment.

The state has $6.9 billion saved up in what it calls the Legacy Fund. David Flynn, an economist at the University of North Dakota, has little expectation that it will now spend any of that fund wisely. “A rainy day — either nobody ever thinks it’s raining, or suddenly everybody’s an umbrella salesman,” he says. “But if this isn’t a rainy day, you might as well close it.”

The Bakken region has been through boom and bust before, and it wasn’t always pretty. Hickel moved to Williams County, just north of McKenzie, a decade ago, just as the first big boom was getting started. At that time, she and her then-husband had four young daughters. Because the country was in the throes of the Great Recession, workers from all over were flocking to the region.

“It was just guys, guys, guys,” she remembers. “Trucks and men. That grows old for some people.”

In 2014 and 2015, the Saudis, alarmed by the surge in American shale production, stepped up their output, setting off a price war. Crude fell from $108 to $40. Workers fled. Companies folded or went deeply into debt. Employment in Williams County declined by almost 40 percent.

By the time the price recovered, the U.S. economy was in good shape and employers had trouble recruiting workers to come back, even with the region’s high wages. Those who stayed through the hard times and settled down with their families now form the core of the workforce.

Births in McKenzie County rose from 53 in 2010 to 237 in 2018. Watford City has grown from 1,500 residents in 2010 to probably 8,000 today.

The TrainND program at Williston State College aims to help people stay as demands for workers evolve. The most popular courses prepare participants to work as welders, certified nursing assistants, and truck drivers, who can obtain the coveted Class A commercial driver’s license.

“It’s basically like the PhD of the Bakken,” Hickel says.

But this bust might be harder to surmount than five years ago. “We were coming off a healthy economic environment then,” Ness, of the Petroleum Council, says. “It’s a little different story this time around.”

Patten says local companies will eliminate overtime, cut hours and look for ways to concentrate on the most productive wells. “As much as they can, they’re going to hang onto the employees they have, because it’s so hard to get them.”

On the other hand, says Flynn, given the state of the national economy, where would they go?

Torres says he has been cut back from a six-day week to five days. He negotiated free housing in a company trailer when he took his present job, he says, because he has to be flexible.

“Sometimes you have to up and leave a job and go to the next town over — any number of times — and you don’t want to be tied down by a lease or a contract,” he says.

“At times like this, people are looking to pivot,” says Nebeker at TrainND. “I don’t see anybody panicking — just watching it closely, and concern, and wanting to make the right, smart move.”

“So far, my guys stay busy. We’re working every day” at Wright Excavating, says Lankford. “I look around, and I still see lots of oil rigs still standing. Until America learns to operate on anything other than fossil fuels, we’ll always need fossil fuels.”

There should be a bright side to cheap oil, Patten says. Other industries should benefit — but only if they’re actually in production.

“The airline industry right now is barely functioning,” he says. “The cruise industry. But the truckers who haul toilet paper — they’re still working.”

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