North Dakota’s Phantom Roughnecks Build Economy, Destroy Roads

North Dakota’s revived oil industry is transforming the landscape, adding $1 billion a year in tax revenue and fueling an employment boom in a state that has at least 14,000 unfilled jobs. The economic surge is a demographic phantom.

U.S. census figures released yesterday exclude thousands of oil-field roughnecks living in “man camps” or motels as temporary residents. The census counted them in their home states, not North Dakota, whose population grew 4.7 percent to 672,591 between 2000 and 2010, about half the national average of 9.7 percent.

The price of that undercounting is measured in miles of roads shredded by heavy trucks used in constructing wells and delivering the oil they produce. Cities can’t keep up with the cost of needed repairs -- a situation likely to worsen as communities in the middle of the oil boom lose out on federal money tied to the census, said Bob Skarphol, a Republican state representative from western North Dakota.

“Federal dollars follow the population,” said Skarphol, 65, a former rancher whose land has active drilling and whose wife’s grandfather owned North Dakota’s second oil well. “If our population increases and they don’t get that in the census, then we don’t get the federal dollars, and they’ll go somewhere else.”

Employment Gusher

North Dakota’s influx of oil workers comes from across the country, including people with experience in energy-industry states such as Wyoming and Texas, said Tom Rolfstad, director of the economic development office in Williston, the largest town in Williams County in the northwestern part of the state.

Based on wastewater treatment, the oil town of Williston hosts 17,500 people, Rolfstad said. The census counted 14,716 residents, a 17.6 percent increase for the decade.

Towns like Williston enjoy a number of benefits from the increased drilling of producers such as Houston-based EOG Resources Inc. (EOG) and Whiting Petroleum Corp. (WLL) of Denver, according to the North Dakota Oil Petroleum Council.

While the oil workers don’t use schools or some other municipal resources, the communities collect sales tax from the products and services they buy in town. Ryan Motors, a Honda and Chrysler dealership in Williston, and other car sellers have seen record traffic. Oil workers fill local hotel rooms.

Packed Hotels

“Everything is at 100 percent capacity,” said Charla Halvorson of the Williston Area Chamber of Commerce. “The HomStay Suites that opened up two weeks ago is already full. A Holiday Inn Express is coming too.”

Western North Dakota sits on a large ridge of shale rock called the Bakken formation, which companies have been drilling for five decades. Productivity surged in recent years with the increased use of hydraulic fracturing, or fracking, said Rolfstad, Williston’s economic development director.

Environmental activists and federal regulators have raised concerns about the potential for contaminating drinking water through fracking -- a technique that shoots water, sand and chemicals into the ground to extract oil or natural gas. The U.S. Environmental Protection Agency commissioned a study to determine if tougher rules are needed to regulate the practice.

North Dakota has had fewer problems, Rolfstad said.

“We’ve drilled a lot of wells through water layers, and we’ve been pretty successful doing it environmentally so far,” he said.

Fracking Bonanza

The use of fracking has opened up the Bakken formation as the largest oil discovery in the lower 48 states. More than 5,000 oil wells dot 17 western counties, with most concentrated in five counties, Skarphol said. North Dakota almost quadrupled oil production in the past decade, becoming the fourth-largest crude-producing state, according to the Energy Department in Washington. Only Texas, Alaska and California pump more oil.

Oil companies paid more than $1.4 billion in taxes for the state’s 2009-2011 budget cycle, said Allen Knudson, a legislative budget analyst, and about $2 billion is expected to flow between 2011 and 2013.

A small portion of oil tax money makes up the general fund, with most of it directed to special funds. One of those special funds reallocates a portion of the oil tax back to oil-producing counties. From September 2009 to February 2011, Williams County received $3.5 million. Williston received about $3.1 million, according to Skarphol.

Low Unemployment

The state also reaps benefits, including the lowest unemployment rate in the nation at 3.8 percent in January. North Dakota and Montana are the only two states that haven’t faced budget shortfalls during the last three years, said Elizabeth McNichol, senior fellow at the Center on Budget and Policy Priorities. The North Dakota Office of Management and Budget projected that the state would end its current two-year budget cycle with a surplus of as much as $122 million.

“North Dakota has been relatively conservative in spending levels in the last couple of sessions,” said Representative Jeff Delzer, the Republican chairman of the appropriations committee. “We try to keep the ongoing expenditures as realistic as possible.”

In addition to money left over, the state has jobs to spare. More than 14,000 are publicly listed on the state’s job service website, said Paul Lucy, director of the state’s Department of Commerce. Vacancies exist in growing industries that range from finance to health care.

Those higher-end jobs are attracting residents to the state’s two largest cities. Fargo’s population grew 16.5 percent during the decade and Bismarck, the state capital, grew by 10.3 percent. Those two accounted for two-thirds of the state’s additional residents.

Hispanic Surge

North Dakota’s Hispanic population grew 73 percent and accounts for 2 percent of the state’s population. Non-Hispanic blacks increased 105.3 percent during the decade and now represent 1.1 percent of the population. The Native American population rose by 15.6 percent to become 5.3 percent of the population in a state that is 88.9 percent non-Hispanic white.

Towns and counties in the western part of the state are absorbing most of the impact of new temporary workers in the oil industry, even though they’re not reflected in the local census count.

The volume of traffic around the drilling fields has tripled in the last two years, said Skarphol, who represents the city of Tioga, which promotes itself as the “Oil Capital of North Dakota.” The dearth of long-distance pipeline networks in the state means oil producers are reliant on trucks and railroads to haul crude to refineries.

Collapsing Roads

Road shoulders are collapsing. Some counties are turning paved roads back to unpaved routes because there isn’t enough money to maintain them.

“It’s almost impossible to adequately describe in words what the roads are like,” said Skarphol, the legislator and former rancher. “They’re 40 to 50 years old, designed for a single axle going 35 miles per hour, not 70.”

Skarphol, who is chairman of the House education and environment appropriations committee, in January proposed a bill to give a one-time boost of $295 million over four years to help western counties and other government entities upgrade infrastructure. Governor Jack Dalrymple, a fellow Republican, has offered $242 million over two years in his budget proposal.

The census undercounting affects most areas of western North Dakota, where the issue will only get worse as more wells go into production, Skarphol said.

“We’ll have to pay for it with state dollars,” he said. Missing out on federal funds tied to the census, “that’s hurtful.”

To contact the reporters on this story: Kiah Haslett in Lincoln, Nebraska; Joe Carroll in Chicago at jcarroll8@bloomberg.net.

To contact the editor responsible for this story: Flynn McRoberts at fmcroberts1@bloomberg.net.

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