Bakken Boom: Economics Past, Present, and Future

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There is currently a significant amount of speculation regarding lifespan of the current boom in NW North Dakota, yet several studies break down very realistic future predictions. The North Dakota and Williams Counties governments’ current economic policies are significantly influenced by the oil industry; and these policies have a substantial role not only on the current operations of the oilfields, but the effects of the towns future throughout and after the inevitable bust.

In the article, “A Basic Analysis of the Bakken Oil Boom: Precautions and Planning,” the author outlines a timeline for the oil industry phases in the Bakken. It describes the current drilling and construction phase lasting only 15-20 more years, and then the oilfields will transition to the production phase in which all wells will be in operation, and continue extracting oil as long as they are producing. The critical aspect to this transition is that it will result in a 90% job decrease. Therefore, any built solution for housing shortages must take into account the inevitable decrease in demand in 15-20 years, and be adaptable and sustainable for future prosperity of the towns.

There are several complications stemming from this anticipated transition. For example, the initiatives to improve, maintain, expand, and update infrastructure like roads will be heavily under utilized in 20 years. These considerations must be taken into account when considering developments to invest in. This is obviously a difficult task as 800-100 truck movements are required to service new well construction, and 100 well can be drilled per month in the region.

To alleviate some of these challenges, North Dakota passed a Legacy Fund policy to preserve 30% of tax revenues from the oil industry to save for “the benefit of future generations.” The question is then how trustworthy and resilient is this policy? A provocation is how a built solution could also operate within a similar concept: something that generates ‘returns’ during a boom, and saves then for a transition to alleviate the symptoms of a bust.

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The legacy fund exceeded $500 million in less than two years since its initiation. While this is merely a fraction of oil industry profits, it seems to be a substantial amount to support future town sustainability. However, while the trust fund is not accessible until a finite date, the state can still borrow against it. This is dangerous because investing in infrastructure could have up to 30 year financing, and the timeline (15-20 years at current growth rates) is not long enough to sustain such investments. The author of the article also made an interesting point: when the inevitable bust does occur, it is critical that the towns invest in expanding into new industries to maintain use of the infrastructure and buildings built during the boom, or else the town risks complete failure essentially turning into a ghost town. Food for thought….

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