Published June 13, 2014 | July 2014 issue
The Bakken and Three Forks formations are producing 1 million barrels of oil daily in North Dakota and Montana, representing 12 percent of oil production in the United States. North Dakota also recently reached the milestone of over 10,000 producing wells statewide. Challenging weather conditions over the winter slowed drilling and production activity, but as spring is blooming, activity in the region is picking up.
While oil production levels are high and 2014 promises to be a record year, the rapid pace of growth in the area is easing somewhat compared with the past few years. One sign of easing is that recent leasing activity in North Dakota has been “very low,” according to the state Department of Mineral Resources.
Energy companies have worked vigorously over the past few years to lease land and secure one producing well on the property, which opens the door to drilling additional wells in the same proximity (called a pad) over the next few years. With much of the initial leasing and drilling completed, energy companies in the next phase can operate a drilling rig in one area and drill several wells in sequence before dismantling the rig and moving it to a new site. There are as many as 16 wells on a pad drilled to various depths and horizontal directions.
The number of active oil rigs operating in North Dakota increased from an average of 170 in January to 178 in April, slightly higher than the number operating in April 2013, but down from June 2012 when over 200 drilling rigs were operating in North Dakota (see Chart 1). Meanwhile, the average number of rigs operating in Montana dropped to seven in April, down from 10 a year earlier and 25 in October 2012. Activity along Montana’s eastern border is quieter than during 2004 and 2005, the start of the Bakken boom, when more drilling rigs operated in Montana than in North Dakota.
Oil has been the focus of production in the Bakken and Three Forks formations, but gas production continues to climb as processing capacity and gas-gathering pipelines expand. Nevertheless, recently over one-third of natural gas produced was not captured and sold (see Chart 2). With lower prices for gas relative to oil and the construction time needed to build gas-gathering pipelines, which are required to capture natural gas, the economics of energy production lead companies to produce oil from new wells before putting infrastructure in place to capture gas.
Almost all natural gas not captured and sold is flared, which releases carbon dioxide, a greenhouse gas, as a byproduct of combustion. Carbon dioxide is a less powerful greenhouse gas than methane, which would be released if it weren’t for flaring. New gas processing capacity coming online this spring and recent state regulation changes are expected to spur increases in gas capture and reduce the proportion of wells that flare gas.
As more wells are drilled, more workers are needed to haul fracking fluids and oil in trucks, build pipelines for oil and gas, and maintain equipment. The pace of job growth in the Bakken area remains strong. For the 12-month period that ended in March, employment was 7 percent higher than a year earlier (see Chart 3). The unemployment rate in Bakken counties is 1.6 percent, with the lowest county unemployment rates in Williams (0.9 percent), Dunn (1.2 percent) and Billings (1.4 percent).
However, the pace of employment growth began slowing during last few months of 2013. Other indicators also suggest that labor market tightness is easing somewhat as growth in average weekly wages started slowing in 2012 (see Chart 4). In third quarter 2013, average weekly wages were 4 percent higher than a year earlier, down from a year-over-year peak increase of 21 percent in first quarter 2011.
In addition, the number of online job postings in North Dakota Bakken counties was up about 30 percent in March and April compared with a year earlier. From 2012 to early 2014, online job postings in the Bakken were relatively flat after increasing almost 400 percent from 2009 to 2012. Online job postings in the Bakken account for about one of every five jobs posted in North Dakota.
The number of business establishments continues to increase, but the pace slowed to 8 percent in 2013 following years of double-digit growth. There were 7,066 business establishments in the Bakken during third quarter 2013, up from 3,776 in third quarter 2005.
Finally, growth in construction has moderated in Williston, N.D., and the surrounding area over the past year, although building remains at very high levels. In 2013, the city of Williston issued 58 commercial building permits, down from 106 the year before, and 124 single-family housing permits, down from 208 the year before. While lower than a year ago, permit levels were strong relative to preboom history. For example, after issuing only four permits for building apartment complexes from 2004 to 2008, the city issued 49 such permits in 2013 alone, a record year.
Housing units authorized for construction in Stark County, which includes Dickinson, N.D., dropped to 760 in 2013 from 1,484 in 2012. In 2004, housing units authorized in Dickinson represented 2 percent of all authorizations in North Dakota. In 2013, the county represented almost 9 percent of all authorizations in the state.
For more Bakken data, analysis and maps, see the Minneapolis Fed’s Bakken Oil Boom page.