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The U.S. becomes top oil producer globally -- The economic and educational cost of oil in the Bakken

Pump jack silhouette against a sunset sky. These jacks can extract between 5 to 40 litres of crude oil and water emulsion at each stroke. Stock photo

The United States became the world's largest oil producer in late 2018 and is expected to become the top oil exporter within the next five years, according to the International Energy Agency.

Forecasts of U.S. exports of petroleum and crude oil are expected to nearly double, recording 9 million barrels per day by 2024, according to the IEA. At such levels, the U.S. will become a power player on the world energy stage and could pose a significant threat of unseating Saudi Arabia, the current top exporter, and even surpass Russia's record shipments.

With the news of increased petroleum and crude oil production, subject matter experts have weighed in on the impact of lasting oil activity in North Dakota and what becoming lords of oil mean for the social, economic and educational welfare of the state.

MONEY, MONEY, MONEY

The analysis comparing pre-boom, boom, transition and bust levels of economic variables showed evidence of an economic gain in counties where petroleum activity was rapidly increasing (boom), but the results also showed that there were serious economic problems when petroleum activity was rapidly decreasing or had attained a low level following a period of greater activity (bust). Although the direct effect of increases in petroleum industry activity was an improvement in community economic health, this economic gain was "transitory."

The improved economic health was marked by one year of an increase in petroleum activity and was followed by decreases in economic health in the second, third and fourth years after a spike in activity.

Speaking to the economic impact of the previous oil booms in North Dakota, Dr. Charles Conrick IV, an associate professor of finance at Dickinson State University, said the state had to change its fundamental composition to become an oil producing state.

"Resource extraction, from an economic perspective, of oil is valued as one of the primary sources of energy for global purposes," Conrick said. "North Dakota was historically not an oil-producing state, rather it was an agriculture-producing state. With technological advancements we were able to use pressure to get to places between fissures and overnight made North Dakota an oil state."

According to Conrick, much of the economic success generated from the oil boom centered on the state's historically fiscally conservative nature.

"Some of the early projections for the Bakken were based on essentially guesses on the future prices of oil. Being a fiscally conservative state, the projections were set at like $35 to $40 a barrel," Conrick said. "When oil hit a high in 2008-09 it was nearly $140 a barrel, which proved to be a financial windfall for the state."

The exploration and production occurring in the Bakken have been a strong source of job growth. With the advent of the hydraulically fractured wells, the requirements for labor including drilling crews, loader operators, truck drivers, diesel mechanics, etc. have turned smaller rural towns into overnight cities.

"With the increased demand for oil there will be an increase in economic prosperity for the region where it is being extracted. As the price of oil grew this last cycle, gas prices were up near $5 a gallon and housing prices went up tremendously as a result of the higher demands," he said. "Places like Williston grew like crazy, from a small little dinky rural town to basically a miniature Las Vegas."

According to Conrick, the prosperity generated during the boom is often far undermined by the economic hardships faced following a bust—something he said North Dakota has been fortunate to stay ahead of.

"The economic impact of the boom is great, but the problem is that the oil markets are never stable enough to become a reliable source of the economy like industry, manufacturing and technology. Ultimately with this last bust, when oil prices dropped to $40 a barrel, North Dakota's budget went along with it in a lot of ways," he said. "It's good when it's good and bad when it's bad. At the moment, oil is still king. I would say that North Dakota can't, or shouldn't rather, build its economic base around oil."

The study by U.S. Department of the Interior ultimately concluded that while high oil prices drive job creation and investment, it also hurts businesses and consumers with higher transportation and manufacturing costs. Once the bust cycle does come, the impact is mostly negative.

EDUCATIONAL STANDSTILL

From an educational standpoint, the analysis showed that greater petroleum industry activity was associated with higher percentages of students completing high school, lower percentages of high school graduates enrolling in college and a greater strain in providing educational services, including higher costs for education and a larger number of pupils.

Greater revenue coming from the oil boom could improve student achievement by allowing schools to purchase equipment that enhances learning or to pay higher salaries to attract better teachers. Spending additional revenues in productive ways may prove difficult, however, when they come rapidly, temporarily and in large sums, as can happen in an oil boom.

"We've seen a change in everything from the funding formula for education for the state of North Dakota to the oil revenue we see coming into the school district," Gary Wilz, superintendent of Killdeer Public School, said. "Socially we've embraced the increase in oil production with the idea that this is the new normal. We are no longer the small rural agricultural community that you would see in years past and have really become a melting pot."

Killdeer has seen an increase in student population in record numbers, driven primarily by the oil field. According to Wilz, with increased students comes increased financial and logistical burdens that currently have the school district working with architecture firms to upgrade school facilities to handle the boom.

"Our numbers have grown and it has become a very diverse population as a result of the oil activity," Wilz said. "Students that we have come from a broad ranging segment of the energy industry. They are children of truck drivers, frac crews, pumping and gauging or even the higher tier of the industry such as engineers or site managers. Before they were predominantly farm kids."

According to Wilz, the increase in students has been something that the school has had to plan for and make future decisions based on accordingly.

"We have enrolled new kids every week since the beginning of the school year with no signs of slowing," Wilz said. "We are probably at our highest staff count ever. Between teachers, paraprofessionals and ancillary staff we have about 100, compared to the 50 to 60 range from years past. All our decisions have to take those factors into consideration."

Economic booms, on the educational front, have been shown to generate additional revenues for schools, while simultaneously creating incentives for students and teachers to leave the classroom—something that Wilz said has fortunately not been evident in Killdeer.

"From the peak of the boom until now, we have stayed pretty even with getting kids to walk across the stage on graduation," Wilz said. "We're still small enough that we can spend quality time with our kids, sometimes in one-on-one settings, aimed at getting our kids to graduate without having to dummy down our curriculum."