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ND taxable sales and purchases drop 25 percent as oil price slump continues

BISMARCK - Depressed crude oil and farm commodity prices continued to drag on North Dakota's economy as the state posted a double-digit loss in year-over-year taxable sales and purchases for the second straight quarter.

BISMARCK – Depressed crude oil and farm commodity prices continued to drag on North Dakota’s economy as the state posted a double-digit loss in year-over-year taxable sales and purchases for the second straight quarter.

Taxable sales and purchases dropped 25 percent to about $5.8 billion in July, August and September compared with the third quarter of 2014, after a 16 percent decrease during the second quarter, state Tax Commissioner Ryan Rauschenberger said Wednesday.

Leading the third-quarter slide was a nearly $729 million, or 53 percent, decrease in the mining and oil extraction sector.

“Most of the downward impact is due to oil prices,” Rauschenberger said, adding, “We’re really comparing a very, very strong quarter from last year to what we’ll maybe say is the new normal.”

The last double-digit drop in third-quarter taxable sales and purchases was a 10.7 percent decrease that also occurred amid low oil prices in 2009.

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Rauschenberger said the third-quarter figures will play a major role in a new state revenue forecast being conducted by Moody’s Analytics and expected to be completed later this month.

“This will have an impact on the revenue trend moving forward,” he said.

State tax revenues fell $40 million short of projections in November and were $152 million below forecast during the first five months of the biennium from July through November. Office of Management and Budget Director Pam Sharp has said it’s very likely that state agencies will see across-the-board budget cuts after the new forecast comes out.

Rauschenberger said he expects fourth-quarter figures to be down from last year, as well.

This week, the number of active drilling rigs in the state dropped below 60 for the first time since 2009. The rig count stood at 58 on Wednesday, compared with 169 a year ago, according to the Department of Mineral Resources.

Rauschenberger estimates that each completed oil well generates about $250,000 in sales tax revenue, with about two-thirds of that coming from the hydraulic fracturing process that uses high-pressure fluids to break up rock formations.

With an estimated 975 wells awaiting completion at the end of October as operators wait for prices to rebound, tens of millions of dollars in sales taxes aren’t being collected, he said. Fracking material prices also have fallen, creating a double hit on sales taxes, he said.

In the heart of the Bakken/Three Forks oil patch, third-quarter taxable sales and purchases were down more than 47 percent in Williams County, 44 percent in Mountrail County, 36 percent in McKenzie County and 28 percent in Dunn County from the same period in 2014. Pembina County, in the far northeastern corner of the state, saw the largest year-over-year increase at nearly 40 percent.

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The Oil Patch hub of Watford City saw a 37 percent dip, but Watford City Area Chamber of Commerce President Wade Elder said businesses remain cautiously optimistic.

“There’s no question that things have slowed here. The question is to what degree and what impact,” he said, adding the community has lost some businesses but also added others.

Elder, a senior vice president at Cornerstone Bank, pointed out that the state still has more than 13,000 wells producing more than 1.1 million barrels of oil per day despite the lower rig count, thanks to improved efficiency.

“We’re holding. We’re not having the growth like we had before, but it’s not falling off the face of the earth, either,” he said, adding, “Oil (prices) will come back. It’s not if, but when.”

Rauschenberger noted that while third-quarter taxable sales and purchases were down compared with 2014, they’re still up more than 31 percent from the third quarter of 2010. Five of the 15 major industry sectors saw gains during the third quarter, led by the utilities sector at 36 percent, he noted.

Mike Rud, president of the North Dakota Retail Association and North Dakota Petroleum Marketers Association, said the loss of Oil Patch workers and low farm commodity prices are a “double whammy” for a supercharged economy that’s been experiencing unprecedented growth for the past six or seven years, but he said the third-quarter figures need to be kept in perspective.

“It’s not good news by any means, but you’ve got to look at the big picture. Oil’s always been cyclical and ag’s always been cyclical,” he said, adding, “When you see that many ‘for hire’ signs out there, you know that something’s still cooking.”

 

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