WILLISTON, N.D. – While a new economic impact study shows that the oil and gas industry contributed $43 billion to North Dakota’s economy in 2013, it also highlights that several billion dollars left the state.
About half of what the oil industry spends to drill and complete new wells in North Dakota — about $15 billion in 2013 — was not captured in the state’s economy, according to the study by North Dakota State University researchers.
More than $7 billion generated from North Dakota oil and gas exploration in 2013 went to out-of-state companies that provided goods and services for drilling, fracking or well completion, the study says.
A new initiative spearheaded by Williston Economic Development aims to capture more of those dollars in North Dakota.
“I think there’s opportunity for North Dakota to get more out of the petroleum industry than we have to date,” said Dean Bangsund, NDSU research scientist and co-author of the study.
The Enhanced Bakken Supply Chain Initiative seeks to reduce costs for oil companies while expanding manufacturing and business development in North Dakota.
Jeff Zarling, organizer of a Manufacturing and Logistics Conference being held in Williston this week, said oil companies often have no choice but to pay high transportation costs for a product because they can’t get it in North Dakota.
He compares it to ordering Ziploc bags from Amazon.com for $1.50 while paying $7.50 in shipping.
“It sounds funny, but that’s exactly what’s happening,” said Zarling, president of DAWA Solutions Group in Williston.
The oil and gas industry directly contributed $17 billion to North Dakota’s economy in 2013, according to the study by Bangsund and Nancy Hodur of NDSU’s Department of Agribusiness and Applied Economics.
The study also estimates that for every $1 the petroleum industry spent in North Dakota that year, another $1.43 in additional business activity was generated. With the addition of $25.7 billion in secondary impacts, the total economic impact of the industry was estimated to be $43 billion in North Dakota in 2013.
The North Dakota Petroleum Council has commissioned this study every two years since 2005.
The study also showed that the industry directly supported 55,137 full-time jobs as well as 26,403 secondary full-time jobs.
Ron Ness, president of the industry group, said it was interesting to see that the amount of dollars spent on production in 2013 was about equal to the amount spent on exploration, an indication that the workforce is becoming less transient.
“Those are the people that need to live here, that have their families here,” Ness said of the production workforce. “They have to be within a mile of that well.”
The oil and gas industry also generated $4.4 billion in government revenues, primarily in taxes.
In addition, the industry paid an estimated $4 billion in 2013 in royalties to private mineral owners. But more than half of those dollars left the state, the study said, because an estimated 60 percent of private mineral owners live outside of North Dakota.
Another area where dollars left the state was in infrastructure investment.
The study estimates the oil and gas industry spent $3.2 billion building gas processing plants, installing pipelines, constructing rail-loading terminals and adding other infrastructure in 2013.
But the portion of those dollars that was spent in North Dakota is unknown, the study says.
The researchers estimated that figure using data from other studies, which showed that constructing specialized facilities typically requires bringing that equipment in from out of state, Bangsund said.
The study estimates that about 44 percent of the dollars spent on infrastructure stayed in North Dakota, or about $1.5 billion.
Opportunity from efficiencies
The industry added 2,183 new oil and gas wells in 2013, spending just under $7 million to drill and complete each well, the study said.
That is an improvement from the average cost of $9.1 million the industry spent on each well in 2011.
In addition to labor and housing costs being high in North Dakota, operators have to spend more money to transport materials that are only manufactured several states away. In some cases, the operators also have to send tools or equipment out of state to be repaired or refurbished.
“It makes the Williston Basin a more costly operating environment for our producers because they have to source all these materials,” Zarling said.
With today’s low oil prices, companies now have more incentive than ever to try to reduce expenses.
“The industry is all of a sudden very interested in pursuing technologies and sources that can be more efficient than what they’ve been doing,” Bangsund said. “There may be opportunities there, may be substantial opportunities, to do something in state for a little less.”
For example, the industry currently spends a lot of money having mud motors used for directional drilling sent out of state to be refurbished.
“Instead of spending all the money to send mud motors to Houston, how do we do that in Williston?” Ness said.
If operators can significantly reduce expenses, that could make drilling in fringe areas of the Bakken more economic, Bangsund said.
The Manufacturing and Logistics Conference, being held Wednesday and Thursday at Williston State College, aims to bring together manufacturers, suppliers and other stakeholders with the energy industry to explore the opportunities.
“This is planting the seeds for something that’s going to take 10, 15 and 20 years to evolve into creating industry, diversifying our economy and leveraging this economic opportunity,” Zarling said.
Economic contribution of the oil and gas industry in 2013
$43 billion in direct and secondary impacts
– $17 billion were direct impacts
– $25.7 billion in secondary impacts
For every dollar the oil and gas industry spent in the state, another $1.43 was generated in additional business activity
About 40 percent of royalty owners live in North Dakota. They received more than $1.4 billion in royalties in 2013.
The industry directly contributed 55,137 full-time jobs and supported another 26,403 secondary full-time jobs
The industry contributed a total of $9.3 billion in personal income.
The petroleum industry generated $4.4 billion in government revenues, primarily taxes.
Industry spending 2013
$7.6 billion on exploration
$7.7 billion on production
$957 million on processing/transportation
$1.5 billion on infrastructure
Source: NDSU economic impact study of petroleum industry. Read the complete study at: http://ageconsearch.umn.edu
If you go
What: Manufacturing and Logistics Conference
When: March 25-26, with registration starting at 7 a.m. each day
Where: The Well at Williston State College
Info: Cost is $325
For more information: http://manlognd.com