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Oil service manufacturer hit by oil prices

GRAFTON, N.D. -- The Red River Valley is hundreds of miles from the epicenter of the Bakken oil boom, but it's not immune from the effects of the downturn in oil prices.

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Grafton Mayor Chris West

GRAFTON, N.D. -- The Red River Valley is hundreds of miles from the epicenter of the Bakken oil boom, but it’s not immune from the effects of the downturn in oil prices.

That’s evident in the recent experiences of Diverse Energy Systems in Grafton, a company building steel tanks and other oilfield products. Once a company that was growing so fast it invested in temporary housing to recruit workers, Diverse filed for bankruptcy in September in Texas, where it’s based.

The company now employs 14 people in Grafton, according to a spokesman, well below previous levels during the height of the oil boom. City Administrator Nick Ziegelmann estimated Diverse had around 60 people in town at its peak.

“There’s no doubt there’s been some turnover on employment,” Grafton Mayor Chris West said. “It’s a down industry they’re in right now.”

But West said there’s some optimism now that a new owner has stepped in. Cimarron Energy, an Oklahoma-based manufacturer of oil and gas production equipment, acquired “substantially all of the assets” of Diverse, Cimarron announced in early February, days after an asset purchase agreement was submitted to a Texas bankruptcy court.

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Jeff Wilson, a Cimarron spokesman, said they intend to “maintain operations at Grafton consistent with the market and hope to see its operations expand in line with customer activity over time.” He also noted last week that the company is “taking a look at the manufacturing capability of all of the sites that Cimarron now owns and seeing how we best utilize the capabilities of each facility, given a much more expanded product portfolio,” which could mean products now made elsewhere would be manufactured in Grafton.

Messages left for several Diverse officials were not returned.

State of manufacturing The downturn in Diverse’s employment falls in line with larger trends in manufacturing. North Dakota had 25,400 manufacturing jobs in December, down 1,300 from a year prior, according to Job Service North Dakota.

U.S. manufacturing saw a “tremendous comeback” since the recession, in part because of the increase in oil production in places like North Dakota, said Chad Moutray, chief economist at the National Association of Manufacturers.

“What we’re seeing now happening is that process a little bit in reverse,” he said. “Even though we are seeing some positive effects of lower gasoline prices, there are a lot of manufacturers right now that are hurting because those pullbacks in the energy sector are really rippling across the supply chain.”

In Diverse’s case, the company made “significant investments” from 2012 to 2014, a period of consistently high oil prices, according to court documents. A 2012 news release from the office of Republican Gov. Jack Dalrymple, who attended the ribbon cutting for DiverCity, the temporary housing facility in Grafton, said the company expected to have 250 employees in North Dakota by the end of 2014.

But in March 2015, after oil prices started dropping, Diverse announced it had laid off 17 workers in Grafton “due to a downturn in demand from oil industry orders,” according to the Walsh County Record.

Meeting minutes show Grand Forks City Council members approved two Pace loans totaling $39,926 from the city’s Growth Fund to Diverse in 2012 to be matched by the Walsh County Job Development Authority, but Eric Hardmeyer, president of the Bank of North Dakota, said whatever was unused by the borrower has been returned to both entities. Those loans were to also leverage $239,559 in Pace grants from the Bank of North Dakota, according to meeting minutes.

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“As the company was poised to take advantage of an increase in revenue related to the boom in U.S. fracking, the industry slowed as the price of oil plummeted, leaving Diverse with an inflated cost structure for the current revenue level,” a court document filed in September stated. “As a result, the debtor’s management has been forced to make difficult but necessary adjustments to rightsize the company, reducing personnel and employee benefits, in order to conserve cash.”

Wilson said Cimarron’s Diverse acquisition was partly motivated by a desire to put the company in a strong position when the oil activity ramps up again.

“Our belief is when the market begins to turn, it could turn rather rapidly,” he said.

Related Topics: GRAFTONRED RIVER VALLEY
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This piece was written for Prairie Business, which covers business in the Dakotas and Minnesota. To receive a free digital edition each month, see the instructions at the bottom of this story.