THE ONLOOKER: N.D. needs to 'get comfortable being rich'

All news has implications, of course. Events follow other events. In the trade, we call this a "developing story." This month's news from the Bakken is especially rich in implications. Literally. The big stories were these: Prices are down. Rig c...

All news has implications, of course. Events follow other events. In the trade, we call this a "developing story."

This month's news from the Bakken is especially rich in implications. Literally.

The big stories were these:

Prices are down.

Rig count is down.


Oil production is up.

This shows us that oil production technology has improved enormously in the short while that oil has been pumped from the Bakken Formation.

Lower oil prices haven't dampened production because advances in technology have kept Bakken crude competitive against other oil plays.

That means that the Saudis' decision to cut prices failed to choke competition, at least in the Bakken.

The book remains open for some other oil plays, notably Canada's oil sands, where production is very expensive. Plus, delivery of Canadian crude is unreliable in the long run without the Keystone XL pipeline, and its fate remains unclear.

In this regard, it's worth mentioning another important story from the Bakken. Two separate trains carrying Bakken oil derailed in Montana.

One of them struck a utility pole.

Neither of them exploded.


This is reassuring whether or not it is related to North Dakota's new regulations that require treatment of Bakken crude to reduce its volatility.

A June report said that 54 percent of North Dakota crude is shipped by rail. That percentage is sure to increase as production increases. Railroads offer more options than pipelines, and they largely are already in place. Pipelines generally have a specific destination; reaching new destinations usually requires building new pipelines.

That's problematic, because pipelines generate local opposition while railroads generally do not. Pipelines also attract organized opposition from those who oppose using fossil fuels. That's what's behind the Obama administration's ongoing resistance to the Keystone project.

So, Implication No. 1 of this month's news is that more oil will move by rail.

Implication No. 2 has a more direct impact in North Dakota: There will be fewer jobs for drilling crews. Drilling is already far ahead of production.

We learned in a related story-a "sidebar" in the trade-that nearly 1,000 new wells have not been brought into production. They've been drilled, but they haven't been "fracked." The oil therefore remains held tightly in a lawyer of shale almost two miles beneath the surface of the Earth.

These wells are a kind of insurance against further price ploys in the market. Even if prices fall further, these wells probably can be brought into production competitively.

That doesn't mean they will be, of course. We've watched the fine art of price manipulation unfold over the past seven months. The consensus now is that prices should go up a bit, perhaps toward $60 for a barrel for Bakken crude. That's half the price at this time last year, but it's still a price point that provides a profit for Bakken producers.


This brings us to the most important implication of all.

Rising production at a profitable price means increasing tax revenue-even though the tax rate will go down by 1 percent, to 10.5 percent.

Here's the rough calculation.

If production continues at June's level of 1.2 million barrels a day, and if the price holds near $60 a barrel, revenue to the state would be roughly $700,000 a day.

That's about a quarter of a billion bucks a year. On top of sizable reserves that already have built up in special funds in the state treasury.

Some of those become spendable in 2017.

Of course, direct taxation is only a small part of the cash impact of oil in North Dakota. The state is a major mineral owner. There are two main reasons. The state reserved two sections in every township to support public schools. Much of that surface has been sold, but the state kept the minerals, so it has leasehold interests and it has interests in producing wells.

The state also holds minerals acquired by the Bank of North Dakota, which rescued thousands of farmers during the Great Depression-and took mineral acres to pay off the loans.


Then there are taxes from activity associated with the Bakken oil play. These include income taxes paid to mineral owners, to oil workers and to everybody else who has a job as a result of the oil boom. Same with sales taxes paid.

Enough said?

It's time for North Dakota to get comfortable being rich.

The focus of discussion in the 2016 political campaign should be how to spend the money to improve the state.

Just as a homeowner would build a garage, a farmer would buy a tractor and a rancher would sink a well, so must the state invest in its infrastructure, its economy and its people.

Exactly how, and even whether, that happens depends on leadership and political will.

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