When oil prices began to crash this winter there was some panic in North Dakota. After all, while our state has been able to tout the nation’s strongest economy for the last several years, most of that economic growth was built on the back of the Bakken oil boom.
Some worried that a bust was coming. “Hard times could be ahead for North Dakota’s oil boom towns,” read an ominous headline in the Minneapolis Star-Tribune in January amid cratering oil prices.
Yet, while there’s no question that the Bakken oil boom is over, it turns out low oil prices have actually been pretty good for North Dakota.
For one thing, sky-high rents are starting to come back down. “In Watford City and Williston, rents tumbled 20 percent since the beginning of the year,” reported the Williston Herald recently, citing numbers for the two busiest oil patch communities. Prices haven’t exactly crashed, though. “An average one-bedroom unit fell between $1,200-$1,700; two-bedroom at $1,800-$2,500; and three-bedroom at $3,500,” the paper says.
Those are still very strong prices, and housing development continues in the oil patch.
But it’s not just moderation in housing prices that’s been a positive side effect of falling oil prices. Construction prices are falling too. “The same slumping oil prices that forced North Dakota’s Legislature to trim some state spending are stretching road construction dollars further,” reported the Associated Press in May.
Costs are falling as much as 20 percent, meaning that the $1.1 billion state lawmakers appropriated for western infrastructure projects earlier this year is going to stretch a lot further.
Not even the job markets in western North Dakota seem to have been hit all that hard. They’re down, but not much. “Bakken area job postings, according to the Williston branch of Job Service North Dakota, are down to 401 from 504 a year ago,” reports the Williston Herald. “We’re seeing a drop in positions, but it’s not like the worldwide numbers,” said Williston City Manager Cindy Sanford told the Herald. “We’re seeing some of that here, but it’s not hundreds at a time.”
“We’ve gone from white to merely red hot,” John Sessions, an investor in a housing development in Williston told the Dickinson Press. “It allows for some sorting and for business to become more efficient.”
That’s probably because the industry driving most of those jobs is finding low oil prices not so much calamitous as a prompt for innovation.
“High commodity prices hide a lot of inefficiencies in the system,” said Tommy Nusz, chief executive of Oasis Petroleum Inc, told Reuters recently. “Most companies will come out of this cycle stronger.”
American Enterprise Institute scholar Mark Perry points out in a blog post that even though U.S. rig counts have fallen, oil production has remained steady.
This phenomena has been replicated here in North Dakota specifically. Rig counts seem to have bottomed out at 82, yet through March (the last month for which production numbers are available) oil production was holding steady at over 1 million barrels per day.
Perry has coined the term “competition breeds competence” – which he refers to as “Perry’s Law” – to describe this phenomena. As it applies here, what we’re seeing is that low oil prices aren’t prompting oil companies to stop drilling. It’s making them better and more efficient at drilling. “Oil companies say they have recalibrated their operations to survive even if prices stay lower for a long while,” reports Reuters.
That’s fantastic news for North Dakota, because it means our oil play here is resilient. It’s sustainable at much lower prices than anyone thought previously.
In fact, it seems the only truly negative side effect of falling oil prices was state revenue uncertainty. Lawmakers fretting about falling oil prices triggering oil tax exemptions and blowing a multi-billion dollar hole in the state budget were very conservative with spending in the recently-completed 2015 session. But they also passed reforms to the state’s oil tax system doing away with most of those exemptions, creating a better sort of tax certainty going forward.
So yes, tax revenue anxiety was bad, but it also prompted solid tax reform.
Perhaps another win for low oil prices?