Bakken boom making big impact on Billings businesses

2012-12-16T01:30:00Z 2012-12-28T16:06:52Z Bakken boom making big impact on Billings businessesBy JAN FALSTAD jfalstad@billingsgazette.com The Billings Gazette

To visualize the economic impact to Billings of the Bakken oil boom, you can watch the oil field trucks rumble by or you can track subtler clues.

Private jets lined up on the tarmac.

Rolex watches and diamonds flying out of jewelry stores.

And record sales of new trucks and cars.

During a recent walk, Kevin Ploehn, assistant director at Billings Logan International Airport, spotted more “heavy iron” than ever before.

“I saw five or six Gulfstreams or Falcons, large business jets. It was impressive,” he said. The oil-and-natural gas boom raging in western North Dakota and spreading into Eastern Montana is why Edwards Jet Center built another Billings hangar to accommodate all the private jets, Ploehn said.

Boots and jeans are a welcome sight at Goldsmith Gallery Jewelers, which expects to blow by expectations this year, selling up to 30 percent more than in 2011. Oil field workers are buying $10,000 to $20,000 Rolex watches and jewelry, said owner Scott Wickam.

“I had a guy come in here a month ago who spent well over $200,000 on diamonds,” he said.

New vehicle sales, especially trucks, at Archie Cochrane Ford have jumped from 90 in November 2011 to 152 last November. Some of those sales are driven by Bakken money, although most is due to traditional customers like farmers and ranchers. The 1945 dealership expects to set a record this year by selling 1,250 new vehicles, said sales manager Tate Nation.

Boom is marching west

The majority of production from the boom lies in western North Dakota, now pumping 600,000 barrels of crude oil per day, compared to 2,000 barrels a decade ago.

The current Bakken play was made possible by the marriage of twin technologies: horizontal drilling and hydraulic fracturing in which millions of gallons of water, along with a mixture of sand and chemicals, are pumped under intense pressure about two miles underground, fracturing shale to release oil and gas.

Montana’s production peaked in 2006 in the Elm Coulee area near Sidney. The new technology then moved to the sweet spot east of Williston, N.D., where the Bakken pool is the deepest.

Montana’s economic envy of North Dakota’s oil prosperity should ease soon.

Twenty-five rigs are drilling in Montana and state Commerce Department Energy Promotion Director Dustin DeYong said that in a couple of years, Montana should beat the drilling rig peak set 2006.

Meanwhile, community leaders across Eastern Montana are scrambling to keep up.

Bainville’s population has doubled in the past four years and will double again with a fracking sand operation that is investing $130 million in the town of 300.

A Bozeman developer is planning a 30-acre housing park in Culbertson, another town whose water and sewer facilities are maxed out.

Sidney, Glendive and Miles City are seeing their first spurt of construction since the last oil boom that ended 30 years ago.

Bakken wells produce the most oil early on, with production normally dropping sharply after the first year. In Montana, producers get an 18-month tax holiday on new wells, paying about a quarter of the normal taxes.

The Revenue Department collected nearly $211 million in oil-and-gas production taxes during the last fiscal year and 83 percent of the money came from the eight Eastern Montana counties with Bakken oil.

Real estate prices in those counties have increased 30 percent in two years, and apartments are scarce and expensive. In November, the Revenue Department said home prices across Montana, except in Bozeman and Kalispell, have rebounded to their 2008 pre-crash level.

Red Lodge developer Chris Storm and Nick Jones of Sidney are building 58 Pheasant Run apartments in Sidney. If the housing demand stays high, Storm said next spring they will start another 200 apartments, which would boost Sidney’s apartment inventory by one-fifth.

The Bakken’s largest player, Continental Resources, said it will spend $3.4 billion in 2013 for exploration and production, one-third more than this year.

Most Eastern Montana community leaders continue to point to Williston, N.D., as the type of uncontrolled growth they want to avoid.

An eight-mile drive around Williston can take more than an hour, and traffic has been described as “Third World crazy.” A hundred new people showing up each day could easily find a job but not a place to live.

In November, city Economic Development Director Tom Rolfstad appeared on CNBC to announce that a major real estate company, KKR Global, will build 820 multifamily units and 727 single-family homes in Williston, which has 6,800 permanent homes. In the past five years, the town of 14,000 has more than doubled in population and may double or triple again in the next five.

“We’re growing leaps and bounds, totally countercyclical to everybody else in the country,” Rolfstad said on CNBC.

Fat checks, no takers

Wal-Mart starts its Williston workers at $17 an hour, $25 for overtime, but is short 125 people because so many leave for oil field jobs paying at least $80,000 per year.

Because modern oil field laborers generally work two weeks on-two weeks off, they can live hundreds of miles away.

Billings Realtor Charlie Hamwey said that despite their big paychecks, only a few oil workers buy homes.

“I would say only two out of 10 of them can qualify for a mortgage because their credit is so bad,” he said.

But they are driving rental prices higher.

Branching out

The Bakken boom towns are satellite offices for dozens of Billings-area companies.

Tractor & Equipment Co., which serves 44 counties in North Dakota, Montana and Wyoming, expanded its Williston shop last year. Now T&E is building a 40,000-square-foot, 12-bay Caterpillar parts and service center on 50 acres north of town, with High Tech Construction of Billings as the contractor.

In November, Love’s Truck Service Plaza, larger than the local Flying J, opened next to T&E’s project. Then Storm of Red Lodge hired Langlas & Associates of Billings to build an “18 wheels in 18 minutes” truck wash next to Love’s.

“In Williston, the traffic is mind-numbing: The dirt and the gravel and the muddy streets. They can’t keep their vehicles clean,” said Langlas superintendent Dennis Evanson, who is building the truck wash with subcontractors from Billings.

In three years, Langlas has built a dozen commercial projects in western North Dakota and half a dozen in Eastern Montana.

Anyone who was raised in Eastern Montana considers Billings their base of operations and migrates to the schools, the shopping and the restaurants, Evanson said.

Executive director Steve Arveschoug said Big Sky Economic Development is starting a feasibility study to see if Billings needs to build an industrial park site for oil field companies. Sanjel Corp., Highland Projects of Sundre, Alberta, NAPA Auto Parts and others have moved into Billings or expanded operations to serve the boom.

Western North Dakota has become a bedroom community for a handful of Billings professional services companies including architects, engineers and oil field supply companies.

Dave Almendinger, an Oregon builder who grew up in Western Montana, teamed up with a Glendive friend to buy a dozen manufactured homes being made in Billings by a newcomer, Canadian-American Structured Solution Inc.

In January, the homes will be placed on lots already developed in Glendive and already leased to BNSF.

“Cass Homes saved me about $100,000 in freight for 12 units. I’m buying locally and using local contractors,” he said.

Construction in Oregon has been moribund for three years, and he wants to move back to Montana where the action is.

For 62 years, Billings-based Wyo-Ben Inc., which mines bentonite near Greybull, Thermopolis and Lovell, Wyo., has been providing the impure clay to drilling sites. But the company ships more product to Oklahoma, Texas and Canada, which use water-based drilling fluids, than the Bakken, which uses oil-based fluids.

Chief executive David Brown said last year's sales set a record, jumping by more than 20 percent.

But this conservative businessman remembers the last boom-gone-bust days of lost business, homes and marriages.

In the 1970s, Wyo-Ben was the largest U.S. supplier of drilling fluids to independent oil companies. Then overnight it ended.

Wyo-Ben sold 46 warehouses from Northern Canada to the Gulf of Mexico and never reopened that division.

“I think this boom is more sustainable, but something will happen to cause this to turn,” Brown said. “Sooner or later, this one will cycle.”

Copyright 2014 The Billings Gazette. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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