COLUMN-Bakken by the numbers: John Kemp

Thu Dec 22, 2011 11:31am EST

By John Kemp

LONDON Dec 22 (Reuters) - The magnitude of North Dakota's oil revolution is hard for outsiders to grasp. Superlatives fail to convey the speed and scale of the transformation and its impact on the economy of the state.

The fracking boom is upending the traditional petroleum geography of the United States. On current trends, North Dakota will overtake California as the third-largest oil-producer in the United States by the end of Q1 2012. Output is likely to exceed production from Alaska by the end of 2012 or early 2013. Only Texas will be producing more crude.

Fortunately, the state government publishes a wealth of statistical information. Cold numbers are the only way to understand what is really happening on the northern plains.

In October, the state's oil output rose to 488,000 barrels per day, up by a stunning 9 percent compared with the previous month (464,000 b/d) and an extraordinary 42 percent compared with October 2010 (344,000 b/d).

There were 5,942 producing oil wells, according to the Oil and Gas Division of the North Dakota's Department of Mineral Resources. The well-count has risen by 863 over the last 12 months and 117 in October alone.

More than 190 rigs and crews are currently drilling for oil, up from 140 at the same period last year, and 60 in 2009. The rig count represents almost 10 percent of all drillers and rigs operating across the United States, according to oilfield services company Baker Hughes.

The resulting upsurge in production is set to continue into 2012. In the three months between September and November, the state government issued permits for 543 more wells -- 470 for development within existing fields and 73 wildcat wells to explore new areas. The number of new permits was down slightly compared with 2010, when 633 licences were issued in the same period, but more than double the number issued in 2009.

There are already nine rail facilities capable of moving 300,000 b/d out of the state but five more are planned and will take outbound rail capacity to more than 700,000 b/d by the end of 2012, according to the state pipeline authority. A slew of new pipelines and expansions are also proposed or underway to raise export capacity.

ECONOMIC SURGE

The boom wrought by hydraulic fracturing and horizontal drilling has boosted the state population by more than 10,000 in the last year, and 50,000 since 2003, taking it to a record 684,000, surpassing the previous peak in 1930 and reversing decades of decline, according to U.S. Census Bureau estimates released on Wednesday.

All those extra people need food, shelter and entertainment. And drillers and producers need a host of ancillary services. Taxable sales and purchases within the state shot up almost 40 percent in the twelve months to the third quarter, according to the state tax commissioner.

The largest increase in both percentage and dollar terms obviously came from the mining and oil extraction sector. But taxable sales and purchases also surged by 67 percent in finance, insurance, leasing and real estate; 40 percent in construction; 17 percent in retail; and 16 percent in accommodation and food services.

The state budget is projected to be in a surplus of more than $300 million over the two-year cycle ending in June 2013, up from the previous estimate of just $51 million made in February. Tax revenues are soaring faster than expected on everything from motor vehicle excise (up 100 percent compared the previous two-year period), to cigarettes (up 13 percent) and liquor (up 9 percent).

As the rest of the country's homebuilding sector languishes, more than 2,300 new housing units are under construction in the city of Dickinson and 1,750 in Williston, both on the western edge of the state where drilling activity is concentrated, according to the state's commerce department.

While the number of new house building permits issued across the United States has halved compared with 2007, construction permits issued in North Dakota are up 50 percent. The state issued more than 4,000 new housing permits in the first ten months of the year, compared with 3,000 over the same period in 2010 and 2,800 in 2006-2009.

The state unemployment rate is just 2.9 percent, compared with 8.6 percent nationwide, which effectively means that there is more than full-employment (assuming some level of frictional unemployment due to turnover). In the counties on the western side of the state overlying the Bakken formation, unemployment rates are less than 2 percent, and labour shortages are acute.

Total employment has increased by 17,400 positions over the last twelve months, led by increases in mining and minerals (+4,900), construction (+3,800), professional and business services (+2,600), transportation, warehousing and utilities (+2,100), and retailing (+2,000).

The state employment service reports there were more than 18,500 job vacancies open in October, up 6 percent from September and 60 percent from the same month a year earlier. There are twice as many job openings in the state as unemployed residents looking for work.

POLITICAL RIPPLES

The rapid expansion of the oilfields has put tremendous stress on local infrastructure, with the most frequent complaints about the burden on emergency services, public infrastructure for housing construction, and heavy trucking traffic through cities and along oil country roads, according to the governor's office.

The state government has appropriated $1.2 billion for road repairs and construction in oil country and to address other oil impacts.

But the fracking revolution has also made North Dakota the fastest-growing state in the union, and pushed its median income above the national average for the first time in decades. State GDP grew 7.1 percent in 2010, according to the U.S. Bureau of Economic Analysis, almost three times the nationwide average.

In 2010, the state ranked 19th nationwide in terms of median income, up from 40th in 2000 and 38th in 1990. No other state has seen such a dramatic improvement (or fall) in its ranking over the last 10 or 20 years.

Fracking and horizontal drilling have already transformed the North American natural gas market, turning it from a projected deficit into a huge surplus, in just five years. The same technologies are well on the way to transforming the U.S. oil balance, contributing the first increase in domestic output since the mid-1980s.

However, the impact on North Dakota's economy has been even more momentous. For good or ill, fracking has the potential to transform other states, and the political and economic consequences of the new technology are starting to ripple nationwide.

Fracking and North Dakota's resulting economic revolution will force politicians across the United States to decide what sort of energy system, and economy, they want in future.

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