Demand for oil is spiking. So why are North Dakota rigs lying idle?
| Watford City, N.D.
With gas prices spiking, many have called for the United States to ramp up oil production.
But in North Dakota, one of the most prolific, pro-oil states in the country, officials are projecting less than a 10% increase this year.
Why We Wrote This
Spiking oil prices have heightened the debate over whether the U.S. should emphasize more drilling or saving the planet. In North Dakota, officials think they’ve found a third way – doing both.
Despite oil soaring to more than $100 a barrel, companies can’t get workers. They can’t get capital from Wall Street. They can’t secure new leases on federal lands. They’ve seen plenty of booms and busts, but this time feels different. The climate has changed.
“We were told not to drill and shut everything down because the planet’s going to burn up,” says Dave Williams, chief executive officer of Missouri River Resources on the Fort Berthold Reservation. “And now we’ve got everyone saying we’ve got to produce as much as we can.”
Amid an intensifying debate about how best to balance climate goals with energy security, North Dakota presents an interesting case study. It shows why it’s hard to instantly compensate for wartime disruptions in oil supply, in part due to growing pushback from environmentalists, landowners, and investors. It is also trying to be a model for transitioning to a lower-carbon future without leaving the country vulnerable to foreign suppliers like Russia.
The question is, will it work?
One reason American gas prices remain so high lies in the ruts of J&J Rental’s parking lot here in Watford City – the heart of North Dakota’s oil country.
At a time when spiking oil prices should be driving a boom in U.S. production, and helping to relieve those painful numbers at the pump and on monthly utility bills, two of the company’s five service rigs have been idle. Vice President Greg Burbach, whose coveralls are spattered with mud, sits down in his office to explain why.
In January, as the price of oil climbed steadily higher, he started getting daily calls from customers interested in hiring the rigs, which are used for maintaining and repairing oil wells. So over the next two months, he spent $12,000 on ads in 10 markets across the country trying to hire workers. He only got one.
Why We Wrote This
Spiking oil prices have heightened the debate over whether the U.S. should emphasize more drilling or saving the planet. In North Dakota, officials think they’ve found a third way – doing both.
Customers still call weekly to see if he’s assembled any crews to run the $900,000 pieces of equipment. He hasn’t – despite offering a monthly housing allowance, a daily bonus, and a 10% pay raise.
“I can’t just hire people off the street,” says Mr. Burbach, walking around one of the rigs, which stands 104 feet tall, with a ladder for crews to climb and long guy wires to anchor it to the ground. With the winds that whip across the prairie here, it requires experienced hands to operate the machines safely.
After decades in the industry, Mr. Burbach has seen his fair share of booms and busts. But something is different this time. Despite oil soaring to more than $100 a barrel, almost no one here is expecting a significant boost in production this year.
They can’t get workers. They can’t get capital from Wall Street. They can’t secure new leases on federal lands. And the cost of doing business has gone up dramatically – everything from labor to steel to the diesel needed to drill for oil.
“We were told not to drill and shut everything down because the planet’s going to burn up,” says Dave Williams, chief executive officer of Missouri River Resources, an oil producer on the Fort Berthold Reservation. “And now we’ve got everyone saying we’ve got to produce as much as we can.”
North Dakota illustrates that there is no switch to flip that will instantly boost U.S. oil production, not even in one of the most prolific, pro-oil states in the country. And part of that, people here say, is due to the Biden administration’s hard pivot away from fossil fuels in its bid to mitigate climate change.
To be sure, there has long been a fundamental tension between meeting America’s energy needs and saving the planet. But that cleavage has grown in recent years amid increasingly urgent warnings that Earth is on the verge of a meltdown.
Now, in the wake of Russia’s invasion of Ukraine, Republicans in Congress are calling for an overhaul of America’s energy policy. The president has miscalculated in his efforts to fight climate change, they say, undermining national security and U.S. foreign policy. They argue instead for increased oil production to enable America to lead unfettered by unsavory leaders like Russian President Vladimir Putin. Meanwhile, progressives are accusing oil companies of profiteering – taking advantage of high oil prices and federal subsidies – while ruining the planet.
Amid the national debate, North Dakota presents an interesting case study in balancing the push for increased U.S. production with the growing social and political momentum toward mitigating climate change. Some states have sought to transition off fossil fuels, following the lead of many European countries. Others have dug in with a “drill, baby, drill” mentality, suing their way out of federal regulations or waiting until the next GOP president. North Dakota was arguably in the drill camp – until last May. At a conference of oil bigwigs, Republican Gov. Doug Burgum shocked the crowd by announcing that he planned to take North Dakota carbon neutral by 2030.
“We’re trying to chart a course that takes us down the middle of that road – not drill at all costs and produce at all costs, or shut things down because we have a climate crisis,” says Lynn Helms, director of the state’s Department of Mineral Resources. “We think we can do both.”
The question is, will it work?
The last time oil prices spiked, Gary Goodman left Kentucky for a fresh start in the oil fields of North Dakota. It was 2012. With a felony conviction and few job prospects, he boarded a train in Cincinnati and headed west with a few work clothes, a sleeping mat, and $1,600 he’d saved up from doing odd jobs. Thirty-nine hours later, he arrived in North Dakota.
He was not alone.
People from all over the country poured into Williston and Watford City, staying in “man camps,” tents along the street, or RVs in the Walmart parking lot. Mr. Goodman headed for a Lutheran church that was letting people sleep on the floor. “You ever been in trouble?” he recalls the pastor asking him.
“I’ve got a rap sheet as long as your arm,” admitted Mr. Goodman, explaining he was imprisoned on drug-related charges, but nothing violent. “I’m here to make a life, to try to do the right thing.”
The pastor checked out his story and let him in. Mr. Goodman bought a pillow and hunkered down with 60 other guys for a couple of months, getting a gym membership so he could take daily showers. He soon landed a full-time gig and stayed for seven years.
It was thanks to workers like Mr. Goodman that North Dakota became the country’s No. 2 oil producer after Texas. “We were paying gobs of money for a pulse,” says Paula Lankford, who runs the Williston branch of Job Service North Dakota.
The boom transformed Watford City from a town of 1,700 to 6,200, and made the surrounding county the fastest-growing in the United States, according to the 2020 census.
Then the pandemic hit, oil went to $0 a barrel, and Mr. Goodman and many others headed home.
From 2019 to 2021, North Dakota’s oil production dropped 25% – far worse than the 9% decline nationally. One of the main reasons it’s not possible to simply turn on the oil spigot now that prices have surged again is that many of the itinerant workers have vanished. Some have headed to the Permian, the large oil field that stretches across Texas and New Mexico. The oil is cheaper to extract, and there are no cryogenic windchills that leave icicles on your eyelashes and “make you wish you’d never been born,” as one worker here puts it.
In March, the local job service office had seven times more openings as active résumés in construction and extraction, says Ms. Lankford. An RV park where out-of-state workers used to sleep stands empty, a “for sale” sign tacked to the fence.
Some employers in this Republican state also blame the Biden administration’s COVID-19 unemployment insurance bonuses and expanded child tax credit.
“I had guys asking me to lay them off so they could collect unemployment insurance,” says Shane Johnson, who owns J&J Rental, which includes the oil-services operation in Watford City where Mr. Burbach has been trying to woo workers.
“We’ve lost a little bit of spirit and a little bit of drive,” agrees Ron Ness, president of the North Dakota Petroleum Council.
But Mr. Goodman is still driven to work. After recently returning from Kentucky to Watford City, he swings by J&J Rental to fill out paperwork, pick up a harness to keep him safe on the derrick, and grab a hat with the company’s black-and-red logo. Then he heads to Outlaws’ Bar and Grill on North Main Street, to fill up on bison meatloaf and mashed potatoes.
Tomorrow will be his first day back at work in the oil fields in two years.
The next morning, with a full moon still hanging in the sky, workers in Carhartts and muddy work boots trudge into The Corner Post gas station to fuel up for another day in the oil patch. They clutch sodas, sticks of beef jerky, and wedges of frosted cake, as well as foam containers loaded with eggs, biscuits, and bacon from the breakfast buffet. The four cashiers punching registers have been working since 5 a.m.
Outside, supersize pickups and flatbed trucks brimming with equipment fill up with gas before rumbling out of the parking lot. There are pipelines to fix, wells to drill, and, yes, there’s oil to pump.
But despite the high prices, Mr. Helms at the Department of Mineral Resources projects that North Dakota will only see an increase in production of at most 9% this year, to 1.2 million barrels per day – still 300,000 barrels short of the 2019 peak. Currently 40 rigs are operating across the state, down from 55 pre-pandemic.
Iron Oil CEO J.R. Reger says he’s sticking to his plan to use only one drilling rig in the Williston Basin for now because his costs have risen as much as 15% over the past year. He worries oil prices will plummet before he can recoup his costs.
Industry officials say investors are hesitant, too, for several reasons. They poured money into oil for years and didn’t get great returns. Secondly, as socially responsible investing picks up, windmills are in vogue, not oil rigs. Then came the Biden administration’s pivot – and with it, increased regulation.
“That’s just been a triple whammy to us,” says Mark Pearson, president and CEO of Liberty Resources, a Denver-based oil and gas firm.
The federal government has canceled the $9 billion Keystone XL pipeline; suspended lease sales; bogged down the permitting process, according to industry executives; and nominated people who see banking policy as a key tool in accelerating the transition away from fossil fuels.
“I really think the regulatory impact on the financial sector is the largest thing tamping down the industry,” says Kathy Neset, a geologist and founder of Neset Consulting Service, who recently finished a term on the Federal Reserve Bank of Minneapolis. She says Biden administration officials are putting unrealistic expectations on the industry during a crisis.
They see it differently: The Ukraine war and its consequences for energy underscore the need for weaning the country not only off foreign oil, but also off fossil fuels altogether. And it’s “important and appropriate” for the market to price in climate risks, says Brian Deese, director of the National Economic Council, who formerly led the sustainable investment team at BlackRock, the world’s largest investment fund manager.
In the short term, there are no policy constraints on ramping up production, he adds, noting that corporations like Exxon and Chevron are already doing so. Speaking at a Monitor Breakfast in Washington April 6, Mr. Deese acknowledged that smaller companies reliant on private equity are having a tougher time boosting production and said the administration is willing to help. “We are open to practical and pragmatic ideas as long as they’re grounded in real, not imagined constraints.”
GOP Rep. Kelly Armstrong, North Dakota’s sole House member, has a few suggestions: Approve permit applications that have languished since last year, signal support for building natural gas pipelines, and reform the environmental review process.
Over in the Senate, his fellow North Dakota Republican Kevin Cramer is also pushing for less federal regulation as well as more investment in the industry. But Senator Cramer, who sits on the Senate Banking Committee, says it’s important for both sides to step away from extreme positions and work together.
“You can’t dig your heels in on, ‘Climate change is a hoax,’ or the other side saying, ‘The world is ending tomorrow if we don’t do something about it,’ and expect a real solution,” he says.
Delvin Rabbithead Sr. worked as a roughneck in the oil patch for a year during the last boom. Then one winter, as the temperatures started dipping to minus 30, he decided to switch to the comfort of a heated truck cab. As a driver, he hauled away the salty water that is a byproduct of oil production.
Yet he quickly witnessed something on the new job that disturbed him: drivers who wouldn’t bother to go to the designated disposal sites but would dump their effluents elsewhere under the cover of darkness. These and other experiences served as a wake-up call about the industry he’d grown up around. “I started realizing what it was doing to our land,” he says.
Much of North Dakota’s oil and gas is obtained through fracking, a controversial extraction technique that enabled the U.S. to become the world’s biggest producer in 2018. In this GOP state that gets 50% of its tax revenues from energy production, few are calling for scrapping fossil fuels altogether. But environmental activists and landowners are concerned about everything from saltwater spills and leaky pipelines to emissions from the flaring of gas that is extracted alongside oil.
During the previous oil boom, the flames could be seen from the International Space Station. “It was like a Christmas tree, all lit up,” says Mr. Rabbithead.
The Fort Berthold Reservation where he grew up is particularly notorious for gas flaring. So he joined a group called Fort Berthold Protectors of Water and Earth Rights, and says they were close to reaching a deal with tribal leadership to lower emissions before the pandemic hit.
Natural gas flaring statewide has dropped 96% since 2011, according to state officials, who inspect flaring sites and review companies’ self-reported numbers on the practice. But activists say the rates are far higher, citing a satellite study.
Across the Missouri River that Lewis and Clark once plied, farmer Donny Nelson is fighting another battle. He personally has lost about 100 acres to saltwater spills, despite the state’s remediation efforts.
“They always come up with some new foo-foo dust,” says Mr. Nelson, referring to the state’s attempts to repair the land.
As co-founder of the Salted Lands Council, he’s fundraising to map saltwater spills statewide and determine the cost of properly restoring the land. His guess: $1 billion or more.
As trucks rumble out of The Corner Post headed for the oil fields, Larry Dokken is driving 70 mph away from the Bakken. Mr. Dokken been working in the oil industry here since 1964. But now he’s on a new mission for Neset Consulting: overseeing a carbon storage initiative that would be the largest in the world.
The idea is to capture emissions at 31 ethanol plants in the Upper Midwest and send it by pipeline to Beulah, North Dakota, where it would be injected deep underground and stored permanently. The state would get to claim huge carbon offsets, and the ethanol producers would be able to sell their low-carbon ethanol at a premium in states like California, the largest ethanol market in the nation.
It’s one of numerous initiatives launched since Governor Burgum announced his carbon-neutral goal last year, and by far the biggest. Other projects include advancing a $1 billion plan to capture and store coal emissions, building one of the nation’s largest low-cost hydrogen hubs, and turning soybeans into diesel fuel.
“The projects we’ve approved in the last nine months since we made this announcement equal about 31% of our CO2 emissions,” says Governor Burgum. “So we’re off to a good start toward hitting a goal that’s not even a year old.”
The $4.5 billion carbon storage project is not yet approved, and there are plenty of skeptics. In order to get the necessary permits, Summit Carbon Solutions is drilling three wells and bringing up core samples from thousands of feet underground, then shipping them to Denver for analysis. Its goal: prove that the sandstone layers can hold carbon, and that the cap rock just above them is impermeable enough to keep it from escaping.
Mr. Dokken, the project manager, pulls up to the entrance gate at the site on a recent sun-dappled morning. A drilling rig is boring 4,000 feet underground. Inside one of the heated trailers on-site, a geologist monitors the rock layers they are expecting to find, and at what depth. The crew is pleased with the progress so far.
“The world is probably going to model carbon storage after this project,” says Mr. Dokken later over a burger at a local diner.
Summit is offering to pay landowners to lay a pipeline across their property and for carbon storage rights. But not all are thrilled with the project.
One disgruntled local landowner has been leaving leaflets in people’s mailboxes warning about the dangers of transporting carbon gas. In Richland County, to the east, residents recently approved a resolution to deny Summit the right to invoke eminent domain for the pipeline.
“The state could overrule it,” says Todd McMichael, an electric utility salesperson who led the effort. “But it sends a message.”
Mr. McMichael is not opposed to pipelines. But the idea of highly pressurized, odorless CO2 running across his property concerns him. He says his insurance wouldn’t cover an accidental leak or its effects, including on livestock grazing nearby.
Troy Coons, founder of the Northwest Landowners Association, believes property owners need to be brought to the table.
“Good things still have to be done in a thoughtful way – not the wild, Wild West approach that we just got done with in the Bakken oil field,” says Mr. Coons, whose organization recently sued the state over a new law governing “pore space,” where carbon would be stored.
Questions still linger about how well carbon storage works. In 2020, a $1 billion coal carbon-capture plant in Texas sequestered 15% less carbon than was projected. The project was mothballed after three years because it wasn’t economically viable.
“You’ve got to develop the technology so you can make it pay in the free market,” says Sen. John Hoeven, who as the GOP governor of North Dakota laid the regulatory groundwork for carbon storage and later advanced tax credits for the technology. “We’ve got about a 10-year head start on everybody else.”
To some skeptics, the emerging carbon storage industry is more about making money than about saving the environment.
“[These companies] are trying to figure out how to be the next robber barons,” says Scott Skokos of the Dakota Resource Council, an environmental watchdog group. Although he credits the governor with finding a third way between unchecked drilling and an abrupt turn toward green energy, he sees it as a quixotic quest. “He’s trying to have his cake and eat it, too – and I don’t think it’s possible.”
