North Dakota’s oil and gas industry contributed a whopping $43 billion to the state’s economy in 2013.
Researchers at North Dakota State University’s Department of Agribusiness and Applied Economics conduct a study every biennium to measure the economic activity of the oil and gas industry over a one-year period within the state. Results of the 2013 study were announced on March 10 at the state Capitol during an Energy Day hosted by the North Dakota Petroleum Council, Bakken Bakkers, National Federation of Independent Business and the North Dakota Grain Growers Association. Co-author of the study Dean Bangsund provided facts and figures that showed an economic output increase of 750 percent since the annual studies began in 2005.
“It’s a huge effect on the economy. It’s one of the reasons why we have one of the fastest growing economies in the country,” Bangsund said.
The study considered four areas of impact: exploration and development; extraction and production; transportation and processing; and infrastructure. While the direct impacts of each category were substantial at $17 billion, the secondary impacts of the dollars being circulated across the state totaled another $25.7 billion - indicating every dollar spent by the industry generated another $1.43 in additional business activity.
Exploration v production revenue
In 2013, operators spent about $6.9 million per well yielding $15 billion in total financial outlay for well development in North Dakota. In comparison, in 2011 operators spent $9.1 million per well, yielding $11.6 billion but the number of wells completed grew from 1,271 in 2011 to more than 2,200 in 2013. Bangsund said more than $7 billion of the $15 billion gets circulated through the state’s economy and eventually generates another $12.8 billion in secondary economic activity equating to a $20.4 billion impact to the state. When the studies began in 2005, well drilling made a mere $1.4 billion impact. Bangsund determined that each drilling rig had an economic impact of more than $100 million over the course of 2013.
But as development in the Bakken continues and operators shift from exploration to production, so do dollars. The state gained $7.7 billion of direct impacts from production activity in 2013 and another $7.6 billion in secondary impacts.
“Spending on well drilling is nearly the same as production,” Bangsund said. “We’re going to find this industry’s impact to the state’s economy will be more driven by the production segment than the exploration segment.”
He said the industry spent an average of $860,000 in production costs per well in 2013, and oil and gas production was valued at $29 billion for the year. Royalty owners received $5 billion of that total with private mineral owners claiming approximately $1.4 billion. The industry also contributed $9.3 billion in economy-wide personal income and subsequently the retail sector gained an $11.3 billion benefit.
“This section (production) of the industry alone … had about $15 billion gross business volume in the state. The percentage growth is considerable,” Bangsund said, adding that the business volume has grown from just $2.7 billion in 2005.
Other significant impacts
Transportation and processing oil and gas brought almost another $3 billion of impacts, and infrastructure investment yielded $4.5 billion of economic impact to the state. Bangsund noted that while operators spent $3 billion on infrastructure construction, only about $1.5 billion was generated in North Dakota because it required specialized equipment that the state does not have the capacity to produce, and was therefore outsourced.
“It’s a very telling statistic. People want to know what the industry is doing; follow the trail of money,” Bangsund said. “Industry is investing heavily in infrastructure in North Dakota and they wouldn’t be doing so if they didn’t feel that they had a valuable resource here.”
Bangsund said that while drilling may slow due to current commodity prices, the geology isn’t changing, so low prices only extend the timeline to develop the resource and the state will still have economic opportunities to come.
“We have tremendous economic development issues in western North Dakota,” he said. “We don’t need to just build stuff for the industry; we need to build stuff for the whole community. We need to build everything. The economy in western North Dakota is already considerably bigger than it was, even with the slowdown.”
The North Dakota Petroleum Council commissioned the study and President Ron Ness said dramatic growth in production was mirrored by the economic benefits and job opportunities, but the study for 2015 is not likely to garner those types of results.
“As oil prices decrease, the benefits previously enjoyed by the state government, households and other industries will be much lower as we work through the current price drop - no doubt impacts many are beginning to feel,” Ness said in a statement.
Jobs directly related to the industry grew from 5,000 in 2005 to more than 56,000 in 2013 while state and local government revenues grew by more than $3.73 billion.
The data for the study were collected through industry surveys with a 33 percent rate of return, Bangsund said.
