Welcome to Kenmare

Feature Stories (Vol. 110 No. 2--1/09/2008)

Oil boom has big
impact here, too

By Caroline Downs

Kenmare may not be experiencing the frantic leasing activity, glow of gas flares, or busy backroads traffic seen in nearby Mountrail or Williams counties--yet--but the recent boom in North Dakota’s oil industry does touch the community.

Oil is part of the town’s business, with Eagle Operating, Inc., Eagle Well Service and MW Industries established in the community and employing some 200 individuals.

"And we could use another ten to twenty percent," said Bob Mau, president and owner of Eagle Operating. "As we’re building our service fleet, when we put out a rig for Eagle Well Service, we need to hire five or six more people. We intend to put three more rigs out this year."

North Dakota started pumping oil in 1951, after the first producing well was discovered near Tioga. By the next year, 89 wells yielded 1.6 million barrels. The industry grew up around the 16 counties in the western third of the state sitting above the geological formation known as the Williston Basin.

The state’s oil activity reflected the rise and fall of markets, but continued to expand through the mid-80s with peak production in 1984 at 52.66 million barrels of oil. A decline followed, hitting a low of 27.7 million barrels extracted in 1994. Annual production remained at better than 30 million barrels through the late 1990s, although exploration virtually came to a standstill.

Activity in this century remained steady through 2003, with between 3,330 and 3,390 wells producing between 30 and 33 million barrels of oil per year. Beginning in 2004, the rising price of crude oil on the world market made North Dakota’s oil more valuable. The industry noticed and expanded its presence in the state again.

According to the North Dakota Industrial Commission Oil and Gas Division, the year 2007 closed with 3,830 wells in production and 50 drill rigs at work. More than 40 million barrels of oil were recovered for the year, with 129,000 barrels pumped per day in November. The action has continued into 2008, with oil prices closing above $95 a barrel in world markets Monday and 52 drilling rigs operating in the state as of Tuesday.

Including Eagle Operating’s employees, the North Dakota oil patch employs more than 5,200 people directly and 20,650 people in secondary jobs related to the industry. In the first economic impact study ever conducted for the state’s oil and gas industry, researchers at North Dakota State University used 2005 numbers and determined the total impact that year was $3.88 billion, compared to $3.56 billion for the wheat industry and $1.8 billion for coal.

While Ward County isn’t seeing the income flow like the top-producing Bowman, McKenzie or Billings counties, Mau said those dollars are still entering Kenmare. "A lot of companies are willing to take a risk," he said. "Southwest of Kenmare, for example, the bonus prices for leasing right now are higher than they’ve been in the past."

He compared the effects of oil prices to other commodities receiving high prices in 2007. "It’s a snowball effect," he said. "As the money comes in, a portion of it is spent in the local economy."

Bakken play
In addition to prices, technologies to recover North Dakota crude oil have improved, particularly methods related to extracting oil from the promising Bakken Formation and its layers of shale, sand and silt found below western North Dakota, eastern Montana and south-central Canada. According to the North Dakota Petroleum Council, the state’s portion of the Bakken Formation could hold reserves of 250 billion barrels of oil, potentially richer than the estimated pool of oil under the Arctic National Wildlife Refuge in Alaska. However, sustainable production from the Bakken was difficult and cost-prohibitive in the 1980s and 1990s because the impermeable shale layers did not allow oil to move freely.

Recent technologies improve horizontal drilling and well completion techniques in the Bakken formation. In 2006, 46 new horizontal wells were drilled in the Bakken, at a cost of nearly $6 million each. The ND Petroleum Council describes a typical Bakken well as 10,000 feet deep, with one to three horizontal legs extending up to 9,000 feet across two sections of minerals.

Mau said his company has been taking advantage of the new drilling methods and recovery technologies during the past five years. "We’ve been working more on secondary recovery units," he said.

He explained that in primary recovery, 12 to 15 percent of the original oil in a particular well may be extracted. "We initiate a pressure maintenance program, and we can get another 15 to 20 percent of the oil out," he said. "If carbon dioxide is available, we can go to tertiary production and recover another 20 to 25 percent. They talk about carbon dioxide and greenhouse gases. This is the perfect place to pump carbon dioxide into the ground."

In Mau’s experience and opinion, North Dakota is well-positioned for the industry’s efforts. "As new fields are discovered, we can go through the same process of primary, secondary and tertiary recoveries, depending on the response of the [geological] formation," he said. "This is a new way of thinking. All the easy oil has been found. Now we’re using new technology to find harder reserves to extract."

According to Mau, the innovative technologies and the related environmental regulations have transformed North Dakota’s oil business in the 21st century. "We’re not the environmental rapists from the early days of the industry," he said, citing as one example the way plugged wells are now reclaimed so as to leave the landscape virtually unscarred.

"The idea is to keep your footprint as small as possible," he continued. "A lot of the companies investing dollars into these areas are doing it with the environment in mind. Safety is a big issue, and they’re trying to give the public a better image of the new industry."

Positive changes to industry
The new methods for recovering oil also provide opportunities for manufacturing firms willing to embrace the technology. Anticipating those needs, officials with Eagle Operating, Inc. helped launch MW Industries in Kenmare, which opened in March 2006 to design and build oilfield service rigs.

"What we see from the manufacturing end is a lot of equipment out there is 1970s and 1980s vintage equipment," said Mau, one of the founders of MW Industries, along with Tom Mau and Greg Wiedmer. "A lot of that older equipment was never refurbished. With the increased demand now, there’s a lot of interest in new equipment." MW Industries is attempting to feed that demand as they manufacture 10-12 rigs per year at their Kenmare factory.

Increased oil production spurs demand for workers in both direct and related jobs. The state’s Oil and Gas Division and the North Dakota Petroleum Council agree nearly 12,000 new employees will be needed by 2010 to fill new positions and replace retirees in North Dakota alone. The search for workers at the state and local levels has not been easy, despite generous benefits and an average annual wage exceeding $60,300.

Then, too, space and tolerance must be created for those employees within a rural community.

As a veteran of the industry, Mau challenged the negative stereotypes many area residents hold of oil field workers. "With the drug testing and prerequisites to being employed in the oil industry now, you’ve got to have a clean record," he said. He shook his head and added, "We’ve turned people away recently without driver’s licenses."

Where some residents see the potential negative influence from such people in town, Mau sees growth and prosperity for the community. He compared opportunities for Kenmare and other western North Dakota towns to the growth he’s seen during travels to larger cities throughout the West, where oil and other elements of a prosperous economy encourage citizens to relocate to the rural areas.

For North Dakota, that could mean retaining more native residents, convincing former residents to return, or attracting new residents to the state. "If a community is willing to embrace change, they’re going to see in-migration, they’re going to see growth," said Mau. "But they have to be willing to welcome that growth."

Unfortunately, growth in the oil business around Kenmare, and in all the state’s oil counties, may be limited by housing. Mau said one of his concerns for local employees is the availability of adequate housing, but he had noticed new construction efforts. "It’s good to see some people are taking the initiative," he said.

Other restricting factors could be the lack of infrastructure, particularly pipelines for transporting oil to refineries, and problems with roads throughout the area, especially as more and heavier equipment is moved around the Williston Basin to fulfill demand for oil. "What we’re seeing are some issues with the [North Dakota] Department of Transportation, as far as weights go," Mau said. "It may be that we’re going to have to have some legislation to allow the industry to build."

Boom has staying power
Although Eagle Operating has crews and rigs working in several locations, they have primarily concentrated their presence in Renville and Burke counties, with some operations in Bottineau County. "That’s our main focus," said Mau.

And while stories circulate from the boom and bust years of the 1980s, he believes the current developments have staying power. "With the world economy the way it is," he said, "if our government doesn’t stymie production, there’s no reason we can’t see ten years of production."

He paused to correct himself. "It could run for 25 to 30 years. With the new technologies developed, these are long-term projects."

While technology development and global oil use and production remain major factors in the continued oil boom, Mau predicted Kenmare and other western North Dakota communities would benefit tremendously from the increased activity in the Williston Basin. "All in all, with all the commodities involved," he said, "the doors are wide open for these small towns."