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Page added on June 17, 2015
The Dark Side Of The Shale Bust
The fallout of the collapse in oil prices has a lot of side effects apart from the decline of rig counts and oil flows.
Oil production in North Dakota has exploded over the last five years, from negligible levels before 2010 to well over a million barrels per day, making North Dakota the second largest oil producing state in the country.
But the bust is leaving towns like Williston, North Dakota stretched extremely thin as it tries to deal with the aftermath. Williston is coping with $300 million in debt after having leveraged itself to buildup infrastructure to deal with the swelling of people and equipment heading for the oil patch. Roads, schools, housing, water-treatment plants and more all cost the city a lot of money, expected to be paid off with revenues from oil production that are suddenly not flowing into local and state coffers the way they once were.
Williams County Commissioner Dan Kalil says that a lot of unemployed people who flocked to North Dakota are left in the wake of the bust, something that the local government has to sort out. “We attracted everyone who had failed in Sacramento, everyone who failed in Phoenix, everyone who failed in Las Vegas, everybody who had failed in Houston, everyone who failed in Florida,” Kalil said in a June 3 interview with WHQR.org. “And they all came here with unrealistic expectations. And it’s really frustrating for those of us left to clean up the mess.”
Output is still only slightly off its all-time high of 1.2 million barrels per day, which it hit in December 2014. But more declines are expected with drillers pulling their rigs and crews from the field. Rig counts in North Dakota have fallen to just 76, as of June 12, far below the 130 or so that state officials believe is needed to keep production flat.
But North Dakota was experiencing a lot of the negative side effects of an oil boom even before prices crashed. The massive increase in drilling brought a huge wave of cash and people to once sleepy towns, fueling a boom not only in oil, but also in violent crime, prostitution, and drug trafficking.
Now the state and the federal government are playing catch up with the crime wave.
A joint effort by the federal government and the state of North Dakota is seeking to crack down on crime in the Bakken. The U.S. Justice Department, in conjunction with North Dakota’s Attorney General, announced the creation of a “strike force” on June 3 that would target organized crime in the oil producing state. The Justice Department stated that the strike force would be targeted at “identifying, targeting and dismantling organized crime in the Bakken, including human trafficking, drug and weapons trafficking, as well as white collar crimes.”
The effort is a direct response to the rise in crime in North Dakota and Montana, which has been fueled by “dramatic influxes in the population as well as serious crimes, including the importation of pure methamphetamine from Mexico and multi-million dollar fraud and environmental crimes.”
The Justice Department says that it has had success in Montana with Project Safe Bakken, a 2013 program under which federal and state authorities prosecuted hundreds of cases. The Strike Force in North Dakota is expected to yield similar results, the feds believe.
With the state’s economy now almost entirely hitched to the fortunes of the oil industry, they are hoping for a rebound. With several smaller drilling companies having been forced out of the market, the discount that Bakken oil traded for relative to WTI has all but vanished, shrinking from several dollars per barrel down to just cents on the barrel. That could provide a floor beneath the price of Bakken crude, which, in the absence of a dramatic price rebound, is at least helpful for some companies.
The bust may not turn to boom again anytime soon, but with WTI now in the $60 territory, many are hoping the worst is over.
6 Comments on "The Dark Side Of The Shale Bust"
dashster on Wed, 17th Jun 2015 9:49 pm
The EIA predicted shale production to peak in 2019. That is only four years away, so they should have been planning on terminal decline of their oil revenue at that point. But I bet there were some Cornucopians who felt differently.
Makati1 on Wed, 17th Jun 2015 11:24 pm
Bubbles burst! Imagine that! No sympathy for the greedy who caused the current and future problems. Nor for the waste of North America’s resources to power SUVs to Walmart for a gallon of ice cream and a bag of chips.
pennsyguy on Thu, 18th Jun 2015 3:12 am
Abandoned oil and gas wells SHOULD be capped, then capped again every 20 years at a cost of up to $200k from what I have read. I wonder if this will be done 20 or 30 years from now when Bakken, et al. are finished. If not, whoever is around former oil fields may get some nasty surprises.
hiruitnguyse on Thu, 18th Jun 2015 12:53 pm
Hope in one hand, shit in the other.
rockman on Thu, 18th Jun 2015 1:31 pm
penn – A shot lesson on plugging a well. Tge regs very a bit for each state. But in general the state regulators dictate at what depths, what type and how much cement is pumped into the well bore. Subject to details a well will have 2 to 5 seoerate plugs set. The integrety of those plugs are certified by an independent third party in Texas and La. An odd fact of chemistry: the cement continues to cure for many decades and actually becomes marginally stronger over time. BTW after plugs are set the last plug is set at ground level and the casing is cut off several feet below ground level.
So it’s very unlikely the cmt plugs will fail. But here’s the inevitable “BUT”: but only if the job is done properly in the cirst place. In 40 years the Rockman has never seen a PROPERLY plugged well leak.
But I’m guessing you’re in PA. If so you may have tens of thousands of improperly plugged abandoned wells. And even worse the state doesn’t have accurate locations for thousands of those wells.
There’s no doubt any number of those wells have leaked and caused some environmental damage.
In Texas the potential problem is operators going bankrupt and leaving wells unplugged. But the state collects money from all companies thru the permit fees to deal with such “orphan wells”.
But the bottom line: if a well is properly plugged you physically can’t enter the well bore to “replug” it so your idea isn’t an option.
FarQ3 on Thu, 18th Jun 2015 7:09 pm
Hi Rockman, my concern is also additionally to what you’ve stated. There is significant evidence that fracking causes siesmic instability and fracking continues in ares where perhaps hundreds or thousands of wells already exist. As these decline and are capped the fracking of other wells will continue amongst them potentially causing early and unmonitored damage to casings and to plugs.