Floor hand Ray Gerrish works to make repairs on a drilling rig outside Watford City. Employees work around the clock at Raven Rig No. 1, one of more than 150 oil rigs in the Bakken. (photos by Jim Gehrz/Minneapolis Star Tribune/ZUMA Press and Jacob Ehrbahn/Polfoto/ZUMA Press)
In 2000, federal census takers in Watford City, North Dakota—in the far west of the state, 50 miles from the Montana border—counted 1,435 people. Today, that number is estimated to be at least 10,000. A familiar fuel for American boomtowns fed the rapid increase: the discovery of oil and gas. In Watford City’s case, it is the Bakken formation, a 25,000-square-mile underground deposit that—thanks to a rise in fracking and new oil extraction technologies—has produced as much as 1 million barrels of oil and gas a day, or about the production equivalent of the United Kingdom. We asked HBS alumni and faculty to weigh in on the macro and micro effects of this boom—on the markets, the environment, and the future of small-town North Dakota.
Read on for thoughts from Senior Lecturer John Macomber, Wade Myers (MBA 1994), Barbara George (MBA 1980), Professor Richard H.K. Vietor, and Professor Joe Lassiter.
Building For Beyond the Boom
Senior Lecturer John Macomber
The oil boom has lowered the unemployment rate in Williston, North Dakota, to less than 1 percent.
“With respect to the city, if you want to diversify the economy and make it attractive to live here, then you have to make investments in knowledge workers, and the city—or private actors—has to invest in resource efficiency. So how can our water, fuel, and transit go further? By having multifamily housing, by having some kind of mass transit, by having a common water extraction and treatment regime, by having a reliable power grid so people don’t have to rely on diesel generators. That is a lot of the same kind of stuff you do in an emerging economy. It’s the same thing you do in a new city in India or China.”
Macomber teaches the MBA elective Building Cities: Infrastructure and Sustainability.
Wade Myers (MBA 1994)
Tioga, North Dakota, was the site of the state’s first oil discovery in 1951. Since then, the region has gone through two boom-and-bust cycles, and city officials are increasingly insisting that current development slow down.
“There was a boom in the Bakken region in the late 1970s and early 1980s, and I worked in the oil patch during that boom—that’s how I put myself through college. But once the price of oil dropped in 1982 and 1983, then that boom went bust because it was no longer cost effective to extract the oil. It was a very painful experience for everybody in the Bakken area. Cities like Williston, Watford City, and Belfield had completely overbuilt—dug basins for homes that were never occupied, added on to schools with bond issues that were painful. So part of the rub today is that a lot of the locals—presidents of the banks, the economic council members, the mayors—can remember the painful issues that came out of that bust. So they’re almost too conservative. They’re not investing in infrastructure as much as they could or should. I’ve literally called banks while working on real estate development projects, and they’re going, ‘Nope, we’ve got enough of our lending pool at risk on those kinds of projects. No siree. We remember last time around.’ ”
Myers is managing director of Dallas/Ft. Worth–based Boldmore Growth Partners, and launched the Internet service provider Bakken Wireless in 2012 to serve the region’s growing population. He was was raised on a small North Dakota ranch an hour south of Watford City.
A Pool Past Its Peak?
Barbara George (MBA 1980)
Williston farmer Steve Jensen surveys the cleanup process after more than 20,000 barrels of oil leaked on his land.
“The research by the Post Carbon Institute indicates that the Bakken is a classic boom-and-bust scenario—that there will be a few people who make a lot of money and leave behind a mess for others to clean up. And the main thing is that the expectations of a long-term production boost are unfounded. That goes for the Bakken and this country in general, for both shale oil and shale gas. In the Bakken, we think peak production is likely to occur in 2016 or 2017—possibly sooner if oil prices stay low—and then trail off dramatically. And that understanding is so important because you’d behave differently depending on whether or not you believed it was a short-term or a much longer-term situation.”
George is the finance director for the Post Carbon Institute, a California think tank dedicated to promoting sustainable energy that recently examined the Bakken in its report Drilling Deeper: A Reality Check on U.S. Government Forecasts for a Lasting Tight Oil & Shale Gas Boom.
Gas-Powered Manufacturing Gains
Professor Richard H.K. Vietor
A train carrying oil tank cars near Gladstone, North Dakota.
“The gas from this shale revolution has made petrochemicals, cement—almost everything, really—cheaper in the United States than it is anywhere else. If you use gas to power your manufacturing facilities or your utilities, it means that your electric prices have gone down. And everyone else’s electric prices are going up. So it’s making business here more competitive—especially energy-intensive businesses. But even the non-energy intensive businesses are starting to come back here from Asia and Europe. And there are folks who don’t want to export the gas—they want to keep it here so America will have this competitive advantage in manufacturing.”
Vietor is the Paul Whiton Cherington Professor of Business Administration and has written more than 80 case studies on energy policy, the regulation of natural gas, nuclear power, and hazardous wastes.
A Global Solution
Professor Joe Lassiter
The flame from a natural gas flare dances in the shadow of an oil pump jack near Keene, North Dakota.
“Natural gas is not an economic alternative to coal if you are Chinese. It’s a fabulous alternative if you are American. But a US-centric view will not result in an adequate response to climate change. It’s not only going to have to involve the Europeans and the Japanese. It’s also going to have to involve the Indians and the Chinese. And the people in those developing economies are going to value the benefits of lower-cost, pollution-free energy today over the uncertain costs of carbon dioxide–driven climate change tomorrow for quite some time to come.”
Lassiter is the Senator John Heinz Professor of Management Practice in Environmental Management and coteaches the MBA elective Innovation in Business, Energy, and Environment.
Traffic is heavy most of the day in Williston as vehicles approach the intersections of Highways 85 and 200-a major crossroads in the region.
“I grew up outside Medora—it’s the largest tourist destination in North Dakota. It was always full of motels and typical touristy places to stay when I was growing up. But it was a summer thing, opening in May and closing in September. Three years ago I went there in late October for a family wedding. I come driving into Medora, and I see these low-slung motels that normally would have been shuttered for the season in late October. Not only were they not shuttered, every single parking spot had an oil truck in it.
“I ran into this high school classmate of mine who—like a lot of my classmates in my little class of 34—stayed in the area. She had this little restaurant and just struggled for decades. I would always stop by, have breakfast, and see how all my local friends were doing. And this time she was just—oh, man—busy, busy, busy. She was on her cell phone, and she’s ordering an 18-wheeler full of frozen chicken parts. She gets off the phone and says [quickly], ‘Wade, how are ya?’ You know, just totally a different person than normal. I said, ‘How are things going?’ And she says, ‘You are not going to believe it. I have a contract where I am feeding thousands of oil-field workers three meals a day. She said, ‘Wade, I do more business in an hour than I used to do in a month.’”
Senior Lecturer John Macomber
Because of a housing shortage in Williston, oil worker Glenn Robinson, from Missouri, sleeps in his car, staying warm by idling the engine and using a fan heater connected to the car battery.
“It’s very hard in global history to transition from having a single resource into having another kind of economy. Whether you’re talking about a nation with the oil curse like a Venezuela or a Nigeria or a region like northern Maine or northern New Hampshire with the timber industry. Sometimes cities and regions try to think ahead to what’s their economy going to be in the future. And that’s worked well in the United States in places like Pittsburgh, where steel went away, and forward-thinking, committed civic leaders thought, ‘Let’s nurture a couple of new industries.” But they had a lot of history in Pittsburgh. It’s going to be a lot harder in a place like Williston, North Dakota, or Butte, Montana, for anybody to think that there is any reason to have an enduring community there after the resource is no longer attractive to the market.”
The Path to Zero
Professor Joe Lassiter
“I believe we’re going to have to get to a world where there is zero net carbon emission. The issue is, how fast can we get there? From the technology as we know it—and there will be inventions—I doubt that we can burn coal, capture its emissions, and sequester those emissions economically. For natural gas, that may be easier but is still quite expensive. But in the end, we have to move to energy sources for base load electrical power—available whenever a customer needs it—and transportation that do not release new carbon into the atmosphere and yet are still economically acceptable to the public. Other than off grid in the developing world, I think it is unlikely that the zero net carbon alternatives for powering their urban complexes are anything but onshore wind, nuclear, and hydroelectric.”