Outsourcing…Solution for the Bakken, Opportunities for Other Communities
Outsourcing to Billings has become the solution for the Bakken boom. It’s a solution that has been at least three years in the making, and holds the prospect to become even greater as the boom continues and moves westward, towards Billings.
One of the earliest participants in that trend was guest speaker at the Yellowstone Valley Electric Cooperative’s annual meeting, last week.
Like many businesses in Billings, when the economic recession hit in 2008, Sanderson Stewart Engineers looked around for new opportunities. “We looked to the east,” said Rick Leuthold, an engineer and one of the firm’s principals.
Leuthold’s company found enough business in Williston ND, to establish an office, a year and a half ago, and their business continues to grow, as does one of the largest oil and gas plays in the US – perhaps the largest in the country’s history.
To understand what is happening there – and here — “Go spend a day in Williston,” Leuthold urged his audience.
Leuthold said that he now spends two to three days a week in Williston.
Their problem – like everyone else in the Bakken, is finding a place for staff to live. They have five people in their Williston office. Two live in mobile homes.
“You can’t get a motel room for three months out,” said Leuthold.
With space at a premium – for everything – outsourcing to surrounding cities has become the solution for the Williston Basin.
“Lot’s of people are coming to Billings,” said Leuthold. Not only are they coming to shop and purchase equipment and supplies (much of which can’t get delivered to Williston), but companies are locating their headquarters and maintenance facilities here because it is simply impractical to locate them in the communities of the Bakken. “It’s a great opportunity for us,” said Leuthold.
The outsourcing is for more than just the direct support of oil well development. It includes outsourcing for the building of houses, motels, man-camps, restaurants – and for building power plants.
Leuthold rattled off the several counties in North Dakota whose accumulative immediate need for power is some 1.2 gigawatts, that’s enough demand that each county will have to build their own power plant. All such development adds, of course, to the need to outsource for supplies, equipment, and manpower.
Large subdivisions are being built trying to meet a minimum goal of 500 new homes a year, some 3000 one-bedroom rental units are planned, and motels are going up as rapidly as possible. Five motels were built this past year, and four more are “on line.”
A future opportunity for entrepreneurs, said Leuthold, will be to figure out what to do with empty motels, when they are no longer in demand.
That raises the question of how long can this last? Over and over, one hears projections which conservatively speaking, say it will last 20-30 years. This is a boom unlike any other, because of the resource and the technology.
Leuthold said that the companies he talks to say that production is profitable down to a price of $45 to $55 per barrel.
Elm Cooley on the “Montana side” “is a huge producer,” and production continues to migrate from North Dakota “to the south and west.”
It’s projected that 50,000 wells will be drilled over the next 20 years. They are putting in 2000 wells per year.
Leuthold said that every well is considered on average to have a life span of 20 years. Each well requires at least one person to maintain it. “Do the math,” said Leuthold, “That’s 50,000 guys, long-term.” Each one of those workers will have “a spouse and kids and need all the same services and retail stores as any other community.” That means that long-term the Williston Basin area will likely see its population burgeon to about 100,000 people. “And, that is a conservative estimate,” said Leuthold.
It is estimated that over the next two to three years, Williston with a population of some 24,000 will double in size. It has already doubled since 2008.
Projections for the ultimate production from the Bakken, range from a conservative 3.65 billion barrels, to 11 billion, to an extreme, upward of 500 billion.
A looming question is how to get it to market?
The most technically reasonable and efficient means is by pipeline, said Leuthold. Without pipelines production in the Bakken will reach “take away capacity by 2015,” he said.
Alternatives to pipelines are trucking and rail which will demand a huge increase in the available infrastructure, roads, tracks, transfer facilities, as well as increased production of diesel fuel – all of which means more need to outsource.
Oil was first discovered in the Bakken formation of the Williston Basin in 1951, near Tioga, ND, but it was considered “submarginal.” It has taken the intervening years of innovation and new technologies to develop it into the “significant economic center,” it is today, said Leuthold.
Leuthold described the Bakken as “a big bowl of organics,” covering some 200,000 square miles, extending into Canada and into South Dakota, across much of North Dakota, and to some point in the middle of Montana – no one knows for sure yet how far westward the Bakken will continue to produce. The thickest part of the bowl is at the center, near Williston, where the geographical layer is about 120 to 150 feet thick.
There are actually three layers to the Bakken, the “upper,” a mid-”sandstone” layer, and a lower shale level. And, beneath that is the Three Forks Sanish, a formation that is only just beginning to be tapped, which some believe will be as significant as the Bakken. “Once it [the Bakken] is done,” said Leuthold, “they will come back and develop the Three Forks.”
As an indication of how much activity is actually going on in the Bakken, Leuthold explained that they used to place one well per platform spaced about every two miles. They are now placing as many as eight and the “hit rate” is almost 100 percent. “The hit rate has become so high, it’s just a matter of systematically gridding,” he said. It takes 35-40 days to develop a well, and costs between $8 million and $10 million.
This kind of certainty and success rate is why the play is unlike any other in history and bears no comparison.
The numbers change quickly, as knowledge and technology advances, noted Leuthold, saying that probably some of his information is already “outdated.”
Developing a well takes a million gallons of potable water and a million pounds of sand. The well can extend downward by as much as two miles. And, the technology and operators have such accuracy in running the line where they want to go, that even at that distance, two miles below the surface of the earth, they could hit the center of a basketball hoop, said Leuthold.
He recognized the controversy brewing regarding “fracing”—the process of setting off explosives that fracture the surrounding rock and then forces sand into the fissures to prop them open enough to allow the oil to drain from the surrounding rock. There are those who are very concerned about what is in the materials used.
Leuthold explained that 98 to 99 percent of it is potable water. The additives are lubricants which are used to make the water “slick” and thick enough that it will suspend the sand particles and propel them into the fissures. The additives are, for the most part, things “in your kitchen, under your sink,” said Leuthold. He also noted that the furthest down an aquifer extends is about 1500 feet, while the fracing is occurring at depths of 5,000 feet.
Getting all those materials, the sand and water, to the well site takes a thousand truckloads – a thousand going and a thousand coming. Hence the reason for all the truck traffic, the demand for drivers, and the impact on roads and infrastructure.
There are 205 rigs in operation in North Dakota, at present, and 17 in Montana.
In an effort to meet the need for workers in Williston, Leuthold said one sees signs such as that at Taco Bell which offered prospective employees $15 an hour plus a $500 signing bonus. Or another at Applebees, which said they had to temporarily close because their cook took a job as a truck driver.
The biggest problem is finding a place to live. Hundreds of people are indeed living out of their vehicles. One report said a couple hundred people are living in the Walmart parking lot.
The City of Williston is being forced into purchasing an apartment building so that they can hire the employees they need. Garages and basements are being subdivided and rented out at exorbitant rates.
And, the problem of meeting all that demand is a, sort of, “which came first the chicken or the egg” dilemma, said Leuthold.
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