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How bad could falling oil prices hurt ND?

North Dakota has seen a boom in industry, commerce, and population thanks to Bakken shale oil development, but that boom has been made possible by high oil prices. As this map from Vox shows, North Dakota is one of the states that has benefited the most from rising oil prices:

graphport

That’s a good place to be, except for when oil prices fall. Which they are. In fact, there’s something of a price war going on between middle eastern oil countries and American oil producers.

 

The reality of dropping oil prices is sort of a mixed bag for Americans. On one hand, lower oil prices mean lower energy prices in general. That’s good for consumers nationally. On the other hand, the nation’s domestic oil boom is one of the few bright spots in our national economy right now. Dropping oil prices will put a damper on the influx of jobs and commerce oil development has provided.

 

But for North Dakota specifically, this could be really bad.

 

I was speaking with some state lawmakers recently, and they’re concerned. The state budget increased a whopping 62 percent last biennium, and another round of aggressive budget increases (not to mention tax cutting) seems to be on the agenda for the coming biennium.

 

But how certain are future tax revenues in the midst of an oil price war?

 

Consider this: In calendar year 2013, more than half of North Dakota’s tax revenues came from oil and gas production.

 

What’s troubling for North Dakota is that not only does the state have one of the highest oil production taxes in the nation at 11.5 percent, but thanks to the state’s extreme weather conditions and lagging infrastructure (we need pipelines!), the state is also one of the most expensive oil plays in the nation.

 

Meaning that if oil prices drop, one of the first places in the nation it’s going to become unprofitable to pump oil is North Dakota.

 

That makes the Keystone/Sandpiper pipeline delays loom large, as well as the Legislature’s decision to not only refuse reform for the state’s taxes on oil production but to actually raise them last year.

 

The oil markets being what they are, who knows what will happen, but suffice it to say that while dropping oil prices might be good for the rest of the country, they’re potentially devastating for North Dakota.

 

My guess is that these fears probably won’t put much of a damper on spending (naturally), but you can bet that those looking to abolish the state income tax (of which there are a growing number) will have to overcome this obstacle.

21 comments

  1. Not going to stop this monster.

  2. Well I guess they will just have to drill for oil in other states, that have lower taxes with just as big of oil pool.

  3. Hear that? Its the world’s smallest violin playing the saddest song in the world for you.

  4. In 2008 for oil companies to have profitable wells, the price needed to be above 70 dollars per barrel, now I’d imagine that price would be closer to 80, since the average cost per well went from 4 mill per completion to roughly 9 mill per completion. While it won’t stop drilling entirely, it will cause companies to slow drilling like in 2009 until the price of oil rights itself.

  5. I wish I could slow corn production so the price would raise.

  6. Ooh so quarterly profits will be down a few “billion” for some companies. I think Venezuela had a huge increase in gas price. Up to like 25 cents now a gallon sucks to be us. It’s a good reality check as we boast the records out there. Let’s make it happen and lower the price of all fuels

  7. I wish farmers didn’t get subsidiaries to not farm

  8. So are the cost curves in the article below not accurate? I understand this stuff can change daily and that breakeven points are different for every well, but this chart has the average for U.S. Bakken at $69/bbl. I would appreciate any insight you have into the discrepancies.
    http://oilprice.com/Energy/Energy-General/New-Report-Finds-Oil-Sands-Production-Costs-Below-U.S.-Tight-Oil.html

  9. will not hurt ND…WE COULD UN-CAP THE HUNDREDS OF WELLS IN OKLAHOMA…….

  10. Quit being so damn greedy and start drilling in Montana

  11. WEED, Marijuana, Cannabis, Ganja can Replace Everything Oil ever gave us! Plus give us way more in health, oil, fuel……. while oil is only seen as a good path that will soon lead to our destruction 😉 What is up with all that any way. One is long dead. The other lives on today, by its root tips. lol Invest in it. Grow it. Might make a bigger profit off it then oil maybe/mostlikely!

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