North Dakota considers austerity due to low oil prices

Two-year North Dakota state revenue projections drop from $8.3B to $3B

North Dakota
North Dakota rig counts down, but competition for state land oil exploration leases remains intense.

Two years ago, North Dakota was so flush with money from the energy boom that lawmakers spent over $1 million to spruce up the cafe at the state capitol. Now, the fall in oil prices has tightened the revenue tap and the nation’s fastest-growing state is contemplating a dose of austerity.

The price of North Dakota sweet crude has fallen by nearly half from a year ago to about $47 a barrel.

On Tuesday, only 100 rigs were drilling in the state’s oil patch, barely half the number a year ago and the lowest since March, 2010. Each active oil rig represents about 175 direct and indirect jobs in North Dakota.

The level of drilling is not enough to keep North Dakota’s oil production, which is second only to Texas, at its current rate and it could fall slightly over the next two years.

“We’re starting to see a financial strain on all aspects of the industry,” said Ron Ness, president of the North Dakota Petroleum Council, which represents some 500 companies.

That is bad news for state government. In just four months, the state’s projected revenues for the next two years have gone from $8.3 billion in December, to $4 billion in January and just $3 billion in the latest forecast.

State lawmaker on Tuesday adopted the latest revenue estimates to finish their work for the 2015-17 budget, which begins July 1.

“We’ve worked to lower expectations,” said Sen. Raymon Holmberg, the chairman of the Senate Appropriations Committee.

While oil prices and production contribute to the state’s wealth, oil revenues actually play a relatively small part, now less than 4 per cent, of the state’s general fund, which finances state government and a variety of programs. It is the knock on effects of the oil boom which have brought in tax receipts and created jobs, giving North Dakota the lowest unemployment rate among the states at 2.8 per cent.

The new revenue forecast assumes that the number of oil rigs could drop to as low as 90 to 95 during the next two budget years, before rebounding. Ness said that could now happen by month’s end if oil prices continue to slide.

But there may be a silver lining to the grim news. Competition for leases to explore for oil under state-owned land remains intense, signalling long-term optimism in the oil patch. Companies may only hold the leases for five years without production.

Every available acre at state lease auctions in February and March was taken, said Lance Gaebe, state Department of Trust Lands commissioner.

“There certainly remains interest, to be sure,” Gaebe said.

The Canadian Press