Five years ago, Darick Franzen began to hear amazing tales of limitless opportunities in western North Dakota. A big man with a booming voice, a friendly smile, and a penchant for salty language (“Sorry,” he says after one outburst, “I’m a little blunt because I’ve been in construction all my life”), the father of two was living with his family in the Chicago suburbs, working for a road-building company. Business was chronically slow, thanks to Illinois’ anemic economy. “We had several business partners,” he recalls, “that were saying, ‘Hey, you need to get out [to North Dakota]. You need to get out there.‘“Š”
North Dakota had just begun to emerge as a veritable Saudi Arabia of the Great Plains. Hydraulic-fracturing technology—better known as “fracking”—had opened up exploitation of the vast Bakken (rhymes with “talkin‘“Š”) Shale formation, a 200,000-square-mile rock formation, filled with oil, that spans parts of Montana, Saskatchewan, Manitoba, and western North Dakota. Soon the state would surpass Alaska to become the nation’s number-two oil producer, trailing only Texas. (If it were a country, North Dakota would now be 19th worldwide in oil production, tied with Colombia.) It helped that, unlike the sludgy stuff produced in other parts of the country, Bakken oil is pure liquid, requiring less refinement. One North Dakotan compares its consistency to diluted Coca-Cola. It has a distinctly sweet odor. “We say it smells like money,” says Ron Ness, president of the North Dakota Petroleum Council.
North Dakota’s embrace of fracking spurred a remarkable economic and demographic resurgence, especially for a state whose population had been aging and declining since the 1930s. “We spent decades trying to figure out what we were going to do to survive,” Ness says, holding up a piece of Bakken Shale. “We found that in this rock.” With oil prices sky high from 2009 to 2014, North Dakota had the country’s fastest rates of population and GDP growth, and, ultimately, its lowest unemployment rate. National media touted giddy stories of blue-collar oil workers without high school diplomas bringing in north of $100,000 a year, and of North Dakota Walmarts offering starting wages of $17 an hour. The latest American gold rush was on.
In early 2011, Franzen heeded the call. Leaving his family behind, he wound up in what looked like the middle of nowhere: remote, windswept Watford City, some 135 miles northwest of Bismarck. Historically an agricultural community, cultivating wheat and cattle, Watford City’s population had peaked at around 2,100 in 1980; since then, it had been slowly, steadily shrinking. Now, thanks to its strategic location at the heart of the Bakken’s oil reserves, it was not just the fastest-growing city in North Dakota. According to the governor’s office, it had become the fastest-growing municipality in the world.
“It was crazy here,” Franzen says. Nobody knows for sure how many people had found their way to Watford City—estimates are in the 15,000 range—but the formerly sleepy little town was straining at the seams when Franzen arrived. There weren’t enough grocery stores to meet demand; there wasn’t enough of anything, really, except for oil. “People, housing, equipment parts: You name it, we couldn’t get it,” Franzen says. “Milk!” He still remembers when, two years ago, he was planning to grill out and realized: “Shit, my propane bottle is empty.” He drove into Watford City, and: “There was no propane. Are you freaking kidding me? I just want to grill a burger!”
Despite the inconveniences, it was a terrific place for Franzen to make some money, thanks to the residential and commercial buildings that were going up as fast as they could be built. He signed on with a residential-development company and, after the initial culture shock, began to take to Watford City and its “wonderful people.” He’s now president of the local Chamber of Commerce. The separation from his family hasn’t been easy. “My wife comes out every other month,” he says. “I try to get home every three to four weeks.” But then again, he says with a laugh, “I’m 51 and my son is 24. My daughter is 21. They’re kind of the age that they don’t really care where I am.”
Almost overnight, Watford City became the world’s fastest-growing municipality. (AP Photo/Martha Irvine)
Franzen now lives in a tidy ranch house in a new development—so new, in fact, that I almost couldn’t find it when I went to interview him. When I input Franzen’s address into my smartphone to call up directions, it claimed that no such address existed. It turns out, the entire neighborhood didn’t exist two years ago, and the map apps haven’t caught up. “I could drag you around for hours and show you things that weren’t here six months ago, one year ago, and two years ago,” Franzen told me after I’d tracked him down. “It’s amazing.”
But energy booms don’t last forever. Last summer, those high oil prices began to drop—and just kept dropping. A confluence of factors was to blame, including slowing Chinese demand and heavy production in the real Saudi Arabia. By this spring, the cost of a barrel of oil had plummeted by 60 percent. Production in North Dakota had fallen apace, leaving both longtime residents and the newcomers who moved here to make a quick buck in a kind of limbo—waiting to see whether, and when, prices will rise again. It’s been a hard lesson in the economic realities of a natural-resource economy, showing just how beholden North Dakota—like other regions of the country that have embraced fracking, such as western Pennsylvania and Texas—has become to global geopolitical currents that it can’t control.
Like too many of our political debates, the argument over fracking has been depressingly simplistic and reductive. On the one hand, we are told, the technology heralds an unalloyed economic boon: It showers riches on the communities where vast energy deposits have long lain untapped, and it helps to reduce America’s dependence on foreign oil. Opposition to fracking, meanwhile, has tended to focus exclusively on environmental arguments: It may be profitable, but it’s not worth the ecological costs, such as polluted groundwater from the methane gas that’s released in the drilling process.
But the story unfolding in western North Dakota shows that weighing costs and benefits is far more complicated than that. While the short-term economic upside of fracking is undeniable, there are social costs that aren’t often discussed, even for the communities that stand to benefit the most. And perhaps no place in America embodies both the promise and peril of the fracking economy more than Darick Franzen’s adopted hometown.
“CITY” IS A BIT of a misnomer when it comes to Watford City—even after the boom, and even by North Dakota standards. If you ignore the oil wells and burgeoning housing developments on the outskirts, the McKenzie County seat still resembles the quintessential American small town: There’s a historic four-block downtown with some adjacent single-family housing, a smattering of churches, and a gas station where old-timers gather each morning to discuss the news of the day. (When I visited, there was much speculation as to the mental state of the murderous Germanwings pilot.) People greet each other by name as they shop for motor oil and beef jerky, and the station serves as something of a proto-Craigslist. “Do you know anybody looking for a roommate?” one man asked the cashier. (She didn’t.)
Just south of downtown, a major new commercial strip opened in 2013, with a huge Cash Rite grocery store, a much-needed liquor store, and a Mexican fast-food joint, among other essentials. At noon on weekdays, the sprawling parking lot is filled with muddy pickups and semi trucks; my rental Toyota Corolla feels like a go-cart compared with the behemoths that dominate the roads around Watford City. There’s even a Japanese restaurant in town now; at lunchtime, roughnecks with dirt caked on their clothes can be seen digging into sashimi.
In the initial boom period, most new residents were housed in so-called “man camps”—rudimentary lodgings that often lacked electricity and running water. The man camps have mostly disappeared now, replaced by apartment buildings and sprawling housing developments like Franzen’s. The new construction is sprouting up away from the historic core of the town, often separated by barren fields; the neighborhoods feel almost exurban in character. By North Dakota standards, living here is now shockingly expensive: While you can rent a three-bedroom house in relatively cosmopolitan Bismarck for $675 a month, it’ll run you roughly $3,500 a month in Watford City; one-bedroom apartments can command $1,300 or so, an eye-popping amount for natives. “The most amazing thing for those of us who live here and grew up here is to see land sell by the square foot in McKenzie County,” says Dale Patten, a banker who moved to Watford City in 1980. “I can remember when I thought $500 per square acre was an extravagant amount to pay for land.”
There weren’t enough grocery stores to meet demand; there wasn’t enough of anything, really, except for oil.
The influx of newcomers has changed the town for the better in some ways—business has been great, certainly, and young people have started returning home after college rather than lighting out for Fargo or Minneapolis. But it’s had unsettling effects on the social fabric of a town that was long defined by its insularity. Gene Veeder, a Watford City native who’s now the county’s economic-development director, bemoans the advent of a “crude culture” in Watford City—and by “crude,” he doesn’t mean oil. “When I’m out in a restaurant eating with my family, you hear guys throwing f-bombs around,” he says. “You would not have had that before.” (Indeed, one day as I ate lunch in town, I overheard two truck drivers having a remarkably frank—and loud—discussion about their exploits with prostitutes, comparing the various “services” on offer in North Dakota with those in Nevada.) The new people also have a propensity, Veeder says, to “trash the town,” literally. The attitude, he says, seems to be, “”Š’I’m here now, but I’m going to be out of here, so I don’t care if I throw my trash out on the street.‘“Š” Local folks have resorted to organizing cleanup days.
“The first wave of people that came here,” says a local business leader who asked that I not use his name, “couldn’t hold a job back home. Probably had alcohol or drug problems. Divorced. Lazy. Bust-outs.” The oil fields became one of the few places where convicted sex offenders could easily find work; companies were desperate to hire anybody they could find. McKenzie County became more dangerous in a tangible way, too: It now has the highest road-fatality rate in the state. “It used to be, if you hit ice, you spun out and drove into a ditch,” laments Neal Shipman, a Watford City native who edits the McKenzie County Farmer. “Now you get hit by an oncoming truck.”
Of the thousands who have moved to Watford City, Veeder estimates that roughly 30 percent plan to stay; the rest will move on once they’ve made their money or the profits dry up. That means most of the folks who live here are anything but invested in the well-being and long-term future of the community. Andrew Lombardi, for instance, is part of the 70 percent who see Watford City as a temporary stop. Last year, the 29-year-old moved to Watford City with his girlfriend from the hipster mecca of Missoula, Montana, taking an unusually good-paying job at the new SOKA Mattress store. The lack of cultural amenities has him pining for Missoula. There, he would often see live music; now Lombardi spends most of his nonwork time playing video games. And even that can be a challenge in Watford City. “There’s no GameStop here!” Lombardi complains. “The closest one is in Williston.” That’s about an hour away.
Like thousands of others—who knows how many?—Lombardi plans to stay in North Dakota for no more than two to four years. “I have no intention of making friends,” he says. “I’m here to make money and leave.”
THE TURBULENT experience of the past few years has turned seemingly every North Dakota resident into an amateur energy-market analyst. On rural radio stations, DJs recite the cost of crude along with the weather forecast (snow, by the way, in late March) at the top of the hour. At the Outlaws’ Bar and Grill in Williston, the up-to-date price of oil is written on a chalkboard alongside the drink specials. At the state capitol in Bismarck, everybody’s tethered to their devices, says Gov. Jack Dalrymple: “In this capitol building, all winter long, people are walking around with their smartphones checking the price of oil about once an hour.”
Darick Franzen joined the oil rush in 2011, leaving his family behind in Illinois. (The Bakken)
They have reason to. Last June, the price of a barrel of crude stood at around $115; since this winter, it’s been hovering at about $50. North Dakota oil goes for even less than that—about $38 a barrel—because of the high costs associated with moving the stuff out of a geographically remote locale. The plunging price of crude has sent shudders through the Bakken and Watford City. The future now seems even more uncertain than it did during the heady days of the initial boom, and ominous signs are everywhere. In the past year, the number of active drilling rigs in North Dakota—the ones that drill new wells—has fallen by more than half, from a peak of 218 to fewer than 100. To maintain current production levels, industry officials say, the state needs to have 115 drilling rigs active. Production has been dropping by the month, including a 3.3 percent plunge from December to January alone.
The scale-back was as sudden and unexpected as the initial drilling explosion. As soon as the oil price began to tank, the drillers shifted into reverse. “These oil companies react way quicker than manufacturing or agriculture,” says Veeder, the economic-development guru. “They’re nimble.” That might be smart for the bottom line, but it outrages people like Darick Franzen. “What’s sad to me is big oil came to North Dakota through technology and because there is an asset here,” he says. “They begged for the state to do this, and they begged these communities to do this, and they asked developers to come here, build, please. We need housing and we need people. Then, boom, the price of oil drops and they flipped the switch.”
Tessa Sandstrom, communications director for the North Dakota Petroleum Council, says the companies aren’t leaving western North Dakota high and dry. “This is a 40-year play,” she says. “Companies have their offices here and they plan on staying here. We have a community outreach committee that focuses on corporate social responsibility and giving back to communities.” At the same time, business is business. “Oil is just like durum, lentils, corn, or any other commodity, in that it’s subject to supply and demand,” she says. “We can’t sell the product if the market for it is down, which, at this point, it is.”
According to Gov. Dalrymple, the scaling back hasn’t yet resulted in mass layoffs. “What, so far, we are seeing is a significant cutback in hours for people who work in the oil and gas industry,” he says. “A lot of people came up here to get 60 hours a week. Now they have been cut back to 40.” Ron Ness of the North Dakota Petroleum Council says that’s the usual pattern. “Oil companies start by reducing overtime,” he says, because they “can’t afford to lose their workforce.” But if the price remains depressed, he says, “eventually they’ll have to.”
It’s not just the oil companies that are scaling back. Jason Vedadi, a commercial and residential builder who is developing a major housing project in Watford City, says his subcontractors have been bidding 20 to 25 percent less of late—a bad sign. Thanks to the pent-up demand for housing, the housing development he’s building is still going full-speed ahead. But Vedadi began it last year, when oil prices were high and the population was expanding. He doesn’t know—nobody does—how much more housing, if any, will need to be built in the future.
Police chief Art Walgren drives past wells in McKenzie County, which now has North Dakota’s highest road-fatality rate. (AP Photo/Eric Gay)
Commercial businesses, after flourishing like crazy for so long, are feeling the pinch, too. “Right now, it’s a cost-cutting environment,” says Gene Veeder. “That trickles down. You know, the guy’s not making $20,000 in overtime. That $20,000 might have bought him a pickup. Or he might have went to the movies twice a week instead of once a week.”
Or, for that matter, he might have gone out to a restaurant. Aaron Pelton, co-owner of Outlaws’ Bar and Grill, estimates that sales have dropped 10 percent since the oil price started to fall. That might not sound like much, but it’s significant in the low-margin restaurant business, and it’s a huge change from the go-go period from 2009 to 2014, when sales went up month by month. Pelton, who grew up in Watford City, returned home just before the boom hit after living in Arizona for several years. A genial mid-30s fellow with two kids, he’s the kind of guy who seems to know everybody in town; as we chat for about an hour, in a room behind the main dining area, he identifies by name just about every person we see walk by. (“That’s the mayor’s wife,” he interjects at one point.)
Pelton professes to take the long view of the slowdown. “Even if there are companies picking up and moving out tomorrow,” he says, “does that mean that the oil is not underneath us?” Still, if he branches out and opens another Outlaws’, Pelton says he’ll look for an area that isn’t tethered to the oil industry.
DARICK FRANZEN gestures out his front window to the smattering of ranch houses, connected by dirt roads, that dot the hillside of his housing development. “I’ve seen four families in the last month back their U-Haul to their garage door and pack up, go back to Idaho or Missouri, or wherever it was,” he says. Despite the official happy talk about reduced hours rather than layoffs, it’s plainly evident that some folks have already abandoned ship. Pastor Bob Lawson, who moved to Watford City four years ago from near Buffalo, New York, to lead a newly planted congregation, attests to it as well. “You see less traffic,” he tells me over gas-station coffee. (There’s still no Starbucks in Watford City.) “I know some people that have packed up and gone home. They went home at Christmas and didn’t come back.”
With housing scarce and expensive, portable housing was brought in for teachers and staff at Watford City Elementary School. (AP Photo/Eric Gay)
In March, North Dakota ceded its status as the state with the lowest unemployment rate to Nebraska. At this early juncture, it’s impossible to say how much the growing unemployment, after such a long period of job growth, has translated into a reversal of North Dakota’s historic population surge. Keith Iverson, the manager of the North Dakota Census Office, feels sure that people are leaving—or, at least, not coming back. “North Dakota has had a large number of nonresident workers spending about half their time in the state—working but maintaining a residence elsewhere,” he says, putting the number at 40,000 to 60,000. “My guess is that the size of this nonresident group “… is probably shrinking now.” The improvement in the labor market nationwide may be contributing to the departures; unlike in 2009 or 2011, when so many flocked to North Dakota, there’s a pretty good chance that folks can find a job back where they came from. If the prices don’t bounce back—if production doesn’t bounce back—there’s no predicting how many will decide to move on.
But don’t tell Dale Patten it’s time to panic. “I don’t think the sky is falling,” says Patten, a lifelong North Dakotan who’s the president of Watford City’s Cornerstone Bank, where the lobby is festooned with a large, stuffed bison head and assorted animal carcasses. “There are 60,000 wells to be drilled.” There is something, it seems, about the North Dakotan psyche—toughened up by decades of economic hardship and by those punishing winters—that keeps people grounded in good times and bad. Patten epitomizes that sobriety, down to his slow, measured tone of voice and the fact that he wears blue jeans to work. The oil will make its way out of the ground, he says; the only question is how long it will take—and what that will mean for the economy. “They were talking 12 to 15 years,” he says. “Maybe now it’s 25 to 30 years.” No matter, he says: “The long-term looks good”—at least for “smart, careful, cautious people who are well-capitalized.” They, he says, “are going to come through, just like they normally do.”
This sanguine view is far more prevalent among longtime residents than newcomers. “We view this situation as a classic commodity shakeout,” says Gov. Dalrymple, who ought to know: He’s a Yale graduate who returned home to work on the family wheat farm. “We are used to agricultural commodities in North Dakota, and the people up here understand the cyclicality of commodities.”
But, as the governor knows, the impact of oil on the state economy adds up to considerably more than all its other commodities combined. In fact, at first blush, North Dakota’s budget looks positively Venezuelan. In 2014, according to the North Dakota Petroleum Council, tax revenue from oil and gas extraction totaled $3.25 billion—a whopping 54 percent of all state taxes collected. (By contrast, Caracas relies on oil revenue for 45 percent of its budget.) Even for an energy state, North Dakota is an outlier: Texas collects only about 5.5 percent of its tax revenue from oil and gas; in Louisiana, it’s about 14 percent.
With prices plummeting since last summer, the number of active drilling rigs has fallen by more than half. (AP Photo/Matthew Brown)
In mid-March, North Dakota revised its budget plans for 2015 to 2017, cutting projected revenue roughly in half. That shaved off a cool $4 billion in projected tax revenue, which had been forecast to come in at $8.2 billion. For the time being, however, the state’s situation is not as dire as it might sound. The frugality of North Dakota’s Republican-dominated legislature could end up looking like a saving grace if oil prices don’t rocket up again anytime soon. Rather than increase spending dramatically, the state has put the vast majority of oil-tax revenue into long-term trust funds. Only 6 percent of North Dakota’s two-year general-fund budget is tied to oil revenue. “This legislature has been extremely conservative,” says Gov. Dalrymple, “and has planned well for this price trial, knowing it would probably occur someday.”
Alas, the “price trial” may continue—or worsen. In mid-March, Bloomberg reported that Citigroup analysts predict oil prices “will again nosedive, potentially all the way to $20 a barrel.” That’s partly because Saudi Arabia, where the reserves are so massive and production so cheap that its oil industry can break even at $9 a barrel, has decided to maintain high levels of productivity—mainly to harm its competitors. (The economic logic is as ruthless as it is compelling: Saudi Arabia can still make huge profits off lower prices, and keeping its spigot flowing could drive smaller players like North Dakota out of the market.) And if oil-related sanctions are lifted on Iran, as expected, that country could also flood the market, depressing the price even further.
North Dakota has tried not to repeat the mistakes of other states, like West Virginia, which depended so heavily on resource-extraction—foresting and coal-mining, in this case—that it didn’t develop other industries, other sources of wealth. Looking forward, though, North Dakota’s lawmakers clearly have their concerns about whether careful planning will be enough to pull the state through. This winter, they decided to dabble in a rare bit of Keynesianism, passing a $1.1 billion “surge” bill to fund massive construction projects—highways, mostly, to handle heavy trucks—throughout western North Dakota. Proponents say population growth necessitates a buildup of infrastructure, but they also hope that the spending will help the state weather the oil bust by pumping money into local communities and creating jobs for people who have lost oil-related work. In one sense, though, the “surge” also doubles down on the oil economy; once the price rebounds, the thinking goes, there will be more infrastructure in place that can grease the skids of another boom.
When—if—that next boom arrives, Darick Franzen doesn’t know if he’ll still be around to revel in it. In mid-March, the construction company laid him off, and the Chamber of Commerce chief joined the thousands of others wondering whether to gamble on oil prices to rebound or to leave Watford City while the getting’s good. Franzen would prefer to stay, but he says he’ll have to think about returning to Illinois if he can’t find a good job soon. He doesn’t sound especially optimistic. “I’ve interviewed with two groups in just the last three days,” he says, adding: “I don’t know. It’s a different place now. It’s “… this region is a different place.”
CORRECTION: An earlier version of this story said North Dakota had a projected tax revenue stream of $8.2 million. In fact, it was $8.2 billion.
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