Year of change in Oil Patch: City leaders move forward after unexpected crude price declines in 2015

Leaders in western North Dakota's Oil Patch cities say life didn't change as abruptly as many expected it to in 2015 as crude prices bottomed out, oil rigs disappeared from the landscape and oilfield workers packed up and left the area in droves.

As traffic slowed, crew camps closed and apartments emptied, Williston, Dickinson and Watford City continued to build infrastructure and work on long-term projects while keeping a close eye on the industry for even the slightest changes.

"As a city, we haven't had a chance to take a breath yet," Williston Mayor Howard Klug said. "We had $100 million worth of projects going on. We're finally getting them all buttoned up."

In McKenzie County, which produces more oil than any county in the state, Watford City Mayor Brent Sanford said "it's really business as usual." But, he said, challenges are never-ending, despite the creation of what city and county leaders believe is a long-term industry through both oil and natural gas production jobs.

"People are still busy," he said. "There's not a lot of job loss in Watford City, comparatively, and there are still job openings. There are still employers who are still trying to figure out plans for hiring the right amount of employees and the right employees."

Dickinson, meanwhile, has fallen back on its manufacturing industry to soften the blow of massive oilfield job loss after what City Administrator Shawn Kessel said after the city experienced multiple years of 10 percent growth.

"I think people really have to look the whole thing in perspective. ... That stuff is really not sustainable in the long term," he said. "What the downturn has done has allowed our manufacturers to take advantage of the economy. They had a hard time expanding because of such a low unemployment rate. They couldn't find employees. Now they can. Rather than having expansions happen in other communities, they can now look at Dickinson again. I think that's great. I'm really glad to see that. It further diversifies our economy. It makes us more resilient in managing the back side of the boom."

Population estimates

In the slowdown, Oil Patch city leaders say everything is a guessing game. From the city's population, to how much housing is needed and what taxable sales will generate each quarter.

Williston lost about 5,000 people in the past year, Klug said, falling from its estimated peak population of 38,000 in 2014. He said those figures have been gleaned from numbers generated from wastewater treatment plant usage.

"But I'm guessing," he added. "We had no clue."

Traffic isn't much of a population indicator in Williston, Klug said, as each day seems different. He said better traffic flow throughout and around town, thanks to the state-funded truck reliever bypass project and numerous city street projects, has gone a long way toward reducing driving stress in North Dakota's self-proclaimed "Boomtown."

"One of the reasons, I think, is that people are understanding our overall plan of moving people around the city, and we have more corridors to do that," Klug said. "You don't have to rely on the one or two areas where you could get across the city before."

While Dickinson leaders have tempered their population projections at about 25,000 to 26,000 people-a loss of about 2,000 since the beginning of 2015-Sanford believes Watford City may still be growing.

Watford City had a U.S. Census population of 1,744 in 2010, but leaders now estimate the city has upwards of 7,500 citizens.

"We're really on the same path that we were," Sanford said. "There isn't quite the level of intensity, because the developers, you can see by building permits that the developers are slowing down on their plans. They're more like oil companies waiting with their inventory in the ground versus going too far ahead."

Sales an indicator of change

Perhaps the biggest indicator of change in 2015 has been taxable sales totals in the Oil Patch.

Compared to 2014, Williston's taxable sales fell by nearly 35 percent in the second quarter of 2015-a decline of nearly $268.1 million, and the biggest drop of the Oil Patch hub cities.

Watford City fell 24 percent, a decline of about $12.2 million. Dickinson dropped off 19 percent, or about $64.6 million.

"That's one thing we're going to have to take a good, hard look at in the next few years," Kessel said. "We'll still continue to use that sales tax revenue to maintain streets and such. But because it is declining, you don't just get rid of the streets-you still have to maintain them. I fear with the decrease in sales tax revenue that may come, that that's a revenue stream we might have to enhance."

Those numbers, among others, led Dickinson to completely reforecast its operations budget.

Four jobs approved by the city commission to be created in 2015 were eliminated from the city's 2016 budget without ever being filled.

"We took a good, hard look at workflow and made sure we were right staffed," Kessel said. "We also added a few positions in 2015 as well, because as this tsunami moves through city government in terms of the services we offer, there are some things that are here to stay."

Sanford said Watford City continues to build as well, with a $20 million traffic collector route planned on the southeast side of the city with sewer and water to the area.

It's also expanding westward with the opening of a new high school planned for February and an adjacent event center to open next fall. A new law enforcement center building is in the works as well and, not long after the completion of a wastewater treatment facility expansion, discussion is already beginning on whether to build another treatment plant on the southwest side of town.

"There's really no rest," Sanford said.

Empty apartments

Klug said it's the little changes Williston city leaders have noticed that point to how much calmer life became in "Boomtown" toward the end of 2015.

City Commission meetings are no longer a "three-hour marathon," and planning and zoning board meetings have being quieter, too. The latter, he said, is partially due to the lack of building permits being issued in Williston.

Klug said the city has learned that at least eight apartment complex projects have been permanently shelved as apartment units that were being rented for $3,000 a month only a year ago sit empty. Many single-family homes that once sold for well above market value are also taking much longer to sell.

It all traces back to oil industry layoffs, he said.

"We have lost quite a few workers up here that were directly employed by the oil industry," he said.

In Dickinson, Kessel said leaders caught heat from frustrated residents and developers between 2012 and 2014 when the city limited the number of apartment complexes being built to keep in line with its plan to have 70 percent single-family housing and 30 percent high-density housing.

The lack of apartments caused rental rates to skyrocket then. Now, however, hundreds of apartments in Dickinson sit unoccupied and leases are being signed for a third the price as they were during the height of the boom.

"It looks like that was the right decision," Kessel said. "Because if we didn't manage that the way that we did, we'd have a lot more apartments in this town than we do today. It'd be a lot worse if we actually complied with the amount of requested apartment structures that developers were asking us to build. We've minimized the hurt. We certainly haven't eliminated it, but we've minimized it to a certain degree."

Housing concern in Watford City

Watford City hasn't seen that kind of change yet, Sanford said, though he said building permits for multi-family housing units declined in 2015 after years of developers pushing to build apartment complexes or townhome projects.

"And they're full," Sanford said. "We don't have a vacancy problem here. We still have a high rent problem here."

However, Sanford said Watford City leaders are concerned about the small number of single-family homes being built.

McKenzie County estimates that of its 9,000 housing units, about 5,000 are temporary housing-mostly RV parks. Sanford said he and others know those numbers are not sustainable as oil becomes more of a long-term industry.

"We've got a long ways to go in McKenzie County, and Watford City in particular, to gear up for the type of work you have to have here to service whatever number of wells have to be here," he said. "We need a lot more people here long term."

About 50 single-family home building permits were issued in 2015, Sanford said, adding that's far below the rate he and others would like to see homes be built.

"Outside observers wonder when we're going to have single-family homes and I don't know the answer to that," he said. "That's a lot of dynamics that have to come into play, for someone to build, for someone to want to buy and for someone to want to finance a house in Watford City."

Looking ahead

While leaders are confident the repeal of the U.S. oil export ban will have a meaningful, long-term impact on the North Dakota oil industry, they aren't planning for another boom anytime soon.

"I think we better hold on," Klug said. "I really believe next year is going to be slow throughout most of the year. We'll see what happens until this oil boom rebounds. ... If the oil rebounds sooner rather than later, we should be in pretty good shape for infrastructure and housing."

Klug said the next year will be about getting Williston ready for the next surge in oil prices.

"This one is different. We know where the oil is," Klug said. "We know there's 1,000 oil wells that need to be completed. We know that the service companies are basically located right here in Williston. So when they come back to do all this stuff, their facilities are already in, they'll just bring some more people in."

Sanford said Watford City feels confident that the oil industry is sustainable economic driver at any price because of how the city is centrally located between Dickinson, Williston and the Fort Berthold Reservation.

McKenzie County also produced 11.9 million barrels of oil in October 2015, though it's a significant drop from its historic peak of 13.8 million in December 2015.

"We've always been planning for the fact that the temporary (workers) will drop off, the construction will drop off and the production will carry us into the future," Sanford said.

Still, Sanford remains concerned that the oil price collapse of 2015 will lead to an overcorrection that will cause crude prices to rise again and western North Dakota production to increase to near boom levels within the next two to three years.

If that happens, he said, the state and Oil Patch cities need to be prepared to return to a more hectic way of life.

"We know what we're leading ourselves toward," he said.