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In North Dakota, the gritty side of an oil boom

By Steven Mufson,July 18, 2012

Rancher Donny Nelson walks near a drilling rig on his land. The oil is needed,… (Michael S. Williamson/THE…)

Donny Nelson is the epitome of old-time North Dakota. A lean, sharp-featured man sporting a thick goatee, jeans and dirty boots, Nelson is the grandson of homesteaders. Over the past century his family has collected 8,000 acres of prime cattle-grazing acreage and cropland.

But now Nelson has some unwanted company: oil prospectors.

This remote corner of North Dakota is the site of the biggest U.S. oil rush in decades. It is pumping new supplies into oil markets and swelling state coffers; advocates say it could help reduce U.S. dependence on foreign oil. But the boom is also spreading a degree of chaos across the rural towns and gently undulating pasturelands here.

Two towering oil rigs are drilling holes on Nelson’s property. One of the rigs, alongside two rows of 25-foot storage tanks, is planted on a red dirt pad, or clearing, right below a majestic butte that Native Americans over the ages have visited for ceremonial fasts. When they were kids, Donny and his brother climbed up and carved their names on the flat-topped butte next to others going back to 1880.

This is Nelson’s land, but he won’t see any money from those wells, or nearly a dozen others that firms are planning to drill. The mineral rights were sold years ago, starting in the 1950s, when oil was discovered in North Dakota. Nelson and his family have leased out rights they do own, and his share of the royalties from four wells comes to about $8,000 a month.

It’s a modest sum, he said, for the headaches that come with it. He’s squabbled with oil companies over drilling waste, a saltwater spill and decades-old storage tanks eaten away by chemicals.

“I’d give it all back if I could for all the trouble it’s been,” said Nelson, 48.

Above all, he misses a time when people didn’t lock their doors and knew all their neighbors.

“I don’t like what it’s done to our communities and lifestyle,” he said. “We had a good life, and now it’s gone forever, or at least for my lifetime.”

Across this stretch of western North Dakota, an oil boom is in full swing, kicking up dust and controversy among longtime residents.

About seven years ago, oil companies figured out how to use horizontal drilling and hydraulic fracturing to extract unconventional oil resources trapped in a geological formation called the Bakken, which was previously too difficult and expensive to tap. This is not a conventional reservoir, but the source rock for oil up to 15,000 feet deep, spanning parts of Montana, North Dakota and Saskatchewan. Technological advances have enabled companies to unlock that oil. With petroleum fetching record prices over the past year and a half, North Dakota is the scene of an old-fashioned oil rush.

This isn’t entirely new. North Dakotans experienced drilling booms in the 1950s, when oil was found, and in the early 1980s, when prices soared. But this boom is the biggest yet and may be the longest-lasting.

More than 200 rigs are at work in North Dakota, and because the entire geological formation holds oil, the rigs hardly ever hit a dry hole. Oil output has more than doubled in two years and jumped fivefold since 2006, to 609,503 barrels a day in April, providing about 3 percent of U.S. oil consumption and accounting for about 10 percent of U.S. crude production.

What to do with all that oil? Pipeline capacity is limited, and companies are loading it onto trucks or trains, which move it to refineries that turn it into gasoline, diesel and other products in other parts of the country. The Keystone XL pipeline that TransCanada has proposed to build would carry 100,000 barrels a day to refineries on the Gulf of Mexico coast.

While other states have barely held on through the recession, North Dakota’s boom has brought a windfall of state tax revenue and jobs; the state’s 3 percent unemployment rate is the lowest in the nation, and conservatives tried — without success — to repeal the state property tax because of high oil tax receipts.

But the oil rush has also brought soaring home prices, makeshift camps for workers, overbooked hotels, and an explosion of heavy truck traffic and crime. Towns are gritty and cheerless. Stacks of pipe lie along the roads, waiting to be buried.

Consider a few recent news items:

The number of oversize and overweight trucks using roads and bridges in the Oil Patch more than doubled over the past three years; the state issued 236,530 such permits in 2011. McKenzie County, with about 7,000 residents, needed nearly $200 million to repair roads damaged by the truck traffic. It is one of four North Dakota counties that rank among the nation’s 10 fastest-growing counties, according to a May 15 Wells Fargo Securities economic report.