North Dakota's Oil Boom Strains Its Infrastructure

February 3, 2012

By Jennifer Oldham

(Bloomberg Businessweek) -- The gravel road that runs in front of Dave Hynek’s farm in Mountrail County, N.D., was designed to carry 10 tractor-trailers a day—more than enough to haul the wheat and flax his family has grown on the 1,400-acre property for four generations. 

These days, Hynek has to fight to get out of his driveway. In a recent 24-hour period, local officials counted 800 trucks rumbling by, most carting goods related to the oil drilling in the Bakken shale formation, which runs from Canada through North Dakota and Montana, and directly beneath his land. 

“It’s absolutely destroying our infrastructure,” says Hynek, who’s also a county commissioner. “A few years ago our board set a goal that Mountrail County would be a better place to live and work as this oil play works itself out over the next 30 years. Right now, I would be hard-pressed to find people who agree.”

North Dakota has the kind of homegrown energy economy President Barack Obama promoted in the State of the Union last month. It claims the nation’s lowest unemployment rate—3.3 percent in December—and since mid-2009 its economy has grown at a rate of 11.3 percent a year, more than any other state’s.

Multiplying oil rigs have attracted droves of job seekers looking for big paychecks. But the boom is also testing the patience of longtime residents. They complain the thousands of new workers are driving up costs on gas and groceries and pushing roads, schools, and water systems to the breaking point.

Says Republican State Representative Vicky Steiner: “It’s almost an unmanageable population explosion.”

The town of Williston, which had 14,500 people in 2010, grew to about 20,000 in 2011. A housing shortage sparked the construction of makeshift trailer parks—or “man camps,” as they’ve become known—for the oil workers.  All those extra bodies have overloaded sewers and put a strain on the grid, prompting the county in September to ban new camps until waste and electric systems are expanded. 

Rent for a two-bedroom apartment is about $2,000 a month, up from $350 in 2008. The housing crunch also means retailers can’t find workers to serve all their new customers. 

“It’s like you take four steps forward and five backward,” says Williston Mayor Ward Koeser.

Oil companies pay a combined 11.5 percent in annual taxes on oil extraction and production, delivering $2.6 billion to state coffers since 2008. The expanded tax base has helped fund long-needed improvements, including a $150 million drinking- water pipeline and $64 million to rehab the aging state prison in Bismarck. 

Even though the state sends roughly 30 percent of the oil tax receipts back to energy-producing counties and cities, that’s not enough, according to Viola LaFontaine, superintendent of Williston Public School District No. 1, who says she needs $87 million for more classrooms and teachers in her fast-growing district. “I’m desperate,” she says.

LaFontaine and Koeser went to Bismarck in December to lobby Governor Jack Dalrymple for an increase in state aid. They may have to wait a while. The part-time legislature determines how oil revenue is divvied up, and it doesn’t convene again until January 2013. 

Dalrymple points out that the state’s tax base from energy is increasing “dramatically, and that means their share is also going up dramatically.” Lawmakers did set aside $1.2 billion in “impact funds” last spring to help oil-producing counties cope, but the state has doled out less than $320 million of the money.

After heavy rains in Mountrail County last spring, letter carriers couldn’t deliver mail because of massive sinkholes on the heavily traveled roads. Without the estimated $600 million the county needs to rebuild and pave the 1,600-mile system, officials worry the highways will continue crumbling under the repeated pounding of heavy rigs. 

“We have 800 wells. They tell me there’s going to be 6,000 more in five years,” says Hynek, the Mountrail commissioner. “It scares the hell out of me.”

The bottom line: North Dakota counties affected by the rush on energy want more of the state’s $2.6 billion in oil tax revenues to trickle down.