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Bakken oil drilling declines, but jobs and pay remain firm

Last year, when low oil prices cut North Dakota’s Bakken drilling in half, things in Montana really didn’t look much different.

It turned out the Treasure State really didn’t have much wealth beneath it anyway, at least none that could be tapped as easily as the oil beneath North Dakota.

The number of rigs in North Dakota slid from roughly 140 in October 2014 to just 70 by the beginning of 2015. In Montana, the rig count slid from eight to one.

A year later, North Dakota rig numbers, which continued to slide after the October plunge, are up to 63. The Montana rig count, according to the state Board of Oil and Gas data, is still one. Oil insiders who two years ago were crowing about a “new normal” in oil production, in which prices stayed above $80 a barrel and oil freely flowed from the horizontally fractured wells, are now flummoxed by the state of their economy.

However, now’s not the time to hit the panic button, according to Bill Whitsitt, a former vice president of public affairs at Devon Energy. Whitsitt, who now watches the oil economy for the Montana Bureau of Business and Economic Research, said the Bakken economy is far from done, though it isn’t clear yet how oil drilling, which was a primary driver of Bakken jobs during a 5-year heyday, will proceed.

A year after the number of drilling rigs began thinning from the Bakken region, oil production from completed wells in the area is still strong. It’s not clear whether a resurgence in drilling activity is needed to keep the Bakken pumping oil.

“My sense is, and this is only my sense, that we still have a backlog in the Bakken of wells that can be brought online at a reasonable cost,” Whitsitt said.

In other words, there are wells tapped and capped that could be brought online without the kind of manpower that produced camps of men bivouacked in Connex box apartments across the plain.

Bakken oil drilling activity is more likely to proceed at a pace similar to what it’s at now, partly because the $80-a-barrel incentive to drill like there’s no tomorrow isn’t likely to return for the foreseeable future.

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West Texas Intermediate futures prices don’t cross over $60 a barrel all the way through 2024.

What that means is that today’s low oil prices have more in common with a tough oil market nine years into the future, rather than the $70-a-barrel price the industry was experiencing 12 months ago.

What those long-term crude prices mean for the economy in Montana and North Dakota remains to be seen. Despite decline in oil manufacturing jobs in the region, wages remain fairly strong in the service industry, according to Barbara Wagner, economist for the state Department of Labor’s Economic Research Analysis Bureau. Wage growth only dipped slightly in recent months, but were sticky for an entire year previously. Wage growth for high-end jobs is slipping the most; lower-end jobs are doing better. But there’s still growth in wages.

“I think it is safe to say that there is softening in the wages, with a certain slowdown in the high-wage growth that we have seen in recent years,” Wagner said. “Wages increased by 7 percent last year, 2014 over 2013, so a softening may just mean that wages increase similar to the state average, 3.5 percent.”

The North Dakota State Water Commission has been cracking down on illegal industrial water sales in the Oil Patch, where large volumes of water are needed to drill in the Bakken Formation. Violations are starting to decrease involving sales from water depots, like the one shown, because of steep fines that equal any profits from an illegal sale. Violations usually involve over pumping or pumping without a permit. North Dakota State Water Commission

Through the first half of 2015, wages on average were 3 percent higher than they were for the same period a year earlier. The average wage in the region was just under $40,000 a year, an income better than the average for every major Montana city.

Employment in the Bakken is slipping. In Montana, there were a thousand fewer jobs in the Bakken region through the first half of the year when compared to the same period in 2014. However, employment was still strong in the region with 33,332 jobs. That’s still 2,750 more jobs than the region had in 2010. There are as many Montana jobs in the Bakken today as there were in 2012.

This article was written by Tom Lutey from Billings Gazette, Mont. and was legally licensed through the NewsCred publisher network.