North Dakota’s oil boom — how it started and where it’s going

Oil was discovered in North Dakota in the 1950s. Of course, there was initial excitement and what was then deemed a “boom”, followed by a “bust” in the 1980’s, would now, at best, be called a “boomlet.” Most are aware of the real boom, which the state has enjoyed this century.

The entire oil story in North Dakota is, of course, a longer and more complex one. But the story continues, and it’s worthwhile to take a look back, evaluate the status quo, and look forward. This week, the industry held its conference in Bismarck, largely, to do just that and American Experiment North Dakota was on hand to watch, participate, learn and look forward.

The Big News

Perhaps the biggest news coming out of the conference was the announcement by Harold Hamm, chief of Continental Resources, who largely spurred North Dakota’s oil boom in the first decade of the 21st Century. He announced that Continental (currently the second largest player In the Bakken) would again begin drilling there.

The word came after Hamm had previously announced, in January, that the company would cease drilling operations in the state. That made Thursday’s announcement even more notable.

As oil prices, along with prices at the gas pump, fell in the early days of the current Administration, drilling in the Bakken became less attractive, as it always does when prices dip. A major reason is that North Dakota oil is, if not more expensive to extract and refine, certainly more expensive to transport. The state is far from refineries and the oil transportation which was once blamed for extraordinary wear and tear on the state’s roads and danger on its rail lines, though eased with the construction of pipelines, still presents a significant expense in North Dakota’s oil picture.

With prices currently high (most believe as a result of the current war in Iran) it signaled to Hamm that it’s time to get moving in North Dakota once again. While some may believe that, once the conflict ends, oil prices will again fall significantly, that didn’t deter Ham. In an interview with The Flag radio’s Scott Hennen, he indicated that he believes that they’ll settle back to a reasonable level — low enough to ease gas prices, but high enough where companies like his can still make money in North Dakota.

That’s important because the oil industry not only provides a significant piece of North Dakota’s economy, but also accounts for a huge share of the state’s tax revenue. Its recent dips also prompted a necessary focus on fiscal belt-tightening for the state, something some have argued is overdue for many reasons.

A Look Back — How did this boom happen?

Most would answer that question easily — “fracking!” — and that’s true, but it’s not the entire answer.

That realization came to this writer during the height of the early days of the Bakken oil boom, in a conversation over dinner one evening with a group of congressmen and oil industry officials, when the chief engineer of the then-largest player in the Bakken revealed, in a one-on-one visit, something few North Dakotans likely know.

He recounted what had happened during the North Dakota Legislature’s 1995 session. Explaining that fracking (hydraulic fracturing to free up oil reserves) was not really new. It had been around for decades, he noted, but the way it’s done in North Dakota, including horizontal drilling and other innovations (now accepted industry standards), was not only new, it was largely his idea, he said. It was, at the time, untested, untried, and a bit of a revolutionary concept. 

He said they’d come to the Legislature because, at the time, the way the state’s oil taxes were structured meant that they couldn’t afford to experiment with it, as they were eager to do. They asked the Legislature if it would be willing to slightly adjust (not repeal) the state’s oil taxation formula, in order to allow them to afford to try out the new concept. 

You said “Yes”!

He said “and you (the Legislature) said ‘yes’!

His next words should be emblazened, somewhere in the annals of North Dakota business and government:

“If it were not for the fact that North Dakota has a business-friendly Legislature, there would be no Bakken oil boom!”

The statement landed like a thunderbolt. 

What government officials normally view as significant is typically accompanied by much pomp and circumstance, press releases, ribbon cuttings, and the like, but this seminal moment was none of that.  

It was a simple, routine decision — unheralded, without note or celebration, at that time or, perhaps, since. It was the elected representatives the people of a state who believe that government should not get in the way of business, entrepreneurship, and  prosperity simply acting with those principles in mind. It was a “no brainer” that when state policy, regulation, or tax structure gets in the way and structurally hamstrings business or prevents innovation or success, government should adjust — not go away, not abandon taxation or regulation, but simply to rethink policies and perhaps restructure them to ensure that they make sense and that they don’t hamstring the very businesses thatil create jobs, pay taxes and build prosperity.

It’s a story North Dakotans need to know. It’s a principle that needs to endure.

It means having the courage and common sense to make the right decisions at the right times. That plays a large role in North Dakota’s recent and current success and, if it continues, it can pave the way for the state’s future.