North Dakota Oil and Natural Gas financial impact grows

Photo by: WDAY Radio Staff
Photo by: WDAY Radio Staff

(Bismarck, ND) -- The headwinds of environmental concern may blow strong against North Dakota’s Oil and Natural Gas sector, but the industry continues to show strong growth.

A new report issued March 7th, by the State’s Commerce Department, shows that the industry now contributes more than $42 billion annually to the state’s economy.

The Commerce Department has issued the report, every two years, since 2005. The latest version shows that total gross business volume for 2021, which includes direct sales in the oil and gas industry and business generated from indirect and induced economic activity throughout North Dakota, was estimated at $42.58 billion. This represents an increase of $2.38 billion over 2019. North Dakota State University researchers studied various factors including oil and gas exploration, extraction, transportation, processing and capital investments to the state in 2021, the most recent data available.

Ron Ness, President of the North Dakota Petroleum Foundation, said in a recent interview on KTGO Radio AM 1090 / FM 92.7 (Tioga), “The industry in the last two years grew almost as much as the entire size of the industry in 2005, and we’re approaching a 43 billion dollar industry that employs almost 50,000 people, directly and indirectly, representing a little over 30 percent of the state’s gross product. I just presented a chart to a taxation committee that shows that over the past 8 years…53 cents out of every dollar collected by the state has come from oil and gas production taxes, so those are big numbers and good for all of us in North Dakota.”

The state’s industry, according to the study, directly employed 14,200 people in 2021, while economic activity from the indirect and induced effects of the industry supported an additional 35,185 jobs, for a total of 49,385 jobs attributed to the industry. Employment compensation, which includes wages, salaries, and employee benefits, was estimated at $3.9 billion. But the industry desperately needs more people, according to Ness.

“I had a couple of North Dakota service companies from Minot, Dickinson, and Watford City here yesterday and they said the starting pay in the shop; it’s 20 bucks and in the field its 26 to 32 and all the overtime you want, and there are some incredible stories out there and man we are struggling to find and retain people in western North Dakota and it is a huge challenge, and I always tell people…anybody that’s interested looking at an opportunity to make $75 to 130 thousand dollars a year; head west or look around your community because there’s probably someone doing work in the oil and natural gas industry from your community. It’s quite amazing how statewide the distribution is. And of course, the $8.5 billion Legacy Fund is 100% oil tax revenue.”

The Legacy Fund was established in 2010 when North Dakota voters approved the concept of creating a financial reserve for the potential of a sector slowdown that could impact government revenues. The fund has now grown to nearly $8.5 billion in value.

Over the last five years, more than $1.5 billion of the fund’s earnings has been spent by the legislature on various projects. There is concern that if the state continues to remove resources from the fund, even if only spending interest on the principal, that the fund won’t be strong enough to handle a potential slowdown in future oil and gas revenues. The interest and earnings this year are projected to be about $400 million.

“There are some huge decisions ahead of us as a state,” says Ness, “My preference probably when you have a budget surplus without it, is to reinvest it at time like this because the more we put in that Legacy Fund the future looks brighter. Yesterday was the best day of an oil field’s productive life so as we move forward we’re very bullish on what we’re going to do in the Bakken but as we get 15, 25, 35 years from now how are we going to fund government in this state?”

A separate study, commissioned by the Western Dakota Energy Association (WDEA) and the North Dakota Petroleum Foundation, analyzed tax revenues paid by the oil and natural gas industry in North Dakota from fiscal years 2008 to 2022. The allocations included $5.9 billion toward local communities and infrastructure, over $1.8 billion for K-12 education, $1.4 billion for water and flood control projects, more than $1 billion for property tax relief, and $32 million for outdoor heritage projects across the state. Ness says that’s why letting the Legacy Fund grow should be of utmost importance to state lawmakers.

“You better have reserves in place so future North Dakotans have the ability to live here without being overtaxed. So that Legacy Fund, and how they use that thing, is important for all of our kids and our grandkids.”