N.D.’s boom-time governor confronts the oil bust

Source: Mike Lee, E&E reporter • Posted: Tuesday, September 29, 2015

BISMARCK, N.D. — Minutes after Gov. Jack Dalrymple got through presiding over a vote to change the state’s rules on natural gas flaring, he got an earful from a constituent.

Technically, the audience isn’t allowed to speak during meetings of the Industrial Commission, which oversees oil and gas regulation. The Republican governor chairs the three-member commission, which had just approved a compromise giving the industry relief from an interim goal to capture natural gas in the oil field, in exchange for further cuts over the long term. Case closed (EnergyWire, Sept. 25).

But this is North Dakota — the state has a population smaller than many big cities, there are no metal detectors at the Capitol doors, and people here expect a direct response when they approach an officeholder.

“It seems kind of asinine to me that we would continue to permit more wells when we can’t deal with the ones we’ve already drilled,” the woman in the front row said.

Dalrymple, already on his feet as the meeting moved to a smaller room, paused long enough to answer.

“I don’t know how to give you a short answer,” he said. “We’re trying for a situation where you can develop oil and gas production and also improve our gas capture rate at the same time.”

For the past five years, Dalrymple has been synonymous with the fracking-driven oil boom in North Dakota, promoting the economic benefits it brought and arguing that they were worth the disruption and environmental damage. As he enters his last year in office — he announced in August that he won’t run for re-election when his term expires in 2016 — Dalrymple and his state are confronting a downturn in oil prices that’s already cutting into state revenue.

In an interview last week, Dalrymple said he was optimistic about his state’s ability to weather an oil bust, although the stubborn downturn in prices has made it difficult to predict what will happen.

“All the people who used to be happy to tell me what’s going to happen have disappeared,” he said.

Dalrymple, 66, the great-grandson of a farmer and a Yale University graduate, first ran for the state Legislature in 1985, and later served as lieutenant governor under then-Gov. John Hoeven (R).

Hoeven was elected to the U.S. Senate in 2010, and Dalrymple became governor for the remainder of Hoeven’s term. He was elected to a full term in 2012.

When Dalrymple took office, North Dakota was pumping about 340,000 barrels of crude a day, and companies were just beginning to stake out the enormous Bakken Shale field.

Today, the state pumps 1.2 million barrels a day, making it the second-largest oil-producing state after Texas.

The economic jolt allowed Dalrymple to preside over statewide income and property tax cuts, but it has come at a cost.

The state’s four biggest oil-producing counties had a combined population of about 40,000 when the boom started and struggled to cope with the demand for roads, schools and emergency services (EnergyWire, Oct. 9, 2013).

State regulators also had to confront the environmental effects of the concentrated drilling in the Bakken.

The Bakken area lacked enough oil and gas pipelines to handle the burst of production. But the price of oil was high enough that it was worth the cost of transporting it in trucks. Gas, on the other hand, was so cheap that producers burned it away in flares, until the state Industrial Commission cracked down on the practice last year (EnergyWire, July 2, 2014).

The lack of pipelines also forced producers to ship a lot of their crude by rail. Cargoes of Bakken crude were involved in a string of fiery crashes around the country, and the Industrial Commission imposed regulations last year to make oil shipped by rail less volatile.

Preparing for the long haul

The story has changed in the last year. The price of oil has dropped by more than half since June 2014, and North Dakota’s drilling rig count has dropped below 70 from a peak of more than 200.

Budget figures released last week showed that North Dakota’s revenue was 3.9 percent below projections in July and August, the first two months of the two-year budget cycle, according to¬†The Bismarck Tribune. The drop appeared to come mostly from sales taxes in the oil patch counties, as producers cut back on supplies and other purchases.

Dalrymple said he’s unfazed. The state has socked most of its oil revenue into trust funds and reserve funds to avoid being whiplashed by price changes.

“We do not run the state of North Dakota on oil revenue,” he said.

North Dakota has $1 billion in its general fund reserve, and it spends about $3 billion a year, so the state has plenty of financial cushion to last until the end of the current budget cycle in 2017, Dalrymple said.

Even if oil prices stay depressed, improvements in efficiency will make drilling in the Bakken affordable, Dalrymple said.

“I’m sure the companies that are in North Dakota now are here for the long haul,” he said.

Dalrymple’s decision to leave office has set off a scramble. At least six candidates have discussed running for governor in the Republican primary, and the Democrats could also have more than one candidate.

As a well-known name in a conservative state, Dalrymple would be a natural candidate to run against Democratic U.S. Sen. Heidi Heitkamp in 2018.

Will he?

“I’m trying to get out of this business,” he said.