North Dakota Blues: The Legacy Of Fracking

When oil drillers descended on North Dakota en masse a decade ago, state officials and residents generally welcomed them with open arms. A new form of hydraulic fracturing, or "fracking" for short, would allow an estimated 3 to 4 billion barrels of so-called shale oil to be extracted from the Bakken Formation, some 2 miles below the surface.

The boom that ensued has now turned to bust as oil prices sagged in 2019 and then went into free fall with the spread of the coronavirus pandemic. The financial fragility of the industry had long been hidden by the willingness of investors to hand over money to drillers in hopes of getting in on the next big energy play. Months before the coronavirus appeared, one former oil CEO calculated that the shale oil and gas industry has destroyed 80 percent of the capital entrusted to it since 2008. Not long after that the capital markets were almost entirely closed to the industry as investor sentiment finally shifted in the wake of financial realities.

The collapse of oil demand in 2020 due to a huge contraction in the world economy associated with the pandemic has increased the pace of bankruptcies. Oil output has also collapsed as the number of new wells needed to keep total production from these short-lived wells from shrinking has declined dramatically as well. Operating rotary rigs in North Dakota plummeted from an average of 48 in August 2019 to just 11 this month.

Oil production in the state has dropped from an all-time high of 1.46 million barrels per day in October 2019 to 850,000 as of June, the latest month for which figures are available. Even one of the most ardent oil industry promoters of shale oil and gas development said earlier this year that North Dakota's most productive days are over. CEO John Hess of the eponymous Hess Corporation is taking cash flow from his wells in North Dakota and investing it elsewhere.

So, what has this meant for the state? Not only is the oil industry in North Dakota suffering, but all those contractors who service the oil industry. Beyond that are the housing and public services which had to be expanded dramatically during the boom. Will there be enough people to live in that housing years from now? Will the cities be able to maintain the greatly expanded infrastructure their dwindling tax revenues must pay for?

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Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular ...

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Moon Kil Woong 8 months ago Contributor's comment

This is what you get when you let banks lend to companies they know will never pay their loans back and then let them keep lending to them so they don't default in hopes that the economy crashes and the taxpayers are forced to bail them out yet again. No TBTF banks and lo loaning to companies that banks know can't generate a profit which undercuts a segment of our economy.

Texan Hunter 8 months ago Member's comment

That certainly does seem to be the case.