Minnesota businesses booming along with North Dakota oil rush
Wednesday, March 27, 2013
Article By: Pioneer Press | Leslie Brooks Suzukamo
Ask Laura Sanford what fast-growing Watford City, N.D., needs, and the executive director of the area Chamber of Commerce rattles off suggestions: a nice coffee shop, more affordable housing, a really nice restaurant, and, surprisingly, that staple of small-town America -- a bowling alley.
"We used to have a bowling alley, but it got torn down a few years ago," she said. "The building was old and leaking. So we'd love to see a bowling alley."
Watford City sits in North Dakota's booming Bakken oil patch about 125 miles southwest of Minot. It was a sleepy town of 1,600 people three years ago. Now, its population is estimated at about 6,000; by 2025, it's expected to top 20,000, Sanford said.
With its explosive growth, Watford City is exactly the kind of place where business opportunities are unfolding for Twin Cities developers, engineering firms, investors and others who want to cash in on neighboring North Dakota's oil boom -- without ever having to sink a well.
The secondary economic boom in the oil-rich state is centered around housing, schools, grocery stores, dentists, doctors, barber shops, movies and, yes, bowling alleys. The oil rush is creating prairie boomtowns out of near ghost towns almost overnight.
'A 100-YEAR-PLUS EVENT'
So now, instead of roughnecks, you have commercial real estate developers like Joseph Ryan, president of Oppidan Investments of Minnetonka, chasing the rigs.
Oppidan is building a 118,000-square-foot commercial shopping center in Watford City, anchored by a Cash Wise Foods -- part of St. Cloud-based Coborn's -- and a 42-unit apartment building.
Ryan isn't stopping there. He has two 36-unit apartment buildings in Williston, another oil boomtown, and a 180,000-square-foot shopping center under construction in Minot, also with a Cash Wise Foods, Cash Wise Liquor, Petco and Shoe Carnival slated as tenants.
All told, Oppidan has invested about $150 million in North Dakota's Bakken region, Ryan said, all since December 2011 when he visited the region looking for answers to some questions he had.
"The questions we asked were: Was this a sustainable economy? And was this something that was going to last into the future?" he said.
He said he came away convinced that the North Dakota oil economy is "a 100-year-plus event" that will support the kind of development in which his company specializes.
"They need the services fast, and we need to do it quickly on their behalf," he said.
'THEY NEED EVERYTHING'
Other Twin Cities businesspeople also are paying attention. On Friday, March 15, about 300 people will gather at a conference in Golden Valley to learn more about North Dakota's oil boom opportunities.
This is the second annual conference on the Bakken region sponsored by the Minnesota Real Estate Journal. Last year's meeting drew 500 people, journal publisher Jeff Johnson said. The second one will be smaller because it couldn't get state continuing education credits for real estate agents, he said.
The conference will feature experts from the oil and gas exploration industry to explain the basics of extracting the once-untouchable shale oil that last year made North Dakota the nation's second-largest oil producer, behind Texas.
Economic development experts are expected to lay out what municipalities are seeking and what financing is available. Ryan and other real estate experts will talk about hot trends and the challenges awaiting developers.
Johnson sums up the needs simply: "They need everything."
MORE MONEY, PEOPLE, FLIGHTS
The Federal Reserve in January reported that North Dakota's Bakken oil boom is five times larger than the state's previous one in the 1980s.
The state's oil production averaged 660,000 barrels per day last June, up 71 percent over the same month the previous year, according to the U.S. Energy Information Administration.
The Bakken, an underground shale formation that spans North Dakota, Montana and two Canadian provinces to the north, accounts for 90 percent of North Dakota's oil production, the agency said.
A North Dakota State University study released Wednesday said the economic impact of the state's oil industry increased sevenfold to $30.4 billion in 2011 from $4.4 billion in 2005.
For reasons like these, Delta Air Lines announced last month that it would begin two daily flights this summer from the Twin Cities to Dickinson, N.D., to meet the growing demands of the nearby Bakken oil field.
The Census Bureau estimated that the oil-rich western part of the state should expect its population to increase by more than 50 percent over the next 20 years. That means an increase of 110,000 people in a state with only 684,000 residents.
But some oil industry experts are warning about a slowdown in oil production as drillers move farther from the richest known fields, and oil booms have been known to be followed by equally dramatic busts.
Ryan isn't worried about a bust. He expects drilling will continue for decades, thanks to new technology that uses horizontal drilling to find and follow thin seams of oil-soaked shale and hydraulic fracturing to break the rock with pressurized water, sand and chemicals.
Oil drillers are able to recover more oil from a deposit, too, prolonging the life of a well, he said.
"You put that all together, and it's here for the long pull," he said.
'MINNESOTA CONNECTION IS STRONG'
The main challenge now for North Dakota's boomtowns is financing, said Gene Veeder, director of economic development for McKenzie County, where Watford City is the county seat. Finding banks to finance projects in Watford and other relatively unknown cities is hard, he said.
The city also is working hard to install basic infrastructure -- water, sewer, power and the like -- to handle more development, he said.
The boom is drawing more than just Minnesota developers.
Veeder said he is hearing from people as far away as Michigan, California, Arizona, Florida and Georgia. People from any place where housing and construction tanked during the Great Recession have shown up on McKenzie County's doorsteps, he said.
Minnesota may have an inside track, though.
"The Minnesota connection is strong," Veeder said. "They're familiar with the market and the weather and the conditions."
Housing, particularly single-family housing that would draw permanent residents, remains a gaping need, he said. But so do less obvious needs, such as retail and child care.
The Watford City Chamber of Commerce's Sanford said one of the new arrivals is helping to start a second childcare center in town.
The city also recently got its first full-time dentist when one relocated from California.
Sanford can thank the boom for her job, too. The chamber didn't have a full-time executive director until January, when she was hired. The chamber's membership has tripled from 70 to about 200 since then, she said.
Ryan said he believes Minnesota's proximity gives Twin Cities businesses a slight edge in developing projects "because we're just down the street."
But he's well aware of the competition from around the country.
"That's our challenge -- to try to stay ahead of them," he said. "And we will."
Leslie Brooks Suzukamo can be reached at 651-228-5475. Follow him at twitter.com/suzukamo.