Preparing for the Boom #5--What if We're Wrong?

Dakota Digest - 06/22/2012

by Gary Ellenbolt

Oil industry experts say western counties in South Dakota have a good amount of crude oil beneath the ground. Locals have dreams of striking oil, signing big contracts, and making big money. But the oil business is a gamble in itself-and entire towns can be destroyed if residents guess wrong about the potential. In this final segment of our series "Preparing for the Boom," South Dakota Public Broadcasting's Gary Ellenbolt looks at people who are cautiously planning ahead.

There are a few things that can shatter the peace of a day in Belle Fourche. A rodeo is one example. Another is when the Belle Fourche Broncos have a home football game. Or a train passing through often.

Teresa Schanzenbach of Belle Fourche says, "Belle Fourche has always been a transportation hub, from way, way back the early 19 hundreds, and the late 18 hundreds."

Schanzenbach is Executive Director of the Belle Fourche Chamber of Commerce. She hears trains pass through town and also hears and sees the trucks full of equipment headed 300 miles north to the oil fields in North Dakota. If an oil boom comes to South Dakota, Schanzenbach says Belle Fourche is poised to be a major player.

As she puts it, "I think an exciting part is, as we get people here, they also have businesses; which means maybe, Main Street can be full again. Maybe new businesses will start up. Our school districts will see more students in them-and we have a fabulous education system."

Belle Fourche School Superintendent Steve Willard is glad to hear that-and he's glad to hear of growth potential for the community. But unlike the wildcatters who may come in and drill for crude oil-Willard isn't taking any risks. He says he can't.

Willard says, "There's talk of people buying rental units, to prepare for people coming here. But we haven't seen anything yet-so we're just kind of a wait and see. We don't have a reserve to hire a bunch of teachers til we see our enrollment increase."

State officials are preparing for the boom along with what may be-or, may NOT be-a cash infusion from oil. Jeremy Evans with the South Dakota Department of Revenue
says lawmakers have already prepared for how crude is taxes. In the late 70s, the Legislature imposed a three percent severance tax-paid by operators who sever energy industry components from the ground.

Evans told a Legislative committee, "It is imposed on the owner, or operator of the of the energy minerals-simply for the privilege of severing those minerals in the state."

State Government has always tried to be careful with money. Nathan Sanderson with Governor Dennis Daugaard's office says that's very important when the state doesn't know the potential amount of oil drilling.

"We don't want to spend a million dollars on a fire-fighting unit, for instance, if we don't need one" Sanderson says. "And so we're utilizing the information that is gathered in the development workgroup to form our decisions in the preparedness workgroup."

Sanderson wants development and revenue as well-but he warns anyone who will listen, the boom that has come to western North Dakota probably isn't realistic here.

Sanderson adds, "At so many meetings we go to, we hear "this is what North Dakota's doing... this is what happened in North Dakota, these are the impacts on North Dakota...this is what Watford City looks like, this is what Williston looks like-well that really isn't a good comparison with South Dakota, They've known about oil for 50 years in North Dakota, and have just now been able to tap it."

Just this once-Sanderson compares the two states and oil possibilities:

"We've had oil development in South Dakota for 59 years, but we don't have these big reserves. So setting these expectations, or giving some idea of expectations, is a key component of both of our work groups."

Sanderson testified before a meeting of the State Legislature's Oil and Gas Summer Study Committee. He's urges caution, and a South Dakota business owner agrees.

Gene Havala spent 19 years in the oil fields of northwest South Dakota. He's now owner of the Tiperrary Lodge Motel in Buffalo. He admits that Buffalo has seen some changes with the oil exploration, but he's not seeing the same situation coming to Harding County or western counties in South Dakota.

He says, "In my view, the Bakken does not come down here-according to the-they're producing the Red River unit, and Three Forks. The Oil production has come up a lot here, and there's a well being drilled in the county now-but we're not gonna see the boom, we're not gonna see the big boom like they have up there."

South Dakota's State Geologist, Derrick Iles, agrees with Havala.

"I still am of the opinion," he explains, "we can never be like North Dakota-because we're not geographically situated like North Dakota is. But, we're underexplored-sometimes UNexplored in some parts of the state. As has happened in North Dakota, while there was only a small amount of oil estimated to be in the ground in North Dakota-and then, as they explored more, the estimate went up. The next estimate had it up again. And the next estimate will have it even higher."

As it has for many years, an oil well in Harding County continues to pump oil from the ground. The Bakken Formation, north of this well, is now conservatively estimated to hold about 300 billion barrels of shale oil.

With current technology, oil workers can retrieve less than five percent of what's down there. But while North Dakota takes in the population growth, and increased revenue, and a stronger tax base, and a billion dollar state government surplus-people in western South Dakota work to learn from the people of the Bakken Formation, and prepare for what could come.

 

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