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Oil Price Crash Creates New Wild West In Shale Boom Towns

Oil Price Crash Creates New Wild West In Shale Boom Towns

With crude prices reeling from the effects of geopolitical wrangling and surging production, it’s a tough time to be a resident of an oil boom town. Although drilling in areas like North Dakota’s Bakken oil patch has generated hefty revenues for once quiet communities, it’s also led to an increase in crime. As the Washington Post noted last year, “the arrival of highly paid oil workers living in sprawling ‘man camps’ with limited spending opportunities has led to a crime wave -- including murders, aggravated assaults, rapes, human trafficking and robberies -- fueled by a huge market for illegal drugs, primarily heroin and methamphetamine.”

While this would be a rather undesirable situation under any circumstances, collapsing crude prices are beginning to leave some towns cash-strapped, which means less resources to dedicate to things like deterring crime. Meanwhile, production isn’t slowing down, which means boom town populations aren’t declining alongside revenues. According to NPR, this dynamic is leaving some communities with a combination of decaying infrastructure, less money for public schools, and inadequate manpower to combat sharply higher crime rates. This comes as monthly expenses like rent skyrocket in the face of surging demand.

Via NPR:

What happens when the price of oil tanks and suddenly you're faced with a whole lot less money to deal with your town's explosive growth?

If you're 52-year-old Rick Norby, you lose a lot of sleep.

"I haven't slept since I became mayor," he says. "I really ain't kidding you."

When Norby became mayor of Sidney, Mont., oil prices were about $100 a barrel. A year later, they've fallen to roughly half that. Yet oil production has continued to churn right along.

"All the action is still happening," says Norby, who has lived here all his life. "We haven't seen a slowdown one bit in anything."

The problem is Norby figures he'll get about $600,000 less in tax revenue from oil production to deal with all this. That's a big deal when your whole budget is $11 million and your town now has a major highway running right through it…

The money coming from the oil boom pays for fundamental services that are stretched thin. Sidney is looking for $30 million to build a new truck bypass. A new $70 million water treatment plant is also needed.

Around town, there are little one-bedroom houses with a half dozen oil workers living in them. The population has nearly doubled since 2010. The police department struggles to keep pace with even routine patrols. Since 2010 when the oil boom began in earnest, DUI arrests are up 300 percent. Felony assaults are up twice that much…

One teacher quoted by NPR says he “never considered” oil would fall below $70 barrel. He’s probably not alone there, as it seems likely that quite a lot of people (and E&P executives) didn’t think such a thing could happen either, that is until the bankruptcies started to pile up and until shale companies began to stage Movie Gallery encores, defaulting on their debt before making a single payment. In any event, crude did indeed fall below $70 and then it fell some more, and now, as we explained Tuesday, prices may head still lower in June when a lack of storage capacity forces each incremental barrel straight to market. Related: ExxonMobil CEO Wrong About “Resilience” Of Tight Oil Production

So what does this mean for America’s oil boom towns? Assuming Sidney, Montana is a good analog for what’s playing out across the country’s top oil producing communities, nothing good, as the follow graphic from NPR vividly illustrates:


Sydney is just 45 miles south of Bainville, Montana, the subject of a National Geographic piece which told a similar story:

"If you wish for this oil, be careful what you wish for, because life as you know it is done," said Ken Norgaard, road department supervisor for Roosevelt County, the vast and sparsely populated county of rolling farmland that includes Bainville…

The K-12 Bainville School faces similar challenges. The influx of oil workers has pushed rent for run-down mobile homes to upwards of $2,500 a month. Teachers, whose salaries start at $33,000, can't afford housing. At the same time, student enrollment has more than doubled to 165 since 2009.

"We have had to get creative," said school superintendent Renee Rasmussen, who graduated from the school in 1973, one of a class of ten. In the past few years, Rasmussen said, the school bought 13 homes to house many of its teachers...

Bainville's population has doubled since 2010 to about 450, and will likely double again in the next couple of years…

Among the changes in Bainville, none has locals on edge like the increase in crime. In 2012, two Colorado men looking for work in the oil field allegedly killed a popular math teacher in nearby Sidney, Montana, and buried her body along a highway outside Williston. Soon after, Roosevelt County bought a new file cabinet to store the rush of concealed-weapon applications…

The FBI has warned that Mexican drug cartels are trafficking drugs to the area, targeting the large paychecks of the mostly young men who work in the Bakken. Felony drug arrests in Roosevelt County rose from 4 to 28 from 2008 to 2012, according to Sheriff Freedom Crawford. Crawford said methamphetamine is the biggest drug problem the county faces, followed by illegal painkillers. But a bigger problem, he said, is the increase in alcohol-fueled fistfights. From 2008 to 2012, assault arrests nearly doubled, to 173. Related: Rig Count Irrelevant As US Output Continues To Soar

According to the Montana Board of Crime Control, “offenses [in the Primary Bakken Region] were up 84%, arrestees were up 90%, and incidents increased 76% in 2012 compared to 2009,” and while these numbers looked a bit better in 2013, “the five-year trend shows an overall increase of offenses (29%), incidents (19%), and arrestees (58%).”


Similarly, an academic study conducted by researchers from the University of North Dakota shows that in the oil producing counties of Montana and North Dakota, both violent crime and property crime rose in the post-boom years while crime fell markedly in non-producing counties:


…and here’s what the change in offenses looks like graphically…


From the report:

Prior research has demonstrated that calls for service, arrests, and traffic accidents increased substantially between 2005 and 2011 in oil producing counties in the Bakken region. Interviews with police officers and sheriff’s deputies in these counties revealed that they are overworked and stretched thin which is similar to the findings reported in Canadian boomtown research. Those perceptions about crime and disorder are shared by the staff members of human service agencies who are often tasked with responding to those who were victimized and the media has echoed these perceptions. The analyses conducted in this study revealed that UCR index crimes increased between 2006 and 2012 in oil impacted Montana and North Dakota counties, while in the matching sample of counties the number of crimes decreased during the same era.

Related: OPEC Boasts About Pain In U.S. Shale

Meanwhile, things have gotten bad enough in Williston, North Dakota that the FBI has moved to town.

Via The Hill:

The FBI said it will establish an office in North Dakota’s oil country to address an uptick in criminal activity related to the dramatically increased oil production of recent years.

The Williston, N.D., office will be a “resident agency” of the FBI’s Minneapolis division when it is fully staffed later this year, the bureau said Thursday

Local officials and North Dakota’s congressional delegation have been asking for more than a year for the FBI to establish a presence in Williston to respond to the spike in crimes like drug and human trafficking that has accompanied the thousands of new workers related to the Bakken oil shale region.

“The office in Williston is a welcomed addition to our presence in North Dakota,” Richard Thornton, special agent in charge of the Minneapolis division that oversees the Williston office, said in a statement.

“The opening of this office is in response to the unprecedented growth in population and economic activity associated with the oil exploration and production in the Bakken region and the corresponding increase in criminal activity,” he said. “The FBI will be in a better position to effectively address these issues in this region of North Dakota through this new office.”

And so while crime in the region has been on the rise for some time, coping with slumping oil revenue is a relatively new development. In the end, the Mayor Norbys of the world are unfortunately dealing with powers well beyond their control, what with all of the “ancillary diplomatic benefits” that can accrue from ensuring that oil prices stay low for as long as is necessary to achieve one’s geopolitical agenda. We can only hope that the disparity between the resources needed to ensure stability in the nation's boom towns and the revenues that are available in the wake of sliding crude prices doesn't become so vast as to transform these areas into the new Wild West.

By Zerohedge

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