Energy boom has benefited many Midland businesses
“I would say, over the last five years, it’s probably doubled our operation, both by revenue and employees,” said Don Adams, owner of Adams Industries Inc. in Sidney, Neb.
Adams Industries now has 160 employees, and Adams said he aims to grow his trucking fleet 25 percent to 100 semis by this time next year. His strategy has been to provide freight and logistics infrastructure that is severely lacking in the remote areas atop the Bakken formation, the geologic jackpot that has made North Dakota the No. 2 oil-producing state in the U.S. behind Texas.
The energy boom is giving this and other parts of the nation new and unexpected opportunity. Whether it’s extraction of natural gas in Ohio, Pennsylvania or West Virginia or crude oil being pumped from Texas or remote corners of Montana and North Dakota, the energy boom that is turning the United States into “Saudi America” has sent out tentacles that have benefited businesses far and wide.
The new abundance of natural gas, in particular, has made electricity cheaper, making products manufactured in the United States more competitive globally.
In Sidney, Adams Industries transports freight by the truckload for energy customers and also loads and unloads railcars, warehouses material, and coordinates transportation into and out of oil-producing regions in North Dakota, Wyoming and Colorado.
“It’s expensive to operate in the Bakken and the infrastructure just isn’t there,” Adams said.
What infrastructure that does exist has been strained beyond capacity by the influx of drilling companies with truckloads of heavy equipment and materials. To keep up, the North Dakota Legislature has grown its general fund budget more than 3.5 times over since the boom took off in the mid-2000s.
This, too, has attracted Nebraska businesses.
Laminated Wood Systems Inc. has shipped engineered-lumber utility poles, which it designs at its headquarters in Seward, Neb., to help build up infrastructure in remote western North Dakota.
As infrastructure has slowly caught up, business at Laminated Wood Systems has grown 20 percent to 25 percent in the last 2½ years, according to Jon Wilcox, vice president of sales.
Closer to Omaha, McArdle Grading Co. in Elkhorn has been involved in the construction of two rail facilities in Dickinson and Tioga, N.D., and has worked near the Williston area for about 3½ years, said Vice President Barry McArdle.
Unemployment in the counties surrounding Williston is at 1.6 percent, so McArdle has had to take Omaha-area employees into what he described as a kind of “modern Wild West.”
In Omaha, attorney Andrew Sigerson has capitalized on his wealth management prowess and the lack of competition in western North Dakota. About 10 years ago, he opened an office in Minot, N.D., about two hours east of Williston.
“I’m still amazed at the lack of competition there for what we do,” said Sigerson, founding member of Legacy Design Strategies LLC. “A typical client we have there is going to be worth north of $2 million with real assets like land, royalties, investments and real estate. Some are worth more than $25 million.”
While the energy boom has generated countless overnight millionaires, the impact is not limited to North Dakota, nor is the related economic growth restricted to Midwestern states.
The number of people working in oil and gas extraction grew from 102,200 in 2003 to 186,800 in 2012; preliminary numbers for 2013 through October showed that almost 200,000 people now work in the industry, according to the Bureau of Labor Statistics.
The numbers are even more impressive for jobs that support oil and gas operations. Those jobs more than doubled, from 121,200 in 2003 to 282,000 last year and 305,300 through October, the BLS said.
Castronics LLC, based in Kimball, Neb., ships in and threads pipe for customers that include rig operators both in the Bakken and along the Front Range of the Rocky Mountains, where energy production is as high as it’s been since the 1950s. The company has ballooned to about 160 employees in recent years and has prompted construction of about 32,000 square feet of new space.
Adams, who counts Castronics as a neighbor at the Sidney facility, called economic growth in the local community “staggering.”
The same could be said of Hexagon Lincoln Inc., which manufactures storage and transport tanks for natural gas in the Lincoln Air Park. Hexagon currently has 290 employees, but director of business development Chet Dawes said there will be about 70 more coming on in 2014.
The company had about 130 employees in 2009.
Dawes attributed growth to the spike in domestic natural gas production that helped “decouple” the price of crude oil from the price of natural gas, which has fallen about 80 percent per cubic million feet since hitting a high point in mid-2008. Hydraulic fracturing, or fracking, has unlocked vast reserves of natural gas, which has sent supply levels through the roof in just a few short years.
But the energy boom has not been a blanket positive to Nebraska business.
The Champion Home Builders plant in York more than doubled its workforce from mid-2011 through the end of that year, when demand for manufactured housing in North Dakota was soaring. Higher demand in northern markets meant local dealers like Nu-Trend Homes in Omaha could either pay more for product manufactured in York or find another plant that wasn’t supplying the boom areas.
“Our freight costs increased from $500 per unit to $3,000 a unit coming from Indiana, but we’re still saving money that way,” said Don Hansen, president at Nu-Trend.
Loren Taylor, retired vice president at Sargent Pipe Co. in Broken Bow, saw something similar happen in the market for the steel pipe his company uses for drilling water wells.
Pipe used by the oil and gas industry is in higher demand and is more lucrative to the steel mills that make it than is pipe used by companies like Sargent Pipe Co. That has pushed costs of water pipe up 10 percent to 15 percent over the past six or seven years and, in some cases, doubled the costs.
To make matters worse, companies operating in the Bakken are starved for labor, and the pay reflects it: Data from the Bureau of Labor Statistics show average weekly wages in Bakken oil counties were $1,249 in fourth-quarter 2012, compared with $793 in North Dakota and $797 in Nebraska.
The pay is so good, it has attracted workers from Sargent Pipe, Taylor said, as well as from other businesses in the state.
“I wouldn’t call it a drastic situation here, but I have heard that a few employers have lost employees to go up there to work,” said Barry Kennedy, president at the Nebraska Chamber of Commerce.
No one knows how long the boom will last. What is certain, though, is that the impact on businesses is widespread.
“I think almost every state has something tied to the energy boom. Even states that have practically no energy sector are seeing some benefit from it,” said Mark Vitner, a senior economist with Wells Fargo Securities. “I think it has the potential to be the type of game-changing event that shapes the economy for the next quarter-century.”