For political observers who are actually on the ground here in North Dakota, the parade of national media stories about the North Dakota “blue print” for prosperity gets a little tiresome. There’s no “blueprint.” We struck oil (or, more accurately, we struck oil decades ago and just recently developed the techniques to exploit it consistently) and the resulting boom has brought prosperity and lots of tax revenues.
But all those stories are just fine with the state’s politicians, who love taking credit for the oil boom. The latest is Senator John Hoeven, who in an opinion piece for Politico makes it sound as though the emergence of techniques like hydraulic fracturing and horizontal drilling were part of some grand plan hatched a decade or so ago (around the time he was first elected governor, naturally):
Over the past 10 years, our state has grown — economically and demographically — in large measure because we set forth a deliberate plan to create a good business environment that targeted specific industries: agriculture, energy, advanced manufacturing, technology-based businesses and tourism. …
A big part of the reason we’ve done well in developing our resources and protecting our environment is technology, which has enabled us to recover more energy with better environmental stewardship. In oil and gas development, for example, new technologies like horizontal drilling and hydraulic fracturing are producing more oil and gas with a smaller environmental footprint. Formerly, it was necessary to drill multiple vertical shafts across the landscape, with the calculated hope that one or another might strike oil.
Today, because of new directional drilling techniques, a single pad can sink eight or 10 shafts 2 miles under the earth. Each is then redirected horizontally in a different direction. There, well below the water table, hydraulic fracturing frees the oil from the shale that holds it and allows it to be recovered. The result is a smaller surface footprint, a better recovery rate and less impact on the environment.
Every time Hoeven or another of North Dakota’s politicians makes claims like these it’s met with much eye-rolling from political observers here in the state even as national media types eat it up. The “blueprint” for North Dakota’s success is to hit oil and then grow state government spending at a rate faster than the federal government. Unless they’re going to start doing some fracking and horizontal drilling in Washington DC, this isn’t exactly a “blueprint” that could (or should, when it comes to the spending) be emulated.
To the extent that any politician in the state deserves credit for North Dakota’s current success – and bear in mind that I maintain it’s a limited amount of credit – it’s former Governor Ed Schafer who was talking with Harold Hamm from Continental Resources (the company with the largest presence in the state’s oil fields) about developing the Bakken way back in the early 1990′s shortly after the state’s first oil boom, something National Review’s Jay Nordlinger writes about in a lengthy review of the Bakken boom published today:
What Schafer did, in a nutshell, was reform government and make North Dakota business-friendly.
He remembers when Harold Hamm came to visit him in the spring of 1993. Hamm, an Oklahoma oilman who ran Continental Resources, and still does, told him about horizontal drilling. Some in the industry thought horizontal drilling was a pipedream (so to speak). But Hamm thought he had something, and the Schafer government crafted policies to help Hamm and other oilmen see what they could do. They did well.
Long before the current boom, North Dakota was an energy-production and energy-minded state. They have many of the elements of “all of the above,” as the politicians say. In other words, they have multiple sources of energy, including coal, hydropower, ethanol, biodiesel, and wind. (Being relatively flat and treeless, North Dakota has no shortage of wind. Sometimes, it’s hard to stand up.) Politicians, regulators, and others here stress, “We’re used to energy. It’s part of who we are. We’re not afraid of it, and we know how to deal with it.”
While some refer to the current prosperity as “the North Dakota Miracle,” others will have none of it. Ed Schafer is one of them: “It was more like a long, hard slog through the swamps. It took a lot of planning.”
Put simply, the key to the Bakken boom isn’t so much what the government did. It’s what the government didn’t do. They haven’t taxed and regulated the oil boom to death.
That may be changing. Schafer was an advocate for simplifying North Dakota’s absurdly complex oil extract tax, and was met with a great deal of hostility from the state legislature. And after tough new regulations on oil production were passed in the state, the cost of setting up an oil well in the state has increased significantly, going up over 29% in less than a year.
Going to show that while the state’s present political leadership may be happy to take credit for the positive impact of the boom, they don’t seem to really understand what allowed it to happen.