Montana, and eastern Montana in particular, has been seeing a lot of changes in the past 18 months due to the oil and gas boom from the region’s Bakken shale. The question now is: will Montana see the same prosperity that we see in North Dakota?
The potential is definitely there. In 2006, when North Dakota began its transformation, Montana couldn’t catch fire in the same way and eventually lost steam. But now it’s giving it another go.
It’s impossible to ignore the success of North Dakota, producing more oil than even OPEC member Ecuador with its more than 750,000 barrels per day.
And of course, Montana wants a piece of the action. But so far, the half dozen towns in eastern Montana haven’t been able to keep pace with the rapid growth from a boom like this. It moves too fast.
It certainly doesn’t help that Montana collects $800,000 less from each new well that is drilled compared to North Dakota. Unlike that state, Montana municipalities get next to nothing from taxed oil and gas production – about one-tenth of one percent – and changes must be made.
As the boom continues to gather steam, Montana is struggling to keep up with the growth. Towns are tripling in size in just a short amount of time. Populations that were between 100 to 200 citizens are now at 500 to 600 and growing.
The energy boom in Montana is a blessing and a curse. Drilling that revived one state poses new challenges and problems for another.
Some of the farmers in these small towns have been able to make light of the situation, using proceeds from the sale of their mineral rights to buy new and improved irrigation systems.
But it’s been a tough transition for others. Montana used to be the kind of place where you watch your kids grow up, and once they move away, they never return. Today, kids are growing up and making their lives working in the oil industry.
Holding Back
While Montana tries to grasp a newfound way of life that one day should pay off, today prices are inflated for gasoline, groceries, and the housing market for many citizens who live on fixed incomes.
Jails are filled to maximum capacity; sewers are overflowing.
The school systems are left wondering how in the world they will manage an influx of enrollment brought on by the boom. Many administrators are talking about turning gymnasiums and hallways into classrooms to serve the new student body. A completely new school system most likely will need to be built, costing upwards of $35 million – way more than any current budget would allow.
And it’s hard to find a place to live nowadays. As a result, businesses and restaurants are unable to hire workers because there’s no place for them to live. Even a local McDonalds had to shut its doors. Home prices have skyrocketed, according to Bloomberg, from $60,000 to $300,000, pushed by the demand for housing. It’s a seller’s market, that’s for sure.
Hundreds of other families are on a year-long waiting list for federal Section 8 housing.
And the mess that is Montana’s sewage system can’t support all these people. As a result, residential sewer rates have been raised in some towns from $5 a month to $60 to support the construction of an upgrade.
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You would think the Montana government would be doing its part to ensure eastern Montana can support its new changes, but that’s not the case. Governor Steve Bullock vetoed a bill in May that would have given $35 million to eastern Montana communities for new facilities. The next legislative session to address the problematic growth isn’t until 2015, and waiting around is only going to put more pressure on existing residents.
One thing the government could do is ensure wells in Montana are fully taxed. As things stand right now, towns are waiting two years before they can see any money from oil production to help make necessary upgrades to infrastructure.
Once the money does come in, more than half goes to the state. Whatever is left is given to each county and its school districts. When it’s all said and done, the towns desperate to improve infrastructure are left with practically nothing – like I said above, about one-tenth of one percent.
Investing
Yet despite all those troubles, Montana’s future looks bright. Things are just getting worse before they get better. Montana still ranks as one of the best states in the country to do business. Business costs are low, and Montana has an abundance of natural resources that make its industrial sector appealing.
Oil and gas are at the very top of that list.
Employment in the oil and gas sector increased 38 percent, according to 4-Traders, in the past year. Petroleum employment ranks even higher and increased 3.7 percent. Industries that include fabricated metals, electronics, stone/clay/glass, and chemicals all saw an increase in the same time period.
These numbers are only going to go higher as the state finds ways to deal with its present short comings.
ConocoPhillips (NYSE: COP) is already present in the region, and the CEO is working to incorporate oil industry education into the state’s school system.
It’s going to take a while to adjust, but it will happen in time. And Montana’s Bakken could be the next big investment for oil and gas traders.
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