North Dakota - Talkin The Bakken

The Bakken is a rock unit that occupies the subsurface ofthe Williston Basin, in Northwest North Dakota. I decided to make the journey up here in search of work and to find out what all the talk is really about.

The news sources are spot on about the lack of housing facilities. I tried in vain one night to get a motel room in Stanley, ND, only to have the clerk laugh at me. She told me the entire place was rented out to one company, and somehow I was supposed to have known that. My bad. The so-called man camps we hear so much about are a site to behold. Any Hilton or Las Vegas Resort Property would be envious of the parking lots of these camps and these po-dunk motels. They are not cheap either. I took a photo at the local restaurant the other night of some of the prices being charged on the local community board. $1218 per month for a twin bed in a shared room, with 3 other guys. Not a bad profit.

The truck stops are a site to behold. I counted 31 across and 3 deep at the truck stop in Stanley, ND the other night while waiting in line for over an hour to fuel. This facility could not havec been designed to accomodate more than a dozen or two, tops. The manager told me that this particular truck stop services over 5000 total customers daily. Demand from oil field workers for cold-weather and flame-resistant clothing has created an entire new market, for this truckstop. They went and added on at the rear of the facility and made it into a cold-weather, flame resisistant clothing store. The margins are outrageous. However, you are not allowed onto some sites without flame-resistant clothing and ifyou dont want to freeze, what else are you going to do? The nearest competition is 75 miles away in Williston or 65 miles away in Minot? The other item they have by the case load, and I know becaue I snooped, is 5-Hour energy drinks. Normal DOT hours-of-service rules do not apply to trucks hauling water to the well sites as exists for most truck drivers who operate on federal highways. Consequently, there is not a lot of sleep to be had and trucks run all night. Most of the drivers I have spoken with average 2-3 hours per sleep per night and I have found firsthand that is a rather accurate number. The margins on the 5-Hour drinks are substantial and simply add to an already impressive bottom line.

I was at the local library the other day while we were slow following the first storm of the season. I overheard a local man telling the librarian how his landlord had just raised his rent from $1000 per month to $4000 per month. This gentleman was now looking for a new place for his wife and kids to live as he could not afford the new rent amount. They then started to complain together about how these "landlords need to realize that not every citizen in town has a royalty check coming in from the oil companies, and how unfair it is." I decided it was safe to infer from their conversation that most citizens DO have a check coming in from the oil companies. This guy did not want to move however because his wife was doing so well at her beauty salon. I needed a haircut, so I decided to patronize her shop, a way to help a guy out in need. "Today is not my day for walk-ins", I was told, and not very nicely at that. I wonder how she is doing so well with such poor customer service skills. The stylist at a nearby salon repeated almost verbatim, and with the same poor attitude, as the first. The landowners who happen to own the mineral rights on thier property are doing very well. Unfortunately, those landowners who do not, are only receiving a fraction of the amount to simply lease their land to the oil companies for thier oil rigs. The lesson to be learned for all of us: Make sure you know who owns the mineral rights to your land. Jsut because you own the land, does NOT mean you own the mineral rights.

Which leads me to my next point. Customer Service is horrible almost across the board in the region. It simply does not have to be superior in my opinion. Where else are the workers and customers going to go? It is my opinion that they know this and act and serve accordingly. I have learned that a lot of these service employees are spouses of oil-field workers who have followed their significant others here and prefer to saty buys during the day.

One of my most interesting observations has been the comraderie among the workers and drivers alike. It is truly impressive. Whether it be at the stores, at the pumps, in line in traffic, or at the well sites, the workers are very courteous and respectful for the most part. There are always a few, but I have found them to be few and far between. I would have thought that with the long hours, the terribly cold temperatures, the poor customer service at most of the stores, the workers would be more agitated and take it out on each other in one form or another. This is not the case at all. Doors are help open, and if you're in a hurry, they will let you cut in line. If youre stuck trying to get on a road, most will slow and let you merge. They dont cut in line while waiting to be loaded at the well sites, they wait their turn and will help when asked. (And I have to ask a lot!)It is encouraging to observe.

As mentioned, most service businesses are doing very well. Truck stops, c-stores, cold-weather clothing stores, etc. We have heard about a lot of these on the news. One market that is underserved with room for increased competition, is laundry services. I took my first "oil shower" the other night and have been unable to get the clothes clean, and cleaning myself was not much easier. I have noticed laundromats popping up at the rear of personal residences, etc., but they need so many more and in more convenient locations.

The weather is only getting colder and the roads icier. This should make for an interesting winter. It there is oil to be found, there is work to be found.


Dr. Tufte said...

As the professor, I have to deal with how students work and personal lives interact with their performance in my class. In helping out Windwalker, I asked for details, and got a long e-mail back. I told Windwalker to post it more or less verbatim, and waived the requirement of a link. It seems to me that this would be a juicy topic for blogging.

So here's an open challenge: what topics from the text do you see illustrated here?

Lando said...

This was very interesting to me Windwalker. I have actually spent the past hour reading and researching The Bakken formation. A formation covering 200,000 square miles must be impressive, especially if it may be housing 3 to 4.3 Billion barrels of oil. Dr. Tufte, you asked for which topics would be illustrated here. I believe the fuel stations, hotels, and convenient stores, illustrate monopoly pricing structure. Especially if the nearest competition is 65 miles away.

Aaron said...

Great insight on an already intriguing topic Windwalker. There's a lot to take out of this post! Even here in Southern Utah, the great North Dakota has got a lot of people talking. And, they aren't just talking; they're moving. I know three people personally who have either moved with their families or who are commuting, in a way, and taking advantage of all the work that is available in that region. It has a kind of California gold rush feel to it.

And, its an economist's dream topic because there is so much to look at.

So, in response to Dr. Tufte's challenge I picked just a few sentences and deduced a couple of topics. First, price discrimination. I've no doubt that the two hair stylists referenced in the post are charging substantial prices for their services. I imagine their price structure varies if they are serving their next door girl friend as opposed to a visiting trucker. Also, is it just me or does $1218 per month for a twin bed in a shared room seem a bit steep? I'm not sure I could rent my 3 bed/2 bath home out for that much. Between these two examples and the truck stop with its 5-hour energy drinks and its flame/cold proof clothing, there is price discrimination galore and, without a doubt, hefty profits being made.

Lastly, I'm intrigued by what attracts people to North Dakota. I've heard there are "For Hire" and "Help Wanted" signs noticeable in virtually every window as you walk or drive down city streets. While steady work is no doubt attractive to many, to relocate to the great white north where winter temperatures can easily reach negative 80 degrees Fahrenheit is quite the commitment. The topic of marginal benefit comes to mind in this instance. Is the work really worth the travel, the cold and the risk involved with the type of work available? Will those who have trekked to North Dakota look back a few years from now and wonder if it was all worth it?

Dr. Tufte said...

Lando is right: there's a lot of market power discussed in this post. Note also that some of the ability to charge a mark-up comes out in non-monetary forms: low quality, short hours, and so on.

Aaron: I wonder about price discrimination (specifically). You've got to be able to segment your market for that, and Windwalker's description makes it seem more like one market with a lot of mark-up.

It isn't really covered in ManEc, but what Aaron is talking about is compensating variation: that you can pay someone less because they'll volunteer to move to southern Utah, but you have to pay them more because they won't move to North Dakota.

Sam said...

I would like to know how companies are retaining their market power in this area. If there is that much demand and those high of returns why aren’t more companies building motels, truck stops, and laundry facilities in the area? What are the barriers to entry that are allowing these small existing companies to keep their monopoly power? If the promised returns are high enough other companies usually can find ways to come into a market even when barriers to entry are difficult to overcome. Is the land publically owned? Are there strict government regulations on growth? I am curious.

Dr. Tufte said...

I am interested in this well. I've been following this story for a couple of years, and the shortages seem pretty persistent.