The photo doesn't do it justice. A cold front arrived in Bismarck mid-week bringing with it ferocious winds -- northwest at 44, with gusts to 64 mph -- when this picture was taken.
ND Oil Price Expected to Remain $40/bbl
Production Forecast to Fall to 1M bbl/day
After considering the advice of financial experts (see story below), members of the ND House and Senate Appropriations Committees today adopted an interim revenue forecast to aid in the process of developing the budget for the 2021-23 biennium.
The forecast expects oil prices realized by North Dakota producers to remain around $40/barrel through the coming biennium, and production to decline to 1.1 million barrels per day this year, and drop to 1 million bbl/day in the second year of the coming biennium. That would add up to just under $3 billion in oil tax collections over the coming two-year biennium, compared to about $3.5 billion expected in the current biennium.
House Appropriations Committee Chairman Jeff Delzer said the forecast will be reviewed in March after crossover (midpoint of the session). Delzer noted that predicting oil prices and production are always difficult because of market volatility.
Click here to listen to Delzer's comments.
On the Senate side, Appropriations Chairman Ray Holmberg said the forecast could change in March due to initiatives coming from the Biden Administration.
Click here to listen to Holberg's comments.
If the oil production forecast is accurate, it would mean about $434 million would go to political subdivisions in western North Dakota through the gross production tax distribution formula. That would be down about 16% from the $518 million projected for distribution in the current biennium. The Legacy Fund would realize $780 million in deposits, and about $127 million would go into both the Common Schools Trust Fund and the Foundation Aid Stabilization Fund. The Three Affiliated Tribes would receive about $373 million.
In other tax and fee categories, the state forecasts it will collect about $1.74 billion in sales tax revenue, $816 million from personal income tax, $260 million in corporate income tax, and about $260 million from motor vehicle excise tax.
Click here to see the budget forecast adopted today.
Developing the Revenue Forecast
One of the more challenging aspects of state governance is forecasting revenues to state coffers from all tax inputs to develop a forward-looking two-year state budget.
Budget forecasting is, perhaps, more of an art than a science given the variabilities of sources of tax revenue and the market forces that play upon them. This week the House and Senate Appropriations Committees heard a budget forecast from IHS Markit, the consultant hired by the legislature, and compared that forecast to the one developed by the executive branch.
The largest source of tax revenue in the state budget comes from oil and natural gas production. IHS Markit Analyst Curtis Smith predicted “rough sailing” ahead for the industry.
Click here to listen to Smith's comments.
The IHS forecast is a bit more optimistic than the executive branch forecast based on projections of the four tax types. IHS sees a baseline of about $3.16 billion in state general fund revenue, while the executive budget forecast comes in at $2.87 billion, a difference of about 10%. Part of the difference can be explained by the date on which they were developed. Legislative Senior Fiscal Analyst Adam Mathiak said the executive branch forecast was created last fall while the IHS forecast came in a couple months later.
Click here to listen to Mathiak's comments.
Developing the state budget based on the forecasts is not a casual affair for the legislature. Sen. Ray Holmberg, R-Grand Forks, who chairs the Senate Appropriations Committee, told the Bismarck Tribune the two forecasts represent "bookends" for budget work. The committees adopt a preliminary forecast in January, and review it again in March, eventually adopting a final version for the 2021-23 budget cycle.
Click here to listen to Holmberg's comments.
Click here to read Jack Dura's article in the Bismarck Tribune.
January "Hurricane" Knocked Wells Offline
Thanks in part to 74 new well completions during the month, North Dakota crude oil production held nearly steady in the month of November.
In his monthly Director's Cut, Lynn Helms, director of the Department of Mineral Resources, said November production averaged 1,224,540 barrels per day, down just 6,500 bbl/day from the October figure. However, with the onset of winter weather and a drop in completion activity, Helms said despite a recent improvement in price, he expects production will gradually decline in the next few months.
Click here to listen to Helms' comments.
Helms said producers completed 44 wells in December, most of which he credited to the state's CARES Act frac incentive (see article in October 30 newsletter). He said the number may have been near zero without the completion incentive.
The strong winds that tore through the state this week, which Helms characterized as North Dakota's "hurricane season," caused numerous power outages which Helms said knocked 50,000-to-75,000 barrels of production offline.
Although crude oil prices have improved, Helms said the state is not likely to see an increase in drilling activity until prices stabilize above $55/barrel. He doesn't expect much improvement until global demand returns to pre-pandemic levels. Helms said jet fuel demand is still down 38% and demand for gasoline is off 5-to-10%. Most of the drilling activity now underway is focused on federal leases, which he said reflects industry concern about anti-oil regulations from the incoming Biden administration.
Click here to listen to Helms' comments.
On the positive side, Helms said the industry is continuing to meet the state's gas capture target, processing 93% of the natural gas produced in November. The number is slightly slower on the Ft. Berthold Reservation, due to difficulty obtaining right-of-way for construction of gathering pipelines. Helms also noted Outrigger Energy's completion of the Sanderson natural gas processing plant. The new facility 15 miles west of Williston is capable of processing 250 million cubic feet of gas per day. It's especially important because there has been a shortage of processing capacity north of Lake Sakakawea.
Click here to view or download Helms' January Director's Cut.
Legislation Includes $50 Million for Hwy 85
Members of the Senate Appropriations Committee got their first look at the budget bill (SB 2012) of the North Dakota Department of Transportation this week, which proposes $1.8 billion in spending on roads, bridges and other DOT functions in the 2021-23 biennium.
NDDOT Director Bill Panos said the total is about $400 million more than the current biennium, which reflects additional dollars from Gov. Doug Burgum's proposed bonding bill (see article in December 4 newsletter). The total also includes authorization to spend about $860 million in anticipated revenue from the federal government.
Panos said NDDOT has about 18 months worth of "shovel-ready" projects set to go as the economy rebounds. He said it's important that the state has construction work ready because the competition among states for contractors and materials is likely to be fierce.
Click here to listen to Panos' comments.
Panos said the DOT budget includes $50 million to widen Highway 85 to four lanes from Watford City south to the LongX Bridge. The department has previously been unsuccessful in obtaining matching federal grant funds for the work, but Panos said Congress recently reauthorized the grant programs and he feels the state's chances of success are improving.
Click here to listen to Panos' comments.
Panos said the state has plans to four-lane the remainder of Highway 85 all the way to Interstate 94. After the stretch south of Watford City, DOT will move to the next phase from the LongX Bridge to the junction with Hwy 200, and the final piece from Hwy 200 to I-94. The 65-mile stretch is estimated to cost about $480 million.
Roads/Bridges Eligible for General Obligation Bonds
A bill approved by the House this week enhances the ability of North Dakota counties to access the bond market and loan programs for road and bridge projects.
HB 1116 expands the purpose for which limited general obligation bonds can be issued. Currently, the bonds can be used for any of the purposes listed in the Capital Projects Levy and also permits borrowing against the County Road & Bridge Levy. The option is now limited to correction center projects and parks and recreation facilities. This bill adds roads and bridges as a permitted use of the Capitol Projects Levy.
Currently, seven political subdivisions have the ability to issue general obligation bonds if voters approve. HB 1116 increases the allowable maturity to a maximum of 30 years from the current 20 years. The bill also extends the maximum maturity of limited tax bonds from five years to 20 years.
The bill was carried on the House floor by Rep. Glenn Bosch, R-Bismarck.
Click here to listen to Bosch's comments.
The ND Association of Counties (NDACo) testified in support of the bill Monday before the House Finance and Taxation Committee. Click here for an explanation from Aaron Birst, legal counsel and assistant director of policy at NDACo.
Those speaking in opposition to the bill discussed the impact to future generations of extending bond maturity dates, thereby obliging future generations to pay for current needs.
HB 1116 was approved Tuesday by a 64 to 26 vote. The bill now moves to the Senate for further action.
Resolution Passes House Floor This Week
The ND House has approved HCR 3001, is a concurrent resolution urging Congress to temporarily amend cargo carrying truck length and weight restrictions on state highways and interstates that are a part of the national network.
Lifting the restrictions would allow North Dakota and surrounding states to conduct a road train pilot program, with the potential to permanently amend the restrictions to allow road trains on the nation's highways and interstates if the pilot program is successful. Last week, the House Transportation Committee issued a “do pass” recommendation to the resolution (see newsletter article) and this week the House gave its approval on a 62-30 vote.
Rep. Tom Kading, R-Fargo, carried the bill on the House floor. Kading said the resolution would help address a shortage of certified truck drivers in the state and nation.
Click here to listen to Kading’s comments.
Rep. Marvin Nelson, D-Rolla, noted the potential of increased costs in modifications to highway systems to accommodate the larger vehicles. Nelson's point was countered by Rep. Terry Jones, R-New Town, who said that discovering any additional costs associated with running road trains in the state would be a key result of implementing the pilot project prior to any potential broad adoption.
Safety to the public was mentioned as a concern since motorists would encounter the larger trucks on the highways. Rep. Lawrence Klemin, R-Bismarck, said he was concerned about the longer trucks, especially during winter driving conditions.
Frac Sand and Rare Earth Minerals
Senate Appropriations Committee members heard an update this week from Lynn Helms, Director of the Department of Mineral Resources, related to research by state geologists that has led to the start of frac sand mining operations, and the possibility of mining lignite for rare earth minerals.
Helms said rare earth minerals are the elements used in computers, LED televisions, and defense applications.
“Most everything today, in terms of electronics uses some level of rare earth minerals,” he said, noting that currently 95% of the world’s supply comes from China.
Helms said that 12 samples from four different locations are well above the DOE’s economic threshold for the potential of mining rare earth minerals. He said the outlook in North Dakota for capturing the elemental material from lignite seams, as well as fly ash from lignite combustion, is “very exciting.”
Click here to listen to Helms' comments.
Helms said the ND Geological Survey has an active ongoing program with other state partners, and is working to identify where economic quantities of the critical elements exist in the state.
Click here to listen to Helms' comments.
Helms also told the committee that based on geological research, frac sand mining is now happening in North Dakota. Helms said the quality of North Dakota sand isn't ideal, but the oil industry has figured out how to blend it with higher quality sand to reduce costs.
Click here to listen to Helms' comments on sand production.
Helms remarks were part of a presentation of the Industrial Commission budget to the House Appropriations Committee on Wednesday. Click here to view legislative video of the committee meeting.
A bill that would create a primary seat belt law ended in a stalemate in the Senate Transportation Committee today. Based on the 3–3 tie vote, SB 2121 will advance to the Senate floor "without recommendation.”
The legislation changes seat belt enforcement from a secondary offense to a primary offense, which means law enforcement can pull over a vehicle suspected of having unbelted occupants. The bill would also change the existing requirement of belting only front seat occupants to all vehicle occupants.
The committee heard more than 90 minutes of impassioned testimony from 11 individuals representing law enforcement, safety organizations, trade associations and a number of state agencies. No one spoke in opposition at the committee hearing.
Speaking in support of the bill, Ryan Gellner, the Vision Zero Outreach Program Manager for the ND Association of Counties, said the legislation “will cost nothing” but will save lives with more people buckling up.
Click here to listen to Gellner's comments.
Karin Mongeon, Safety Division Director for the ND Department of Transportation, cited statistics showing states with a primary seat belt law have a lower percent of unbelted motor vehicle crash fatalities. Mongeon also cited a survey showing that the citizens of North Dakota support a primary seat belt law.
Click here for her comments.
Seat belt legislation is not new to North Dakota lawmakers with different versions of bills requiring varying levels of usage coming before the legislature in previous sessions. Arguments against required usage have included criticism of government intrusion into people lives and personal freedoms, along with concerns of seat belts trapping motorists if a vehicle catches fire or is submerged in water.
Click here to read an AP article about the issue.
40 Years of Energy Information and Education
Planners are getting ready for the Energy Progress & Innovation Conference, to be held in a virtual format January 26-27.
It used to be known as the Energy Generation Conference and has a long history starting in 1978 as the Power Plant Operations Conference. In 1980 Bismarck State College become involved and it was renamed the Energy Generation Conference. Conference organizers prepared a 40th Anniversary Video highlighting the growth of this event through the years. Click here to view the short video.
This year’s event was renamed in part because if will be conducted in a virtual format while COVID-19 restrictions remain in place. The conference agenda features pre-conference sessions on January 26 focusing on computer usage, electrical issues and leadership topics. On January 27, the morning will feature a live session followed in the afternoon by 18 breakout sessions covering a variety of topics.
Bruce Emmil, Dean of the National Energy Center of Excellence at Bismarck State College, said the event offers a wide variety of topics of interest to industry professionals.
Click here to listen to Emmil's comments about the EPIC Conference.
Emmil was interviewed on the radio program Energy Matters. Click here and advance to 15:20 mark to listen to the full interview.
Click here to view the agenda and registration information,
- Republicans, Democrats put forth competing infrastructure bills -- Williston Herald
- Energy regulators target irresponsible corporate heads -- Bismarck Tribune
- North Dakota Capitol security bracing for the possibility of protests -- KXMB-TV
- Bill would bar contributions from North Dakota governor -- Associated Press
- Land Board seeks 'plausible solution' on unpaid royalty controversy -- Bismarck Tribune
- Minot Lawmaker Scott Louser to push expanded cybersecurity legislation -- KFYR-TV
- Bill to limit initiated Constitutional measures to one subject -- Prairie Public Radio
- After disputes with state auditor, North Dakota lawmakers offer bills -- Bismarck Tribune
- Lawmaker proposes an 80 mph speed limit on parts of I-29 & I-94 -- Prairie Public Radio
- Large power plant slated for Williston area to harness Bakken's ethane -- Bismarck Tribune
- Marked for closure, NDs biggest coal-fired plant looks for new tech lifeline -- Fargo Forum
- 8 arrested in Minnesota protest over Enbridge Line 3 pipeline project -- Associated Press
- Hess to finish Tioga gas plant expansion in 2021 after COVID delays -- Tioga Tribune
- Energy policy implications are many under the Biden administration -- KFYR-TV
- Line 3 protesters chain themselves together in piece of pipe -- Associated Press
- Oil companies lock in drilling permits, challenging Biden on climate -- Associated Press
- North Dakota's senators praise the new CO2 capture tax credit rules -- Williston Herald
- Could new Interior Secretary affect federal lawsuits filed by MHA Nation? -- KXMB-TV
- Survey shows how learning has been affected by pandemic changes -- Williston Herald
- Dickinson Public Schools to return to full-time, face-to-face -- Dickinson Press
- Bakken taking off with drone projects: ISight Drone Services -- BakkenBackers
- Massive grass fire near Lemmon, SD challenges ND/SD fire departments -- KX News
- Truck permit law may need a look if court won’t clarify notification rules -- Crosby Journal
- Theodore Roosevelt National Park projects to make strides in 2021 -- Bismarck Tribune
- This could be of one of the mildest winters on record -- McKenzie County Farmer
- Sen. Kevin Cramer opens western North Dakota office in Williston -- Williston Herald
- Energy Chair Joe Manchin warns Democrats against climate mandates -- Washington Examiner
- Banks can't blacklist entire industries under new OCC rule -- Wall Street Journal
- Shell's ethane-consuming steam cracker in Pennsylvania in the home stretch -- RBN Energy
- New generation of enormous 13-megawatt wind turbines to dot Earth's coastlines -- IER
- OPEC crude output cuts should help U.S. shale industry profits in 2021 -- Reuters
- Enbridge rejects Michigan’s demand to shut down oil pipeline -- Associated Press
- Wall Street's climate concerns create uncertainty for ND coal country -- Fargo Forum
- India sees $55 billion investment in clean coal over the next decade -- Bloomberg
- Innovative Pennsylvania coal project would include biomass, CO2 capture -- Pittsburgh Post-Gazette
- Bette Grande: Forget peak oil, peak capital will cost consumers dearly -- Red State/Heartland
- New Mexico bill would halt fracking permits while state conducts study -- NM Political Report
Factoid of the Week
Dunn County Courthouse
WSI - 1600 East Century Ave., Suite 1
via Microsoft Teams
via Microsoft Teams
Hybrid: Online or in Bismarck
January 15, 2021
WTI Crude: $52.36
Brent Crude: $55.10
Natural Gas: $2.74
North Dakota Active Oil Rigs: 12 (Up 1) 1/15/2020 -- 52 rigs