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Area link to Bakken fluctuates with jobs, price of oil

Just like three years ago, Deb Lesmeister and the small crew that works for her siding business still loads up the super duty Chevy pickup, hitches it to an enclosed trailer with dual axles and drives off from Central Minnesota to find work.

Only now she’s pointing the wheels toward towns like Staples or Morris instead of Williston and other spots in western North Dakota. In 2012, that was her destination as the country tried to recover from a devastating recession that ended a few years earlier. Jobs were slow to come back so she and many other workers struck out for the Bakken oil patch — one of the few places in the nation where employment was booming.

Some area businesses, like Lumber One and SCR, and engineering companies such as Stantec and Short Elliott Hendrickson, started or strengthened their connection to North Dakota in the last five years. Small operators, like Lesmeister, have been able to break the pull of the Bakken as conditions have improved closer to home.

“We don’t have to live out of a suitcase anymore,” said Lesmeister, 56, of Foley. “When we were out in North Dakota, we stayed at a hotel for a while that was actually in Montana. Then, I wound up living at a man camp about 3 miles out of Williston. It was an absolutely beautiful place. They served you every meal. We could leave the job site, come back and have dinner and go back. They had game rooms and a little theater and laundry facilities.

“But it’s a rough world out there — especially for a woman in construction.”

Recently, her crew has worked on new apartment complexes in Sartell and Sauk Rapids, filling down time with day trips around Minnesota.

“The economy has taken a turnaround and work has picked up locally,” said Lesmeister, who has been in business for 19 years. “It’s a lot less headache with all the different paperwork of filing taxes in North Dakota and all the other things you have to do.”

Census data on state-to-state migration from 2013 shows about 15,000 people moved from Minnesota to North Dakota. However, that’s countered by about 10,000 people moving from North Dakota to Minnesota — by far the largest number since the recession.

Much of the change in the economy also has to do with the price of oil. According to the U.S. Information Administration, the first purchase price for a barrel of North Dakota crude was $96.25 last June. By January, it fell below $40. In recent months, the price has bounced between $50 and $60. Lower prices have led to scaled back production.

As of March, there were 96 active drilling rigs in North Dakota, compared to 194 a year earlier. Supply crews and companies that service rigs have had to slash their prices to stay competitive.

The Minnesota unemployment rate during April was seasonally adjusted to 3.7 percent. Less than five years ago it was double that. The unemployment rate in North Dakota for April was 3.1 percent, and — unlike during much of the recovery — that wasn’t the lowest in the nation. Nebraska’s unemployment rate was 2.5 percent. For more than six years, until 2015, North Dakota had a lock on the nation’s lowest unemployment spot.

One area company that works closely with large energy firms in North Dakota is C4 Welding. Tom Becker, president and chief operating officer, said in an email that the company has felt the impact.

“While C4 Welding enjoyed a significant component of its business from the oil production in the Bakken Range in North Dakota, that activity has slowed in the last few months as has the oil production from that area,” Becker wrote. “At the same time, our customers in this market segment have advised that they view this as more a correction than a sustained downturn in production. As such, C4 Welding will continue to support its customers during this slow period, but will further diversify its business to include other opportunities in markets outside the oil and gas arena.”

Related: Discussing small business and economics in the Bakken

Some business established

While small contractors like Lesmeister and other companies like C4 may be reducing their reliance on North Dakota, a financial pipeline still exists between the Bakken and Central Minnesota — mostly among mid-size to large companies that have cemented their North Dakota relationships in recent years.

One good example is SCR, formerly St. Cloud Refrigeration. Pat Welty, a co-owner of the company, said SCR has collaborated with Coborn’s for the vast majority of its refrigeration work from 2011-14 — especially during a period of expansion for the grocer in western North Dakota.

“It’s not really quantified, but there’s been a very positive effect on our business and we’ve connected with other grocery clients and other HVAC clients in that region because there are limited resources out there for the trades,” Welty said.

SCR initially made inroads in North Dakota in the late 1980s by working with convenience stores and small grocery stores. Eventually that volume contracted, Welty said. But the onset of the most recent oil boom overwhelmed convenience stores, which began converting to larger travel centers.

“We didn’t see any reduction during the recession — because we went to North Dakota,” Welty said. “If anything, we added staff as a result. Now some of the new construction has slowed. People were nervous last fall. But it’s still continuing, just at a slower pace.”

SCR, which specializes in HVAC, refrigeration, building automation and fabricates parts in its St. Cloud sheet metal shop, has about 150 employees and locations in Brainerd, Mankato and Rochester.

“North Dakota continues to have a substantial economic impact on St. Cloud,” Welty said. “Most everyone knows someone who has been working out there now. Five or six years ago, I don’t think you could say that.”

Coborn’s, meanwhile, has opened Cash Wise Foods stores in Williston, Tioga, Stanley, Minot and Watford City — and last week opened a store in Dickinson. It has 10 stores throughout North Dakota. The stores, which employ a total of about 1,500 people, are generally in the 30,000- to 60,000-square-foot range and are generating “fantastic” volumes, according to company spokeswoman Rebecca Kurowski.

“It’s still very busy in our stores,” Kurowski said when asked about the impact of the oil drop-off. “But it was absolutely crazy for a while, because we did not build gigantic superstores though the volume could definitely support it. Looking at our long-term sustainability, if this would turn into an oil bust, we needed to be a fiscally responsible company. We built the stores at a moderate size, squeezed in and worked our tails off to keep things running. A lot of times that meant bringing people from here at the corporate office and our local stores out there to relieve some of that pressure. If anything, we’ve gotten a little, tiny reprieve to catch our breath.”

Although Coborn’s beefed up its corporate substation in Bismarck, the company regularly charters groups of employees and executives back and forth from the St. Cloud Regional Airport. An effort to establish regular air service between St. Cloud and the Bakken generated some interest last year but never got off the ground.

While Coborn’s recently added several stores in Wisconsin, Kurowski indicated there could be more expansion in western North Dakota, too.

“We’re certainly open to it,” she said. “We’re always looking for the right opportunities to grow and expand, whether through building new stores or acquisition.”

Engineering consultants grow

Scott Lange and Keith Yapp have ground-level offices barely a mile apart on the south side of St. Cloud. Yet each in their own way is focused on work that is perhaps nine hours to the west by car or truck.

Lange, who is a principal with SEH, is one of about 45 people who consult with mostly public clients, like cities. The company employs engineers, architects, planners and scientists and three years ago opened an office in Bismarck with 12 people. Out of the St. Cloud office, Lange estimates 12 people have been working in North Dakota directly because of the oil activity in recent years and another six engineers locally work on North Dakota projects.

One of SEH’s biggest endeavors was a $100 million rail terminal 30 miles west of Dickinson that specializes in the transfer of oil train cars. That has led to six other major projects including work with a Native American tribe, Lange said.

“I’m not an economist, but in my gut I just don’t think (oil) production is going to go away out there by any means,” Lange said. “There’s been some consolidation recently, but it hasn’t affected us. It’s not a bad thing for some of the municipal and (department of transportation) work to catch up.”

Stantec works on similar projects and Yapp estimates 20 percent of his active staff is at work on North Dakota projects at any given time. He said his company grew from $14.5 million in North Dakota DOT projects in 2011 to $56 million in 2014.

“In two or three years, I could see that work tapering off as the roads get done,” Yapp said. “But their DOT hasn’t grown despite all of the activity up there. They need the resources that we can provide in construction administration. I don’t see us ever having to pull out.”

The picture is a little different in construction. St. Cloud-based Winkelman Builders have been more cautious, “dipping our toes” in the Bakken, according to Andy Auger, vice president and chief operating officer. Late last year, the company built a grocery store in Dickinson.

“But your crews have to work like dogs for 10-12 long days and then come back,” Auger said. “It’s a challenge with scheduling. And we’ve got more work than in a long time in Minnesota — Alexandria, Duluth, Elk River, Brainerd. We don’t need to search for projects out there.”

Many subcontractors also have been able to find work closer to home, making it harder to find companies that have a relationship with Winkelman that are willing to go way west.

“We’re just being cautious,” Auger said. “In 2011 and 2012, we had all kinds of people coming to us with the opportunity to work on developments as investors. I haven’t heard that kind of pitch now in more than a year.”

Pace becomes more normal

Other companies have evolved with the change in oil industry conditions. Lumber One, for instance, is based in Avon and Cold Spring but is part-owner in a five-building project in Williston. It has been complete for more than two years and includes 145 apartments, mostly 2- and 3-bedroom units.

Originally, the primary clients were big oil companies that rented apartments en masse. With the dip in oil activity, they’ve pulled back and Lumber One has changed its approach to similar complexes.

“Three years ago, we never considered anything with one-bedroom apartments,” said Ted Schmid, Lumber One’s chief operating officer. “With the corporate leases drying up, the demand for one-bedrooms is starting to change significantly. With the rents the way they are, people aren’t going to buy an extra bedroom unless they need it.”

One-bedroom apartments in the Williston area can cost $1,200, $1,400 and more per month. Last month, Lumber One finished a 288-unit project started in 2013. Two- and three-bedroom apartments rent for $2,000 and up.

“It’s not like you’re opening the door and it’s 100 percent full,” Schmid said. “The other project, (renters) literally sat in their cars and waited and we were full when we opened. That doesn’t happen anymore.”

Schmid remains optimistic, partly because of a seminar he attended a couple of months ago in Golden Valley. Schmid said the information he heard indicated wells are getting easier to drill, more efficient and cheaper than they were even two years ago. Companies are refining the ability to refrigerate compressed natural gas on site, he said, resulting in less flaring off waste.

“It’s a game-changer from what I’ve heard,” Schmid said.

According to information presented at the North Dakota & Bakken Summit, which also was attended by Bill Kemp, business development director for the Greater St. Cloud Development Corp., the break-even price for a barrel of oil ranges from $30 in the Bakken core to $50-$60 in outlying areas. Even with the lower prices, North Dakota remains second nationally to only Texas in oil production.

“The price of oil is undoubtedly having some impact on the relationship between Central Minnesota companies and the Bakken,” Kemp said. “But there’s so much infrastructure in the ground up there now, it’s not like people are going to walk away from it. I think it’s a lot less likely than in the past that the economy will go boom-to-bust.”

This article was written by Kevin Allenspach from St. Cloud Times, Minn. and was legally licensed through the NewsCred publisher network.