1. Energy Day Open

2. Dean Bangsund RESEARCH SCIENTIST, NORTH DAKOTA STATE

3. Economic Effects of Petroleum Sector on North Dakota’s Economy
Dean Bangsund
Agribusiness and Applied Economics
Dr. Nancy Hodur
Center for Social Research
North Dakota State University
North Dakota’s economy continues to buck national trends
Take a look at the most statistic
Unemployment rates
job growth
export growth
state’s fiscal situation—arguably the envy of the country
While the macro forces at play in ND are numerous, perhaps none is larger than what is occurring in our energy sector
Over this past year Dr. Nancy Hodur and myself have been working with Ron and his staff, along with many of you on the board, to gather data and assess the economic effects of the petroleum sector on North Dakota’s economy.
I would like to bring everyone up to speed with the focus of our study, what is involved, present the high points of the study in combination with results from our past studies, and spend a few minutes to reflect on what this means for the state.
North Dakota Energy Day
March 7, 2015

4. Study Approach How do we measure size?
Estimate in-state expenditures and other revenue streams, these are called direct effects
Survey Data -- from industry sources
Secondary Data -- from government agencies
North Dakota Input-Output Model used for secondary economic effects
Method to trace economic activity in an economy resulting from a direct effect in an economic sector

5. Methodology of Impact Assessment
Input-Output Analysis
ND I/O Model
Indirect
Effects
Induced
Direct Impacts
HOW impacts are measured
WHAT is being measured – metrics that are used to describe the size of an impact
Personal Income
Employment
Business Volume
Value-added (GSP)
Government Revenues

6. North Dakota Oil Production

7. Drilling Activity, North Dakota, 2000-2015
Study Years
Here’s a graph showing well completions as a metric to show the increase in well drilling and development in the state. Again, a similar pattern of growth regardless of how you want to measure the physical changes in industry output.

8. Industry divided into Exploration/Development, Production, Transportation and Processing, and Infrastructure Spending
We break the industry in four components.
Exploration or development—this is drilling, well completions, bringing new wells online
Production—the processes and activities associated with producing oil and gas
Transportation and processing -- primarily involves moving oil and gas from collection points to in-state and out-of-state markets, gas processing, and crude oil refining
Infrastructure development—we added this segment this year in an attempt to better understand the scale of infrastructure being added in ND as a result of developing our oil resources.

9. Exploration/Development Key Metrics -- 2015
91 average monthly rig count
1,583 wells completed
657 wells with survey/financial data
$6.9 million cost per well
$10.95 billion in well development
$5.3 billion in-state capture of costs

10. Exploration/Well Development Direct Impacts
In-state Capture of Industry Expenditures
$5.3 billion in 2015
31% decrease to 2015

11. Exploration/Development Gross Business Volume by Economic Sector
Sum of gross receipts for direct, indirect, and induced economic effects
$14.2 billion in 2015
Down 32% from 2013

12. Impact per Rig $58 million in-state expenditures
$1.57 additional secondary business per $1 of direct
$155 million direct and secondary impact
$1.47 million --- sales and use, personal income, corporate taxes
182 direct and secondary jobs

13. Oil and Gas Production Key Metrics -- 2013
432,286,000 bbls oil
584,774,000 mcf of gas produced
451,924,000 mcf of gas sold
$17,312,320,000 value of oil production ($40.05/bbl)
$979,754,000 value of gas sold ($3.29/mcf)
$18,292,074,000 value of oil and gas
12,799 average monthly producing wells

14. Oil and Gas Production Direct Effects
In-state Capture of Industry Expenditures
$6.7 billion in 2015
15% decrease to 2015

15. Oil and Gas Production Gross Business Volume by Economic Sector
Sum of gross receipts for direct, indirect, and induced economic effects
$13.1 billion in 2015
Down 17% from 2013

16. Impact per Well $523,000 in-state direct expenditures
$1 additional secondary business per $1 of direct
$1 million direct and secondary impact
$11, sales and use, personal income, corporate taxes, and property taxes
$149,000 severance taxes (net average)
1.9 direct and secondary jobs

17. Pipelines and Rail, Refining, & Gas Processing Direct Effects
In-state Capture of Industry Expenditures
$1.2 billion in 2015
23% increase to 2015

18. Transportation and Processing Gross Business Volume by Economic Sector
Sum of gross receipts for direct, indirect, and induced economic effects
$3.4 billion in 2015
20% increase from 2013

19. Petroleum Industry Investment in Infrastructure 2011 - 2015
2011 = $2.8 billion = $3.4 billion = $2.6 billion

20. Infrastructure Investment Key Values -- 2015
Petroleum Industry Infrastructure Outlays
Incurred
Retained (direct impacts)
Average
Gross Business Volume
Category
Low
High
millions 2013 $
Gas processing plants
904.7
946.4
392.1
410.1
Midstream (excluding above)
314.9
335.5
153.7
162.6
Crude oil pipelines/rail loading
707.3
757.4
315.1
336.8
Gathering systems
305.4
331.9
149.5
161.0
Water treatment
113.2
131.6
49.1
57.0
Housing and Lodging
19.5
22.6
9.4
10.9
Office and Related Facilities
150.0
174.3
72.5
84.3
Misc.
12.8
14.8
5.3
6.2
Total
2,527.8
2,714.6
1,146.6
1,228.9
3,556
Here is a listing of the types of infrastructure for which we have attempted to provide spending estimates.
The expenses “incurred” are estimates of the actual expenditure made on the infrastructure, while the “retained” values represent the amount that were captured and circulated in the state.
We can see here that we are estimating about 1.1 billion of in-state capture on infrastructure projects in the state in The total business activity associated with those direct impacts were estimated at about $3.6 billion

21. Petroleum Industry In-state Expenditures (Direct Impacts) 2005 - 2015

22. Business Volumes Category 2005 2007 2009 2011 2013 2015 Direct Impacts
Percent Change
Category
2005
2007
2009
2011
2013
2015
millions 2015 $
Direct Impacts
1,754
3,473
5,385
11,192
16,623
13,240
655
-20
Infrastructure --
1,207
1,497
1,142
-24
Indirect and Induced Impacts
2,856
5,742
8,495
17,185
22,831
17,456
511
2,555
3,171
2,415
Gross Business Volume
4,610
9,225
13,879
28,378
39,454
30,696
566
-22
3,763
4,668
3,557
Grand Total
32,140
44,121
34,253

23. Government Revenues Paid by Petroleum Industry

24. All Employment North Dakota Petroleum Industry
Percent Change
Category
2005
2007
2009
2011
2013
2015
Direct Employment
5,051
11,813
18,328
40,856
55,137*
48,369*
860
-12
Secondary Employment
15,171
17,612
17,729
18,703
26,403
23,984 60 -9
Total Employment
20,223
29,424
36,056
59,559
81,450
72,353
260
-11
Direct employment is a statewide figure, that represents a broad definition of those employeed in the industry. This would represent jobs in other economic sectors that represent work in the oil and gas industry, e.g., transportation, mfg, construction, wholesale, and services.
In other studies our figures would more closely represent a combination of direct and ‘indirect’ employment. The secondary employment we are estimating more closely would approximate ‘induced’ employment in the state—those are jobs added to related sectors primarily as a result of spending by workers in the petroleum sector.
Our analysis of jobs added in the state since the development our shale resources shows that those types of jobs have not been added at near the rate that we have seen in jobs more directly related to the industry
housing shortages, wage rate escalation, and labor force availability are a few of the primary reasons for this.
* Source: Direct employment obtained from Job Service North Dakota.

25. Share of State 2015 Petroleum Industry State Totals
Share of State Total
Private
Public
Private & Public
Employment
Direct
Indirect and Induced
48,369
23,984
367,144
437,078
13.2%
6.5%
11.1%
5.5%
Salaries/Wages (billions $)
$5.632
$18,937
$22,658
29.7%
25.4%
GSP (billions $)
$9.485
$55,860
17.3%
Personal Income
(billions $)
$7.540
$42.350
17.8%
Sources: U.S. Bureau of Economic Analysis; Job Service North Dakota; Bangsund and Hodur (2017).

26. Change and Percent Share
Share of Growth
2005
2015
Change and Percent Share
Private
All
Employment (QCEW)
North Dakota
264,633
328,121
367,144
437,038
102,511
108,917
Oil and Gas (direct)
5,052
48,369
43,317
42.3%
39.8%
Sources: Job Service North Dakota; Bangsund and Hodur (2017).

27. Share of Government Revenues 2005 - 2015
Change and Percent Share
billions 2015 $
Total State and Local Government Revenue
$6.994
$11.062
$4.068
Oil and Gas Industry
$0.385
$3.060
$2.675
Percent Share
5.5%
27.7%
66%
Source: U.S. GovernmentRevenue.com (2017).

28. Take Aways
Petroleum industry remains among the largest drivers of change in the state
Oil production, versus oil field development, is increasing in relative economic importance
Even with low rig counts, some segments of the industry will be stable and grow in there economic contribution

29. Acknowledgments Funding provided by North Dakota Petroleum Council
Extend our sincere appreciation to all the firms and individuals who provided information and data for the study
Reports will be forthcoming

30. Feel Free to Reach Out and Contact Us
Dean Bangsund, Nancy Hodur,

31. Change in Value of Oil and Gas Sold 2007 - 2016
Year
Oil Production
Value of Sales
Period
Percent Change in $
million bbls
million 2016$
2007
45.1
3,777
24.7
2008
62.8
6,702
77.5
2009
79.8
5,040
-24.8
2010
113.0
9,000
78.6
2011
153.0
14,866
65.2
2012
243.3
22,350
50.3
2013
313.8
30,028
34.4
2014
397.0
33,901
12.9
2015
432.3
18,569
-45.2
2016*
376.9
14,500
-21.6
-38.2
Sources: ND Department of Mineral Resources, ND Office of State Tax Commissioner.

32. Survey Data Representation
45% of operating wells
47% of oil and gas output
42% of wells drilled
79% of gas processing volumes
35% of crude oil movements
24% of rail loading volumes

34. Government Revenues State and Local

35. Distribution of Direct Employment
North Dakota Petroleum Industry
The distribution of employment highlights the complexity of the industry, and how oil and gas industry employment crosses many sectors of the economy (12 of the 20)
Sources: Job Service North Dakota; Bangsund and Hodur (2017).

36. Influence on Employment Growth
All Wage/Salary Employment
Oil and Gas
Period
Public & Private
Private
Direct Oil&Gas
Non-oil
Indirect & Induced
Direct, Indirect, Induced
% of Private
2011
379,433
312,525
40,856
271,669
18,703
59,559
19.1
2012
411,710
344,540
49,557
294,983
22,443
72,000
20.9
2013
427,109
359,415
55,137
304,278
26,270
81,407
22.6
2014
444,658
376,055
62,942
313,113
28,324
91,266
24.3
2015
437,078
367,144
48,369
318,775
23,984
72,353
19.7
Annual Changes
32,277
32,015
8,701
23,314
3,741
12,441
38.9
15,399
14,875
5,580
9,295
3,827
9,407
63.2
17,549
16,640
7,805
8,835
2,054
9,859
59.3
-7,580
-8,911
-14,573
5,662
-4,340
-18,913
???
Sources: Job Service North Dakota; Bangsund and Hodur (2017).

37. Recall events of two years ago?

38. Expectations two years ago
Authors’ View March of 2015
Results of changes from 2013 to 2015
Industry Segment
Industry Expenditures and Revenue Streams
Economic Impact
Exploration and Development
-) Fewer rigs
-) Less industry spending
Decline
YES
Extraction and Production
-) Decline in severance tax
-) Decline on royalties
-) Add fewer but more productive wells
Mixed
Increases & decreases
Transportation and Processing
-) Focus on cost savings
Linked primarily to oil and gas output
Increases

39. Near-term Expectations
Authors’ View March 2017 for 2017 Impacts
Industry Segment
Industry Expenditures and Revenue Streams
Economic Impact
Exploration and Development
-) Modest increase in rigs
-) Uptick in industry spending
Higher
Extraction and Production
-) Improvement in severance tax
-) Improvement in royalties
-) General business spending unchanged
Transportation and Processing
-) Continue to be driven largely by oil and gas volumes
Not much change

40. Long-term Perspective
Shift in relative importance of industry expenditures from exploration/development to extraction/production
Additional Insights
Still have a huge resource -- need to add wells to retrieve oil in place
Extend timeline to develop shale formations
Continue to have economic opportunities
Commodity prices will not be linear – up / down
Current expectations are for economics to improve
Industry will remain a key economic driver in the state

41. Brent Sanford LT. GOVERNOR OF NORTH DAKOTA

42. Kevin Black FOUNDER OF CREEDENCE ENERGY

44. with deep GRATITUDE
we say THANK YOU

45. where the Creedence story started…

46. fast forward to 2014…the wild west

47. spring 2015 Creedence goes to work

48. Thank you!

49. Ryan Rauschenberger TAX COMMISSIONER OF NORTH DAKOTA

50. March 7, 2017 Ryan Rauschenberger Tax Commissioner
ND Revenues
March 7, 2017
Ryan Rauschenberger
Tax Commissioner

51. Collections in Major Revenue Categories
In $ millions
Tax Type
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Sales & Use
$684.1
$791.7
$1,254.1
$1,408.9
$1,470.1
$1,541.3
$1,134.0
Individual Income
$304.3
$429.8
$432.1
$617.9
$516.1
$537.6
$355.5
Corporate Income
$87.9
$146.5
$198.7
$187.1
$239.4
$195.8
$97.6
Oil
$582.7
$986.7
$1,660.8
$2,407.8
$3,247.8
$2,801
$1,483.4
Coal
$37.7
$34.4
$36.4
$35.9
$36.2
$38.5
Motor Fuel
$151.7
$171.5
$205.2
$212.3
$228.7
$232.5
$197.2
Other
$183.6
$221.3
$277.4
$300.6
$320.7
$343.4
$330.9
Total Net
$2,032.0
$2,782.1
$4,064.1
$5,170.5
$6,059.0
$5,690.1
$3,636.3
The March 2015 forecast for the remaining months of the biennium (March through June) assumed sales tax collections of $ million.  Actual collections were $ million, a shortfall of $20.8 million, or -5.4%.
% change over last 5 years (FY10 to FY14):
Sales & Use: increase 116%
Individual Income: increase 69.6%
Corporate Income: increase 166.3%
Oil: increase 456%
Coal: decrease 4%
Motor Fuel: increase 50.8%
Other: increase 74.6%
Total Net: increase 202.9%
% change from FY13 to FY14:
Sales & Use: increase 2.8%
Individual Income: decrease 16.5%
Corporate Income: increase 28%
Oil: increase 35%
Coal: increase .8%
Motor Fuel: increase 7.7%
Other: increase 6.7%
Total Net: increase 17.5%

52. Collections in Major Revenue Categories
*November 2016 Executive Forecast

53. TSP - Retail Trade Sector
2014
2015
2016
4th Quarter 2016 is preliminary data.

54. TSP - Accommodation & Food Services Sector
2014
2015
2016
4th Quarter 2016 is preliminary data.

55. TSP - Manufacturing Sector
2014
2015
2016
4th Quarter 2016 is preliminary data.

56. TSP - Wholesale Trade Sector
2014
2015
2016
4th Quarter 2016 is preliminary data.

57. TSP - Mining & Oil Extraction Sector
2014
2015
2016
4th Quarter 2016 is preliminary data.

58. Annual TSP Comparison 2007 · 2013 · 2016
2016 is preliminary data.

59. By the Numbers: ND vs TX 2016 Oil
North Dakota
Texas
Gross Value of Oil
$16,881,920,400
$52,428,850,800 ND TX
Value of Oil per Capita
$22,273
$1,882

60. March 7, 2017 Ryan Rauschenberger Tax Commissioner
Questions?
March 7, 2017
Ryan Rauschenberger
Tax Commissioner

61. Kathy Neset PGERESIDENT OF NESET CONSULTING SERVICE

62. Presented by: Kathleen Neset
ENERGY DAY
Industry Basics and the Bakken Going Forward
Presented by: Kathleen Neset

63. World Shale Map

64. Recoverable Shale Oil Reserves
Russia 75 billion barrels
US 58 billion barrels
China 32 billion barrels
Argentina 27 billion barrels

65. World Oil Production 2014 -2015 2016 US 14.1 million bbls/day
Saudi (OPEC) 11.6 million bbls/day
Russia million bbls/day
China million bbls/day
2016
Russia million bbls/day
Saudi (OPEC) 10.0 million bbls/day
US million bbls/day

67. Permian Basin, TX
Midland and Delaware Basins are 2 largest Subsidiary Basins within the Permian
New USGS estimate states 20 Billion Barrels of undiscovered, technically recoverable oil in the Wolfcamp Shale (Midland Basin)
Permian crude oil production has more than doubled since 2010 largely as a result of hydraulic fracturing in six low-permeability formations: Spraberry, Wolfcamp, Bone Spring, Glorieta, Yeso and Delaware

68. SCOOP & STACK, Oklahoma SCOOP Tends to be more liquids-rich
Deeper than most other unconventional plays, 12,000’+ TVD
Complex Geology Structure
STACK
Little to no produced formation water
New Horizontal Wells potentially 50 times original vertical wells
Operators utilizing Slickwater Fracs with up to 2000 Lbs/Ft

69. Wyoming Plays BASINS Powder River & Denver Basins are most active
Most Drilled is Niobrara Formation
Additional Formations include the Mowry, Shannon, Sussex Formations
NEW Developments
Horizontal Exploration in areas previously dominated by conventional drilling
Multi-Stage completions
Cross-link and Slickwater fracs

70. Active Drilling Rigs in ND Courtesy of the NDIC

71. North Dakota Stratigraphic Column Bakken Three Forks Bakken Formation
~360 Million Years Old
Paleozoic Era
Mississippian/Devonian Period
~110’ thick
Three Forks/Sanish
~370 Million Years Old
Devonian Period
~240’ thick
Bakken
Three Forks

72. Pelmatozoan limestone
Stratigraphy
Three Forks Formation
Bakken Formation
Lodgepole Formation
lower
middle
upper
Pelmatozoan limestone
“False Bakken”
Devonian
Mississippian
“Sanish”

73. Bakken Shale

74. Middle Bakken Siltstone

75. Mud Motors Drillpipe Non-magnetic Drill Collar Bent Sub Mud Motor
Rotating Sub

76. Typical Horizontal Well

77. Conventional VS Horizontal Drilling

78. Lateral Length
2 Mile laterals are most common – most economical – highest ROI
3 Mile laterals still drilled in areas that are less accessible – topography, lakebed.
Shale plays outside of the Bakken still drill 1 mile laterals until economics are proven for longer laterals

79. Hydraulic Fracturing & Completions
30 – 60 stages when completing 2 mile laterals
Operators lean more toward higher volumes of regular frac sand vs ceramic proppant
Wells are being pumped at greater rates(BBLs/Min) – faster than before
Slickwater and hybrid frac fluid is a common practice
Re-Fracing of old wells

80. Stage Frac

81. Geosteering Software
Geosteering Software

82. Geosteering Software
Geosteering Software

83. Drilling rig operator’s joystick control

84. Whiting Oil & Gas Geoscience Rock Lab

86. 2017 Less Federal Regulation – State level
New tax structure for business
Keystone & DAPL

87. 6 wells producing - drilling 7-12 - and 11-18 coming soon Near Ross, ND
Vern Whitten Photography

88. Workforce Panel SCOTT HENNEN, TREY WILSON & JESSIE VEEDER

89. ONEOK LUNCH SPONSOR | REPRESENTED BY STEVE JOHNSON

90. Helen Currie SENIOR ECONOMIST AT CONOCOPHILLIPS

91. Energy Day Open