September 4, 2006

KUFM / KGPR

T. M. Power

The Oil and Gas Boom in Eastern Montana: Great Plains Renaissance?

High oil and gas prices have once again brought a frenzied expansion of oil and gas exploration and production in Montana’s eastern counties. That has led some to talk as if a new economic era is blooming out on the Great Plains. They point out, almost gloating, that those eastern oil and gas counties are now experiencing growth in earnings significantly faster than found in the urban western counties such as the Bozeman, Kalispell, Missoula, and Bitterroot areas.

The growth in those western counties has bothered those who believe with a religious-like faith that only natural resource industries can bring reliable economic growth. The growth in those western counties despite the declines in forest products and mining has embarrassed those economic fundamentalists. So they are happy to suggest that a reversal is about to take place as mineral extraction retakes its rightful place in the “Treasure State” and pushes the suburban sentimentality of the “Big Sky Country” to the periphery where they believe it rightly belongs.

For the last year for which we have data, the impacts of oil and gas development on some rural eastern Montana counties is truly impressive: earnings growth across counties such as Blaine, Fallon, and Richland were as much as 100 percent faster than in the state as a whole. For Toole, Glacier, and Big Horn the growth was 20 to 50 percent faster than the state as a whole. The state leaders for many years, Flathead and the Bitterroot Valley lagged behind these oil and gas counties; only the Bozeman area made a decent showing in comparison.

But significant oil and gas exploration and production were not silver bullets for eastern Montana counties. Half of the twelve counties with the highest oil and gas production, those 12 counties collectively responsible for over 90 percent of Montana’s oil and gas exploration and production, had growth at or substantially less than the state average both for the last year for which we have data and for the previous three years too.

More troubling, those 12 leading oil and gas counties as a group lost population over the last four years. Those twelve oil and gas counties lost 820 people while the urban and suburban counties of western and southwestern Montana gained ten times as many people as those “booming” oil and gas counties lost.

The economic picture in the oil and gas counties appears brighter if we use jobs instead of population as the measure of economic vitality. Those 12 oil and gas counties gained about 2,000 jobs over the last four years. Very impressive, but the urbanized counties of western and southwestern Montana added ten times as many jobs, 23,200. Clearly the oil and gas boom in eastern Montana has not yet had a dominant impact on the state economy although it certainly is likely to have helped the rural east somewhat.

The substantial growth in earnings and jobs combined with stagnant or declining populations hints at the limited impact that oil and gas development has on local economies. The “boom” associated with the oil and gas industry is tied to exploration and development. That requires teams that drill wells, put in pumps and compressors, and lay the pipelines that collect the oil and gas. Once that is done at a particular location, that team moves on to another location. The labor needed to tend an established oil or gas field is exceedingly low.

The result of this characteristic of the oil and gas industry is that it is serviced by a very mobile workforce that commutes long distances to their jobs, living in campers, trailers, or motels and then moving on. For some of those oil and gas counties for which we have data, half or more of the total earnings in mineral extraction are off-set by the leakage of money out of the county associated with those who commute in to work. For some of those counties, the commuter leakage is greater than the total earnings in mineral extraction. This is a pattern found in oil and gas counties across the Western states.

Of course, this is not the first or last time that an oil and gas boom has hit eastern Montana. The early 1980s saw the same type of frenetic exploration and development activity as oil prices soared to record highs. Prices then collapsed and after waiting a decade for those prices to rise again, the drilling rigs were cut up for scrap metal and the rural Great Plains counties returned to their near century-long decline in terms of population. The oil and gas continued to be produced, but swarms of migrant workers were no longer needed to drill more and more wells. Ultimately, as oil and gas fields are fully developed and production rates reach the optimum, this pattern of declining employment and population threatens every oil patch.

One thing that helps avoid such a decline is the attractive characteristics associated with communities and landscapes that provide some incentive for workers and their families to want to stick around or move in and try to put down roots rather than wander on to the next oil patch under development. That is what kept the timber towns of Missoula, Kalispell, and Hamilton from becoming ghost towns. That is what kept the “cow-town” of Bozeman from withering away like other ag towns. Natural resource industries by themselves ultimately generate ghost towns. In a mobile economy, it is a community’s ability to hold and attract people that lays the basis for economic diversification complementing natural resource activities and the possibility of long-term habitation.