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North Dakota lawmakers redirect $16M in virus aid to fracking

North Dakota lawmakers redirect $16M in virus aid to fracking

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Garrett Van Dyke, left, and Jesse Zanh, both with Ham's Well Service, anchor a cable stretching to the top of the 96-foot-tall derrick and workover rig while plugging an abandoned oil well southwest of Antler in Bottineau County.

Several Democratic legislators put up a fight Wednesday against a proposal to repurpose $16 million in federal coronavirus relief aid to subsidize fracking in North Dakota’s oil fields, but they were overruled by a significant majority of lawmakers, including some in their own party.

The legislative Budget Section voted 33-5 to approve the proposal, which offers grants to oil companies to reimburse up to $200,000 per well completed by the end of 2020. The money will go toward the acquisition and disposal of water used in the hydraulic fracturing process, which involves sending water, sand and chemicals down a well to crack rock and release the oil stored there. Proponents say the measure will help stabilize oil production and tax revenue, as well as create jobs for laid-off workers.

Sen. Tim Mathern, D-Fargo, who opposed the proposal, requested that the committee vote on the matter independently of a package of requests from state agencies totaling $205 million. That package, which diverts significant funds to schools and grants to businesses for installing virus mitigation measures, passed unanimously.

“There are other ways to spend that $16 million that are directly related to the coronavirus pandemic,” Mathern said. “There are nursing homes, family leave -- a lot of items that could be addressed.”

His concerns were echoed by House Minority Leader Josh Boschee, D-Fargo, who said no other industry in the state is receiving a direct payment to bolster its output.

He argued that the money could be better spent on steps to facilitate visitation at nursing homes as the cold weather arrives and poses challenges to families seeking to reunite outdoors. Or, he said, it could go toward resources to bolster contact tracing or more quickly notify residents who have tested positive for COVID-19. The state in recent weeks has struggled to keep up with both contact tracing and test result notifications.

“We are at a point now where we are peaking every day as we try to battle this crisis,” Boschee said, referring to the numerous statewide records set this month in new cases, active cases, hospitalizations and deaths. “I think any of the funds we use need to ... help us reduce the spread of this virus, to help with the lives and livelihoods of thousands of North Dakotans.”

The $16 million originally was meant to go to a new state program to plug and clean up 380 abandoned oil field well sites, an effort meant to employ oil workers who had been laid off during the pandemic and to restore thousands of acres of land for farmers' use. But the money had to be spent by the end of 2020, and the program rollout experienced delays. With winter approaching, state officials said that only about half of the cleanup work will be completed this year, leaving about $16 million unused. They plan to finish the work next year using state funds.

State Mineral Resources Director Lynn Helms fielded a number of questions from lawmakers Wednesday, telling them that repurposing the money toward fracking will support “hundreds of jobs, maybe thousands of jobs,” including both temporary positions staffing frack crews and permanent jobs servicing the new wells once they start producing oil.

He said Liberty Oilfield Services and Halliburton would perform the fracking work, which would also employ people from smaller vendors such as diesel suppliers and water haulers. He recently spoke with those companies about the logistics at a meeting in Williston.

“Both of the companies who would perform this hydraulic fracture work are located there and have laid off most of their employees,” he said. “The school enrollments and other indicators show that those people are still in Williston. They have not left, and they are not out-of-state employees.”

Rep. Corey Mock, D-Grand Forks, broke from some of his Democratic colleagues and voted for the proposal. He first posed a number of questions to Helms, saying “I’m really trying to find a reason to get to supporting this.”

“I understand the broader economics and the challenges (the pandemic) is putting on western North Dakota,” he said. “I want to make sure that we’re not just using these resources that are very limited in how and when they can be used for what equates to be essentially a shot of insulin to the regional economy, and the effect is lost within just a couple short months.”

Helms told him that the oil industry does not plan to approach the Legislature next year to ask for additional relief, such as from taxes on oil extraction. Proponents of the proposal hope it can sustain the oil industry into the latter part of next year, when they anticipate prices might increase enough to spur more activity in the oil patch.

Oil prices fell this spring when the coronavirus spread worldwide, curtailing travel and global oil demand, and they have stayed low.

As many as 80 wells will be fracked using the money lawmakers approved Wednesday. Helms said he anticipates the funds will help keep the state’s daily oil output around 1.3 million barrels per day, and he predicted that without the grants, production would otherwise drop.

The price of oil, which has hovered around $40 per barrel in October, is about $5 per barrel shy of the level needed to prompt producers to complete wells that have been drilled but not yet fracked, Helms said. Before the grants were proposed, some producers had delayed plans to bring newly drilled wells online, given the poor economics.

Proponents have said the state can expect a significant return on investment from spending $16 million on fracking, a point Helms reiterated Wednesday. He said he expects the state to recoup the money after just nine new wells start producing oil, via the taxes they bring in from production, sales and income.

Senate Majority Leader Rich Wardner, R-Dickinson, said he anticipates the proposal will result in long-term revenue benefits.

“If we want to fund nursing homes, if we want to take care of a lot of our issues in human services and education, we’ve got to look to the future,” he said. “One of our major revenue sources comes out of the oil fields of North Dakota.”

The money that makes up the fracking grants, as well as what lawmakers approved for numerous state agencies Wednesday, stems from the Coronavirus Relief Fund established by the federal CARES Act earlier this year. North Dakota received $1.25 billion through the fund, which state leaders have doled out over the past few months.

The money allocated Wednesday had been returned by state agencies that deemed they could not spend it all by the end of 2020 for their original purposes. The spending proposals first went to the six-person Emergency Commission, chaired by Gov. Doug Burgum, which approved them last week.

The Budget Section approval is the final step. The committee is made up of 43 lawmakers who vote up or down on certain spending requests in between formal legislative sessions.

Other significant proposals to which lawmakers directed CARES Act money on Wednesday include:

  • $61 million for cities and counties.
  • $34 million in new aid for schools to be spent on mental health support, technology, building ventilation improvements and other needs.
  • $29 million in additional funds for the Department of Commerce's Economic Resiliency Grant program to reimburse hospitality businesses for operations costs such as payroll, rent, utilities, personal protective equipment and technology.
  • $20 million for the Bank of North Dakota's COVID-19 PACE Recovery II program to assist businesses with interest payments accrued between April and September 2020.

Reach Amy R. Sisk at 701-250-8252 or amy.sisk@bismarcktribune.com.

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