When the price of oil dropped by half, North Dakota cut its budget in half. But even that grim forecast may have been off by $1 billion.
On Wednesday, a revised revenue forecast from the state Office of Management and Budget warned that North Dakota will likely miss out on an additional $1 billion in oil tax revenue over the next two years. Oil prices have dropped 60 percent over the past seven months, shuttering dozens of oil rigs, slowing the state's white-hot oil boom and cutting off billions in oil tax revenue the state had expected to collect.
In January, state lawmakers downsized the budget plans they made when oil was selling for around $100 a barrel to reflect the reality that the same barrel of oil now sells for just over $44. Instead of $8.3 billion in oil tax revenue, lawmakers revised the 2015-2017 budget to expect $4.2 billion in revenue. On Wednesday, the state budget office dropped that estimate to $3.3 billion, with an additional loss of $419 million from the general fund as cuts in the oil industry rippled across the state economy.
That means less money for workers and companies that relied on the oil industry. And it means less tax revenue down the road for infrastructure projects, county governments and schools.
But a slowdown is far from a crash, and North Dakota is still humming with new construction and infrastructure projects the state funded well in advance. As of Tuesday, the U.S. Labor Department still ranked North Dakota as the state with the lowest unemployment rate in the nation.
"While $419 million is a significant amount of money, and the drop in anticipated oil revenue is significant, it certainly is not doom and gloom in North Dakota," said Pam Sharp, director of the Office of Management and Budget, whose staff worked with Moody's Analytics on the revised revenue numbers.
North Dakota oil companies responded to the drop in prices at the pump by shutting down dozens of rigs in counties on the outskirts of the oil-rich Bakken shale formation. Right now, there are 110 rigs in operation, according to the North Dakota Petroleum Council, down from 188 that were humming last year before the downturn.
The rigs, which drill through the Bakken shale in search of oil, employ as many as 177 people directly or indirectly. Petroleum Council spokeswoman Tessa Sandstrom said more rigs are expected to close as companies cut costs and cut back on oil exploration and focus on the most productive areas of the oil patch on the western side of the state. No one knows how long the price drop will last. "If anyone knows that, they're wrong," one producer joked to Sandstrom.
Despite the downturn, North Dakota is still producing 1.2 million barrels of oil a day. The forecast expects that number to dip to about 1.1 million barrels, then hold steady for the next two years.
"Prices continue to drop and we've made the decision to be conservative about our production numbers," Sharp said. The revenue forecast expects oil prices will hover between $42 to $53 per barrel through 2017.
North Dakota still stands to collect $3.3 billion in oil tax revenue over the next two years. Only $300 million of that money would go directly into the state's general fund, making it easier for lawmakers to budget around any shortfall. The rest goes to separate funds the state uses for things like infrastructure, schools, county governments and legacy projects.
"They're going to have to deal with less money as well," Sharp said.