How North Dakota got it right (and how other states can, too!)

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11-1 Mark Anderson

By Mark Anderson, CEO, Mainstream Investors, LLC

As North Dakota entered the last decade of the 20th century, it found itself near the bottom of nearly every economic metric measured, save agriculture.  Each year, it was a net exporter of people, and with a total population of just 638,800 statewide, it could little afford to export the intellectual capital that would be required to build the state into an economic powerhouse.

Fast-forward to today. According to the U.S. Chamber of Commerce, North Dakota now ranks first in the nation in overall performance; long-term job growth; short-term job growth; gross state product growth; per capita income growth; and STEM (science, technology, engineering, and mathematics) job growth. It ranks second in productivity growth and college affordability, and third in educational attainment. And, it has the lowest workforce safety and insurance rates of all 50 states.

Did I mention that North Dakota is also the second-largest oil-producing state in the nation?

How was all this made possible? Well, it goes without saying that the state has been richly blessed with many natural resources, both on the surface of the land and beneath it. But that is just a part of the story. Many states are blessed with abundant resources but lack the vision and regulatory and tax climate to exploit them for the benefit of their citizens and the nation. No, it goes beyond that.

It Starts at the Top

North Dakota’s pro-business culture originated over 20 years ago with then-governor Ed Schafer. Elected in 1992, Schafer committed himself to growing and improving North Dakota’s business climate early on through his “Schafer Means Business” campaign focus. He was twice elected governor and made improving the state’s tax and regulatory climates and encouraging investment in North Dakota his top priorities. He also implemented strict fiscal management and cutting-edge technology designed to improve the effectiveness of state government and support business growth across the state.

In 2000, Schafer was succeeded as governor by John Hoeven. Hoeven, who had served since 1993 as the president and CEO of the nation’s only state-owned bank, The Bank of North Dakota, continued Schafer’s work to stimulate growth in North Dakota by directing the development of EmPower North Dakota, a comprehensive energy program created to encourage growth in all energy sectors.

After Hoeven was elected to the United States Senate in November 2010, Lieutenant Governor Jack Dalrymple was appointed to serve as North Dakota’s 32nd Governor. Through his North Dakota 2020 & Beyond project, Dalrymple has continued the pro-business focus started, and then advanced, by Schafer and Hoeven.

“North Dakota wants business to happen in our state,” says Andy Peterson, president of the Greater North Dakota Chamber. “Where some states see business as something to tax and regulate, North Dakota sees it as something to help.”

Building a Supportive Structure

When building a diversified state economy, it is important to create a structure that both promotes and regulates industry.  North Dakota’s energy program is a fine example of this. From the very beginning, the state’s oil and gas regulatory structure was designed to facilitate the development of energy production across the state.

North Dakota’s oil and gas industry operates under the oversight of the North Dakota Industrial Commission (NDIC), which manages (among other state agencies) the North Dakota Geological Survey, the Department of Mineral Resources Oil and Gas Division, and the North Dakota Pipeline Authority.  The NDIC was established by the North Dakota Legislature in 1919 to “conduct and manage, on behalf of the state, certain utilities, industries, enterprises and business projects established by state law.” The members of the NDIC include the Governor, the Attorney General, and the Agriculture Commissioner.

The North Dakota Geological Survey (NDGS) is the primary source of geological information in the state. Created by the Legislature in 1895, it publishes maps and reports to support industry and the regulatory programs of the NDIC. NDGS also has over 375,000 feet of core samples and 30,000 boxes of drill cuttings from wells across the state in its Wilson M. Laird Core and Sample Library housed at the University of North Dakota.

The Department of Mineral Resources Oil and Gas Division (DMR) is responsible for regulating the drilling and production of oil and gas in North Dakota. In addition, it promotes the responsible development of oil and gas throughout the state and is charged with protecting landowner, mineral owner and royalty interest owner rights.  One important change enacted by the DMR was moving from 640-acre to 1,280-acre spacing units, which reduced the industry’s environmental footprint and allowed for a more efficiently structured drilling layout.

In 2003, the North Dakota Legislature created the Oil and Gas Research Program (OGRP) to promote the growth of the oil and gas industry in North Dakota through research and education. The program is funded through a portion of the state’s oil and gas production and extraction taxes. Each year, up to $5 million is re-invested in the industry through the OGRP.

The North Dakota Pipeline Authority (NDPA) was created by the Legislature in 2007. The NDPA operates under the NDIC and was created for the purpose of diversifying and expanding the North Dakota economy by facilitating development of pipeline facilities to support the production, transportation and utilization of North Dakota energy-related commodities.

Finally, the member-supported North Dakota Petroleum Council (NDPC) has been representing the oil and gas industry since oil was first discovered in North Dakota back in the early 1950s.  It serves as the voice of the industry for all matters relating to governmental relations. With over 500 members, the NDPC provides its members with regulatory and legislative support on issues affecting the industry. Through its Oil Can! Program, NDPC helps to improve communications and foster understanding between the North Dakota oil and gas industry and various stakeholders, including property owners, community leaders, and legislators.

Government of the People

North Dakota is unique from many states in its legislative structure, which is only in session every other year.  That means that there are no professional politicians. Each citizen legislator holds down a “regular job” in his or her home community, putting them more in touch with the issues facing their constituents. Legislators travel to Bismarck every two years to introduce legislation and establish a budget for the next biennium.

Not surprisingly, North Dakotans have unprecedented access to their government officials.

“The ease of access and cooperativeness of state agencies is what makes North Dakota different,” states Mike Fladeland, manager of Energy Business Development for the North Dakota Department of Commerce. “We view our role as being here to assist the people of North Dakota and the companies that do business here—or want to.”

Growth Comes with Challenges

But even with an estimated $1.6-billion budget surplus and unprecedented growth in nearly every economic sector, the state still faces challenges. Among them is the need to address insufficient infrastructure, pipelines, housing and workforce to accommodate a burgeoning economy. The state also continues to struggle with ways to improve the capture and transport of natural gas, allowing for a reduction in flaring from 30 percent today to state targets of less than five percent.

“Growth comes with challenges,” says Ron Ness, president of the NDPC. “The Bakken has become the world model for shale oil development. There will be bumps and bruises along the way, but we are headed in the right direction. There is wide public support for oil and gas development in North Dakota. Our job is to tackle the challenges before us and be part of the solution.”

Based on their track record, we are betting they will.

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