The Heart Of The Bakken

Watford City leadership is succeeding in an impossible situation. Through collaboration and innovation with the community and the oil and gas companies that call it home, the city is helping the development of the Williston Basin continue.
By Luke Geiver | October 22, 2014

A white top tent set up in the parking lot of Whiting Petroleum Corp.’s Watford City headquarters is ready for a busload of visitors coming from every part of North Dakota. For many on that bus, this will be their first time in the heart of the Bakken shale play. Beneath the tent are round tables with place cards and information packets. A refreshment bar is situated near the edge of the lot in a way that forces any patron of the bar to view the landscape below surrounding the city to the south. The view is unforgettable.

Past the existing small-town buildings, the under-construction apartments and past the busy highway, are sprawling wheat fields and oil wells situated atop the rolling hills that make up the countryside surrounding Watford City. In the far-off distance, the view shows trucks of all sizes coming in and going out of the town. The movement of the city can be felt; the idea of change can literally be heard in the air. It is clear why the tent was put in Whiting’s lot.

On that August night, the sky is clear and the wind calm. The vibrating noise of truck traffic can be heard from that lot like a soft song repeating again and again in the distance. A group of men mill around the parking lot by the tent, checking on the mics and speakers, chatting with the caterers and realigning the place cards. They are visibly anxious for the visitors. It is as if they know something important is about to happen.

The event was organized in part by Brent Sanford, mayor of Watford City, Ron Anderson, McKenzie County Commission chairman, Darick Franzen, Watford City’s Chamber president, and Gene Veeder, executive director of the city’s economic development office. The group's anxiousness prior to the arrival of the visitors—state legislators invited to see the impact and opportunities created by oil and gas development surrounding the city—is all linked to the sense of hope and urgency each has for the evening’s presentations to be delivered by local business leaders, national developers, energy service companies, states attorneys, school superintendents and from the four main men themselves. Their goal for the evening is unified, but daunting: tell the true story of Watford City. By the numbers, what happens in Watford City with housing, infrastructure and community development impacts oil production in the county that is at the geological core of some of the Williston Basin’s most prime areas. More than one-third of the state’s oil production occurs in McKenzie County, and the same can be said for the percentage of drilling rigs operating in the state. That story is non-fiction.

As the sun lowers in the west, and the visitors take seats at a table, a strong stream of light shoots below the tent, spotlighting the faces of the presenters. They squint through the sun or raise a hand to block it and then  clearly and definitively run through facts, figures and personal tales of what Watford City is all about and why what happens there affects what happens everywhere—not just North Dakota. Their stories are also nonfiction.

The event lasts more than two hours, and offers all in attendance a chance to talk with young professionals who call Watford City their preferred place of employment. Anderson speaks on the impact of oil production on roads and infrastructure that invigorates the crowd and is talked about for the rest of the evening. Sanford’s talk is a mix of financial review, persuasion and personal experience. The next morning, all four men gathered in the city’s main restaurant with The Bakken magazine to rehash what went right or wrong at the event. That morning, the full truth and story of Watford City comes out.

Before Bakken
Locals call it the island empire. Oil and gas folk have recognized it as the heart of Bakken oil country. Media reps in town writing for national publications often describe it in terms of what has happened to the town, rarely ever what will, always writing about topics such as meth, crime or a 21st century Wild West. The state of North Dakota has declared it an oil-impacted city, but not a hub, even as McKenzie County accounts for more than one-third of the state’s oil production and just over one third of all drilling rigs operating in the state. Brent Sanford, the mayor of Watford city and the man who left after graduating in 1990 at the bequest of the city’s then Mayor—Brent’s dad—due to a lack of economic opportunity, calls Watford City home.

What Sanford, Veeder, Anderson and even Franzen—a former Illinois resident who moved to Watford City for the chance at economic prosperity and the ability to make things happen—call Watford City is important and part of the answer that could be the key to the city’s, and surrounding oil industry’s, future. “The story of Watford City is as much about what this community was like before all of this hit, and what it has taken to sustain all of this,” says Veeder. “This is about what happened before the Bakken.”

For Veeder, Anderson and Sanford the past is all similar. Anderson, a third-generation McKenzie County resident, says his grandparents homesteaded the family ranch. Anderson’s grandmother and grandfather, not acquainted at the time, immigrated from Norway, boarded a ferry at Ray, North Dakota to cross the Missouri River to homestead their own respective claims. After meeting and marrying, the two established what is the Anderson family ranch is today. Veeder’s family history is similar. “My grandpa rode his bike across the Missouri in winter at Ray to get to his homestead,” he says. Sanford has four sets of great grandparents who all homesteaded in the area.

“This is home. This is deep,” Sanford says. “I have lived in Grand Forks, Fargo, Phoenix and Denver. I never felt at home during my time away from here. There was always something missing." Before becoming mayor, Sanford worked as a CPA and as a chief financial officer in Fargo, Phoenix and Denver. His grandfather was Watford's mayor for 19 years and his father served on City Council for eight years. All three of them owned and operated S&S Motors on Main Street in Watford City. The Sanfords and the business have been a fixture there since 1946.

Veeder, Sanford and Anderson were all entrenched in the city before the mid-2000s when Bakken oil activity exploded. Each was adamant about continuing the city’s progress and maintaining its viability. In the mid-'90s Veeder worked to bring computer programmers into the city from the West Coast. He helped turn an old John Deere building into a programming center. When the dot.com boom hit, many of the programmers left. The story, to Veeder and Sanford, offers a glimpse into what could happen to oil development and the state’s economic prosperity if people don’t understand what homesteading grandparents mean to a city’s potential, or how strong the pull of home can truly be. According to Veeder, the programmers left Watford City for one reason. “This wasn’t home to them,” he says.

Although accounts of Watford City’s ensuing demise or reports of dreadful everyday life seem to dominate headlines or discussions of the city, all four men have a drastically different view of the city. “If you want to find something bad, you can go to any city anywhere,” Veeder says. “When people come here, we don’t have to convince them that we are doing good things and welcoming everyone that is here for the right reasons.” Sanford and Veeder want the city to grow. They want people like Franzen to join the community, and making that happen, starts as the saying goes, at home.

“Until people believe this is their home, they will be transient. They need housing,” Veeder says. “You can’t build a community on man camps.”

Sanford, Veeder and Anderson don’t want anyone to confuse their collective pasts with their hope for the future. “Yes, we want to have the type of community we’ve had before,” Sanford says, “but we want to make it bigger.” Sanford points to Franzen as an example for the future. “We want to welcome people and call them one of us. That is how it has always been. It’s been 100 years of homesteaders coming in and they weren’t all from the same village in Norway. Today they are coming from Texas, Oklahoma and Wyoming. We are used to this.”

The Merits of Making Watford City Home
The leadership group of Sanford, Veeder, Franzen and Anderson is adamant about many things regarding the city. Housing is one of the most important issues for each. “Urgency comes from our understanding of how long it takes to get things done here,” Veeder says. According to Veeder, there are several housing projects two years away from completion that started a long time ago. “The decision making that you will see at the county or city level is compressed because of the world we live in,” he says. “We don’t pay a lot of money for consulting; we just have to say let’s do it or let’s not. If we try and run things through federal agencies, four years later we might have something done. That is not acceptable.”

The topic of housing is an easy way to bring out the passion of Sanford. “This is incredibly urgent,” he says. Sanford knows firsthand. Although his day job is running S&S Motors, he spends time every week talking with oil company representatives about future plans for development. Housing is always a topic of concern for oil companies, and recently, it has become a main talking point. “The oil companies are three years into mancamp life. Many came from a house and are now living in a mobile home at best. Many truck drivers have purchased a vacation home with money made here because there are no homes here,” he says. “Their eyes begin to stray back home because there is nothing here.”

The lack of homes means the lack of job possibilities, Anderson points out. “These people have to live here. They can’t live far away because of emergency issues with the wells. They can’t live in Williston. It has to be within proximity to where they work,” he says.

Conoco Phillips in particular, has spoken to Sanford recently about the need to build-out Watford City. “They called me one day and said we have a problem. They said we have a pumper position available in Keene for $100,000 and we can’t get anyone there to apply.”

According to Sanford, the answer to the problem was simple: the job was hard to fill because there is nowhere to live. “The industry is getting itchy about this situation. They are talking about redeploying resources elsewhere where it is easier to do business,” Sanford says. “That is why we want to do this responsibly.”

If housing doesn’t happen soon enough, Watford City, McKenzie County and the state will feel an incredible economic downturn. For fiscal year 2011, tax revenues collected from oil and gas production by the state equaled $181 million. In fiscal year 2013, the state collected $640 million. As of May, McKenzie County was producing roughly 10 million barrels of oil per month, or 32 percent of the state’s total production.

The Realization of Watford City
To help Watford City become the true island empire and unofficial shining light of all Bakken communities, the city’s leadership team has an important message for legislators, citizens and industry members: the city isn’t looking for handouts because the city has a plan and the experience needed to execute.

During the white tent event earlier this summer, Sanford and Anderson voiced that message, focusing on what the city can be, not what has negatively happened to it. Maintaining the city’s success to date, however, has not been easy, nor will it be, no matter how much effort the leadership team puts in.

Steve Stenehjem, CEO of First International Bank, headquartered in Watford City, spoke during the event on his work to help develop the city that has been home to his family for more than a century. Stenehjem has roughly 800 acres within a mile of Watford City. Over the past few years, he has sold some of that acreage to investors, but for the remaining acres, Stenehjem has tried to develop the land himself. There are several challenges, he says, including a short construction season and the lack of existing infrastructure. “Watford City can be a class A town, three times as big as we are now if we have the infrastructure,” he says.

The main issue for infrastructure development, however, is linked to the city’s size and bonding capacity, a topic Stenehjem and Sanford are well-versed on. Using his lending experience, Stenehjem compares the difference between Fargo and Watford City to illuminate the hardships of developing infrastructure and housing in western North Dakota.

Fargo has money, he says. When a developer approaches the city with a plan for 50 lots, the city signs off, the developer puts up a bond that he is good for the infrastructure and then the city puts in all of the curbs and gutters. Over time, the city charges interest on the bond and the developer gets back his bond as the lots sell. Watford City has no money, however, “the city has no bonding capacity.”

Watford City’s taxable valuation will increase from $7 million to $12 million in one year, according to Sanford. Taxable valuation is often considered to be one-twentieth of a city’s actual value. The city’s building permit value in 2013 totaled $66 million and through August this year, the city has already created $117 million worth of building permits. “The growth is not slowing down either,” Sanford says. The challenge for the city is related to gross production tax issues. Major industries in the city or county cannot be taxed by either of the latter, and for fiscal year 2013 and 2014 the city only received roughly $11 million and $27 million back from the state, respectively.

For 2014, McKenzie County’s budget will be $97,841,385 for total expenditures. Through gross production taxes allotted by the state along with other county revenue and North Dakota DOT funding, the city will receive $98,598,625 for a net difference of plus $757,240. In 2015, if a new gross production bill that includes a formula that would give oil-impacted counties 60 percent of GPT doesn’t pass, the county will be short on its budget that includes road department work, equipment, payroll, paving, a northern bypass, gravel roads, necessary county expenses and a necessary capital improvement project by $137 million.

“I tell people we are willing to borrow the money to do it [develop the city], but we can’t even borrow it. Give us the means to borrow the money and we’ll do it,” Sanford says. “It is an impossible financing situation here. As small as our tax base is here, we can’t go out and borrow against that.”

Part of the tax base problem has to do with the lack of housing. The majority of people living in the county reside in RVs or campers. Housing is difficult to provide due to the high cost of materials and the lack of existing infrastructure like water. Watford City currently has a lagoon built for 1,500 people. There are now 6,500 people using the lagoon. The lagoons are obviously out of compliance with the state so the city recently broke ground on a state of the art $20 million wastewater treatment facility. The financing required an extraordinary combination of cooperation and creativity from engineers, state officials and city officials. The city recently spent a major funding award on the build-out of two water towers, and, it already needs two more.

In 2008, the city’s kindergarten through 12th grade school had 525 students. This August the total was 1,330 with more than 700 in the K through fifth-grade levels. There is currently a $50 million high school project underway, nearly half of which was not funded. The most telling statistic is that 40 percent of the Watford City school children are classified as homeless. Because living in a camper or sharing a home with another family constitutes homelessness, Sanford feels this fact alone drives home the reason for the urgency to build the necessary permanent housing units. "Their parents are here to work and provide a better life for their families. We owe it to them and their employers to figure this out and get the permanent housing infrastructure in the ground."

The white tent event put on in part by the city’s leadership wasn’t about a plea for money for new schools or lagoons, however. It was about something much different, something that over the next few years, could combine with the power of the city’s pull on its leaders to be a defining element of the Watford City story. For Sanford, Veeder, Anderson and Franzen, the white tent event was about sharing the plan and explaining the city’s past successes in a an effort to prove that given a greater financial flexibility, future successes will happen.

The plan constitutes $285 million in infrastructure for roads, water, sewer and expansion into annexed areas. The money, provided through a loan or from the state, would allow the innovative strategies already deployed by the city’s leadership to continue. When it became clear that daycare was a huge issue for recruitment, the team got together to form a nonprofit called Wolfrun Village that was planned, built and now constitutes the third largest daycare center in the state. It opened in August with 78 kids and less than two months later is approaching 160. The 190-child capacity will most likely be attained by Christmas. According to Anderson, a new hospital in the city has given the USDA a new model for special loan programs based on the work of Hospital Administrator Dan Kelly and USDA Administrator Jasper Schnieder on the loan submittal and creation process The city has also created some innovative hiring practices that have helped it grow its employee base considerably in a town where employers are as competitive as anywhere in the country.

“We need people to understand that we are solution oriented, that we as a city and county are collaborative,” Sanford says. “Whiting wouldn’t have built their building here, Hess wouldn’t be coming here, and you wouldn’t have MBI and Nuverra here if they didn’t want to work with us and they didn’t believe in us.

It may be hard to really believe what Sanford, Veeder, Anderson and the Illinois-outsider-turned-community leader Franzen, have accomplished to date but the story is entirely non-fiction. For an oil and gas industry looking to plant firmer roots and a state unsure about funding for oil-impacted regions, all the team cares about is that you consider the real story of Watford City. The one that involves Franzen’s son or Veeder’s youngest daughter moving to town for a lifelong career; a leadership team capable of collaborating on projects and making them happen in a financially-impossible situation, and a town that has proven, if given the chance, it can turn modern-day homesteaders into first-generation Watford City residents capable of serving the Bakken for generations to come.

Author: Luke Geiver
Managing Editor, The Bakken magazine
701-738-4944
lgeiver@bbiinternational.com