Ag, oil economies seem precarious

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Posted 9/04/18 (Tue)

Whines & Roses
By Cecile Wehrman

Every so often, I come across writing on completely different subjects that make me look at something in a new way.
Hence my feeling after this weekend when I read a New York Times piece about the seemingly precarious financial aspects of oil development as well as a group of stories our ag reporter Sydney Glasoe Caraballo has been working on for our special ag insert next week: “Trade, tariffs and Trump.”
Reading between the lines of the Times’ article, it would appear that a decision by Wall Street to invest in something other than oil could turn off in a heart beat whatever oil production resurgence North Dakota has been counting on.
Titled, “The Next Financial Crisis Lurks Underground,” the article makes the argument that years of debt on the part of oil companies with little return for investors, along with easy credit, is putting America’s energy boom on shaky ground.
It’s worth pointing out that this is an opinion piece and its author, Bethany McLean, has a new book out about the fracking industry. But that doesn’t necessarily mean wanting to sell books makes her wrong.
She relates how the technology of fracking opened up previously unproductive shale formations like the Bakken -- scoring huge initial production for oil companies, followed by a fairly rapid petering out of said wells.
That’s not a new revelation to those of us in North Dakota. But this is:
“For fracking operations to keep growing, they need huge investments each year to offset the decline from the previous years’ wells.
“Because the industry has such a voracious need for capital, and capital costs money, fracking could not have taken off so dramatically were it not for record low interest rates after the 2008 financial crisis. In other words, the Federal Reserve is responsible for the fracking boom,” goes McLean’s argument.
Further, “The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter,” she writes.
She also gives examples of companies getting loans based on future natural gas sales.
Add it all up and the word “bubble” comes to mind. 
And here I thought it was just a matter of oil prices going up to keep our oil industry strong.
On top of those concerns, I can’t read about the lack of markets farmers are facing this fall without even more trepidation. How do you work all year, pouring inputs into crops that don’t wind up being worth what you’ve got into them come harvest? 
Having been part of a farm family for many years, I need no convincing that farmers almost always have the deck stacked against them, but this year it has to be truly agonizing.
In spite of being able to sign up for a relief package they’ll be lucky to have half of their soybean input costs covered with, it sounds from local marketers as if this is close to the worst year they’ve ever seen.
And alternative crops like peas and lentils, which once promised a cushion from more prevalent crops like durum, have no place to go either.
These two articles, combined, make me worry for small towns like Crosby and Tioga, which have been lucky to hang on to so many of the oil production workers still servicing Bakken wells -- not to mention our farmers, whom we were set up to serve in the first place.
My only comfort is that doom and gloom have hung over our region for decades, yet we always manage to hang on somehow. The fact we’re entering into possibly precarious economic waters with more population than any of us had in the 1990s should help.
Fingers crossed.