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Wednesday, August 15, 2012

Random Note on Hotel/Motel Construction in the Oil Patch

From KXNews:
Statewide since 2010--North Dakota has seen a large increase in the number of Hotels being built.
  • In 2010: eight (8) new hotels/motels
  • in 2011: twelve (12) new hotels/motels; nine (9) in western North Dakota
  • 2012, through first half of the year: twenty (20) new hotels/motels
  • coming: thirty-four (34) new hotels/motels publicly announced or under construction in western North Dakota
Total: 74 and counting.

I don't know about you, but after awhile I start to become "numb" to these numbers. But, if you step back, catch a breath, and really look at these numbers, it's incredible. I thought we had seen the boom in hotels/motels, and it would end this year, but halfway through the year, almost double last year's (20 vs 12), and then we see the next number: 34.

I still find it quite incredible. A big thank you to KXNews for tracking this.

13 comments:

  1. Chicago Bakken conference I attended in July much time was spent on hotel construction and whether to many are being built, much less the same number in the planning stages. And the answer kept coming back was no, and the reason was the fact 25,000 people live in crew camps (the pc name for man camps) the over riding thought process is those units will evolve into hotel stays versus crew camp stays. If you look at the number of rooms being built 74 times and average of 120 rooms per hotel, its 9,000 rooms. It not enough to house those living in the crew camps. In fact based on those numbers its not a drop in the bucket. In addition, that has the hotels at 95% capacity, these hotels will make money at 70% capacity. So again, the magnitude of the boom is often missed, we look at all the activity and think this is overwhelming, but the reality is the boom is that much bigger. In Chicago, the builders and investors have done there home work. The have feet on the ground and have a high comfort level as to what they were doing. They alos are smart. The one developer has a motel that converts its rooms to apartments reality easily. So if the market changes, he can too. The next bakken conference is end of September in Sioux Falls, then Denver in late October. These costs a pretty penny to attend, but if you are planning on doing business in the bakken or investing in the bakken, it is worth your while to attend, network and you will leave with the belief that this is just starting. Kent

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    1. Kent,

      Very, very interesting. I had a similar discussion early on. Folks said that using the crew camps as examples of needed homes or apartments was inadvisable. The men were not going to bring their families; they saw the Bakken as a temporary job and would be returning to Texas, Louisiana, Idaho, etc.

      I mentioned at that time that my military experience suggested that families would end up joining their husbands/fathers if housing was available.

      Over time, the men who thought the Bakken was a temporary phenomenon realized the Bakken could last a working lifetime, and that North Dakota was not nearly as harsh as folks had made it out to be.

      So, you are absolutely correct. The percent of men living in crew camps that want their own home or apartment is not trivial. Many want their own apartments because the rules are less strict, and more conveniently located; others want to buy for all the reasons associated with one's own home.

      I cannot articulate it as well as you have, but we are on the same page of music.

      I go back and forth on this housing thing -- some days thinking housing is close to adequate, and then thinking the next day, maybe not.

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  2. I assume that the WB boom is the biggest now, compared to the prior infrastructure.

    Here is some on other plays:

    http://www.vcstar.com/news/2012/aug/11/haynesville-shale-slowdown-hits-hotels/

    http://www.mysanantonio.com/news/local_news/article/Permian-Basin-Booming-Again-3781623.php

    http://bdtonline.com/editorials/x775522053/Gas-boom-Marcellus-Shale-boosting-construction

    Places like Ohio have so many towns and cities that it can't be the same as a rural area boom.

    I wonder how many motels will be built in rural Kansas for the Mississippian play.

    The ND boom will be overbuilt. For a cheap motel room, try Williston in 2018.

    anon 1

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    1. Kent had some good responses to the concern about overbuilding motels/hotels.

      Overbuilding of motels/hotels happened in previous booms. I was surprised to see how they have found new life in new ways. One thing western North Dakota/eastern Montana is short of is assisted living and retirement homes. A lot of these "overbuilt" motels/hotels will be converted to such. Some from the previous boom were. Mayo Clinic in Rochester, MN, uses a lot of hotel rooms for their out-of-town patients. Already there is a need for similar housing in Williston, albeit on a much, much smaller scale.

      But with new drilling projected to last through 2020, maybe longer, and production to last through 2100, I will be long gone to see how this all turns out. For now, I'm just enjoying the ride.

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  3. In my development in Minot everyone has commented on how they can bring their families. City leaders, state leaders, oil companies have all commented on that. Too much has been focused on getting the first wave housed, thus the temp housing. That started 4-5 years ago, temp housing is just that but the bakken has evolved into a permenent play. That has led to a change in what is being built. If you take Harold Hamm's number on the potential for wells in the bakken (Harold seems pretty good), it's 50,000 wells. Today you posted there are 7,000 wells. That is an additional 43,000 wells. Each well per NDIC Lynn Helms and Harold Hamm is 1-2 permanent oil service jobs. That equates to 60,000 oil jobs. Permanent jobs which means families. Unemployment is next to zero, so that means people will move here. That means over 100,000 new people in western ND for the oil jobs. But you need schools, hospitals, everything. So if Harold Hamm is correct and the number is 50,000 wells, you are looking at 200,000 plus people moving to ND. 74 new motels isn't enough. My project while actually one of the biggest construction projects in the country right now, will house 2,000 people when done. That means we need 100 of them over the next ten years. WOW. One thing that is forgotten. This is the bakken impact. The Tyler, the spearfish, and the 17 other formations that have potential each add more economic impact to the state.
    Kent

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  4. Without question it with get over built. But is that today? No. What you will see is the bad projects will struggle, the good projects that are properly capitalize and well run will do fine. The silly money has been made. The people that got into the bakken 5 years ago, they should have their projects bought and paid for and should be now reaping the rewards. If if falls off the cliff, they have no skin in the game. People coming to the game now, have to look at this differently. And the analysis is has been getting better on the projects.

    Now you make mentioned to a number of shale projects around the company and imply that they are not working or there is a slow down. But you miss one point, and this point takes a long time to grasp. That point is how good the bakken oil field is. The homework has been done such that Continental for example what a well will produce over its life. And the production is excellent. In addition, the bakken crude is pure. It is quality that is higher than Saudi Crude which is the gold standard, bakken crude has the take away issues. So if you look at the fields that you mention, and you can add the Colorado fields, The Monterey in California, Green River in Wyoming. All are the next big thing, but one thing that I hear and see over and over is the fact they aren't the bakken.

    Time will tell.

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    1. Wow, you are so correct about the Bakken, and how good it is. I forget which CEO said it in the conference call (EOG, I believe): the Bakken and the Eagle Ford are the only "real" plays in North America (onshore); everything else is not worth talking about (in comparison).

      Again, I am on the same sheet of music as you are; as I mentioned, the conservative analysis by UND a couple years ago was that it would take through 2020 or 2030 to drill it out, and then 70 years of production through 2100.

      By the way, look at the Carpe Diem graph today. Didn't "they" say it will take 48,000 Bakken wells, and we are at about 7,000 right now which includes all wells that are still producing that were drilled before the Bakken boom. 50,000 Bakken wells. I think that number was before the multiple payzone issue started getting discussed.

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  5. In June there were 7,130 wells in North Dakota. Of those, only 4,141 were in Bakken according to the state's stats. There’s another 35,000 wells to drill (maybe 45,000 in Anonymous’ comment). That drilling is going to run for a long, long time.

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    1. Yes, is that not incredible? Even if some folks think the 35,00/45,000 is exaggerated, even another 20,000 wells would keep them busy for awhile. They are looking at drilling about 2,000 wells/year right now. If the infrastructure ever catches up, more housing for more workers, etc., maybe they can drill more/year.

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  6. Also , one much consider the duration of the well. South of Bowman ,ND toward SD some of these wells were drilled verticle in the late 60's and 70's.. in approx 1998 they were recompleted as Horizonal wells.. these wells 40 to 50 years later are still pumping, requiring workers to service, adjust and maintain them... these folks are my neighbors..

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    1. In fact, in two separate conference calls, it was noted that demand for work over rigs was increasing. Barely a few years into the North Dakota Bakken boom and with only 4,000+ Bakken wells and 44,000 more to go, they are already bringing in more work over rigs.

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  7. When you think about it, hotels will not be overbuilt in Williston. If this boom lasts another 20 years, the number of people will have increased dramatically. The number of businessman, families coming to visit families who have re-located, etc... will increase. Also, remember, many of the current OLDER hotels, will not be around in another 20 years. Like any building, many serve their purpose and when they become old and run down, they get replaced with new buildings. Such will be the case in Williston. You have over 10 new hotels that have been built in the past couple years, with MORE to come. But some of the hotel/motels that have been in Williston prior to this boom will probably be torn down or converted for other purposes in 10-20 years. So the number of hotels will probably end up the same or within a comfortable range in another 10-20 years.

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    1. Great points, thank you. I think folks keep forgetting that "we've" drilled about 4,000 Bakken wells in the last four years, and it looks like the infrastructure/rig count will satisfy the industry with about 2,000 new wells/year. With 44,000 wells yet to drill, that 22 years of drilling inventory. Yeah, I'm not worried.

      By the way, does anyone really think that rig counts will diminish significantly. Sure, leases held by production, urgency to drill is lessened, but with cash flows generated by increasing price of oil (it's up another buck today) and the huge TFS wells that are being reported, it's hard to believe that optimistic oil men will cut much. As the bigger plays cut back, it provides an opportunity for smaller players to bring in their rigs.

      But as I've said before: it's not the rig count. It's the daily production, monthly production, yearly production that counts -- all other things being equal. (In fact, less rigs producing more oil is much more profitable for investors.)

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