The real “left hook” for the MHA Nation will come in May, followed by the “power-punch knockout” in June, “when we could lose 80 to 90% of our revenue,” said MHA Nation Chairman Mark N. Fox, who favors boxing analogies. If oil prices don’t rebound, the Tribe stands to lose $200 million in revenue by December 2020, Fox told Native Business. (TOM STROMME/Tribune)
Shelter-in-place orders have nearly ground transportation to a halt, triggering a dramatic plunge in worldwide demand for oil and an unprecedented price collapse. With the price of oil plummeting below zero earlier this month for the first time in U.S. history, producers are having to pay buyers to take barrels off their hands, given a supply surplus and lack of physical storage space. The situation is just as bleak on the Fort Berthold Indian Reservation in North Dakota.
Mandan, Hidatsa, and Arikara (MHA) Nation Chairman Mark N. Fox doesn’t mince words when he shares his prognosis for the impact of COVID-19 on his Tribe’s primary economic driver, oil and gas, and thus his Tribal economy. “Here, where oil and gas has become nearly 90% of everything we do, when that value drops and the bottom falls out, it leads to a very devastating impact — very severe,” Chairman Fox told Native Business.
The MHA Nation’s Fort Berthold Indian Reservation in western North Dakota sits on the oil-rich Bakken shale formation, with the Three Forks beneath it. More than 2,000 wells dot the reservation, but as companies that lease MHA Tribal land struggle to survive in the current economic climate, drilling for oil will drop, Fox said.
That has dire consequences, given the “decline curve” of a well’s value. “With oil and gas, you can’t just drill in one given year, and then kick back and wait for three years and start doing it again,” Fox explained. “Seventy percent of a well’s value comes out within the first three years. The lifetime of a Bakken well is about 30 years. So the first 1-3 years makes up just 10% of the lifetime of that well, but 70% of the revenue flows out of a well within those first three years. That creates a decline curve in every well that’s drilled.”
To maintain production, matching new wells must be drilled. Essentially, when you hit a decline curve on an older well, you need to drill a new well. But if you’re capping the old wells, and you’re not drilling any new wells, you’re “shutting in” oil.
In late April, “one company said, ‘We’re shutting in 160 wells,’” Fox said. That trend may continue as smaller companies seek to stave off bankruptcy.
At least one oil company that leases land on Fort Berthold has filed for Chapter 11 reorganization.
“Compounded with everything else that we’re dealing with, now a company we’re relying on for whatever revenue we can get to survive has put our assets at risk,” Fox said. “If they end up liquidating, we could end up getting nothing for what they owe us in royalties and taxes and everything else. More likely, they’re going to pick and choose how they will compensate us over a longer schedule of time.”
Fox added: “We may not see some of those dollars, until they’re well reorganized and able to pay us, and that could be years ahead.”
In May, the MHA Nation anticipates a 50% cut compared to its May 2019 revenues. “When June rolls around, it’s what the young people say: OMG,” Fox said. “OMG, come June, because we could be looking at a 90% loss of revenue in June, based upon what’s going on today in April,” he said alluding to the two-month delay (the Nation receives its royalties and taxes roughly two months later, so its economic fallout from April oil revenues will be experienced in June).
If oil consumption increases and prices per barrel swing up into the $30s and $40s, the Nation might stay afloat till January. “But if what starts in June continues on to the end of the year, December,” leading to more well shut-ins and shutdowns, “we’re going to have to make radical changes,” Fox said. “But we’re going to be so devastated by it, and It’s going to take years — years to rebuild, to replace what we’re going to lose.”
Pleading for a Bailout
That’s why it’s so critical the Trump Administration approves an oil industry bailout with a focus on protecting assets, Fox said. “No companies can survive like this very long. They can’t go a year this way. It’ll be a total shutdown of energy development in the Bakken,” if oil prices don’t rebound, Fox stressed.
Fox is pleading for an oil industry bailout. “I am begging. I’m making calls to lobbyists and congressional delegates,” he said.
When it comes to a stimulus injection, it’s vital that Congress doesn’t overlook Indian Country. “Tribes hold 30% of the non-renewable resources in this country,” Fox said. “If a fallout occurs, and you end up doing a lot for the producers and for the states, but you forget those 30% — the Tribes that own that resource — and let us just fall into oblivion… Man, you know, good luck United States in ever getting an energy program rolling again in Indian Country to continue to pursue that 30%.”
Fox is “very, very concerned” that the energy industry will be protected by the Trump Administration to some degree, but that Tribes will get overlooked and shorthanded.
About 10 Tribes are significantly involved with energy in the United States. In addition to the MHA Nation, there’s the Southern Ute Tribe in Colorado, Eastern Shoshone and Northern Arapaho Tribes in Wyoming, Jicarilla Apache Tribe in New Mexico, Navajo Nation in the Southwest, Osage Nation in Oklahoma, plus several Alaska Native Corporations own subsurface rights. “Of all Tribal Nations, we are the leading producer of crude by volume,” Fox said. “But you don’t have 500-plus Tribes saying, ‘Hey, help our energy program.’ You’ve only got 10 or less.”
Oil’s Demise: First the OPEC-Russia War for Market Share, Then COVID-19
In February, the United States was already experiencing a slide in oil prices. Come March, the severity increased, as a petroleum price war exploded due to the collapse of an alliance between the Organization of the Petroleum Exporting Countries (OPEC) and Russia. That caused the price of oil to take a nosedive by more than 50%. Prices continued to swing violently as the economy then came face-to-face with the fallout of the coronavirus pandemic.
“The pandemic was looming, and at the same time, we had this bad situation of OPEC and Russia over-supplying the world in their supply war. That began to drive prices per barrel — what we call Bakken crude — from previous averages around $48-$50 a barrel, when the calendar year began, to in March… $45, $40, $38….” Fox counted down, adding: “We went down in revenue by about 15% due in part from oversupply by OPEC.”
That was a minor dip in the grand scheme of things. This month, for the first time in the history of the oil market, the price of a barrel went negative, crashing from $18 to -$38 within a matter of hours on April 22nd. “That basically means an oil company, regardless of who they extract it from and buy it from, that they are paying people to take the oil away, and not getting paid when takeaway agreements come into effect,” Fox told Native Business.
The bulk of small oil producers on the Fort Berthold Indian Reservation can barely survive unless WTI hovers around at least $45 a barrel, Fox said, compared to the larger, publicly traded companies, that can typically stay afloat at $35-$40 per barrel.
Infrastructure & Investments Stand to Be ‘Rapidly Destroyed’
Over the past decade-plus of the MHA Nation’s production of Bakken crude, the Tribe has leveraged its resources for the betterment of the Nation — building critical infrastructure, creating healthcare systems and introducing programs and services to raise the standard of living for its people. All those efforts stand to be “rapidly destroyed,” Fox said.
While the Nation put a lot of infrastructure in the ground within the past 5-6 years, “we’re still going to be impacted so terribly,” Fox said. He offered examples: “a veterans’ building for veterans, new additions to clinics and new law enforcement centers — without revenue to staff them, unless we get a really big bailout,” he said.
Treasury Secretary Steven Mnuchin has hinted at stimulus funding for oil, which Fox thinks is inspired by the Trump Administration’s commitment to protect energy. “President Trump’s whole goals and policy were to become energy dominant. …Well, you know, that backfired with this pandemic,” Fox told Native Business.
Fox thinks the executive branch of the U.S. government recognizes energy’s critical role to the economic security of the nation. But amidst the “jousting and fighting” between political parties over resource allocation, and perceived ideas that an oil bailout would only aid “multi, multi-billion dollar companies with great assets all over the world… they’re going to say the bailout needs to be different and less so. They’re forgetting about the impact to Indian Country, the domestic energy development here in the United States, the 10 Tribes or so that are on the battlefield. It’s like we’re going to get run over and stepped on here. That’s the biggest concern I’ve got. We need allies. We need people to step up — not just local producers. I’m trying to talk to the governor; I have a call with him tomorrow [Wednesday, April 29].”
Fox underscored the bottom line beyond Tribal borders: “If we have a collapse of our infrastructure and our energy program here in Fort Berthold, it isn’t just us that’s going to pay for that. Through the royalties that we get, we have about a $4 billion to $5 billion impact to the economy on the state of North Dakota, [plus] tax revenue that they rely on, about 15-20% of their total revenue that they get in the state stems from the tax agreement we got with them to share that with us. And so, we’re not the only ones who are going to be hurt by the economy. So, to leave us out there, fending for ourselves, is going to have more ramification and more effect than some may see. So, we’re looking for allies.”
According to projections from financial and energy experts who inform the MHA Nation, if the price of a barrel of crude doesn’t increase quickly, “between now and December, our Tribe stands to lose $200 million, at least,” Fox said. “And if we lose $200 million, that can’t go to infrastructure, it can’t go to roads, it can’t go to run programs, it can’t go to education, it can’t go to health care.”
“If you put it in the context of $8 billion that Indian Country got of the $2.2 trillion CARES Act funding, even if they gave us $40 million, and we take a $200 million loss, then we’re still -$160 million come Christmastime,” Fox explained. While $40 million would be a substantial boon to a Tribe that typically generates $3-$4 million in revenue annually — “that’s 35 million extra dollars that they’re going to be able to use in some, hopefully, really good ways — but if you put it in context, that’s barely going to dent our problem,” Fox said. “That’s kind of where we’re sitting right now.”
Beyond building infrastructure and providing critical services to Tribal citizens, oil revenues have supported the Tribe’s long-term sustainability. “Our Tribe has made investments into managed accounts and major firms like Goldman Sachs. We’ve put money into the Office of Special Trustee in Albuquerque. We’ve put [money] aside for additional infrastructure in the future.” But things aren’t looking so bright these days. “Man, we’re at a minimum,” Fox said, noting drops in the DOW and the S&P 500.
As Indian Country grapples with the impacts of the COVID-19 and economic crisis, Chairman Fox still stands by a core value that has anchored his leadership of the MHA Nation — that asserting Tribal self-reliance is the only pathway to success and sovereignty.
“I strongly believe the demise of Indian Country is still [federal] dependency,” said Chairman Fox, while alluding to the inevitability of future pandemics and economic fallouts. He emphasized the value of Tribes raising and storing their own food, and generating their own power. “Less reliance during these difficult times means a greater chance of survival and moving on.”
While he maintains that position, at this pivotal point in time, the MHA Nation, like the rest of the country, needs stimulus support — or that “Mayweather knockout” Fox says is coming in June may prove a devastating financial blow.