By Ray Birch
BISMARK, N.D.—Credit unions in the Dakotas are bracing for the impact plummeting gas prices may have on their oil-boom economy.
Sources see a continued period of lower pump prices prompting oil companies to cut back wages and jobs, placing hardships on some members. If the energy labor force declines, housing prices—inflated by the influx of oil workers—could fall, possibly affecting mortgage loans on the books.
But there may be some CU benefits to lower gas prices, such as excess liquidity leaving and labor costs stabilizing.
“Certainly the Dakotas have been doing well and the states have begun to depend on the revenue from taxing the energy industry,” said Jeff Olson, EVP of government affairs for the CU Association of the Dakotas. “So with falling oil prices, the legislature is concerned.”
Olson said the league, and CUs too, are wary about the future.
“Right now we are not seeing an impact on the economy, but we are bracing for it,” said Olson. “The oil companies are still making enough to support their workforce, from what we hear, and we have not seen any hiring freezes or wages going down.”
Future Not Easy To Predict
Jeff Olson, CU Association of the Dakotas
Olson said it is difficult to say how deep gas prices may fall or how long lower prices will last, citing efforts from OPAC and Russia to flood the market with oil. “It is hard to say what is truly causing the price drop, and maybe this is just an evening out of sorts—where oil prices should be.”
Olson said energy companies in the region had stated, when prices were higher, that they needed $100 a barrel to make money. “Now they are saying it could be more like $60. So who really knows what is right?”
The energy companies in this state are preparing to approach legislators to seek some relief, including tax cuts, explained Olson. “Meanwhile, they may also go back to some of their landowners and renegotiate land leases because they are paying some hefty royalties for mineral rights.”
The problems could trickle down to oil company suppliers, proposed Olson, as energy companies look to them for price breaks, as well. “Hopefully that won’t be a slippery slope for this economy.”
If lower gas prices hold out and large numbers of workers leave, Olson thinks housing prices, some of the highest in the nation, will come down. “You have seen the stories—people paying $2,000 a month for a one bed, one bath apartment.”
In the heart of the oil production boom is Williston, N.D., where Melanie Stillwell runs Western Cooperative Credit Union. The CEO said her $351-million CU is wary of the possible economic downturn in the Dakotas, but is not overly concerned.
Understanding how the Dakotas economy fluctuates with the price of oil, the credit union has avoided the types of mortgage lending that could be impacted by the ups and downs.
Melanie Stillwell, Western Cooperative CU
“We did not get into speculative oil commercial lending,” Stillwell explained. “We do a lot of real estate lending, but sell the bulk of it to the secondary market. We are not holding a lot of long-term, low-rate, above-market-value-home-priced loans. About a third of our loan portfolio is agricultural loans and that business is very steady here.”
Members Ready For Economic Swings
The CU does not have large numbers of members from the oil companies since many live in temporary housing and don’t qualify for membership. Stillwell said, like the credit union, members who have lived in Williston for a while know how to prepare for the economic swings.
“Our members have gone through these ups and downs before,” she said. “The last one was about five years ago when gas prices dropped. They know how to plan, and if oil prices go down, and wages go down, they still are able to meet their obligations. That is just the environment here in Williston.”
CU payroll costs may benefit from the drop in gas prices. Olson said it has become challenging for credit unions to attract and retain top talent, having to pay more to cover rising housing costs and to also compete with oil companies and their suppliers who cherry pick the best talent.
“Credit unions are losing managers and VPs who can go out and double and triple their salaries,” said Olson.
Stillwell agrees.
“Our cost of labor is extremely high. If wages come down I don’t think we’ll see all the competition and face all the turnover we’ve had. I think it would stabilize the workforce.”
As has been the case in any areas that pay landowners hefty mineral rights, members have come to the credit union with big deposit checks, which are lowering net-worth ratios.
Both Olson and Stillwell think if lower gas prices remain for an extended period, some transient workers will leave and take their deposits, landowners will see reduced royalty checks, and people will need to use more of their savings for everyday expenses.
“We have restricted large deposits,” said Stillwell, whose 9.8% net worth CU is 50% loaned out. “We are flush with cash now, so if some of those deposits flowed back out, that would not be terrible.”
Overall, Stillwell acknowledged, a declining economy holds little good for all. “As far as deposits leaving and a more stable labor force, yes, lower gas prices help the credit union. But we’d hate to see any member suffer, and we’d hate to see all this go away because Williston has had a very strong econ
Denton Zubke, Dakota West CU
omy during a time when many areas of the country do not.”
A Short-Term Situation?
Denton Zubke, CEO of the $250-million Dakota West CU in Waterford City, N.D., says everyone in the region hopes the oil price drop is a short-term situation.
“The longer this stretches out the more impact it will have,” he said.
DWCU, too, has been receiving large landowner royalty check deposits. “But when you cut the price of oil by 40%, those royalty checks get cut by 40%. So we may see some of our excess liquidity dry up a bit.”
Even if low oil prices remain for an extended period, Zubke does not think his CU will be significantly impacted.
“We are located in the heart of some the best oil drilling areas,” explained Zubke. “If prices remain low I think the oil companies will always drill in our area. You may, however, see companies determine it is not economically feasible to keep drilling in some of the fringe areas where success may not be that high.”
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