Prairie Business Nov. 2012

November 2012

Pressing Ag's Precise Frontier Company uses satellite imagery to enhance precision ag

pg. 28

ALSO

Oil's Education Boom

Industry investments ramp up region's energy education programs

pg. 32

Bakken Backers

Bakken region stakeholders rally investors in South Dakota

pg. 36

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|INSIDE|

NOVEMBER 2012 VOL 13 ISSUE 11

FEATURES

DEPARTMENTS 6 Editor’s Note

BY KRIS BEVILL

Oil Patch dominates conversation, activities 8 Business Advice

BY MATTHEW D. MOHR

Better late than never 10 Finance

BY CURT EVERSON

Rural home lending faces many obstacles 12 Research & Technology

BY PHILIP BOUDJOUR

Match bright minds with stellar companies 14 Economic Development

BY PAT COSTELLO

24 28 32

A new focus on fostering entrepreneurs

AGRICULTURE

High-Tech Ag Middleman

16 Prairie News

North Dakota business works with satellite companies, ag community

20 Prairie People

EDUCATION

24 Business Development Rebuilding Minot

Universities expand energy-related programs to meet industry demand

42 Red River Valley Project English provides training to Fargo hotel staff

INVESTMENT

44 South Dakota Return of the rail

Energizing Education

Exploring Opportunities

46 Western North Dakota Short on space

South Dakota real estate developers, investors and service providers gather to learn about Bakken region

40 Energy 52 By the numbers 54 Business to Business Follow us on Twitter https://twitter.com/PrairieBiz Check us out on Facebook https://www.facebook.com/PrairieBusiness

On the Cover

Lanny Faleide is president of North Dakota-based Agri ImaGIS. His company combines satellite imagery and modern communication tools to help farmers be more efficient and profitable. Here, he stands in a soybean field in North Fargo, N.D. PHOTO: JOHN BROSE

Scan this with your smartphone's QR Reader to visit our website.

Next Month

December's issue of Prairie Business magazine highlights the area's top 40 under 40 business professionals. The issue will also include a profile of Great Plains software founder Doug Burgum, who provides an update on his latest business developments and offers advice to the next generation of the region's business leaders.

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Prairie Business Magazine November 2012

|EDITOR’S NOTE|

Oil Patch dominates conversation, activities

I

KRIS BEVILL

Editor kbevill@prairiebizmag.com

6

t is a rare day that I don’t find myself in a conversation with someone about the oil activity in western North Dakota. People outside of the Bakken region are fascinated by the rate of growth and enormous changes experienced there over the past several years. To be true, most people living in the Bakken region are also fascinated by the changes happening before their eyes.

Population growth continues to outpace expectations and communities continue to break tax revenue records, despite rumblings from some that the boom may be leveling off. Area representatives counter that communities are simply finally beginning to catch up with the demand, however, they stress that there continues to be a need for services, housing and workers.

The need for continued investment in North Dakota’s Oil Patch was the sole focus of a conference I attended this fall in Sioux Falls, S.D. Economic development corporations, industry representatives and real estate developers presented attendees with firsthand accounts of what it’s like to do business in the Bakken region and what investments are required in order to meet the area’s needs.

Some of the attendees that I spoke with already have operations in the area, but came to the conference for an updated regional outlook, as developments can be difficult to keep up with. Other attendees were seeking advice on how to gain a presence in the region. Presenters at the conference urged potential investors to visit the area if they are serious about becoming a part of the action, as I report in this month’s issue.

Meanwhile, oil companies are beginning to invest not just in their own activities in the Bakken, but in other areas of the region as well. Highly skilled workers such as engineers continue to be in short supply in the Oil Patch and the region’s universities are in the process of ramping up their programs to meet the demand. In September, oil magnate Harold Hamm announced a $10 million donation to the University of North Dakota to assist in that goal. Other universities in the area are also receiving industry support to churn out the energy experts of the future. I cover several of them in this issue.

Oil may grab many of the current headlines, but no one can dispute agriculture’s role as a longreigning king of the Plains and it’s continued impact on much of the region’s economic activity. I recently had a discussion with someone who suggested that a "new" focus on entrepreneurship in the Dakotas could assist in growing local economies. This, to me, is not a new idea. I believe farmers are the ultimate entrepreneurs and, particularly in this area of the country, have a history of displaying their entrepreneurial spirit through the adoption of new farming practices and cutting edge technological advancements, the results of which most certainly benefit local economies.

As an example of the industry's technology advancements that have been developed here on the northern Plains, contributing writer Jonathan Knutson profiles a North Dakota company which uses satellite imagery to assist farmers with precision agriculture in our cover feature, “High-tech Ag ‘Middleman.’” Company head Lanny Faleide first rolled out the concept 15 years ago in central North Dakota, to the skepticism of other area farmers. He persisted, however, and now provides services to farmers throughout the country. As farmers in the region close out a season of mixed results, no doubt many are already looking ahead to what improvements and tweaks can be made for the next growing season. Let’s hope for a snowy (but not too snowy) winter with plenty of days to devise the next round of innovative strategies.

Prairie Business Magazine November 2012

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|BUSINESS ADVICE|

Better late than never

BY MATTHEW D. MOHR

M

ost businesses extend some type of credit to customers. Naturally, extending credit in any form is based on the expectation of receiving full payment at a later date. However, if faced with the option of no repayment, foreclosure, or certain loss, some payment — even if over a longer time — is better than none.

When bagels were at the height of popularity, Dacotah Paper extended credit to two locally owned bagel producers. As competition heated up and consumers’ taste for bagels changed, both these stores faced financial hurdles. One owner called us to say they were struggling but would make every effort to fulfill their product purchase commitments and pay us. The other was contacted and informed us they

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Prairie Business Magazine November 2012

were in financial hardship. The first owner did purchase all of the product as promised and paid us in full. The second store went bankrupt and couldn’t pay its creditors. As time passed, both bagel shop owners tried to secure employment or start new businesses for themselves.

The owner of the store which failed to pay found it hard to secure employment. The owner who honored his commitments moved to a new venture and has done very well.

Sometimes credit decisions are wrong and too much is borrowed, but some or hopefully total repayment, even if it’s late, is better than no payment.

PB

Matthew D. Mohr CEO, Dacotah Paper Co. mmohr@dacotahpaper.com

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|FINANCE|

Rural home lending faces many obstacles

BY CURT EVERSON

I

n today’s world, politicians and pundits are often quick to demonize large companies and their leaders. Big Oil, insurance providers, pharmaceutical companies and banks have all been in the spotlight. Special interest pressure mixed with political ambition is a recipe for enacting laws to right past wrongs and to prevent history from repeating itself. Unfortunately, cures sometimes create problems. Such is the case with housing finance in rural America.

Housing finance in rural America has always been challenging. But rural community banks historically have found ways to overcome those challenges and help buyers realize their homeownership goals.

But community banks of varying sizes have begun leaving the business at an alarming rate. Why?

Appraisals

In many rural communities homes don’t sell that often. Lack of sales of comparable homes creates problems for appraisers, lenders and borrowers alike. If licensed appraisers cannot find a broad enough sample of sales in a prescribed geographical area upon which to base an appraisal, potential buyers of those loans in the secondary market (Fannie Mae or Freddie Mac) will not buy the mortgage.

So why doesn’t the local bank just keep the loan on its own books? That’s another problem.

Loan Funding

Banks fund loans mostly using local deposits which tend to be short term in nature. Bank depositors understandably don’t want to commit deposits for a 30-year term. Absent the ability to lock in its cost of funds at a 30-year rate, banks cannot bear the interest rate funding risk of a 30-year fixed rate home

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Prairie Business Magazine November 2012

mortgage. Instead, many community banks long ago decided to offer prospective home buyers another type of mortgage; commonly one scheduled to amortize over 15 or 20 years, but with a balloon payment at the end of five years when the rate of interest would be reset, up or down, to the prevailing rate at that time. But now, courtesy of the reaction by federal bank regulators to a little known provision of the Dodd-Frank financial reform act, those “non-standard” home loans are going to carry a higher risk rating, meaning banks will have to tie up more scarce capital in order to support those loans. Sound complicated? Welcome to the world of community banking in the post Dodd-Frank era.

Compliance Risk

If you have tried to finance or refinance a home in recent years, I am pretty sure you don’t know exactly how many times you had to sign or initial a form.

Bankers tell me the number approaches 100. Bankers and borrowers both agree that current forms and processes are mind-numbing. Bankers don’t mind the work, but the potential costs a bank could incur for making an honest mistake are prohibitively high. So rural community banks that would normally only originate a handful of home loans in a year are reluctantly getting out of that line of business.

Who will be left to support home lending in rural America? What happens to prospects for rural economic development if workers can’t buy a home? Those are great questions for your members of Congress. PB CURT EVERSON President, South Dakota Bankers Association ceverson@sdba.com

|RESEARCH & TECHNOLOGY|

Match bright minds with stellar companies

BY PHILIP BOUDJOUK

T

his may be one of the best-kept secrets to help businesses innovate: Challenges are a way of life for companies competing in global markets. A program called STTAR provides businesses in the region with human and technology resources to compete. Students in Technology Transfer and Research (STTAR) was launched in 1994 as a response to needs for increased technology transfer between universities and industry. The program assists businesses in locating students with cutting-edge skills who are compatible with the company. In doing so, it offers the opportunity for companies to increase their competitive edge while cutting salary expenses by sharing the cost of the student’s salary.

With this program, students of North Dakota University System schools and North Dakota residents who are enrolled at other colleges and universities are eligible to work with companies in the region to solve science, engineering and technology challenges.

Juniors through graduate students in science, engineering and math use their training to assist in addressing the most challenging science and technology-based problems faced by the companies in the region.

Companies in North Dakota who seek STTAR students do not have to be technology companies to be eligible. However, a specific problem to be addressed must have its foundation in science, engineering or mathematics. Projects can include engineering, design and testing of new products; software development; remote sensing and automated mapping; chemical research; and automated tooling and fabrication. Students have assisted companies in energy, bioscience, manufacturing, computer science and engineering fields.

The North Dakota legislature has funded the program through the North Dakota Experimental Program to Stimulate Competitive Research (NDEPSCoR). Companies that employ technology-savvy

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Prairie Business Magazine November 2012

students through the program pay at least half the students’ salary. In the summer, students work for companies that qualify for the program, and STTAR contracts can be negotiated to extend into the academic year.

More than 93 companies across North Dakota have participated in STTAR, including companies in Minot, Grand Forks, Carrington, Fort Totten, Williston, Jamestown, Killdeer, Fargo, Bismarck and New Rockford.

Students can bring new approaches to a longstanding company project, or help jump-start new ideas. STTAR provides a cost-effective opportunity to hire an upper-level student who can help the company solve science and technology-based problems. For companies that qualify for the program, each company interviews and hires students who match their business needs from a pool of talented STTAR students.

“The program is a very good investment from a business perspective,” says Lana Davis of Benchmark Electronics in Dunseith, N.D., which hired two STTAR students. “They did an excellent job and we look forward to participating again in the STTAR program. We would recommend the program to other companies.”

Former STTAR student Casey Hansen now works as an electrical engineer for an electric cooperative in Grand Forks, supervising new STTARs. “I was privileged enough to be in the STTAR program as a student, and now as a supervisor,” he says. “The system works.

It’s easy to understand and has great advantages.”

For more information on STTAR, visit www.ndepscor.nodak.edu/programs/tech.transfer.com m/sttar/. PB

PHILIP BOUDJOUK ND-EPSCoR co-chair Vice president for research, creative activities and technology transfer, North Dakota State University Philip.Boudjouk@ndsu.edu

|ECONOMIC DEVELOPMENT|

A new focus on fostering entrepreneurs

BY PAT COSTELLO

I

n economic development, we receive a lot of publicity and extra attention when we have major announcements. Oftentimes, it is the result of a large company from out of state locating in our state, creating jobs and building beautiful new facilities.

While I definitely agree that this is positive and exciting news for our state, the truth is that this sort of announcement only represents a small portion of South Dakota’s economic development activities. In fact, more than 70 percent of the Governor’s Office of Economic Development’s successful projects are with existing South Dakota companies that are starting up or growing. Unfortunately, these small successes oftentimes go unnoticed.

Gov. Dennis Daugaard recognizes that entrepreneurship — combined with expansions and relocations — are essential elements of the state’s economic growth. He has put the GOED in charge of fostering entrepreneurial efforts and raising the visibility of entrepreneurship in our state. To do this, we need everyone to work together. We need to establish solid public-private partnerships. Economic developers need to work with schools, technical institutes, universities, investors, friends and family.

Fortunately, we already have a solid base in place to help reach this long-term goal. South Dakota is consistently among the top states in the nation when it comes to entrepreneurial friendliness. We have a strong business climate, supportive government leaders and low taxes. We have also begun to take additional steps.

In September, more than 100 inventors, investors, entrepreneurs and economic developers attended the Entrepreneurial Symposium in Sioux Falls. There, these individuals learned what it takes to create a vibrant entrepreneurial ecosystem in South Dakota. They heard about the state’s strategy and were connected to

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Prairie Business Magazine November 2012

resources that will aid entrepreneurs in their endeavors.

Since 2005, the governor’s office has partnered with the South Dakota Chamber of Commerce of Industry to sponsor the Governor’s Giant Vision Business Plan Competition. Many of this competition’s winners and entrants have successfully launched and are continuing to grow thriving businesses. A special portion of that competition is specifically designed for students. Local school districts, technical schools and universities have expanded entrepreneurship courses, camps, and other activities to prepare and encourage students to consider entrepreneurship as a career choice. Today, student competitors are running companies that manufacture new agricultural equipment and marketing new microbrews. This year’s competition will be held April 16.

Our many partners, colleagues and community organizations are also doing their part. The Wire Me Awake conference is a brand-new event and was held in Yankton Oct. 3-4. The Enterprise Institute and its partners held the Innovation Expo in Sioux Falls Oct. 23-24.

Additionally, the Small Business Development Center and its partners will facilitate the Big Idea business idea competition this December in Aberdeen. For additional events, please visit www.sdreadytopartner.com.

It is with this kind of communication, partnerships and optimistic attitude, I’m confident we can work toward creating a vibrant, supportive entrepreneurial ecosystem for start-up companies across South Dakota. I for one, am proud to be part of the team leading this effort. PB PAT COSTELLO Commissioner, South Dakota Governor’s Office for Economic Development Pat.Costello@state.sd.us

Prairie News

Industry News & Trends

Northland tech school receives funds for medical equipment

Northland Community & Technical College recently received $100,000 to purchase a computed radiography unit that will provide radiology tech students with hands-on experience on equipment currently used in the health care industry. The state provided $49,000 for the equipment as part of a larger effort to support education and training in high-demand occupations.

Grand Forks, N.D.-based Altru Health System matched the state’s allocation with a $51,000 donation. “The students who graduate from this program have a reputation as some of the very best in the upper Midwest,” Altru CEO Dave Molmen said in a statement.“Northland is an important asset to the community as they train health care professionals for areas that are always in high demand. We see investments in these educational partnerships as an investment in the future of medicine in our region.”

Northland Community & Technical College

Regional credit management associations merge

Two regional affiliates of the National Association of Credit Management have merged to better serve their members. Forius NACM, based in Minneapolis, will now provide the administrative activities for NACM Fargo (N.D.)/Moorhead (Minn.). Toni Nuernberg, president and chief operating officer of Forius says Forius will actively recruit new members and customers in the Fargo area to grow the region’s business credit community.

NACM’s mission is to provide members and clients with information to assist in risk management and enhance the financial stability of the organizations they represent.

Exxon ups its stake in the Bakken

Exxon Mobil Corp. and its subsidiary, XTO Energy, recently signed an agreement with Denbury Onshore LLC, a subsidiary of Denbury Resources Inc., to purchase all of Denbury’s Bakken shale assets — about 196,000 net acres in North Dakota and Montana — for $1.6 billion in cash and Exxon’s interests in the Hartzog Draw field in Wyoming and Webster field in Texas.

The Bakken acreage acquired by Exxon is expected to produce more than 15,000 oil equivalent barrels per day in the second half of 2012 and increases the company’s acreage holdings in the

16

Prairie Business Magazine November 2012

region by about 50 percent. The Wyoming and Texas interests traded to Denbury as part of the deal currently produce about 3,600 net oil equivalent barrels per day of natural gas and liquids.

Williston gets new hotels

Value Place Hotels opened a 248-room hotel in Williston, N.D., in September, offering extended-stay rooms with“hotel convenience, apartment essentials’ style” to meet the demand for energy worker housing in the area, according to the company. Nakota Development is responsible for the project. “We are pleased to bring a greatly needed resource to the Williston community at a more affordable rate,” Nakota Development representative Don Nickell said in a statement. “The growth of North Dakota and the Bakken region is a unique event in North Dakota history and we are humbled to be a part of it.”

The Hampton Inn and Suites also recently held a ribbon cutting for a 98-room hotel in Williston, developed by Braxton Development of Bozeman, Mont. During the ribbon cutting ceremony, the hotel announced a donation of meeting space room valued at $5,000 to Williston Economic Development.

Small grains processing plant comes to Minot

Idaho-based Alexander Co. plans to expand its oat and barley processing operations to Minot,

N.D., under the name Midwest Milling. The company selected Minot based on its rail access and close proximity to desired crops, as well as the affordability of doing business in the town, according to the Minot Area Development Corporation. Alexander Co. was awarded $350,000 from the MAGIC fund, a local incentive fund, to assist with installation costs for rail infrastructure to serve the facility in east Minot. In exchange, the company agreed to employ seven workers in Minot by 2016. Midwest Milling also plans to source barley and oats locally.

UND researchers get $1.4 million to study obesityAlzheimer’s link

Two scientists at the University of North Dakota School of Medicine and Health Sciences have been awarded $1.4 million from the National Institutes of Health to research a possible connection between Alzheimer’s disease and obesity.

Obesity has been shown to be an increased risk factor for developing the disease, but it is not yet known if the relationship between the two is a shared pathophysiology. Research conducted by associate professor Colin Combs and assistant professor Mikhail Golovko will focus on molecules in specific proteins known as amyloid precursor proteins to attempt to identify a target for intervention in both disease processes. continued on page 18

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|PRAIRIE NEWS| continued form page 16

Border States Electric receives marketing award

Border States Electric, an electrical products and services supplier with headquarters in Fargo, N.D., recently received a Best of the Best marketing award during a National Association of Electrical Distributors marketing conference in Chicago. Awards are given in recognition of marketing excellence and recognize creativity within the electrical industry in companies of all sizes in 14 marketing and communication categories. BSE received its award in the print ad — single category for distributors over $200 million.

BSE is 100 percent employee owned and is the eighth largest electrical distributor in the U.S. with nearly 1,500 employees and 56 branches in 13 states.

Lindsey Presser, northeast and northwest sales and marketing coordinator, left, and Michelle Keil, marketing communications manager, accept a Best of the Best marketing award given to Border States Electric during a the National Association of Electrical Distributors 2012 marketing conference. PHOTO: BORDER STATES ELECTRIC

NE-based lift truck dealer acquires West Fargo company

Riekes Equipment Co., a Yale Materials Handling Corp. lift truck dealer headquartered in Omaha, Neb., recently acquired Valley Forklift Services in West Fargo, N.D. Former Valley Forklift Services owner Terry Weigel has been appointed branch manager for the West Fargo location.

“Riekes Equipment has been active in North Dakota for years,” Riekes President Duncan Murphy said in a statement. “We are excited to finally combine Valley Forklift’s 20-plus years of customer satisfaction with our personnel and product offerings.”

Riekes sells lift trucks as well as other used trucks and parts and offers forklift rentals and maintenance support.

New clinic under construction in Mandan

Bismarck, N.D.-based St. Alexius Medical Center has begun constructing a 22,000 square foot clinic in Mandan, N.D. The project is expected to cost $8 million and will be complete in early 2014.

The clinic is necessary to accommodate increasing population numbers in Mandan and the surrounding areas, according to the organization. When

18

Prairie Business Magazine November 2012

complete, the clinic will employ six primary care providers and will feature 18 exam rooms, a laboratory, radiology services and a pharmacy.

Delta adds service to Williston

Beginning Nov. 12, Delta Air Lines is offering twice-daily, nonstop regional jet service between Williston, N.D.’s Sloulin Field International Airport and Minneapolis-St. Paul International Airport via Skywest Airlines. Service will be provided using 50-seat regional jet aircrafts.

Delta is the second major airline to enter into the Williston market this fall. Earlier this year, United Airlines announced it would begin offering service from Williston to Denver in November.

G & R Controls receives ENERGY STAR label

G & R Controls, a company specializing in HVAC equipment, building automation, temperature controls and air/hydronics testing and balancing, has been awarded an Energy Star label from the U.S. Environmental Protection Agency for meeting stringent energy efficiency requirements. The company, which has offices in Fargo, N.D., and Sioux Falls and Rapid City, S.D., received the award for its Fargo location. It is the only building in the state to receive the Design

Earn to the Energy Star award.

To achieve energy efficiency, the facility employed a system to automate lighting and HVAC equipment. Features of the system include an automatic shut down of individual heating/cooling units when windows are opened in a specific zone and automated dimming of lights when the appropriate amount of ambient light has been collected.

Williston State College adds science center

State and university officials recently celebrated the grand opening of a $3.5 million science center addition to Williston State College in Williston, N.D. The center covers 10,000 square feet and includes four laboratories for physics, chemistry, biology and engineering as well as classrooms and faculty offices.

“Education is an integral part of our efforts to grow our economy and build a strong future for our state,” said Lt. Gov. Drew Wrigley, who attended the event. “This new science center is a great example of how Williston State College and colleges and universities across the state are enhancing educational opportunities to prepare our young people for the careers of the future.”

The state of North Dakota provided $2.9 million for the addition. continued on page 40

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19

|PRAIRIE PEOPLE| Anderson appointed interim ND human services director

Karsten Johnson

Neal Tareski

Sharon Miller

Maggie Anderson

Ulteig adds Fargo staff

Ulteig, an engineering, surveying and consulting firm with offices throughout the region, has added two new employees to its Fargo, N.D., office.

Karsten Johnson has joined the firm as a help desk technician. He previously worked as a desktop support analyst at CompuCom in Dallas. Neal Tareski will serve as a facilities manager. He was previously employed as an assistant facilities manager at CBRE in Overland, Kan. Additionally, Sharon Miller has accepted the position of human resources director. Miller joined Ulteig in 2011 as a consultant and became the interim human resources director in June. As director, she will manage a team of human resources professionals and provide input on key initiatives, policies and processes. Miller has more than 14 years of experience and worked previously for Great Plains Software, Microsoft, RDO Equipment Co., and the North Dakota State University Research & Technology Park. She also founded her own consulting practice to assist businesses with strategies for attracting, developing and retaining great talent.

Laub named CEO of Intelligent InSites

Margaret Laub

Tarek Dufan

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Prairie Business Magazine November 2012

Margaret Laub has been appointed president and CEO of Fargo, N.D.-based Intelligent Insites, a software development company specializing in real-time location system software for health care systems. She will also hold a seat on the companyâ&#x20AC;&#x2122;s board of directors. Doug Burgum, who had been serving as interim president and CEO of the company, is now the executive chairman of the board.

FMWF Chamber names new board

Bismarck doctor teaches in Libya

Tarek Dufan, medical director at the Bismarck Cancer Center and board-certified radiation oncologist, recently administered the first ever radiation oncology refresher course in Tripoli, Libya. The course was held July 8-10 and was accredited by the Bismarck Cancer Center, St. Alexius Medical Center and Medcenter One Health Systems. Information was given on breast cancer, lymphoma and other types of cancers and treatments. More than 35 doctors from Libya attended the event. Plans are being made to offer a similar course in 2013 in Bangasi, Libya.

The Bismarck Cancer Center is a cooperative venture between Medcenter One and St. Alexius Medical Center.

Maggie Anderson has been appointed interim executive director of the North Dakota Department of Human Services and may serve in that position through the 2013 legislative session.

She replaces Carol Olson, who retired in August after serving as executive director of the department for 15 years.

Anderson joined the department in 2003 as the deputy director of medical services. In 2005 she became director of the medical services division and served in that role until her recent appointment as interim executive director. She has also served as an assistant director of child nutrition programs in the Department of Public Instruction, where she worked from 1989 until 2003.

Wayne Bradley

The Fargo Moorhead West Fargo Chamber of Commerce recently named its 2012-2013 board of directors. Wayne Bradley, president and owner of Bradley Business Advisors, has been selected to serve as chairman of the board. He will replace Kristi Ulrich, vice president of marketing and public relations for Heritage Homes and Prudential Premier Real Estate, who served as chairwoman of the board from 2011-2012.

Indigo Signworks CEO Bernie Dardis has been named chair elect. Doug Restemayer, president of D-S Beverages Inc. will serve as treasurer.

New board members include Doug Vang of Essentia Health and Paul Von Ebers of Blue Cross Blue Shield of North Dakota.

|PRAIRIE PEOPLE|

Dave Ferguson

David Baltes

Josh Herberg

Lisa Mueller

Four earn supply chain certification

Four Border States Electric employees recently earned supply chain professional certification through APICS, the Association for Operations Management. Employees receiving the certification include Dave Ferguson, supply chain services manager; David Baltes, supply chain services operations manager; Josh Herberg, supply chain services customer technology supervisor; and Lisa Mueller, corporate and east region supply chain services coordinator.

To qualify for certification, candidates must complete a comprehensive examination to show mastery of supply chain management best practices. Those who become certified are recognized as industry experts.

Border States Electric supplies products and services to the construction, industrial and utility industries. The company is employee-owned and is the eighth largest electrical distributor in the U.S. Its corporate headquarters are located in Fargo, N.D.

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|PRAIRIE PEOPLE|

Susan Zelewski

Zelewski named assistant dean at UND med school

Susan Zelewski has been named assistant dean for the Northeast (Grand Forks) Campus at the University of North Dakota School of Medicine and Health Sciences. She will succeed John Allen, who is leaving the position to devote more time to his responsibilities as leader of the North Dakota Simulation, Teaching and Research (ND STAR) Center for Healthcare Education facility in Grand Forks.

Zelewski has worked as a pediatrician at Altru Health System since 2004 and served as chairwoman of the pediatrics department since 2010. She is also campus coordinator of the pediatrics clerkship for the UND School of Medicine and Health Sciences.

Michelle Swenson

N.D. Soybean Council hires new marketing director

Michelle Swenson recently joined the North Dakota Soybean Council as director of marketing and development. In this role, she will assist in expanding the domestic and international marketing efforts for North Dakota soybean producers.

Prior to joining the soybean council, Swenson worked as a market analyst for Powerit Solutions in Seattle, Wash., where she analyzed electricity and manufacturing markets both domestically and internationally. She previously served as a project manager for Gold Energy LLC, a Wahpeton, N.D.-based ethanol development company and has earned farming experience on her familyâ&#x20AC;&#x2122;s Minnesota farm. She served on the board of directors for the Minnesota Soybean Growers Association for four years.

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Prairie Business Magazine November 2012

|PRAIRIE PEOPLE|

Mary Ranum

Law firm recognized for female-friendly initiatives

The Women in Law Empowerment Forum has awarded Minneapolis-based law firm Fredrikson & Byron PA its gold standard certification in recognition of the firm’s success in providing professional opportunities and leadership roles for women equity partners. To receive certification, law firms must meet at least three of the six following criteria: • Women account for at least 20 percent of equity partners.

• Women represent at least 10 percent of firm chairs and office managing partners.

• Women make up at least 20 percent of the firm’s primary governance committee.

• Women represent 20 percent or more of the firm’s compensation committee.

• Women make up at least 25 percent of practice group leaders or department heads.

• Women represent at least 10 percent of the top half of the most highly compensated partners.

Fredrikson & Byron is one of only four firms nationwide to meet all six criteria for the certification. “We have strong longstanding initiatives in place to focus on and support the professional development of women, which enable us to fulfill all six criteria,” says Mary Ranum, chairwoman of the firm’s board of directors.

Fredrikson & Byron has offices in Bismarck and Fargo, N.D.; Des Moines, Iowa; Monterrey, Calif.; Mexico and Shanghai, China.

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|BUSINESS DEVELOPMENT|

The Minot Art Lofts, a $9 million Artspace project financed in part by the Ford Foundation, ArtPlace and the Otto Bremer Foundation, will create affordable residence units for artists as well as arts and cultural activity space in downtown Minot. IMAGE: LHB ARCHITECTS

Rebuilding Minot

Developments will add 3,000 housing units in the flood-ravaged community on the edge of the Bakken region

BY KRIS BEVILL

R

ebuilding after a major flood like the one that ravaged Minot, N.D., last year requires a massive effort. Rebuilding after a flood while also striving to accommodate escalating demands from a nearby oil boom makes the task even more daunting. But the town is eager to meet the challenge. As Jerry Chavez, president and CEO of Minot Area Development Corp., puts it plainly, “Minot is open for business.”

According to Chavez, Ward County had 3,000 unfilled jobs in September. He believes a major reason for the lack of workers is a housing shortage, a situation which has plagued many communities in the Bakken region of western North Dakota. But several new development projects being constructed in Minot should begin to combat that issue, adding approximately 3,500 housing units within the next few years.

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Prairie Business Magazine November 2012

In September, modular home manufacturer Champion Home Builders and Genco Bakken Development Group LLC broke ground on the town’s first master-planned community. The Northern Lights development, a $400 million project, will provide more than 3,000 residential units, including single family homes, duplex homes and apartment complexes, as well as schools, retail and commercial developments on 323 acres located on the north side of Minot. Charles Lange, Champion Home Builder’s general manager for the project, says homes will be ready for the development this month. The modular construction will be completed at Champion’s factories in Indiana and Idaho, with portions of each home constructed on-site in Minot. Champion has built more than 50,000 homes and has 17 factories throughout North America, according to Lange, who continued on page 26

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|BUSINESS DEVELOPMENT| continued from page 24

says completion of a home takes 30 to 60 days, about as long as the buyer’s closing process.

As with traditional home building, frozen ground can halt modular home building projects, but in September Lange was optimistic that the Northern Lights project could continue throughout the coldest months of the season. “As long as we can have foundations in the ground ahead of winter, which we’re planning to do, then we can construct through the winter,” he says.

Duplex and single-family homes produced by Champion will range in size from 1,300 to 2,200 square feet and are expected to sell for $230,000 to $300,000. At press time, the commercial development phase of the project was still in the planning phase, but Lange says a number of big box stores were in consideration. A new hospital was also being considered for the development.

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Prairie Business Magazine November 2012

The entire development is expected to be fully built within five years.

On the south side of Minot, Roers Development Inc. and Oppidan Investment Co. began constructing a 45-acre mixed-use development in September. When complete, the development will include 363 multi-family residential units, as well as two hotels and a retail center that will include Cash Wise Grocery, a gas station and several retail stores. The first homes in the $109 million project are expected to be complete in February. The retail portion of the development is anticipated to be open in June.

Downtown Minot is also experiencing development. After seven years of discussions, Artspace, an arts-driving organization focused on providing affordable live/work units for artists and their families, has begun work on Minot Artspace Lofts. The $9 million project will create 34 housing units and approximately 3,000 square feet of arts and

cultural activities space in Minot’s downtown area. Chavez, who has been working on the project since he joined Minot’s development corporation in 2005, says it solidifies the downtown’s “Imagine Minot” theme.

“We’re starting to see good use of land — where they do commercial retail on the main floor and apartments and condos on the second and third levels,” he says.

Minot’s population has been estimated to reach 55,000 by 2026, but Chavez believes actual growth could easily surpass that number, provided housing developments continue to progress. “Once we get our housing on the right track, we’re going to see our population grow significantly,” he says. PB Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com

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|AGRICULTURE|

High-Tech Ag ‘Middleman’ ND business works with

satellite companies, ag community

BY JONATHAN KNUTSON

For nearly two decades, North Dakota businessman Lanny Faleide has been a leader in using satellite imagery in agriculture. He’s optimistic that communication devices such as smart phones will make his company’s products more popular. PHOTO: JOHN BROSE

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Prairie Business Magazine November 2012

When Lanny Faleide was growing up, he enjoyed watching the futuristic gadgets on the classic “Star Trek” TV series.

Today, the North Dakota businessman uses similar, real-world tools to help farmers and others in agriculture work smarter and more efficiently.

“We’re agricultural remote-sensing providers. We’re a middleman.

We’ve positioned ourselves to be in between satellite companies that are controlled by governments and private companies and the ag community,” says Faleide, who leads Agri ImaGIS. The 18-year-old company’s name is a play on geographic information system, or GIS, a computer system capable of capturing, storing and displaying data identified by location.

Agri ImaGIS, working with a German satellite imagery company, uses a software mapping system to make satellite images more useful to farmers.

The ag producers use the information to improve their farming operation, particularly in fine-tuning the amount of seed and chemical they apply.

Every field contains variations in soil types, elevation and drainage patterns, among other things. Treating an entire field the same way shortchanges parts of the field with above-average yield potential and wastes resources on parts of the field with below-average potential.

That’s where so-called precision agriculture and Agri ImaGIS come in.

Precision ag involves applying the right amount of inputs on every square foot of a field, improving yields on the better chunks and holding down expenses on the poorer parts.

|AGRICULTURE|

Benefits of precision ag Precision agriculture uses technology, including GPS, to improve profitability by applying the right amount of inputs such as seed and fertilizer at the right place at the right time.

Corn and soybean farmers surveyed by the Precision Ag Institute reported the following benefits from the use of precision ag. Some respondents answered more than once:

Manage time better Place chemicals better

14% 17%

Reduce overlap when spraying chemicals

Track yields better

Farmers realize that some parts of a field are better than others. Faleide says Agri ImaGIS builds on that understanding. “All we are (doing) is pointing out the obvious. They already know it. But we put it into a format that allows them to do something about it,” he says.

The growing popularity of mobile communication tools is a great opportunity for ImaGIS, he says.“I’m pretty excited about this whole new wave of technology,” particularly when used in conjunction with satellite imagery, he says. “The smart phones, iPhones, Android phones, iPads — that’s changing everything. Everybody wants information in the palm of your hand,” he says. “And we’re able to send it right out to the farmer in his tractor in the field.”

Faleide, 55, smiles as he recalls the small, handheld “communicators” used on “Star Trek”, the 1960s TV show. “We’re making use of something like that today,” he says.

Fees, Customers

Agri ImaGIS charges farmers a yearly fee of $695, plus $1 for each enrolled acre.

It has eight employees: six in Fargo, one (Faleide) in Maddock, N.D., and one in the Mississippi Delta to work with rice and cotton producers there.

The company works with farmers across the country, as well as a few producers overseas. Many of its customers are in the U.S. Corn Belt, with some in North Dakota, South Dakota, Minnesota and Southern Canada.

Agri ImaGIS also works with agricultural crop consultants, farm equipment manufacturers and crop insurance companies.

The North Dakota company’s products can help insurance companies track and manage their crop loss claims.

“Crop insurance has been good to us the past few years,”

32%

19% 23%

SOURCE: PRECISIONAG.COM

Plant seed more accurately

28%

Use less chemical/fertilizer

23% Use less labor

Faleide says.

Agri ImaGIS has offices in Fargo and Maddock, a farm town southwest of Devils Lake.

Faleide farmed in the Maddock area for about 20 years. In 1989, while still farming, he began working with satellite imagery remote sensing.

“I saw it had so much potential,” he says.

In 1993, he quit farming full time — Faleide today describes himself as a“hobby farmer”— and went back to North Dakota State University. He took a class on geographic information systems, which led him to start Agri ImaGIS in 1994.

‘Pushing the Boundaries’

Paul Overby, a Wolford, N.D., farmer and crop consultant, began using Agri ImaGIS products on his own farm in 2004. He liked the products so much that he began recommending them to his clients.

Using the Agri ImagGIS technology allows farmers to break down large fields into small zones that can be managed individually. That smaller-scale management helps farmers improve yields and hold down expenses, he says.

Also, “On the environmental side, there’s growing concern about the use of fertilizer. Limiting the use of fertilizer is part of the goal,” he says.

Any farmer is capable of learning to use Agri ImaGIS products, though many producers prefer to hire someone else to do it, Overby says.

Agri ImaGIS always seeks to supply the most advanced technology, Overby says.

“They’re out there, constantly, pushing the boundaries of what can be delivered to farmers. They’re out there pushing the curve so

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29

|AGRICULTURE| hard, which is good,” he says.

Faleide says that “one of the failures of we — me — as a company is we’ve maybe been too far ahead.” For example, “We did the first variable-rate, satellite-image field of nitrogen (a widely used fertilizer) in the world in Maddock in 1996,” he says.

“But even today, a lot of people are just getting into this.”

Crop Prices, Drought

In theory, current high crop prices should encourage producers to make greater use of Agri ImaGIS products. Grain is worth more, so increasing yields seemingly would be attractive.

Faleide says that’s not the case.

“We’re kind of in a no-win situation. When prices are low, they (farmers) say, ‘We don’t have enough money’ (to get involved with Agri ImaGIS). When prices are good, they say,‘Ah, it’s too much work’,” he says.

He doesn’t guarantee that farmers will make more money if they work with his company. “You’re not going to win every time on this. You might make the wrong decision. But you’re going to make a better-educated decision if you have more information on your field,” he says.

An extended multi-year drought likely would impact Agri ImaGIS, Faleide says. Farmers need to fine-tune and prioritize irrigation during a drought, and precision agriculture/satellite imagery can help with that, he says.

Concerns, Misconceptions

Some people, citing privacy concerns, worry about the use of satellite imagery in agriculture. Faleide says those concerns are misplaced. “My reaction to that (privacy concerns) has always been, ‘OK, when I drove by your field in my pickup, I’m supposed to close my eyes?’” he says.

Many people assume that utilizing satellite imagery in agriculture is complicated, he says.

“Well, it’s not complicated in defining the problem. It can be complicated in what you do about it,” he says.

Important weather events, such as freezes and heavy rains, can quickly affect crop conditions, he says.

‘Adoption Lag’

Precision ag, though popular with some farmers, isn’t attractive to others. A 2011 report from the U.S. Department of Agriculture, which drew heavily on data from 2005 and 2006 studies, found that adoption of precision ag tools has been “mixed.” For instance, yield monitors — electronic tools that help evaluable crop performance — were used on nearly half of U.S. corn and soybean acres in 2005 and ’06, according to the USDA report. Yield monitors often are a first step in adoption of precision ag by grain crop farmers.

However, farmers have been slower to adopt other precision ag tools, according to the report. “Some of the possible factors behind this adoption lag include farm operator education, technical sophistication and farm management acumen,” the report said.

Faleide says he understands why many farmers haven’t moved into precision agriculture.

“The technology can be intimidating. Farmers want to farm. They want to get on that tractor,” he says.

Through the years, he says, Agri ImaGIS has competed against some big, well-financed companies. “There have been so many times when I really wondered if we’d be able to go keep going,” he says. “But I love what I do, and we’re still here.”

Now, “We’ve kind of become the image guys. We’re trying to take it more into the mainstream,” in part because of smart phones and other mobile communication devices, he says. “It’ll be an interesting few years to see if we can make a success story.

We’ll let you know in five years.” PB Jonathan Knutson Staff writer, Agweek 701-780-1111, jknutson@agweek.com

Websites of interest www.satshot.com

is the website of Agri ImaGIS: Satshot. The latter is a software toolset from Agri ImaGIS.

30

www.rapideye.com

is the website of RapidEye, a German satellite imagery company that works with Agri ImaGIS.

Prairie Business Magazine November 2012

www.gps.gov

provides official U.S. government information about GPS (global positioning system) and related topics. Click on “agriculture” in the “applications” section.

www.precisionag.com

is a leading source of information about precision agriculture.

|EDUCATION|

Energizing Education Universities expand energy-related

programs to meet industry demand

BY KRIS BEVILL

N

ew and expanded courses being developed at several universities near the Bakken region of North Dakota are a direct reflection of the state’s new status as a major oil producer. University officials say they are adding courses and faculty to meet growing demand from students looking for opportunities in the oil and gas sector,as evidenced by the steadily growing number of industry-related program participants over the past several years. Industry collaboration is vital in providing the highest-quality education,department leaders say, and the oil industry appears to be more than willing to help universities beef up their programs, providing them with expertise and substantial financial donations in exchange for a steady crop of potential new hires.

Expanded Emphasis

South Dakota School of Mines & Technology students, from left to right, Derek Morris, Akash Jaggi, Ivana Stevanovic, Scott Anderson and Nicholas Cook learn about exploration for hydrocarbons on a field trip to Harding County, S.D., in April 2012, sponsored by the Society of Petroleum Engineers and Continental Resources Inc. The drill rig in the background is using horizontal drilling to explore for oil in the Red River Formation at a depth of approximately 8,000 feet.

PHOTO: SOUTH DAKOTA SCHOOL OF MINES & TECHNOLOGY

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Prairie Business Magazine November 2012

Harold Hamm, founder and CEO of Continental Resources Inc. — one of the Top 10 largest oil producers in the U.S. and the largest leaseholder in the Bakken oil play — delivered a $10 million donation to the University of North Dakota’s College of Engineering and Mines in Grand Forks, to enhance the school’s geology and geological engineering programs. Hamm personally provided $5 million of the gift and delivered the other half through Continental Resources. Combined, the donation is the largest gift ever given to UND from someone who did not attend the university. In gratitude, UND renamed its program the Harold Hamm School of Geology and Geological Engineering.

Hamm’s donation compliments the college’s overall strategic plan to produce students who will advance society, be competitive and contribute

|EDUCATION| state library, which is already housed at UND, contains a wealth of cores and oil well samples from throughout the state, El-Rewini says.

In tandem with Hamm’s donation, UND received $4 million from the state Industrial Commission/Oil and Gas Research Program which will be used to purchase laboratory equipment, provide scholarships and student experience activities and support the high resolution core library. El-Rewini says the public-private combination could serve as a model for others to replicate. “We are providing a great model of private-public partnerships that will help education, research and economic development,” he says. “I feel that the future of the oil and gas indusHesham El-Rewini, dean of UND College of Engineering and Mines, left; Harold Hamm, CEO of try in North Dakota will be dependent Continental Resources; N.D. Gov. Jack Dalrymple and UND President Robert Kelley participate in a on having a strong university here and news conference to announce a combined $14 million donation to the University of North Dakota.

PHOTO: UNIVERSITY OF NORTH DAKOTA strong energy programs and committed faculty. The new school and the to economic development in North Dakota and throughout the department of petroleum engineering and department of chemical world, says Hesham El-Rewini, dean of the College of Engineering engineering will be able to develop new technologies that will and Mines. “Mr. Hamm has great passion for geology and for North enable better utilization of our oil and gas resources.”

Dakota,” he says of Hamm’s motive for the donation. “Related to Software Upgrade this particular gift, simply put, the goal is to enhance and strengthEarlier this fall, the South Dakota School of Mines & en education and research in geology, geological engineering, petroTechnology in Rapid City received a software package donation leum engineering and other petroleum and energy-related fields.”

The boost comes during a time of significant growth for valued at $49 million from Schlumberger, supplier of technology UND’s engineering programs. Enrollment in the College of and information solutions for the oil and gas industry. The donaEngineering and Mines has increased by 70 percent over the last tion includes a suite of four petroleum industry-related software four years, El-Rewini says. Currently, 1,600 students are enrolled in packages and 20 licenses which will be used for students, faculty the college. Two years ago, UND created a petroleum engineering and researchers.

Assistant professor Foster Sawyer, who wrote the proposal for department, expecting to begin with 10 students and achieve an annual growth rate of 50 percent. To the surprise of many, enroll- the donation and was one of the first to explore the software, says ment has far exceeded expectations. This year, the petroleum engi- the software includes applications for many aspects of petroleumrelated engineering, such as drilling, oil production pipelines, seisneering department has 100 students.

“There is a demand. Students need more programs in this mic data and well logs. “It’s very comprehensive software,” he says. area,” El-Rewini says. “Between the expanded geology and geologi- “It’s going to be a steep learning curve [for students and faculty].”

The software is unlike anything offered at SDSMT previously, cal engineering school and the department of petroleum engineering — both are under the umbrella of our College of Engineering he says. “It really is a quantum leap forward for our students and and Mines — I think it will be an addition to serve the students and their preparation for the energy field,” he says. “This will expose them to state-of-the-art software that typically has been the domain provide research value to the state and industry.”

Hamm’s gift will be delivered to the college beginning in 2013 of larger universities that teach oil and gas. This puts us in a different and will be spread over the next four years, providing funds to retain league as far as preparing our students for the petroleum industry.”

SDSMT currently has 47 graduate students and 138 undergradtwo endowed professors, as well scholarship opportunities for students and financial support to establish a high resolution core uates enrolled in the geology and geological engineering department. library, named the Continental Resources High Resolution Virtual Sawyer says he has noticed increasing interest in the department’s Core Library, within the state’s Wilson M. Laird Core Library. The petroleum-related programs in response to the large number of avail-

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33

|EDUCATION| “I feel that the future of the oil and gas industry in North Dakota will be dependent on having a strong university here and strong energy programs and committed faculty."

- Hesham El-Rewini, dean, University of North Dakota College of Engineering and Mines

able high-paying jobs in the industry. “There’s so many opportunities now in the field and students are very aware of it,” he says.

Many of the school’s undergrads go on to receive graduate degrees, but even the undergraduate degrees at the geology and geological engineering department command high wages in the workforce. In 2010-2011, for example, a geological engineering degree garnered a $63,000 annual salary, the highest average starting salary on campus, according to Laurie Anderson, head of the department.

Anderson says it is will be difficult to estimate how the new Schlumberger software impacts enrollment until the next round of admissions numbers becomes available in the spring, but the school plans to use its new capabilities to aid in the recruitment of students as well as new faculty members. She says Schlumberger has a pattern of donating software licenses to schools that have strong petroleum, geology and engineering programs. “We’ve been added to the list and that puts us in very good company with universities nationwide,” she says.

Business Management

Technical expertise is an integral component of energy sector education, but it’s not the only area in need of additional focus. The University of Mary in Bismarck, N.D., aims to improve management education offerings for all energy sectors with a new master of business administration degree in energy management. Courses specific to the degree will be offered beginning next fall on campus and online, says Shanda Traiser, dean of the university’s Tharaldson School of Business.

“We’re really excited about this program because most energy-related degrees come out of engineering schools,” she says. “[But] we’ve visited with lots of people over the past three years who are working in the energy industry in various aspects and they all said that this is a hole. The business side of energy is different, and there isn’t anybody teaching that aspect of it.”

Courses in the program will provide an overview of specific energy industries, including fossil fuels as well as renewable energy sources. The diversity of the program has made its creation a challenge at times, Traiser says, but she is confident in the program director, Sen. Kent Conrad staffer Tim Moore, and his

34

Prairie Business Magazine November 2012

ability to identify industry experts in all sectors that will provide students with specified training. “We live in this great location where we’ve got access to expertise and knowledge in areas like energy development, economics and markets, financing, regulatory issues, legal issues, all of those things,” she says, adding that the wealth of knowledge in the region was one of the drivers in developing the program.“We wanted to use it to benefit the people working in the industry,” she says.

The enrollment goal for the first year of the MBA-Energy Management program is a modest 15 to 20 students. However, Traiser says the online availability opens the door to a potentially much larger audience. Additionally, the program will allow students not interested in a master’s degree to receive a certificate instead. This option may be attractive to someone who already holds a master’s degree, in engineering for example, but would like to supplement their education with business-specific courses, Traiser says.

Healthy Competition

University representatives agree that enhanced energy programs will benefit the region overall through economic development and, potentially, higher student retention rates. ElRewini points out that North Dakota is the No. 2 oil-producing state in the country, but until two years ago there were no instate options for students seeking a degree with an emphasis on petroleum geology. He remembers meeting several North Dakotans during a trip to the Bakken region two years ago who had all left the state to obtain their degrees, only to return later for work.“So I think our main purpose is to serve students from North Dakota who would have left the state to get education somewhere else and also to help the region and attract people from [elsewhere],” he says.

There is healthy competition between universities offering similar programs, but SDSMT’s Anderson says it’s good to have competition. “It keeps us all active in trying to move forward,” she says. “It’s a good sign for the whole region that companies are paying attention to higher education in the Dakotas.” PB Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com

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|INVESTMENT|

Exploring Opportunities

South Dakota real estate developers, investors and service providers gather to learn about Bakken region

BY KRIS BEVILL

B

About 175 entrepreneurs, real estate developers and service providers listen as an oil industry representative discusses opportunities for investment in the Bakken region.

PHOTO: IMAGERY PHOTOGRAPHY

36

oots on the ground. Feet on the street.

Whatever you choose to call it, if you want to invest in western North Dakota’s oil producing region, you won’t get far without an actual physical presence in the area. This was the message from the region’s economic development groups and experienced developers during an investment conference held recently in Sioux Falls, S.D. Because the volume of outside inquiries received by economic development offices is so high, the chances of getting a response are slim unless the investor or developer takes a trip to the area and makes an effort to meet face to face with community representatives, they said. It requires a little hard work and time, but with the effort comes unlimited opportunities as towns in the Bakken region continue to be in need of everything from office spaces for service providers to housing for people living and working in the area, according to area representatives. Even post office boxes and laundry services have been known to be in short supply in past months.

“Think of everything you do. We need all of it,” said Jeff Zarling, president of Williston, N.D.-based marking firm Dawa Solutions Group.

He also advised potential investors and developers to conduct adequate research before making their first Bakken trip.“Don’t just show up,” he said, noting that local officials are overworked and stressed by the

Prairie Business Magazine November 2012

high demands of development in the region.

The Sioux Falls conference, titled “Opportunities in North Dakota, the Bakken & the Williston Basin,” was held Oct. 24 and was one of a series of events held in the Midwest this year by Minnesota Real Estate Journal and Midwest Real Estate News. Sioux Falls-based investment and commercial real estate firm Hegg Companies Inc. cohosted its hometown event after receiving inquiries from other companies requesting more information on the Bakken.

“We had a number of clients and friends that came to us asking how to best get their small business involved in the opportunity created by the Bakken economic expansion,” says Paul Hegg, president of Hegg Companies. “So we brought the political and business leaders of the Bakken area to meet with Sioux Falls-area entrepreneurs and community officials.”

The need for expert advice was confirmed early in the event, after a show of hands indicated that most of the 175 attendees, consisting mostly of service providers, investors and developers, had not visited the Bakken region.

Boosting Confidence

One of the day’s most popular speakers was Tom Rolfstad, executive director of Williston Economic Development. A native of Williston, Rolfstad has

|INVESTMENT|

Tom Rolfstad, executive director of Williston Economic Development, provides advice to attendees at a Bakken region investment conference held Oct. 24 in Sioux Falls, S.D. PHOTO: IMAGERY PHOTOGRAPHY

weathered two other oil plays in the area and spends much of his time discussing the expected size and duration of the latest boom with curious investors and developers. “The Bakken oil play is a huge economic engine that will impact the economy well beyond the Williston Basin itself,” he said. “There is a tremendous opportunity for investors and businesses in Sioux Falls to either directly invest in the Bakken region and/or supply goods and services to us from their facilities in South Dakota. We all know that Detroit builds cars and trucks, but there are suppliers of door knobs, hub caps and seat belts that come from a large region beyond Michigan. So, too, is the Bakken.”

Tim Fischer, CEO of Bakken Energy Services, offered another

vibrant perspective of the area’s activity. His tongue-in-cheek confession that he has slept in his car in the Williston Wal-Mart parking lot on more than one occasion drew laughs from the crowd and cemented his status with attendees as being a first-hand Bakken expert. His company advises a coalition of 30 individual companies working in the Bakken, representing combined yearly revenues of more than $30 billion, although not all of the revenue is attributed directly to Bakken activities.

“We are the people that are out in the Bakken,” he said. “If you go out there by yourself you can catch a fish. We throw a net.” He said cooperation between competing companies is fairly standard practice in the Bakken region, including among BES’s companies, because it makes it easier to do business in the fast-paced environment. He also noted that the amount of opportunity in the area is so large that competition for business is often a non-issue.

Fischer said he has been surprised at the lack of Minnesota and South Dakota companies represented in western North Dakota. “We need to get out there,” he told attendees. “It’s right in our backyard. We understand the winters. We can get home on the weekends. Companies from other states can’t.”

Fisher did his part to assure investors that money spent in the Bakken will provide long-term returns by noting that major oil exploration companies such as Hess Corp. and Whiting Petroleum Corp. have already invested billions of dollars into their Williston Basin operations, indicating a long-term commitment to the area. He expects future growth in the Bakken region will be focused on the expansion of natural gas pipelines in the area. “The pipeline business is huge,” he said, adding that companies will be spending billions of additional dollars in the coming years to connect well sites across the Bakken’s vast 200,000 square miles.

Challenges, Constraints

Many of the event’s speakers addressed the challenge of acquiring financing for real estate projects. Charlie McLaughlin, director of structured real estate finance at investment firm Global Hunter Securities LLC, said he believes the Bakken is a 10- to 15-year oil play and that there

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37

|INVESTMENT| continues to be strong demand for all types of real estate in the area, but labor and materials shortages, harsh weather and infrastructure capacity are areas of concern for Wall Street investors. However, hedge funds and private equity investors may be the most readily available method for financing Bakken-related capital projects because traditional banking sources can be even more difficult to acquire, he said.

According to McLaughlin, large banks outside of the immediate area are skittish about financing real estate projects in North Dakota’s Oil Patch, partially because they have limited knowledge about the area and are concerned about the oil industry slowing down, but also because many are still recovering from the national real estate fiasco of several years ago. Meanwhile, North Dakota’s banks have never handled the types of demands they are now facing and are largely unable to finance large projects, he said. The state’s largest bank, the Bank of North Dakota, “is absolutely strained” and many other banks in the state are too small for large projects, he said.

It’s this lack of real estate capital that is slowing down construction and creating pent-up demand for housing, he said.

When approaching hedge fund managers or private equity investors with requests for financing, McLaughlin had several suggestions for project developers: keep projects small to limit front-end capital requirements, simplify projects for better cost control, and research, research, research. He said good market research is “an absolute requirement” to build credibility with outside investors who

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aren’t familiar with the region. “These people have never been here,” he reminded attendees.

Project developers who have already completed projects in the Williston Basin said their biggest obstacles have been finding and retaining subcontractors and acquiring accurate data on potential sites. One panel member said he has no problem in attracting quality help because his company pays workers accordingly. Developers who had difficulty in finding subcontractors suggested that potential developers be prepared to bring their own crews with them to the Bakken.

Some builders cited customer financing as another issue in the Bakken. Because many home buyers there are people who have moved to the area after losing everything somewhere else, credit repair is a common necessity in the home-buying process. Others said there continues to be a lack of ancillary services associated with building projects. Dean Dovolis, CEO of Annabelle Homes, is an architect but said he also became a home inspector after discovering there were no other inspectors available to check his work in the Bakken.

Next Phase of Development

In general, many of the panelists agreed that while there is currently a housing shortage in western North Dakota, the supply of single-family homes and multi-unit housing developments will soon catch up with demand. However, there are many other areas of real estate development in significant need of expansion.

Myles Richards of Richards Construction Inc. said there is an extreme shortage in office space throughout the area. In fact, when he was setting up his business he could not find a single available office space and ended up buying a duplex in Minot to serve as his office and home, he said. “As soon as you turn the dirt on any industrial project, there’ll be people there to lease it,” he said.

Dawa Solutions’ Zarling said many developers have focused on the so-called low-hanging fruit of real estate projects — single family and multi-unit complexes — but there is a strong need for other types of housing, such as single-level housing for the elderly.

When an attendee said some developers are wary of building in the Bakken because they are unsure how long workers will stay in the area, Zarling expressed confidence that the Bakken boom is a stable investment. “I think it’s a mistake to generalize,” he said. He suggested that the number of women and children living in the area has grown over the summer, indicating that many of the Oil Patch workers are bringing in their families and plan to make the area their permanent home.

Hegg said the conference delivered an interchange of ideas and sparked a number of discussions as to how Sioux Falls’ businesses can scale their business to the region. “Those who say the opportunity has been missed in the Bakken are the same folks that said to avoid Apple when the Mac was introduced,” he says. “North Dakota has 7,000 wells, is building them at a pace of 2,400 a year and the state of North Dakota estimates they need 50,000 total wells. It is easy to gauge the opportunity once you know the facts.” PB Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com

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Prairie Business Magazine November 2012

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39

|PRAIRIE NEWS| continued from page 19

Spearfish hospital receives performance award

Spearfish Regional Hospital (SPRH) in Spearfish, S.D., recently received the 2012 MAP (Measure, Apply and Perform) performance improvement in revenue cycle award from the Health Financial Management Association. The award is given to health care organizations that achieve excellence or demonstrate substantial improvement in revenue cycle performance. Winners must meet or exceed criteria addressing performance factors such as revenue cycle processes, financial performance, innovation, adoption of patient-friendly billing principles and patient satisfaction.

SPRH CEO Larry Veitz commended the hospital team for its work and commitment to the hospital’s patients.“This award is confirmation of their hard work and ultimate goal of providing our patients with accurate billing in a timely manner,” he said in a statement.

ICON installs video displays at high-profile locations

Grand Forks, N.D.-based iconHD, a division of ICON Architectural Group, recently installed video display boards at two major stadiums.

Six boards designed and engineered by ICON were installed at Arthur Ashe Stadium in Queens, N.Y., prior to the 2012 U.S. Tennis Open in late August. The package included two high-definition LED video boards, standing 20 feet tall and 33 feet wide, and four fascia ribbon boards, each one spanning 78 feet.

At Spartan Stadium in East Lansing, Mich., the company completed a project prior to the start of this year’s Michigan State University football season that makes the stadium among the largest of video display venues in NCAA Division I football. The main display spans 5,300 square feet and enables fans to view live game action as well as replays, statistics, other game scores and updates, as well as advertising and sponsorship messaging.

USD ranked among best national universities

The University of South Dakota has been ranked as one of the 200 best national universities by U.S. News and World Report. Criteria for inclusion on the list is based on several credentials, including undergraduate academic reputation, graduation and retention rates, faculty resources, student selectivity, financial resources, graduation rate performance and alumni giving.

University President James Abbott said in a statement the accolade is a tribute to the people and programs at the university.

“Whether it’s in a classroom or laboratory, on the football field or volleyball court, or a semester abroad to study foreign culture, students know that they’re going to have every opportunity to succeed at USD,” he said.

40

Prairie Business Magazine November 2012

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|RED RIVER VALLEY|

Project English provides training to Fargo hotel staff Software donated by local Rotary groups has noticeable impact on workers

Workers at the Holiday Inn in Fargo, N.D., receive English language training through software provided by local Rotary clubs. PHOTO: HEATHER RANCK

BY KRIS BEVILL

A

s the region’s population has become more diversified in recent years (primarily through the efforts of faith-based international relocation programs) the number of nonEnglish speakers in the area has climbed. FargoMoorhead (Minn.), for example, has become home for more than 2,500 refugees from a number of countries over the past few years, many of whom have only rudimentary English-speaking skills.

To assist in providing English language training to new members of the community, the Rotary Clubs of Fargo-Moorhead, led by Heather Ranck, district literacy coordinator for Rotary District 5580, launched a program called Project English about two years ago. As part of the program, the clubs installed computers loaded with Rosetta Stone software at several locations throughout the metro area, including libraries and training centers. A few months ago, the project was expanded to include its first business — the Fargo Holiday Inn. Combined, the clubs have committed nearly $13,000 to the ongoing project and have provided over 1,000 hours in volunteer assistance to help newcomers navigate the program and improve their English-language skills.

The goal of Project English is to provide adult learners with access to English training to

42

Prairie Business Magazine November 2012

improve communication with their children, who often learn English quickly through school. The clubs also want to help newcomers become successful members of the community. From a business standpoint, Mike Prekel, general manager of the Fargo Holiday Inn, says he has noticed a difference in staff members who utilize the training software. “There’s been enough success with it that if it were taken away I would want to buy it for the hotel,” he says. “Even our management company sees the value in it.”

The vast majority of the hotel’s participants originate from Nepal and work in the housekeeping department, according to Prekel.

Housekeeping staff account for about a third of the hotel’s 310 total employees, but Prekel estimates that only about 5 percent of the housekeeping employees speak English fluently as a second language. Most of the staff speaks a little English, but many do not have conversational English skills, which limits their potential for advancement within the hotel. However, once they are able to communicate more readily, hotel management can consider them for positions that require more employee-guest contact. “[For] so many of them, it’s their first job in America and they just aren’t used to the serv-

ice industry, where they’re asked to speak to people and people speak to them,” Prekel says.

“It’s been really amazing for about four or five of my associates. It’s just opened them up and has been such a nice thing.”

The number of actual participants utilizing the Holiday Inn’s training station varies, but about 20 employees initially signed up for the program. Workers can access the training at any time, but most participants come early or stay late after a shift to use it, Prekel says. A 50-hour threshold has been set as an achievement goal and employees who accomplish that goal will be recognized with a plaque provided by the hotel. However, Prekel says co-workers have noticed a difference in the English-speaking skills of employees who have spent as few as 10 hours on the program. Aside from providing a space to house the computer station, the hotel wasn’t required to contribute financially to the project. Prekel decided to pay workers their hourly wage for time spent using the program anyway.“But there’s so much more value in that than the dollars that we pay them,” he says. “It’s well worth it.” PB Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com

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43

|SOUTH DAKOTA|

Return of the rail

Reconstructed railway spurs new grain elevator project near Kimball, SD

BY KRIS BEVILL

I

Liberty Grain LLC, a newly built grain elevator and fertilizer storage facility near Kimball, S.D., will ship approximately 25 million bushels of grain by rail annually.

PHOTO: SHARON HUIZENGA, PLATTE ENTERPRISE

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Prairie Business Magazine November 2012

t’s been decades since rail service was provided with any frequency along 60 miles of state-owned track stretching from Mitchell to Chamberlain in south central South Dakota. Because of the lack of rail access, farmers and grain elevators in the agriculturally rich region have been forced to haul millions of bushels of grain annually by truck to elevators elsewhere for rail shipment, putting pressure on local roads and costing workers time and money in fuel expenses. This year, the situation has changed.

Liberty Grain LLC, a $38 million grain elevator/fertilizer storage facility project owned by Gavilon LLC, Dakota Southern Railway and several private developers, was recently completed just south of Kimball, approximately 48 miles west of Mitchell and 20 miles east of Chamberlain along Interstate 90. According to the project developers, the facility was built as a direct effect of a $16 million Transportation

Generating Economic Recovery (TIGER) grant provided to the state in late 2010 to help reconstruct that stretch of track to allow heavy freight train traffic. “When the TIGER grant was announced, we went barreling down to Kimball and did a site selection there,” says project developer Toby Morris. “There’s really only one buildable site, and that’s what we have.”

Morris and his partner, Chuck Jepson, coowner of Liberty Grain, acquired land from local farmers in a “nice, simple South Dakotan-toSouth Dakota negotiation,” Jepson says. A tax increment financing (TIF) package was provided for the project, but funds were otherwise acquired entirely through conventional financing and equity. Construction of the facility began last August and progressed rapidly through the mild winter.

The facility began receiving wheat in July. On Oct. 1, the first inbound train shipment of fertilizer arrived and outbound trains of grain began leaving the elevator at the end of the month.

|SOUTH DAKOTA| Jepson says the elevator will handle 25 million bushels of wheat, corn and soybeans per year. The majority of trains leaving the elevator will be large 75- to 100-car shuttle trains headed for ports in the Pacific Northwest, where the grain will then be exported to markets in China and the Pacific North Rim. About 20 percent of the total outbound traffic will consist of 50-car trains delivering product to the Chicago wheat market. The 42,000 ton fertilizer shed will store incoming product for sale to local retailers.

Liberty Grain will employ 18 people and pay out approximately $1 million in salaries annually. Jepson says the number of jobs created by the new facility may sound insignificant to people in metropolitan areas of the region, but in rural South Dakota it makes a difference. “It’s a pretty major thing creating that many jobs,” he says. In addition to job creation, the elevator will benefit farmers by reducing the time and money spent trucking products elsewhere. Jepson estimates local farmers could save 20 to 25 cents per bushel in transportation costs. Additionally, fertilizer brought in to the storage facility will be sold at a reduced rate to local retailers.“Because we’re able to buy in such quantities, we’re able to save those other retailers’ money,” he says.

“Those savings will be passed on to farmers, which will also have a local impact.” Also, Liberty Grain has already begun purchasing grain from small elevators in the region that lack rail access to provide them with new export opportunities.

Now that the railroad has returned in force to the area, Jepson, Morris and others envision the opportunity for a number of agriculture-related businesses to become established in the region. They have formed a development group known as Ironhorse LLC to pursue those types of opportunities.

Attractive options include companies such as feed plants, retail agronomy services and seed distributorships, but the group is willing to assist in the development of other projects as well. Jepson says the company’s formation symbolizes the second-coming of the railroad to the area, adding, “We’re pretty excited about it.” PB Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com

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|WESTERN NORTH DAKOTA|

Short on space

Minot airport awaits expansion as demand continues to climb

BY KRIS BEVILL

When Frontier Airlines began working with Minot airport officials earlier this year to set up service to the facility, Airport Director Andy Solsvig walked airline representatives into the terminal’s lobby to evaluate

NECESSARY EXPANSION North Dakota’s Mandan Municipal Airport recently received a $3.8 million U.S. Department of Transportation grant to complete a $5.7 million runway rehabilitation project that will replace 35-year-old asphalt with a fresh layer of concrete and add new lighting. Northern Improvement Co., a highway, heavy and municipal construction firm with offices in Fargo, Bismarck, and Dickinson, N.D., has been awarded the civil contract for the project. Grand Forks, N.D.-based Strata Corp. won the electrical contract.

Mandan’s airport handles about 50 takeoffs and landings total per day, according to Lawler. Private businesses, crop sprayers, and freight service make up the majority of the airport’s customers. The airport doesn’t track air traffic numbers, but Lawler says the number of planes using the airport has increased in recent years.

Major reconstruction work will begin in the spring, depending on weather conditions. The project is scheduled to be complete in October 2013.

Passengers waiting to pass through a security checkpoint pack into a waiting area at Minot International Airport.

PHOTO: ANDY SOLSVIG, MINOT INTERNATIONAL AIRPORT

46

potential areas for the airline to set up shop. There weren’t many options. “We found a location in our lobby area where the airline can make a kiosk of some sort,” Solsvig says. “It’s basically a countertop.”

Space constraints are a daily issue for airport officials, airlines and passengers at Minot International Airport. Passenger numbers have risen dramatically over

Prairie Business Magazine November 2012

the past three years, due in large part to booming activity in the nearby Oil Patch and an increasing number of Canadian travelers who drive to Minot to catch destination flights via Allegiant Airlines. In response to increased demand, new carriers have entered the market and added flights (Frontier is the most recent addition with service beginning Nov. 5) but the terminal just wasn’t built for that amount of traffic and the airport is feeling the pinch. “In 2009, we had one of our lowest years on record — just under 67,000 passengers,” Solsvig says. “Three years later, we have four airlines doing an estimated 210,000 enplanements with 12 to 15 flights per day. We’ve basically tripled air service in three years.”

To remedy the cramped situation, a major overhaul is being designed that will include a new, much larger terminal, a parking lot expansion and an additional taxiway to better accommodate larger airplanes. The entire project could cost up to $90 million.

Solsvig says the design portion of the terminal project might be ready by January, but construction of the new terminal won’t likely begin until spring. The airport recently received a $7.8 million U.S. Department of Transportation grant to assist with expenses but as of late September the complete financial details for the project had yet to be finalized. Federal funding may be used to support up to 90 percent of the eligible portions of the project, however. Solsvig says the airport brings in enough revenue to support the local cost share.

“Operationally, we are self-sufficient,” he says. “It’s just the capital projects that are having a challenging time because of the number of projects and the cost of those

|WESTERN NORTH DAKOTA|

projects are all happening at once. When you have normal growth you can spread it out over a couple of years.”

Population growth in communities in the Bakken region of North Dakota has repeatedly beat expectations, but Solsvig is confident that Minot’s new terminal, set to be three times the size of the existing facility, should sufficiently handle future demands.

“We anticipate for growth of 20 years when we consider building anything,” he says. “The building may be phased in over a couple of years, but I think we’re going to have adequate space for the long haul.”

Solsvig estimates the entire expansion project won’t be complete until 2015. Until then, the airport will continue to make do with its available resources. “The airlines work very well together to make it work,” he says. “We’ve asked the airlines to make some adjustments to their schedules. They have, and some of those changes will take place in November. But we’ve pretty much run out of space.” PB Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com

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47

Market access, drought challenge ethanol producers Future success of industry tied to increased market share and corn prices

BY KRIS BEVILL

E

Located near Underwood in central North Dakota, Blue Flint Ethanol produces about 65 million gallons of ethanol annually. It is one of four ethanol plants operating in North Dakota. PHOTO: BLUE FLINT ETHANOL

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Prairie Business Magazine November 2012

thanol producers across the Midwest are reeling from a challenging year filled with policy challenges, tight margins and uncertain corn crop expectations. But the young industry has faced these types of uphill battles before, most recently in 2008 when corn prices skyrocketed and oil prices dropped. The industry recovered, however, and currently accounts for 10 percent of the U.S. fuel supply, with the ability to produce more. As the corn harvest comes to a close in the northern Plains, ethanol industry representatives express optimism that the industry will weather its latest series of chal-

lenges, but they caution that expanded market access is desperately needed in order for the industry to continue to grow. â&#x20AC;&#x153;The industry as a whole is struggling with access to the marketplace,â&#x20AC;? says Lisa Richardson, executive director of the South Dakota Corn Growers Association and South Dakota Corn Utilization Council. Earlier this year, E15 (a blend of gasoline containing 15 percent ethanol by volume) was allowed into the market for use in 2001 and newer vehicles. The increase marked a much-needed opportunity to expand ethanolâ&#x20AC;&#x2122;s market share, but the oil industry immediately

|ENERGY|

“North Dakota corn growers produced a fantastic crop this year which will provide our plants with a market advantage in sourcing corn compared with facilities in drought impacted areas."

- Jeff Zueger, North Dakota Ethanol Council chairman challenged the government’s decision to allow it and retailers have been slow to offer the new fuel option to their customers.

“E15 is in its early stages of implementation,” says Jeff Zueger, chairman of the North Dakota Ethanol Council and general manager of Blue Flint Ethanol in Underwood, N.D. “Challenges with implementation primarily reside around retailers verifying pump and storage equipment compatibility with E15. The good news is that even at today’s elevated corn prices, ethanol is priced 50 cents to $1 lower than gasoline. As we work to implement E15 and higher level ethanol blends, this price advantage will put additional gallons of ethanol into the fuel supply.”

North Dakota and South Dakota both offer incentives for retailers to install blender pumps, which dispense a variety of ethanol fuel blends, such as E15, E30 and E85, for use in flexible fuel vehicles (FFVs). Both programs have been extremely successful and, in fact, North Dakota has more blender pumps than any other state. Aside from offering higher blends to FFV drivers, retailers with blender pumps can more easily sell E15 to the larger vehicle pool, which can speed implementation. However, while local use impacts local producers and economies, even widespread adaptation in the Dakotas will not significantly impact ethanol’s national market share. “We really need the population bases to put their arms around it and the refiners to blend it up,” Richardson says.

Currently, the nation’s ethanol production capacity is greater than the industry’s market share, which Zueger says has led to some plants slowing down or shutting down

production. This year’s severe drought has delivered additional pressure in the form of high corn prices. Because drought conditions varied in South Dakota, Richardson says the success rates of ethanol plants in the state will likely reflect their proximity to good crops. Southeastern South Dakota suffered much drier conditions than the northern part of the state, for example.

In North Dakota, the situation is a little brighter. “North Dakota corn growers produced a fantastic crop this year which will provide our plants with a market advantage in sourcing corn compared with facilities in drought impacted areas,” Zueger says.

The future success or downfall of the ethanol industry will have a noticeable impact on economies in the region.

Minnesota and South Dakota each produce more than 1 billion gallons of ethanol annually. North Dakota’s four ethanol plants produce a combined 400 million gallons each year. All three states rank among the top 10 states in terms of production capacity. Iowa, with approximately 3.5 billion gallons of annual capacity, leads the list. South Dakota’s ethanol producers are the No. 1 corn consumer in the state, requiring 350 million bushels of corn per year, according to Richardson. By comparison, livestock producers are the second largest corn customer, using 80 million bushels each year.

North Dakota’s ethanol producers require approximately 140 million bushels of corn each year. PB Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com

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|ENERGY|

Proppant potential

State geologists examine North Dakota clay formations for use in hydraulic fracturing

BY KRIS BEVILL

The brightly colored streaks in southwest North Dakota’s buttes indicate clay deposits that hold the potential for use in hydraulic fracturing activities. PHOTO: ED MURPHY, NORTH DAKOTA STATE GEOLOGICAL SURVEY

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Prairie Business Magazine November 2012

T

he North Dakota State Geological Survey recently completed a mapping project to investigate the potential for clay deposits located in the southwestern part of the state to be mined for the production of ceramic beads used as a proppant in hydraulic fracturing activities.

Ceramic proppant is one of two types of proppants currently used in hydraulic fracturing activities in the Bakken region.

State geologist Ed Murphy collected approximately 200 rock samples from 61 sites in two kaolinite-rich geologic formations stretching across an area that includes the cities of Dickinson and Bowman. Collected samples were then analyzed for aluminum oxide content, which is a desired component for proppant material. According to Murphy, clay containing at least 20 percent alumina has the potential for use as a proppant. A small number of initial samples displayed an aluminum oxide content ranging from 26 to 38 percent. The larger sample pool showed to contain lower percentages of aluminum oxide, but Murphy believes the con-

tent could still be high enough to be useful. The state’s mapping project will serve to assist interested parties in further exploring the potential resource.“We’ve laid the groundwork for a company to come in and do a more detailed investigation,” he says. “Ultimately, they will need to do some small-scale mining and run that clay back into their plants” to see if it works.

Kaolinite is a clay mineral known for its strength and stability when baked, properties which are beneficial to hydraulic fracturing applications. According to Murphy, proppants are named as such because, when injected along with hydraulic fracturing fluid, they serve to “prop open” cracks in the rock, preventing those cracks from sealing shut. Kaolinite is also used to manufacture bricks. North Dakota’s only brick manufacturer, Hebron Brick Co., currently mines one of the state’s kaolin-rich formations for its operations.

The North Dakota Geological Survey estimates there are 1.7 billion tons of economically mineable kaolin in the state. Because companies

|ENERGY|

Ceramic beads used as a proppant in hydraulic fracturing are created by mining and processing kaolinite clays.

PHOTO: ED MURPHY, NORTH DAKOTA STATE GEOLOGICAL SURVEY

working in the Bakken region currently use ceramic proppant, natural white sand proppant, or a combination of the two, it is difficult to estimate the current rate of ceramic proppant usage in the area. However, Murphy says a typical Bakken oil well uses between 3 million to 5 million pounds of proppant. By the end of 2012, an estimated 2,400 oil wells will be completed in North Dakota, requiring roughly 5 million tons of proppant. Most of the natural white sand used in Bakken wells originates from Wisconsin and Illinois, while the majority of ceramic proppant is imported from China. Hydraulic fracturing is a significant expense associated with oil production in the Bakken, accounting for about a quarter of the total $9 million to $11 million spent to complete each well, according to Murphy. He says the kaolin formations could help reduce those costs and prove to be a significant resource for the state.

Land explored for the mapping project varies in use, but the majority is pastureland. Owners of the clay material can vary depending on the terms of each mineral deed, so each deed would need to be examined to determine if the surface owner or mineral rights owner controls that resource, Murphy says.

A full report of the state’s findings, including clay mineralogy conducted by researchers at North Dakota State University’s Center for Nanoscale Science and Engineering Laboratory, is expected to be published by the end of this year. According to Murphy, the main goal is to provide answers to industry questions in advance. “If a dozen companies come in to investigate the potential for these clays for ceramic proppant they would all have to do the first three or four steps that we’ve done,” he says.

“Now they can pick up this report and go from there.” PB Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com

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|BY THE NUMBERS| Exchange

N.D. PRODUCING OIL WELLS July 2012 July 2011

5,777

Canadian dollars per U.S. dollar

1.5

AVERAGE DAILY BARREL PRODUCTION July 2012 July 2011

1.6

7,468

674,067 425,121

TOTAL WELL PERMITS July 2012 July 2011

1.4 1.3 1.2 1.1 1

184

0.9 Jan 2000

136

Jan 2002

Jan 2004

Jan 2006

Jan 2008

Jan 2010

Jan 2012

Jan 2014

Source: Board of Governors of the Federal Reserve System

AVERAGE RIG COUNT 211

Federal Funds Rate 10 yr Treasury, Constant Maturity

6 5

90.6

Employment

UNEMPLOYMENT RATE Jul-12 Jul-11 North Dakota 3.00% 3.60% Fargo MSA 3.3 3.7 Bismarck MSA 2.5 3.1 Grand Forks MSA 4.3 4.7 Minot MiSA 2.6 3.7 Dickinson MiSA 1.5 1.9 Williston MiSA 0.7 1 Jamestown MiSA 3 3.3 Wahpeton MiSA 3.9 4.1 South Dakota 4.40% 4.60% Sioux Falls MSA 4 4 Rapid City MSA 4.3 4.2 Aberdeen MiSA 3.6 3.5 Brookings MiSA 4.4 4.6 Watertown MiSA 3.7 3.8 Spearfish MiSA 4.4 4.1 Mitchell MiSA 3.5 3.7 Pierre MiSA 3.4 3.3 Yankton MiSA 4.1 4.3 Huron MiSA 3.3 3.2 Vermillion MiSA 4.7 4.8 Minnesota 5.80% 6.60% Minneapolis-St. Paul MSA 5.9 7 Brainerd MiSA 6.9 8.3 Winona MiSA 6 6.4 Fergus Falls MiSA 5.2 6 Red Wing MiSA 5.5 6.5 Willmar MiSA 5.1 6 Bemidji MiSA 7.8 9.1 Alexandria MiSA 4.7 5.2 Hutchinson MiSA 6.9 7.3 Marshall MiSA 4.8 5.7 Worthington MiSA 4.8 5.2 Fairmont MiSA 5.7 6.5 Source: Bureau of Labor Statistics

Prairie Business Magazine November 2012

EMPLOYMENT Jul-12 Jul-11 376,682 368,344 117,788 118,152 62,597 62,548 50,774 51,673 33,271 33,756 19,626 18,103 36,282 25,834 10,514 11,249 11,170 11,932 424,815 424,283 126,914 126,651 66,573 66,527 22,596 22,576 17,599 17,550 18,812 18,717 12,545 13,022 13,140 13,162 12,238 12,347 11,461 11,572 9,815 9,866 6,696 6,627 2,799,523 2,781,038 1,770,576 1,736,925 46,548 46,478 28,125 28,421 30,594 30,629 25,328 25,157 23,574 24,698 20,679 20,794 21,039 21,310 19,130 19,590 14,769 14,658 11,134 11,464 10,905 11,461

4 Percent (%)

71.13

Source: NDIC Oil and Gas Division

52

7

177

PRICE PER BARREL July 2012 July 2011

Interest Rates

3 2 1 0

Jan 2000

Jan 2002

Jan 2004

Jan 2006

Jan 2008

Jan 2010

Jan 2012

Jan 2014

Source: Board of Governors of the Federal Reserve System

Wages Median usual weekly earnings in farming, fishing & forestry

July 2012 July 2011

480 460 440

Men Women

420 400 380 360 340 320 300 280 Jan 2000

Jan 2002

Jan 2004

Jan Jan 2006 Date 2008

Jan 2010

Jan 2012

Jan 2014

Source: Bureau of Labor Statistics

Data provided by David Flynn, chair of the University of North Dakota Department of Economics. Reach him at david.flynn@business.und.edu.

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Prairie Business Magazine November 2012