Oil slump hits $125-mn property debt in North Dakota
By Money Times
Jan 03, 2016 08:11 PM EST
Regions
An oil well owned and operated by Apache Corporation in the Permian Basin are viewed on February 5, 2015, in Garden City, Texas. The well produces about 55-70 barrels of oil per day. Apache sends an estimated 50-52 million cubic feet of natural gas to this plant per day. As crude oil prices have fallen nearly 60 percent globally, American communities dependent on oil revenue prepare for hard times. Texas, which benefited from hydraulic fracturing and the shale drilling revolution tripled its production of oil in the last five years. The Texan economy saw hundreds of billions of dollars come into the state before the plunge in prices. Across the state, drilling budgets are being slashed and companies are notifying workers of upcoming layoffs. According to federal labor statistics, around 300,000 people work in the Texas oil and gas industry, 50 percent more than four years ago. (Photo : MoneyTimes)
The continuous drop in oil price for the past 18 months may impact $125 million real estate-backed securitized loans in North Dakota. The oil drillers in North Dakota have reduced their activity in the wake of lower oil prices. The reduced activity in shale hubs is poised to dampen the property market in North Dakota.
The rating agency Morningstar Credit Ratings LLC, which tracked the watch list for the last two years, has come out with its findings on property debt in North Dakota. Morningstar said that over a third of $340-million commercial mortgage-backed securities are related to the shale hubs in North Dakota. These mortgage loans were availed during 2013 and 2014.
Bloomberg report says that the oil price drop has resulted in evaporation of thousands of jobs in North Dakota county. The Williston area of North Dakota recorded highest rents during those days of oil price boom. The North Dakota had attracted investments into property market as there was growing demand for accommodation.
The North Dakota country started attracting workers since 2006 and the oil price boom resulted in more demand for housing in the county. Now, North Dakota is witnessing a reversal of trend. The shale hubs such as Williston, Houston and Calgary are suffering from job cuts and easing demand for housing in the wake of lower Oil price, according to BOE Report.
Morningstar has found in its watch list that four largest loans in North Dakota property market are in special servicing. The total losses of three of these loans were put together at $16.5 million. Morningstar is not foreseeing any loss on the fourth loan.
The fourth loan was related to hotels in Minot, which is registering improvement in property market. The other thee loans were used to finance the Strata Estate Suites apartment complexes in Watford City and Williston, the Value place Williston hotel and the Roosevelt East Apartments in Williston.
The Strata Estate loan of 2013 was valued 65 percent less in an appraisal done in November 2015, as per a report by Analisa Pelaburan Di Malaysia. This indicates the dwindling down the property prices in the county. The property boom took off in North Dakota following its shale oil activity. The number of shale oil wells in North Dakota reached a record 10,000 level in June 2015.
However, the oil price drop forced drillers to scale back rigging activity. For the past six months, North Dakota was witnessing decline in the number of rigs drilling new wells.