Oil: A True Rags-to-Riches Story for This Unlikely State

How North Dakota’s booming oil industry helped reverse the state’s economic fortune.

Jul 19, 2014 at 10:11AM

The U.S. economy turned in a somewhat disappointing performance last year. According to data from the Bureau of Economic Analysis, GDP grew by just 1.8%, down from 2.5% growth in 2012.

But despite lackluster economic performance for the nation as a whole, some states reported extremely strong growth. North Dakota took the top spot, as its GDP surged by nearly 10% in 2013. In fact, the Peace Garden state is now the second-richest state by per-capita GDP. The main reason? Its booming oil industry. 

Images

An oil rig in North Dakota's Bakken shale. Photo credit: Ole Jorgen Bratland / Statoil ASA

Oil-and-gas-fueled growth
According to the EIA, U.S. crude oil production reached its highest level since 1989 last year, while gas production hit an all-time record high. This dramatic improvement in the nation's energy landscape fueled rapid economic growth in many hydrocarbon-rich states. In fact, three of the five fastest-growing states last year -- North Dakota, Oklahoma, and Colorado -- all have thriving oil and gas industries.

While Oklahoma, which is home to the Woodford shale and the South Central Oklahoma Oil Province, or SCOOP, play, and Colorado, which hosts the emerging Denver-Julesburg Basin, have both seen meaningful growth in their energy production, it's North Dakota, which lays claim to the prolific, oil-rich Bakken formation, that has seen the biggest turnaround in its energy picture over the past few years.

A reversal of fortune
The Bakken, a vast shale formation that spans much of North Dakota and parts of Montana, has helped drive the state's oil production to more than 1 million barrels per day, up from a meager 90,000 barrels per day as recently as 2005. This rapid production growth, coupled with high oil prices since 2009, has helped radically transform the Peace Garden state's economic position.

Its GDP has more than doubled over the past 11 years, surging from a mere $24.7 billion in 2002 to a record $49.8 billion last year (adjusted for inflation). While that still places the state among the smallest economies in the nation, its per-capita GDP of $69,000 is now the second highest in the nation, behind only Alaska.

By contrast, North Dakota's per capita GDP in 2006 was just $32,851, the 11th-lowest in the country and about 14% below that year's national average. The fact that the state went from being the 11th-poorest in the nation to the second-richest, as measured by income per person, speaks volumes about the impact of the oil and gas industry.

No slowdown in sight
Judging by energy producers' capital spending plans in the Bakken, North Dakota's oil boom is unlikely to slow down over at least the next few years. Bakken production recently surpassed the 1 million barrel-per-day (b/d) milestone and is expected to average 1.1 million b/d this year, as operators plough more than $15 billion into drilling wells, according to consultancy Wood Mackenzie.

For instance, Continental Resources (NYSE:CLR), the largest Bakken producer, plans to spend roughly half of its 2014 capital budget of $4.05 billion on the Bakken. The company expects to drill roughly 300 net Bakken wells this year, which should help drive year-over-year production growth of 26%-32%, continuing Continental's multiyear streak of double-digit output growth.

Similarly, Oasis Petroleum (NYSE:OAS) expects to spend $1.425 billion in the Bakken this year, up from $1.02 billion in 2013, which should drive 42% year-over-year growth in production. Importantly, the company expects to drill a total of 155.5 net wells this year, which is about 50% more than last year, while spending only 40% more -- a testament to its improving capital efficiency.

The bottom line
North Dakota's oil boom has transformed the state from one of the poorest to one of the richest on a per capita basis over a period of less than a decade. It has also contributed to exceptional performance for shareholders of Continental Resources and Kodiak Oil & Gas, whose share prices have surged 450% and 250%, respectively, over the past five years.

Going forward, things generally look bright for these Bakken operators. Oil prices are high and expected to remain that way, while technological improvements are likely to further reduce operating costs and improve returns. With more than a decade's worth of drilling inventory, the Bakken should continue to fuel strong growth at Continental Resources and Oasis Petroleum for years to come.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Arjun Sreekumar and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers