Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



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

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. 

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.

Read/Post Comments (1) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 20, 2014, at 7:24 PM, iamamoneypenny wrote:

    I live in the heart of the Bakken region and have since 2005. The growth is mind blowing, we have more than doubled population since I came and are expected to double in the next year. However this area is very rural, I live in the "hub" where everyone comes to when they go to town for supplies. There is thirty something thousand people. A mall holding less than 12 stores( Kmart, JC Penny, and Herburgers the main ones) and a Super Wal Mart up the street. Other wise there is not much, especially in the entertainment and relaxation department. So For all the 100,000 or so people in this 23,000 mile radius, I AM GOING TO CHANGE THAT..I AM OPENING A RECREATIONAL AMUSEMENT CENTER NEXT MONTH. CAMERONS' FUNKYTOWN LLC. If you want any info on investment call me. 701-300-1678 Lisa Moneypenny Owner Operator

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3035412, ~/Articles/ArticleHandler.aspx, 8/31/2015 5:14:06 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Arjun Sreekumar

Arjun is a value-oriented investor focusing primarily on the oil and gas sector, with an emphasis on E&Ps and integrated majors. He also occasionally writes about the US housing market and China’s economy.

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:02 PM
CLR $30.88 Up +1.26 +4.25%
Continental Resour… CAPS Rating: ***
KOG $0.00 Down +0.00 +0.00%
Kodiak Oil & Gas C… CAPS Rating: *****
OAS $9.99 Up +0.52 +5.49%
Oasis Petroleum CAPS Rating: ***