“You might want to take a look at this,” my friend said without taking his eyes off the road.
At first, I didn’t want to wake up. Having driven from Baltimore to Chicago on my shift, I was still feeling groggy. Some of you might remember last year when I trekked across the U.S. on my way to the Alberta oil sands.
With some violent shaking and a few threats to run the car off the road, I finally positioned the seat upright. Looking outside the passenger-side window, I came to a sudden realization: I had no idea where we were.
All I knew was that we weren’t in Canada yet. When I asked what state we were in, he quickly scorned me for sleeping through Wisconsin and Minnesota.
Apparently I didn’t miss much.
As my eyes adjusted better to the sunlight, however, I saw the reason my cohort woke me up. Oil rigs. I’ll be the first to admit, oil rigs were one of the last things I expected to see dotting the North Dakota landscape.
Of course, our trip happened more than eight months before the USGS report was released, highlighting the 4.3 billion barrels of recoverable oil within the Bakken formation.
North Dakota Bakken Oil: Boom or Bust?
Today, things are a bit different for North Dakota.
It’s a subject I find myself coming across more and more each day. Quite frankly, I just can’t help myself. And from what I gather from most of my readers, neither can you.
There are two sides to the Bakken fence.
Either you feel the Bakken is nothing more than a media-hyped oil field with little upside potential, or you see the Bakken as the oil boom that North Dakota has been waiting for. There seems to be no middle-ground between the two.
Judging from the activity going on in North Dakota, I’m firmly in the latter group, but I’ll let the numbers do the talking.
The North Dakota Bakken Oil Boom
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Drilling Activity: The number of active rigs drilling in North Dakota is on the rise. There are currently 93 rigs operating. Twenty-nine of those rigs are operating in Mountrail county, or about 31% of the total. Also, there are nearly 4,000 producing wells in the state.
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Bakken Oil Fields: During the month of August, over 1.5 million barrels of oil was produced in Mountrail county, making it North Dakota’s strongest oil producing county. Mountrail edged out Bowman county, which came in second after producing 1.4 million barrels during the month.
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North Dakota Oil Boom: Oil production in the state has jumped 41% since my colleague and I drove through over a year ago. At the time of my trip, the state was producing approximately 127,000 barrels per day. In August, North Dakota produced over 177,000 barrels per day. More important than surpassing both Oklahoma and New Mexico in oil production is the fact that North Dakota is one of the few areas in the U.S. where production is actually increasing.
The Drillers are Still King
Okay, so it’s probably not a surprise to you that I’m favoring the drillers such a volatile market.
But let’s face it, chances are good that those penny-stock exploration companies are too risky for the average investor’s portfolio. After all, why would you bother piling on the risk at this point when there are so many safer plays out there.
Earlier this morning, a reader asked me whether I think there will be another time and place to start buying into the riskier plays further down the road.
Absolutely.
Until the fog clears, however, there are plenty of undervalued companies out there that have been sold off in a panic. I’m not just talking about the smaller caps, either.
If you’re like me, it’s too hard to sit on your thumbs during a panicky market. Take a look at EOG Resources (NYSE: EOG). With an $18 billion market cap, a PEG ratio of 0.85 and operations spread across some of the most prominent basins in the U.S., EOG is the epitome of a bargain.
EOG has decent Bakken exposure as well. The company is currently operating 8 rigs in North Dakota. All eight of those rigs, however, are located in Mountrail county. That means EOG is running 29% of the rigs in North Dakota’s leading county.
Since July, shares have fallen more than 42%. Those investors savvy enough to pick up EOG in early October, when shares were under $60, have a good reason to smile during this tumultuous market. Don’t feel too bad if you weren’t a part of that crowd. There’s still plenty of room for this energy stock to grow.
Until next time,
Keith Kohl
