Daily Gains Letter

What You Need to Know to Make the Most of the U.S. Oil Boom

By for Daily Gains Letter |

US Oil BoomNot every oil-producing region of the United States will benefit equally from the boom.

While the International Energy Agency (IEA) expects the United States to surpass Saudi Arabia as the world’s top oil producer by 2017, some regions will outproduce others. For investors looking to take advantage of America’s oil boom, North Dakota looks like it is positioning itself as the place to be.

The U.S. Geological Survey (USGS) says the Bakken formation that underlies parts of Montana and North Dakota is the largest continuous oil resource in the lower 48 states. While estimates vary wildly, the USGS estimates the Bakken reserve area contains as much as 7.4 billion barrels of oil and 6.7 trillion cubic feet of recoverable natural gas.

After nine straight months of producing more than 700,000 barrels per day (bpd), the North Dakota Department of Mineral Resources said recently that Bakken oil production reached an all-time high in May of 810,000 bpd. For those who have been paying close attention to the Bakken play, this represents a more than fivefold increase in production in just five years.

The U.S. Energy Information Administration (EIA) also announced late last week that thanks to the Bakken play, North Dakota’s real gross domestic product (GDP) experienced significant gains that are well above the national average. In 2001, North Dakota’s GDP ranked 38th out of the 50 states; in 2004, the state’s GDP per capita rose consistently each year, surpassing the U.S. average in 2008.

By 2012, North Dakota’s GDP per capita was at $55,250, 29% greater than the national average. The EIA also said the increase coincided with the ongoing development of the region’s Bakken oil play. In 2012, North Dakota reported the highest annual increase in real per-capita GDP (10.8%) of any state for the second consecutive year.

With more and more wells coming on line and production expected to ramp up over the summer months, many are speculating that North Dakota’s Bakken play could produce more than one million barrels per day before the end of 2013. North Dakota’s Bakken play is one of the reasons that 2012 U.S. oil production grew at the fastest pace since 1965.

For investors interested in adding oil plays to their portfolio, there are a large number of U.S. producers taking advantage of the Bakken formation.

Northern Oil and Gas, Inc. (NYSE/NOG) controls 182,000 acres of the Bakken formation in North Dakota and Montana. Halcon Resources Corp. (NYSE/HK) has 130,000 acres of Bakken under management, with proven reserves of 48.6 million barrels.

Recent innovations in fracturing technology have now made the once unobtainable Bakken reserves both accessible and economical—and placed those developed oil and gas companies operating in North Dakota in an enviable situation.

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