essays pieces of the puzzle
Monday, January 21st, 2013
to north dakota

13 0122 bakken

On Interstate 94, heading northwest out of the Twin Cities, there’s a sign on the side of the road that says, “We ship to North Dakota.”  The vendor is selling manufactured homes, but almost everyone ships to North Dakota these days, even if they never had before.

And workers are flooding in from all over, although they might have second thoughts when the weather is more than twenty degrees below zero, as it has been recently.

The state is solidly red in a political sense, but it just elected a Democrat to the Senate and has the only state-owned bank in the nation — “socialism” that seems to have worked well.  (By the way, the state investment plans need a chief investment officer if you have an interest.)

The eastern part of the state has seen significant changes in agricultural practices over the last few decades, but nothing like what has happened out west of late.  The nighttime satellite pictures tell the tale of an emergence of a “Kuwait on the prairie.”

As does today’s chart.  The top two panels (barrels produced and wells producing in the Bakken region) are shown with logarithmic scales to avoid the “hockey stick” looks that they would otherwise have.  You can see the up cycles and those times of retrenchment.  I was in Williston in the late nineties and there were rows and rows of empty buildings from the last boom.  Now it’s booming again.  In Williston and the little towns of the Bakken, life has changed dramatically.

There are environmental concerns with fracking, the process that has unleashed the oil, but as long as prices stay up and there are no ecological disasters, the boom will last.  There seems to be plenty of reserves, but the depletion rates for the new wells will be key.  The bottom panel illustrates the rebound in barrels per well; where that metric goes will be an important determinant in whether expectations for the region are too high or too low.  (Chart:  North Dakota State Government, Bloomberg terminal.)

On the new site, research puzzle pieces, you’ll find a wide range of interesting updates about the investment world.