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North Dakota oil fields benefiting from Mideast unrest

North Dakota has sailed through the recession with the lowest unemployment in the country, a shortage of skilled workers and a budget surplus as the state has benefited from the shale oil boom in the western part of the state.

Now the stocks of companies working in the Bakken oil fields straddling western North Dakota and eastern Montana seems to be benefiting from turmoil in the Mideast.

While dwarfed by the integrated global giants, such as Exxon and BP, these companies are extracting oil about as far away as one can get from the civil strife and brutal repression reported in Libya and protests spreading across the region.

One result: Iinvestors and traders are bidding up the stocks of these companies faster than the big oil companies.  

Consider that since Jan. 20, just before the first protesters started pouring into Tahrir Square in Cairo, the value of six companies with significant operations in North Dakota have risen nearly 13 percent to a combined total market capitalization of $89 billion.

Since the start of the heating season Sept.1, the market value of these companies has risen 46 percent. The six global oil giants that make up the Dow Jones Integrated Oil Index saw a rise in their combined market value of 7 percent and 38 percent, respectively, over the comparable periods.

(The Dow Oil Index itself rose 44 percent and 11 percent over the comparable periods but is a price-weighted index that is more heavily influenced by higher-priced stocks. The market capitalization comparison is an “apples-to-apples” comparison of total market value.)

The benchmark spot price of a barrel of crude oil topped $100 a barrel last week for the first time in two-and-one-half years. The week before Egyptians poured into the streets to demand the ouster of Hosni Mubarak, spot West Texas crude averaged just below $90 a barrel, up from $75 since last September.

And an oil industry journalist in Dallas, Texas, speculating on increased private equity and M&A activity among domestic oil suppliers, credits the rise in values to turmoil in Libya.

“I know of no one in the American oil patch who thinks fondly of Muammar al-Gadafi, but the erratic Libyan strongman has helped create an as-good-as-it-gets scenario for companies holding crude oil assets,” wrote Chad Watt in a blog posted on the website of a private equity firm, Allegiance Capital Corp.

“For the mid-size and private independent oil companies out there, that means it’s time to sell,” Watt added, commenting on some oil operators who see rising values as a temptation to consider selling out. “Regardless of operational performance, their inventory proved and less-than-proven has grown more than 30% in value in the last 12 months.”

Wayne Beninger, managing director of oil & gas practice for private investment banker Allegiance Capital Corporation in Dallas, is also optimistic about what he termed “unconventional sources” of energy, such as the Baaken oil shale fields in North Dakota and Montana. The oil patch, he said, “is going to remain attractive” primarily because the oil shale deposits are better understood and the technology for extraction is improving.

He doubts there will be a significant increase in M&A activity near term. He said there is “not sufficient confidence that the run-up beyond $80 to $85 a barrel is actually realized. It will depend on whether prices will remain high.”

Beninger is optimistic, however, that oil prices will remain attractive, compared with the cost of exploration, drilling and development, benefiting oil exploration and service companies.

*The Dow Oil Index itself rose 44 percent and 11 percent over the comparable periods, but is a price-weighted index which is more heavily influenced by higher priced stocks. The market capitalization comparison is an ‘apples-to-apples’ comparison of total
Source: DowJones. MinnPost analysis
*The Dow Oil Index itself rose 44 percent and 11 percent over the comparable periods, but is a price-weighted index which is more heavily influenced by higher priced stocks. The market capitalization comparison is an ‘apples-to-apples’ comparison of total

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Comments (2)

  1. Submitted by Gregory Lang on 03/01/2011 - 10:31 am.

    Check out a blog on the Bakken Fields.

  2. Submitted by Gregory Lang on 03/02/2011 - 12:05 pm.

    Sites like the Bakken depend on a “floor” on oil prices of $40 to $50 per barrel. To some extent the genie is out of the bottle with technologies like fracking and horizontal drilling. (to turn and oil drilling pipe ninety degrees horizontal requires a turn of at least 600 feet. Think of the quarter turn on a highway cloverleaf where you go from north to east.)

    This technique requires special alloy drilling casings. A typical Bakken well is one mile vertical and two miles horizontal, to use some comprehensible measures. A well project costs five to seven million dollars. The portion bearing oil and gas is only 100 to 150 feet thick. In the past you would drill down, strike oil and gas but the well would “peter out” by the time you sobered up from the celebration. Horizontal drilling solves this problem.

    The viability of the Bakken and other “non-traditional” oil and gas sources depends on a sustained “floor” price oil in the $40 to $50 per barrel range. This basically translates to $2 per gallon retail gasoline with current taxes.

    As for the claims in the movie “Gasland” that the oil and natural gas seep up to water wells, this is a natural occurance. In Bakken there is a requirement of putting gas detectors and water testing at wells near the or under the drilling. Often these are detected before the drilling starts so you have have a “baseline”. There is a thick layer of impermeable clay/shale above the oil bearing shale. Basically the volcanic caldera under Yellowstone Park blew up at least twice showering more than six feet of volcanic ash in and around the Bakken area.

    If you believe Wikileaks State department messages the Saudi oil reserves are 40% less than the optimistic claims. If true, Saudi Arabia can no longer flood the market with cheap extraction oil like they did in the 1990’s. If true we will never see sustained gasoline under $2 per gallon and the Bakken will be “for real”. Williston, ND went bust when oil prices dropped dramatically in the 1990’s. Now it is again booming.

    The Mideast turmoil “juiced” the Bakken stocks but the fundamentals are good so long as retail gasoline is more than two dollars a gallon.

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