I have discussed and suggested in several of my earlier articles that the U.S. needs a finer balance between production and consumption in order to reign in deficits and trigger robust economic growth. The Bakken oil boom is a perfect example of what a production boom can do to the labor markets and the economy. Of course, I am not expecting a Bakken oil boom scenario all over the United States. The critical point is to bring back production, manufacturing and related jobs through favorable policies. This article primarily looks at the benefit derived from the Bakken boom in terms of employment, increased oil production in the U.S. and growth in other industries because of the oil boom.
I would like to start with the summary of the current oil production in the Bakken (12 counties in Montana and North Dakota most affected by oilfield activity) and its impact on the overall oil production in the United States. Just to put things into perspective, the current Bakken oil boom is now five times larger than the Bakken oil boom in the 1980s. The chart below gives an indication of the surge in oil production at Bakken in the recent past.
The monthly oil production in the Bakken area increased by 3.1 million barrels, or 16%, from May to October 2012. During this period, the increase in Bakken oil production represented about 40% of the increase in the U.S. total oil production. I look at this more from the perspective of a decline in crude imports leading to some positive impact on the deficits.
Coming to the discussion on employment, the Bakken area has witnessed a 60% increase in employment since 2009, and continues to exhibit robust growth. Looking at more recent numbers, employment has increased by 7% in the Bakken area since June 2012, while employment numbers remained relatively flat in other counties.
Clearly, the impact of the oil boom has translated into robust job growth, and this trend will continue in the long-term leading to improving standards of living in households in the county. I will discuss this aspect later in the article.
The unemployment rate in Bakken oil counties has also declined below 2%, and is currently at 1.8%. The decline in unemployment has been sharper than the rest of North Dakota, rest of Montana and for the United States.
At the same time, the demand for workers has pushed the average weekly wages for Bakken oil counties by 40% since 2009. The growth in wages was primarily due to oilfield-related occupation. However, wages across all sectors increased due to the demand for labor. In my subsequent charts, I will show the increasing demand in other industries leading to higher labor costs.
Another data point, which shows the positive impact of the boom, is the growth in new business establishments. Since 2009, new business establishments have grown by almost 50% in the Bakken. During the same period, establishments grew by about 5% in the rest of North Dakota and by 3% in the United States, while decreasing slightly in the rest of Montana.
The rise in average weekly wages and growth in business establishments has resulted in a robust increase in the per capita household income for the Bakken area. The per capita household income has increased from $24,298 in 2009 to $27,590 in 2011, and is currently above the U.S. average household income of $27,157.
The rise in per capita income and household income, coupled with a lower unemployment rate, has resulted in a construction and the housing boom in the Bakken counties. This comes at a time when the U.S. is still witnessing a housing sector recession or muted growth. The point I am trying to make is evident from the chart below, which shows an increasing number of housing units in the Bakken without a mortgage. As the per capita income rises, individuals and household are able to buy houses with a favorable mix of debt and equity (no debt, in some cases).
As I mentioned earlier in the article, the oil boom has led to growth in several industries in the county. Another beaten down industry after the recent crisis has been the banking industry. The chart below gives the growth in total deposits in banks for Bakken oil counties and other regions. At the same time, the construction and development loans have surged in the Bakken counties, while growth in loans is largely negative in other regions in the United States. Both these data underscore the fact the banks in the Bakken counties are doing exceedingly well with their core business.
Clearly, the Bakken oil boom has been a boon for the Bakken counties as well as the United States amidst the worst financial crisis since the Great Depression. As mentioned earlier, it serves as a great example of the benefits related to production and manufacturing. This is especially true for an economy that is witnessing a big imbalance reflected in the high trade deficits. As an investor and from an economic growth perspective, I would expect more favorable policies for the energy, renewable energy and the manufacturing sector in order to boost real economic growth in the United States.
From an investment perspective, Exxon (XOM) is a large Bakken producer, and can be considered for a long-term investment. However, the Bakken forms a small part of Exxon's revenue. Besides Exxon, mid-sized companies like Oasis Oil and Gas (OAS), Northern Oil and Gas (NOG) and Whiting Petroleum (WLL) have exposure to the Bakken.