The Bakken Shale is the 21st century version of the gold rush that brought people to otherwise uninhabited areas of the United States west coast. Out of work families came to these small mining towns in search of their slice of the reported wealth generated by these gold miners.
The Bakken Shale, a 200,000 square mile rock formation in areas of Montana, North Dakota, and Canada’s Saskatchewan is a modern day gold rush beginning to catch increasing attention. In a country with an unemployment rate of 9% and much higher for those often referred to as blue collar workers, the Bakken Shale is a place with an almost unlimited amount of well-paying jobs for those willing to put in long days of backbreaking work as well as an almost endless supply of truckers needed, some of which making more than $100,000 annually.
This sparsely populated area is home to some of the best oil and natural gas fields ever discovered in North America. The U.S. Geological Survey estimates more than 3.65 billion barrels of oil may be waiting for investors and that’s only the United States’ portion.
As an increasing amount of companies take notice, this 200,000 square mile piece of land has a major problem: It has very little infrastructure. As more rigs are brought online, more trucks and rails are needed to transport the oil because currently, there is only a small pipeline system which mostly connects a small area of Canada and the U.S. Workers need living quarters, bathrooms, and places to eat.
Unlike the gold rush that only brought big profits for the select few, the Bakken Shale has the potential to reward companies big and small from numerous sectors of the economy. Their exposure to the Bakken Shale shouldn’t be the only reason to consider long positions in these names but for those looking for an investment that deserves more attention than its currently receiving, this is it. Here are a few names to consider.
Continental Resources (CLR)
Continental Resources owns 855,000 acres in the Bakken Shale and currently operates 23 rigs bringing in $120 million per year. Continental estimates that the total amount of oil located at Bakken is 24 billion barrels and they’re betting big on the project.
With oil prices low, oil industry stocks haven’t sported pristine charts but with a P/E below its peers and plans to bring more wells online for years to come, CLR is definitely one of the best ways to play this news and with 12% of the float held short, one has to be believe that when oil prices rise, a short covering rally in this name will take hold.
Currently, the most cost effective way to transport oil from Bakken is by railroad. With 1,800 new wells said to be online by 2011, the railroad network is being upgraded rapidly to allow for more capacity. BNSF Railway Company, along with Canadian Pacific currently own 20% to 25% of all outbound routes from Bakken. BNSF is a subsidiary of Berkshire Hathaway as well as rail company CSX.
Although Berkshire has significantly underperformed the S&P in 2011, betting against Warren Buffett is not advised. Long term value plays like the Bakken Shale would be a perfect fit for a large scale Berkshire investment and with their large investment in the railroads, they already have profitable ways to doing it.
Enbridge Inc. (ENG)
Enbridge may not be a household name in the investing community but this $26 billion company owns the small amount of pipeline currently in place at Bakken and has plans to vastly increase the infrastructure making the transportation of oil more cost effective.
Although the fundamental story looks good, the relatively low volume of 650,000 average shares as well as the massive amount of leverage on their balance sheet make this a speculative name that needs a tight stop and a conservative weighting in your Bakken portfolio.
The technical picture is much better, though. ENG has massively outperformed the S&P in 2011 and has held up well in the face of a challenging investing environment.
There are compelling opportunities that come with the Bakken Shale and these three names are only a few of the many ways to play this emerging black gold rush.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.