I recently spent a week in North Dakota for the first time. I attended an excellent conference on the oil and gas boom in the Bakken formation of North Dakota (ND). I encourage you to attend one of Jeff Zarling’s Bakken conferences, held throughout major cities in addition to ND. He can be reached at firstname.lastname@example.org or www.dawasg.com. This ND oil and gas boom has only occurred in the last 8 years and could have a major impact on the U.S. economic future. If new oil drilling technologies are allowed throughout the U.S., we could have oil independence within 10-15 years.
In the April 26, 2013 edition of the Minot Daily News, the cover story is titled “Oil boom drives on.” According to Tessa Sandstrom, communications manager for the North Dakota Petroleum Council, “oil production has increased from 35.7 million barrels of oil in 2005 to 237 million barrels in 2012. The state had 8,500 wells and was producing 779,000 barrels of oil per day. ND remains the Number 2 oil-producing state (only behind Texas) in the nation, compared to Number 8 in 2005. ND provides about 11 percent of the U.S. oil production and the Bakken accounts for 40 percent of the nation’s increase in domestic oil production.”
Oil drilling typically is a very risky business, where one drills vertically into the ground for great distances, often over a mile. If you don’t find oil, it’s called a dry hole and you lose your whole investment. However, there are two new technologies: horizontal drilling (after one drills vertically) and fracking (where one injects liquid, sand, and chemicals to break up tight rock formations so that the oil can seep out). In the Bakken, there is a 99 percent chance that drilling will hit oil, versus 30 percent for the industry average for vertical drilling only in other states.
One can participate either in drilling programs, which are moderate risk and high return; or royalty programs, which are low risk and moderate return. Drilling programs combine investor funds to cover the cost of drilling. The investors share in the net profit, after all expenses such as drilling costs, well production costs, royalty payments to the person who owns the mineral rights, and taxes. According to Tessa Sandstrom, “it costs approximately $10 million to drill a well. Each one garners about $20 million net profit. It pays about $4.4 million in taxes, $7.8 million in royalties, and $1.6 million in salaries and wages.” Or, one can invest in royalty programs, where investors own a small part of many wells that already have been drilled and are producing oil. This spreads the risk. It’s not unusual that investors can average 8-10 percent return for decades. If oil prices increase, you earn more; if oil prices decrease, you earn less.
Real Estate has extremely high cash flow because of an extreme shortage of housing. Man camps (glorified barracks) cost $100-130 per day, depending on whether one buys the meal package. RV’s rent for $1,500-3,000 per month, with 2-3 guys sharing a small unit. Manufactured housing, split into four separate 250 square foot studio apartments, can rent for as much as $3,000 per studio; or $12,000 per month for the 1,000 to 1,200 square foot manufactured housing unit. A 2 bedroom, 2 bath apartment unit can rent from $1,500 to $3,000 per month. Hotel rooms rent from $130-240 per night. A future article will cover some of the real estate projects I saw.
Free Seminar: More information on the Bakken Boom will be covered in “Dr. Harold Wong’s Post-Election Economic, Tax, and Market Forecast: with special section on the Bakken Boom” on Saturday, May 18, 2013, at The Windmill Suites by Chandler Fashion Square Mall, The seminar and lunch will be from 10 A.M. to 1:30 P.M. To register, call (800) 955-2490 or see details at www.DrWongInvestorGuide.com.