We all know where the spotlight is shining brightest in the U.S. oil and gas industry...
Predicting North Dakota's wild success has been one of the easier calls we've made.
What started out as a few small companies mapping out a territory and putting the drill-bit to the ground has turned into a full-fledged oil rush.
And when I mentioned back in April that the North Dakota's production would soon be in excess of 600,000 barrels per day, it actually happened that month! Current estimates suggest the state's oil output will top two million barrels per day within the next 13 years.
Despite the optimism surrounding the play, my eyes aren't focused solely on North Dakota these days.
In fact, my last sojourn out to the Midwest wasn't to North Dakota... I passed right through it last month without so much as a second thought.
Because right now, we're coming up on the second stage of the Bakken boom — and it's going to unfold where you'd least expect.
Passing Through an Oil Boom
I'll confess it wasn't easy to drive past Williston, North Dakota, and not stop.
You see, investors haven't been the only ones reaping the benefits of the success in the Bakken oil patch...
By now I'm sure you've seen the strong economic stats pouring out of North Dakota. The mainstream media can't get enough of reporting the state's prosperity.
(I should mention these are the same media outlets that had no idea where Williston County was even located four years ago.)
And the stories you read about aren't exaggerated much; the news clips featuring motels with no vacancy, roadside diners flooded with patrons, and people making six-figure salaries while sleeping in their cars are all spot-on.
The state's unemployment rate fell to 3% last May — and it's actually negative in some areas:
It's one of the reasons I cruised west along Interstate 94... and didn't stop until the North Dakota landscape was far behind me.
The Oil Boom that Never Was
Montana has good reason to be jealous of neighboring North Dakota.
Until 2007, all eyes were on the Elm Coulee oil field...
Discovered in 2000, the Elm Coulee field is found in the Williston Basin and is responsible for doubling Montana's oil output in 2006.
State production reached as high as 100,000 barrels per day that year, and the Elm Coulee was rated as one of the highest-producing onshore oil fields in the lower 48 states in 2007.
Yes, things were going great for Montanans — until North Dakota stole the show.
Take another glance at that chart above. Notice how Montana's unemployment rate was falling steadily?
At one point, Montana was neck and neck with North Dakota. Today, Montana's unemployment number is 6.3%, more than double that of its neighbor.
But if things keep going the way they have been over the last two years, these neighboring states may soon be tied again.
You see, Montanans are bracing for the impact of another oil boom... and this time their fortunes will last longer than a decade.
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At present, there are about 208 drilling rigs operating in North Dakota. A year ago, there were roughly 155.
In July 2010, there were about 123 — and only about 40 or so the year prior.
Historical data from the Baker Hughes rig count shows there wasn't a single oil or gas rig running in Montana in July 2009...
Compare that to the rig activity in North Dakota:
But things are about to change for Montana — and for the better.
In June, the Montana Board of Oil and Gas issued 228 oil permits. In case you're wondering, that's more than the total number issued in 2011.
Now there are about 20 drilling rigs in Montana. At this rate, there could be 40 by next July — and then we'll be off to the races.
And yet it looks as though nobody else has caught on to the potential of Montana's comeback!
As with most investments, those paying attention to the coming trends will bank the most.
Correction? What Correction?
There's only one thing the Bakken needs more than drilling rigs, and that's infrastructure.
Specifically, we're talking about ways for producers to transport their oil to market.
Without it, the light, sweet crude beneath Montana and North Dakota might as well stay underground.
The companies investing in the future production of the Bakken also happen to be some of the safest — and most profitable — stocks in the area:
click chart to enlarge
The fact is pipeline capacity in North Dakota was reached more than two years ago.
And if the Keystone XL project was any indication of how much government red tape it takes to green light a new pipeline, it's almost impossible not to see the growth potential developing in the country's top rail stocks.
It turns out Warren Buffett's gamble in Burlington Northern Santa Fe Railroad is paying out in spades: Bloomberg reported BNSF's petroleum carloads rose 75% during the second quarter compared to a year earlier.
And it certainly doesn't hurt that many of those pipeline stocks will be paying out a healthy 3%-5% annual yield for decades to come.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.