This once-booming oil town is quickly turning into a ghost town...
If you follow the oil market, you may have heard of Williston, North Dakota. It’s small…home to just about 30,000 people. And it’s in the middle of nowhere…about an hour south of the U.S.-Canada border. But it’s also right in the thick of the Bakken Formation…
The Bakken is the second largest oil patch in the United States. It covers 200,000 square miles, making it about 20% bigger than the state of California. It holds an estimated 400 billion barrels of oil.
Oil companies have known about the Bakken’s rich oil supply for decades, but until recently, it wasn’t economical to drill for it. That’s because oil in the Bakken is trapped deep within rocks. It’s called “shale oil,” and it’s much more expensive to drill for than conventional oil.
But a few years ago, rapid advances in drilling technology and high oil prices made it economical to drill for shale oil. This triggered a huge U.S. energy boom.
• Oil companies flocked to Williston to drill the Bakken…
Workers followed in search of fat paychecks. The town’s economy exploded.
At the peak of the boom, starting pay for oil workers topped $100,000 per year. Even local fast food workers in the region were making good money, as E.B. Tucker explained in the August issue of The Casey Report:
Starting pay for fast food workers in Williston was $20 an hour…175% above the federal minimum wage. Plus an immediate $500 signing bonus. Plus benefits. That translates into $40,000 over the course of a year.
From July 2010 to July 2013, Williston was the fastest growing town in the country. Soon, there were more oil workers in Williston than beds to sleep in.
Rents skyrocketed. In February 2014, an Apartment Guide survey found that the average rent for a one-bedroom, 700-square foot apartment in Williston was $2,394…more expensive than a comparable apartment in New York or Los Angeles at the time.
Real estate developers quickly moved in and started building apartments. Most people thought the boom was just getting started.
• Then the price of oil crashed…
Last June, oil peaked at over $106/barrel. Today, oil goes for about $45. It’s next to impossible for oil companies in the Bakken to make money at that price.
Earlier this year, Fortune reported that the average “‘all-in,’ breakeven cost for U.S. hydraulic shale is $65 per barrel.” This means most shale oil companies lose money on every barrel of oil they sell for less than $65.
So oil companies have cut back on drilling in the Bakken. The number of wells pumping oil in the area is now at a six-year low.
This has devastated North Dakota’s economy, as Bloomberg Business explains:
Now North Dakota’s white-hot economy is slowing. More than 4,000 workers lost their jobs in the first quarter, according to the state’s Labor Market Information Center. Taxable sales in counties at the center of the nation’s second-largest oil region dropped as much as 10% in the first quarter from a year earlier, data from the Office of the State Tax Commissioner show.
There are hundreds of brand new apartments in Williston, but no one to rent them. Vacancy rates are around 65% for new apartments and 70% for housing camps. Apartments that used to rent for $2,000 a month are now renting for $200 a month. It’s turning into a ghost town.
Do you live near North Dakota oil country…or another region struggling after oil’s boom and bust? We want to hear from you. Please write us at feedback@caseyresearch.com.
• Casey Research founder Doug Casey recently went to Canada to see for himself just how badly the oil crash is hurting Canada’s economy…
Casey readers know Canada is a major oil-producing country. Oil makes up 27% of the country’s exports.
The oil crash helped push Canada’s economy into a recession this summer. It’s also a big reason why the Canadian dollar has lost 16% against the U.S. dollar over the past year.
• E.B. Tucker, editor of The Casey Report, went to Canada with Doug…
E.B. says Canada’s oil country could wind up like Williston, North Dakota soon:
We think Canada, especially Canadian oil country, is about to get a major wakeup call. Screaming high oil prices set off a 15-year economic expansion that barely paused in 2009. When the boom started, a barrel of oil cost $20. At its height the price was over $140. A decade and a half of boom times is enough to convince people tough times will never come back.
E.B. says the locals in Calgary have no idea what’s about to hit them:
Calgary hasn’t seemed to notice that the price of oil is killing its golden goose...All over Calgary, people told us the price of oil was “coming right back.” They said they’d “been through this before.” It was almost as if they’d all read the same propaganda.
E.B. goes on to explain why the province of Alberta, where Calgary is located, is especially vulnerable:
Alberta accounts for 16% of Canada’s $2 trillion annual GDP. And energy makes up a quarter of Alberta’s economic output. That means the entire province of Alberta is heavily influenced by the price of oil.
Like the shale oil in the Bakken, Alberta’s oil is expensive to drill and produce. E.B. explains why:
Even the lowest cost producers are struggling. More than half of Canada’s oil production comes from tar sands. And 75% of Alberta’s oil business comes from tar sand oil. Tar sand oil is a gooey sand and oil mixture that melts down with heat from burning natural gas. Generally speaking, it’s an expensive way to get thick crude oil.
It’s almost impossible for tar sand producers to make money when oil is trading at $45.
E.B. says the crisis in the oil industry will eventually hit other areas of Alberta’s economy:
While energy only makes up 25% of the province’s GDP, Albertans will be shocked when they see what happens to other sectors now that the oil business has been cut in half. Construction, finance, real estate and services all benefited from a 15-year oil boom. These other sectors will start shrinking soon. And it’s not going to be pretty.
At some point, Alberta’s economy could collapse…
• Doug Casey says “it’s going to be a great opportunity to buy, and make a fortune” if Alberta collapses...
In the meantime, Doug and E.B. know how to profit from low oil prices.
Casey Report readers know that E.B.’s favorite stock is an oil tanker company. Unlike oil producers, oil tankers don’t need high oil prices to make a lot of money. They make money based on how much oil they ship. The shipping rates they charge aren’t tied to the price of oil.
Right now, oil tanker rates are at their highest level since 2008. And E.B.’s favorite oil tanker company is cashing in on those higher rates. The company’s sales doubled during the first half of the year. This let the company double its quarterly dividend.
The company’s stock price is up 13% since E.B. recommended this stock on August 13. When you factor in the 4% quarterly dividend the stock paid last month, the total gain on this pick is 17% right now. But it’s still below E.B.’s “buy-up-to” price.
You can learn more about E.B.’s favorite oil tanker company by taking The Casey Report for a risk-free trial. You’ll also get to read all about Doug and E.B.’s visit to Canada...and find out why one Canadian car dealership refused to sell them a $400,000 Ferrari. Click here to learn more.
Chart of the Day
Oil companies are drilling a lot less in North Dakota than they were a year ago…
Today’s chart shows the number of active oil rigs in North Dakota. From 2011 to 2014, the number of active rigs held steady at around 190. Today, there are only 68 rigs operating in the state.
The number of active rigs has plummeted by two-thirds in just a year. That’s because it’s almost impossible for oil companies in North Dakota to make a profit when oil is $45/barrel.
The huge drop in production isn’t just creating problems for the state’s oil industry. The North Dakota Petroleum Council says that each active rig translates into 120 total jobs. The crash in oil could end up costing North Dakota’s economy up to 15,000 jobs.
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