Over the past 1-2 years the oil industry in North Dakota and parts of Canada has been beaten to a pulp. To the point where most of these companies seem to be on the brink of collapse.
Can’t find a cite, but i seem to recall hearing that fracking wasn’t profitable until oil got over $55/barrel.
As of today oil is right around $45, with it pushing $52 just a month ago.
Theoretically, prices should increase as the Saudi’s seem to be backing off a bit.
What is your opinion? Is buying these companies on life-support a good (but rather risky) opportunity?
Why would oil companies in North Dakota be a better or worse bet than oil companies elsewhere? Wouldn’t the prospects for these companies rise and fall as a group, regardless of the location? And are there companies you can invest in that do all or most of their business in North Dakota?
No. Texas just went through a similar economic scam. The exploration companies way oversgtate the potential, in order to borrow lots of money for development, then go bankrupt much sooner than that.
Every little town east of San Antionio has a big Ramada Inn, to house the workers that were hired, and they are now all standing empty. It all came and went in less than ten years. The only winners, as far as I can see, were those who got in early and made a quick killing and got out before the collapse.
If you’ve got “gambling money” it would be worth buying some of those companies. The question is whether they can hold on long enough for oil to get back high enough.
If you are investing for the long term (not short term gain), it would be something to consider. The reserves underlying the Bakken field are immense, possibly as large as the Middle Eastern reserves. If no one is extracting it now, at current low prices, they will be later when prices rise. The oil isn’t going anywhere and isn’t close to depletion. But - and it’s a big but - so many of the local drilling/extraction companies are not formed as or intended to be long term operations. Be careful to check the company’s history and longevity. The oil extraction industry is the very epitome of here today, gone tomorrow, except for the largest players.
What might be smarter is picking up NoDak real estate while prices are depressed. When the next boom hits - and it will, eventually - you would be in the cat bird seat. People we know made absolute fortunes from sleepy little properties in the Williston area that had been income drags for years prior to the boom.
In any case, get some good advice, from someone experienced in oil stocks.
How long might it take before a bet on future North Dakota real estate prices pays out? Could you have invested your money elsewhere in the meantime and do better?
Certainly a valid consideration. If you really want to invest your money in NoDak, real estate is likely your best bet. If you really want to invest your money in oil, invest in a company that provides services toward the end of the oil production cycle-warehousing or refining, possibly, until gasoline prices rise and the extraction concerns start producing again.
The market assumes that a good chunk of these little ND oil producers are going to be gone in 2 years because oil prices aren’t going to rebound. The risk of bankruptcy is built into the current share price. If you get lucky and pick one of the oil producers that can either thrive in a low price environment, or survive until prices rise, you could be handsomely rewarded.
You won’t get as much of a reward when oil prices rebound if you put your money into BP, ExxonMobil, Shell, etc.
That being said, I wouldn’t touch a little oil producer with a 10’ pole. It seems like every article I’ve read says that oil is going to stay cheap until at least the end of 2017.
If the price rises to the magic number that makes shale oil profitable, the number of wells coming online would just tank the price again. Even if your little oil producer isn’t in shale, they’re still at the mercy of the shale production environment.
Based on my track record, you should ignore the above and bet the farm on ND oil!
The trend in renewable energy is knocking most fossil fuels on their backside. And the renewable energy sector isn’t going to start going downhill in the foreseeable future.
But oil and coal’s biggest foe is natural gas which is also growing. So you have to think that Something Bad is going to happen to renewable and NG.
Also, keep in mind regarding seeking advice from the crowd. If, generally, there were markets where the perfect time to invest in them is clear, then we’d all be billionaires.
I don’t have a strong view on whether exposure to oil companies is a good trade, but if you want exposure a cheap efficient and diversified way to do it is the “XOP” ETF. https://www.spdrs.com/product/fund.seam?ticker=XOP
It tracks a basket of all of the oil sector companies in the S&P total markets index, and it’s interesting that it’s equal-weighted, not cap-weighted, so it’s not biased toward mega-cap companies. I haven’t looked into the companies in detail, so you might want to check if the most beaten-up exploration companies that you’re interested in are included, but if they are, you get a good bang for the buck in this index if they rally from near-bankruptcy because of the equal weighting. It’s actually “modified” equal weighting, obviously weights must change with market moves, so you should also check how that works, I haven’t looked into it.
