Monetizing the Boom

shale_gas

The Federal Reserve Bank of Minneapolis is responsible for overseeing the financial activity in the Ninth District. The map below shows the states that comprise the district and where the Bakken field lies. As the overseers of activity in this region, the Reserve has developed a strong interest in the economic activity in the Bakken, especially as a relative measure of performance against the rest of the district and other areas in the US with shale deposits. Although the Bakken has received sensational coverage in the media, North Dakota is certainly not the only state with shale energy deposits (see above map).

bakken region

According to the U.S. Energy Information Administration, the two states with the highest crude oil production in 2012 were North Dakota and Texas, at 663 and 1,986 annual thousand barrels per day.

chart

In order to get an idea of the activity in the North Dakota Bakken field, it’s helpful to compare some information with the nation’s largest producer, Texas.

Bakken_commercial TX_commercial

These graphs are created with information gathered in annual FDIC Call Reports. The Bakken region shows a strong degree of volatility in the annual percent change of commercial and industrial loans. However, the graph terminates with a strong continuous slope ending at a 25% annual change. The activity in the Bakken in all respects in staggering, but when compared with the last seven years in the Texas shale fields it is clear that the amount of commercial and industrial activity in North Dakota is unmatched.

Bakken_construction TX_construction

Bakken_residential TX_residentialThe juxtaposition of annual percent change in residential loans in the shale fields of Texas and North Dakota shows an even greater disparity. Although Texas shows a small amount of growth in residential loans, data on construction and land development loans has recorded negative growth since approximately quarter 1 of 2009. Comparing this data with the activity in North Dakota reveals a drastically different construction and development climate in the Bakken field. Investment in construction, industry, land and commercial activities is growing, but the uncertainties surrounding the future of the boom could help to explain the volatility shown in the graphs. These uncertainties, or hypothetical futures, provide an excellent opportunity for our team to explore the potential for an inevitable bust that benefits, rather than damages, the long-term investment in the region.

Bakken_summary TX_summary

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