Oil & Gas Drilling Boom Creates 'Gold Rush' in North Dakota's Bakken Formation

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--"We're seeing a good old-fashioned Gold Rush in the Bakken Formation, and we can't get our equipment there fast enough." So said a representative of Caterpillar Incorporated (NYSE:CAT) (Peoria, Illinois) this week at a conference in Denver on infrastructure needs and investment opportunities in the Bakken Formation, a large hydrocarbon formation that lies under portions of North Dakota, Montana and Saskatchewan.

His comments were largely echoed by speakers and attendees at the 2nd Annual Bakken Infrastructure Finance & Development Summit, a two-day event sponsored by Information Forecast Incorporated (Woodland Hills, California). Approximately 350 people attended the event. For more information on the business opportunities discussed at this conference, see October 26, 2011, article - Bakken Formation Has More Oil and Gas Than Prudhoe Bay, CEO Claims, and October 27, 2011, article - North Dakota's Electric Grid Strained by Dramatic Growth of Oil & Gas Drilling.

A representative of Kiewit Corporation (Omaha, Nebraska) said the Bakken formation offered "good" business opportunities in traditional infrastructure projects such as roads, bridges, water treatment plants and wastewater treatment plants, as well as energy projects like gas processing projects and compressor stations. "A lot of projects in the Bakken have not been funded yet, so it's too early to say whether the business opportunities will pan out," he said in an interview.

A more full-throated enthusiasm was expressed by an official from a proppant company who told Industrial Info Resources, "We're a first-year start-up company and Halliburton Company (NYSE:HAL) (Houston, Texas) called us to inquire about the price and availability of our frac sand. We're also getting calls from investors and banks. On a national basis, frac sand is a multibillion-dollar business, and our ultimate goal is to get 10% of the market. There's strong demand for frac sand, but the real challenge is transporting it to where it is needed."

The same could be said about almost anything related to the Bakken Formation. North Dakota has an unemployment rate of about 2.7%, which means there's not nearly enough skilled craft labor to meet the demand created by extensive oil & gas drilling. An executive at an engineering firm said electricians and other skilled craft labor travel over 400 miles to get to his company's job sites. "It's an awful commute," he added.

The rush to extract Oil & Gas from the Bakken also is benefitting North Dakota's unskilled laborers. One speaker told attendees that a local Burger King was offering new hires about $11 per hour in salary, plus signing bonuses of up to $1,200. The demand for consumer goods is so voracious that some retailers don't bother setting up fancy displays of goods: shoppers descend on merchandise so fast that clerks no longer bother taking the goods off pallets. Want to buy a bottle of water at a convenience store? Get ready to stand in line for 30 minutes or more--at 6 a.m.

Beyond a shortage of labor, the Bakken's explosive growth in Oil & Gas exploration and production has created a pronounced shortfall of housing, which had led to skyrocketing apartment rental rates. One speaker at the event said a two-bedroom apartment rents for $2,500 per month. Another said rents have quadrupled in recent years. Renters have reported a 100% increase in rent from one year to the next.

A severe shortfall in permanent housing has created a market opportunity for companies that build temporary housing, also known as "man camps." Brian Lash, chief executive of Target Logistics Management LLC (Boston, Massachusetts), said these camps actually are small cities, with elaborate housing, catering, security, recreation, and transportation services serving up to thousands of residents.

"Without housing, you don't have workers," Lash said. "Without workers, you don't have growth."

And those workers need to be fed hearty meals to enable them to work 18-hour days in the field. Target Logistics serves about 11,000 meals per day to workers living in its Bakken-area camps, Lash said. Well-fed oilfield workers work more effectively than underfed workers, he said, particularly in North Dakota's harsh climate, where temperatures can range from 40-below zero during winter to 110 degrees in summer. "During the winter, oil-field workers need four times the calories they need during the summer," Lash said.

Lash said he learned some hard lessons about what it takes to run these man camps. For example, the company's man camps in North Dakota do not permit alcohol. "Bring together a few hundred men that perform back-breaking labor with a few dozen cases of beer and you're going to have problems," he said. "Banning alcohol saves us all a lot of time, money, fights and aggravation."

In a session immediately before lunch, Lash excited the audience's taste buds by discussing the menus from one of its North Dakota camps. Spike TV's series "Hungry Men at Work" profiled the "enhanced dining experience" at one of the company's North Dakota camps, the CEO noted.

"If you give your employees a good place to sleep, three good meals per day and some social and recreational amenities, they will perform for you," Lash told the conference. "If you don't, they will go home--or go to your competitors."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.