There's a wealth of oil in the Williston Basin's Bakken Formation, and it's caught the eye of investors.
Considerable money has been moving into as well as out of the basin with the uptick in oil activity.
Tom Rolfstad, economic development director in Williston, said his office receives calls from investors around the country, inquiring about companies that they are researching.
Equity funds have bought out about 10 local businesses, typically leaving the original owner with the management and minority stock, he said.
"They see the future value of an investment in the Bakken as being a long-term investment," Rolfstad said. "Many of them have paid a lot of money out in due diligence before they made those investments."
There's also a trend of larger companies swallowing up smaller companies and then being bought out by even larger companies.
Rolfstad said he never saw those kinds of investments in the oil boom of the 1980s, but the industry was different then. Today, new methods of drilling are getting double the production from wells while reducing some of the risk. Technology is enabling more definitive survey images of the field, and drilling time is considerably reduced. In addition, the nature of the oil layer in the Bakken has companies confident that they will find what they are looking for without the need for a lot of wildcatting.
"I do think we are looking at a different type of oil play than the traditional boom and bust. It isn't so much of a speculative play. The success ratios are dramatically better today," Rolfstad said. "So for the investor, it's probably a lot more stable investment than the traditional oil and gas plays that this country has been built on."
Last summer, an investor conference in Williston drew stock analysts from places like New York and California to tour and learn about the Bakken.
The Williston Basin covers about 300,000 square miles in North Dakota, Montana, South Dakota, Manitoba and Saskatchewan. The Bakken Formation is one of the oil and natural gas reservoirs located in the basin. A 2008 survey by the U.S. Geological Survey estimated the formation had 3.65 billion barrels of undiscovered oil with 1.85 trillion cubic feet of natural gas and another 148 million barrels of natural gas liquids.
There's been a migration of investment assets from natural gas to oil because of the low price of natural gas, Rolfstad said. That's drawn interest to the Bakken.
"We are the biggest oil find in the lower 48," he said.
Integrity Viking Funds created an opportunity for investing in the Bakken when it converted a small cap growth fund to the Williston Basin/Mid-North America Stock Fund in November 2008. The fund invests in 25 to 35 companies that are participating or benefiting from the activities and economic development in the area. The primary focus is natural resources, but it includes banking, transportation, manufacturing, food packaging and consumer supplies.
At least 80 percent of net assets go into companies in the Mid-North American corridor, which spans from central Canada to Texas. The remaining 20 percent is invested in solid companies operating within the corridor but headquartered outside of it.
Shannon Radke, president, and Laura Anderson, chief operating officer, with Integrity Viking Funds said there has been strong interest in the fund.
At the time Integrity Viking Funds was launching the fund, oil prices went on a slide, which might have made some potential investors hesitant, Anderson said. But the timing of the dip in the market enabled the fund to build its portfolio at a lower price, she said. As oil prices rose and became more stable, investor interest increased.
Integrity Viking Funds continues to get calls about investing in the fund and is looking to do a second round of marketing of the fund to the public.
Although Integrity Viking Funds typically deals with investment companies on its funds, it has marketed and drawn interest from the general public with the Williston Basin fund. Most of the interest has come from North Dakota, eastern Montana and South Dakota.
"Average people maybe don't have a way to participate in the local rally, in the increase in the oil activity, but see this as a way to get in on the excitement," Anderson said.
The minimum investment is $1,000. Smaller investors who commit to automatic monthly purchases can start with an initial investment of $50.
"This has been an ideal way for small investors to basically get exposure to the energy boom, and specifically, the energy boom in the Williston Basin area," Radke said.
"Without committing to a lot of risk," Anderson added. "This is a diversified investment."
Measured against a benchmark of small-cap funds, the Williston Basin fund returned somewhat behind the broader market but still produced strong profit for 2009. Information about the fund is available at (www.integrityvikingfunds.com).
"It would be ideal for somebody who thinks that, long-term, oil prices are going to continue to rise and who wants exposure to the action in the Williston Basin," Radke said.
Alan VanDelinder, financial planner with First Western Investments in Minot, recommends people interested in the Bakken consider their financial needs and determine what kind of investments they want and can afford to make. A mutual fund offers more diversity than buying individual stocks so it won't fluctuate as much, meaning it won't down as fast but it won't go up as fast, either, he said.
"The temptation in investing in oil stocks is to try to make a killing. That happens but rarely. Usually people tend to chase returns and sell when they shouldn't and buy when they shouldn't," VanDelinder said.
"You really have to be careful because oil stocks tend to be volatile, and you have to know what you are doing. You have to watch them all the time in order to make them work for you. I have had some clients do really well with that. I have had some lose a lot of money. It's just a volatile business so you have to be very careful when you buy individual stocks."
People who go the route of individual stocks should determine in advance the price at which they will pull out and stop their losses, he said.
"Nine times out of 10, they are not going to make this grand-slam home run they are hoping for, and there's a good chance it could go down, too, if they don't watch it very carefully," he said. "They are one piece of good news or bad news away from the stock going up or going down quickly."