THE BLOG

Gatsby and North Dakota

07/29/2013 03:25 pm ET | Updated Sep 28, 2013

"The Great Gatsby" starring Leonardo Di Caprio has been playing in movie theaters for some time now. A friend told me not to see this film because of apparent plastic flowers on the set, hip-hop music in a 1920's period story, and mis-characterizations by actors. My sense is that my friend is correct about the flaws in the film, except that mis-characterizations by actors are more often than not, director driven. But please do see the movie before it disappears from the big screen because even a flawed film cannot dismiss the power of the story of re-invention and downfall of the F. Scott Fitzgerald novel upon which the film is based on.

My favorite scene in the movie - blink hard and you will miss it - is the scene of the dirt poor life of early 20th century North Dakota that James Gatz came from before he re-styled himself as Jay Gatsby of West Egg on Long Island, New York. The location of Gatsby's boyhood North Dakota upbringing was not an invention of the film, like hip-hop music in the 1920's. It is in the Fitzgerald novel. Fitzgerald himself was from Minnesota where he likely had heard stories of the extreme poverty and brutal climate of western North Dakota.

History teaches that times and fortunes change, and times and fortunes have changed a lot in North Dakota. Recently, at the University Club in downtown Chicago, more than a dozen North Dakota business leaders spoke at the Opportunities in North Dakota and the Bakken Summit. Topics included oil and gas, real estate, and service businesses. Wow, Mr Gatsby, if you could see North Dakota now.

"It's an industry, not a boom," was the theme of the summit. What that theme means is that the demand in the oil producing Bakken for labor, housing, restaurants, and retail, which far exceeds supply, does not equate to a boom with an imminent bust, because the supply of economically recoverable oil in the Bakken will drive the Bakken economy for decades. The long term driver of Bakken oil supply is confirmed by the recent USGS estimate of recoverable oil in the Bakken which USGS doubled from its previous estimate and this new estimate does not include any oil on the third geological shelf called the "Three Forks" which many think will double the estimates of recoverable oil again. As estimates of recoverable oil continue to grow and oil drilling in the Bakken has a near 100 percent success rate, even the increase of the number of oil wells on the same acreage is not having an affect on the productivity of individual wells. Eric Peterson, President of Bakken Consulting summed it up: "Half of the recoverable oil in the US is in the Bakken - North Dakota and Montana."

The necessary homework for the sceptic of ever rising oil reserve numbers in the Bakken is to read the history of other prolific oil producing areas. In the Bakersfield, California area for example, oil has been produced for over 100 years and estimates of recoverable oil have repeatedly proved to be too conservative. Today, according to Tom Rolfstad, Executive Director of the Williston Economic Development Corp., "proven reserves - how much oil you can get out of a rock - the numbers will keep getting bigger because the oil industry is putting a lot of money into research." Rolfstad continued that, "Baker Hughes is hiring people who are gettng laid off from NASA." NASA geophysicists have spent many years scooping rocks off of the moon and Mars and pouring over the meaning of multi- million- year- old rocks. Yes, expect the numbers of oil reserves in the Bakken to keep getting bigger,and with those ever increasing oil production numbers, comes hand in hand, the opportunity for employment and investment in the Bakken.

In the hallway outside of the summit, I asked Rolfstad about the labor and housing shortage in the Bakken and if his organization had ever approached the US Defense Department about the creation of a public/private partnership to build affordable housing in the Bakken for job seeking veterans returning from Iraq and Afghanistan? These veterans have youthful energy, experience working on projects in groups, have adapted to harsh climate and in many cases have leadership skills. Rolfstad confirmed that there had been discusssions, "but not by me," he said.

Still another way for a sceptic to think about how long the run of the oil based Bakken economy will be, is to look at the economics of an investment in oil royalties there. Chris Faulkner, CEO of Breitling Oil suggests that "the price of oil will fluctuate, but there is a floor based on the social and economic needs of Saudi Arabia. It would be problematic (for the economic production of Bakken oil) if oil went below $60, but Saudi Arabia needs $83-85 oil," he said.

Faulkner went on to explain that it is important for potential investors to know that the time to invest in royalty income is not when the well is first producing. "Eighty percent of a well's production is in the first three years. So the appropriate time to look at a well for possible royalty investment is after the first three years" (in consultation with petroleum engineers), he said. "There is also the possibility that over the multi- decade life of the well, to look at secondary and tertiary recovery (steam and CO2) or even refracking. But refracking can cost $5 million dollars," Faulkner said. All of this long term production of oil means long term employment in the Bakken.

Not everyone outside of the oil industry and lifelong residents of the Bakken are sceptics of the Bakken economy longevity. Architect, developer and noted amateur tennis player Jon J. Jannota has been in the Bakken for three years now and has built hundreds of apartments. His latest project is a multi-use development of climate controlled storage, retail and offices.

Since tennis is a mostly defensive game, I asked Jannota to explain from his sense of defense, just what the risks were of doing business in the Bakken? Jannota answered that, "There is always the chance that the EPA wlill change the rules about fracking." Beyond that, Jannota said, "the risk was (not) having an exit plan for your investment."

But a huge percent of all US oil production now uses some form of fracking. Changing the rules would collapse oil production and with it, the economy. This leaves not having an exit as a development risk, and the risk of the unknown or mechanical failure for an oil income royalty player.

Is it not likely that if Jay Gatsby returned from military service today (rather than after WWI), instead of taking up residence in West Egg, Long Island, he would return to his native western North Dakota?