Dhe American state of North Dakota was previously not known as the home of many millionaires. On the list of the states with the most millionaires per inhabitant, North Dakota was only 43rd in 2012 – behind Alabama. The boom in oil and gas production with the unconventional fracking method that has been going on for several years is now beginning to change that.
Last year, North Dakota moved up to 29th place and even overtook Florida, according to information service Phoenix Marketing International. The state is part of the Bakken shale region, where fracking is used. Water mixed with sand and chemicals is pressed into the drilling site under high pressure in order to break up the shale, in which gas and oil are trapped.
The upswing seems to be stalling
The triumphant advance of fracking in recent years can be seen in the share prices of companies that specialize in this extraction method or provide the industry with the necessary equipment. The share price of the energy company Pioneer Natural Resources, which is heavily involved in the Texas shale regions, has increased more than tenfold in the past five years. Cabot Oil & Gas stocks are worth six times what they were five years ago. The share prices of companies like US Silica or Hi-Crush Partners, which produce the quartz sand needed for mining, have also risen dramatically.
But the upswing seems to be stalling. In the past few months, the share prices of some fracking specialists have fallen slightly again. Demand for new issues from the industry also appears to be declining. The Texan company EP Energy had to cut its issue price significantly to $ 20 when it went public on Friday and also reduced the number of shares issued. In the run-up to the initial offering, the company had announced a rate between $ 23 and $ 27. EP Energy was only acquired by private equity firm Apollo in 2012 for $ 7.2 billion.
With the unusually fast sale of the shares, Apollo apparently wants to profit from the higher share prices and avoid the risk of a setback. Typically, private equity firms hold companies between three and seven years before reselling them or listing them on the stock exchange. EP Energy wasn’t the only fracking company looking for investors this week. The smaller producer RSP Permian also had to be satisfied with an issue price at the lower end of the range announced.
The slack is a consequence of the significant fall in natural gas prices, which in turn was a consequence of increased production. Although prices recovered significantly last year, they are still below the average for the past five years. For this reason, energy companies reduced the purchase of new drilling fields in the past year. It is also difficult for American producers to export the gas to regions where more is paid for gas.
Natural gas is significantly more expensive in Asia and Europe. “The shale gas revolution is slacking because the raw material is difficult to move,” said Ethan Harris, head of economics at Bank of America Merrill Lynch. “Companies should wait to invest until the infrastructure is in place.” In North America, there are projects to build liquefaction plants that would allow transport in tankers and would increase the demand for American gas. However, it will take several years for the projects to be completed.
Nevertheless, analysts expect further price potential for companies specializing in fracking. Merrill Lynch’s recommendation list includes Cabot Oil & Gas and Pioneer Natural Resources, despite the high increases in value in recent years. The analysts also acknowledge that the competitor EOG Resources has further price potential. If the augurs are right, North Dakota is likely to make another leap forward on the list of millionaires.