During the past few years, I have been buying shares—slivers, really—in limited partnerships that drill natural gas wells in Ohio. I know what your reaction to that sentence will be: that this oaf is ripe for a fleecing, like buyers of coins advertised in newspaper supplements and penny-stock shares in silver mines.
It’s not so. I was brought into the drilling partnerships by an astute and cautious investor named Gary Carlson, with whom I worked at MJSK Investment Securities. He has invested with the driller and general partner for more than a decade. Our wells are in Ohio’s Geauga County, within 30 miles of Cleveland, where John D. Rockefeller started Standard Oil. Some are oddly situated—one is in a church parking lot and another forced the rerouting of a homeowner’s driveway—but they are producing; a check for my share of our production arrives every month. Moreover, our activities are eligible—read the rest of this sentence slowly—for federal tax treatment criticized in 2005 by President Bush as too generous to oil and gas companies.
Where there is oil there is natural gas, and vice versa—and Rockefeller left some of both beneath northeastern Ohio. In July, the month in which the Abu Dhabi sovereign-wealth fund purchased a 90 percent stake in New York’s Chrysler Building for $800 million, our natural gas wells proffered an average ancillary production of about two barrels of oil per day. Although I like to imagine that my oil is used to fuel ambulances and fire engines, I know that it’s just as likely to be burned by a Hummer returning to a supermarket because the driver forgot to get ketchup. I also know that in a world that burns a thousand barrels of oil a second, to call our production a driblet would be to grossly magnify its importance. Such cognizance leads to modesty; I have not purchased a belt buckle like those worn by the guys on this month’s cover.
As Jack Gordon reports, Michael Reger and Ryan Gilbertson of Northern Oil and Gas are eagerly leasing mineral rights in North Dakota’s Bakken Range, which contains 400 billion to 500 billion barrels of oil, perhaps 1 percent of it currently recoverable. Drilling technology is improving rapidly, however. Wells can now be drilled more than 30,000 feet deep—9,000 feet deep in offshore fields. The amount of oil accessible from a single vertical borehole has been increased by new technology that allows a branching of multiple horizontal shafts. That’s particularly useful in the Bakken Range, where oil lies in wide but thin layers. All of us should want to see Reger and Gilbertson employ it successfully.
In 2007, the United States imported more than 4.9 billion barrels of oil and petroleum products, which contributed mightily to an $816 billion trade deficit. If oil remains at $100 per barrel, we will spend $500 billion on imported oil this year—and next year, and the following year, and for years to follow. That much oil represents real wealth, and real wealth must be exchanged for it. Payment can take various forms, but the era when we could pay by supplying sheikdoms with manufactured goods and fighter jets is long past.
More than 30 countries now have investment funds at least partly funded with oil revenue, and those funds are growing. Abu Dhabi’s sovereign fund, the world’s largest, contains $875 billion; Kuwait’s has $250 billion, Saudi Arabia’s $300 billion.
After buying the Chrysler Building in July, the Abu Dhabi Investment Authority bought $7.5 billion in Citigroup stock in September. More acquisitions are coming. With funds it already has, Abu Dhabi alone could buy 985 Chrysler Buildings. Or it could emulate China by investing in U.S. Treasury securities and collecting $40 billion a year in U.S. tax payments converted by the U.S. Treasury into interest disbursements. Or it could buy the largest 100 publicly traded companies in Minnesota (see below) and have enough left over to purchase much of Ohio.