Play the Bakken Oil Boom Like Buffett

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Many investors have heard of the Bakken oil field in North Dakota and Montana, but most are unaware of how important this formation is becoming to the U.S. economy.

More germane to investors is the fact that there is still a lot of money to be made from Bakken oil in the months and years ahead.

Just ask Warren Buffett.

He spotted the potential of Bakken oil well ahead of most and bought a non-energy company that would benefit greatly from the boom. Three years ago he bought Burlington Northern Santa Fe (BNSF) Railway Co. for $26 billion.

That railroad is now one of the main beneficiaries of the Bakken oil boom. (And people thought he just had always wanted to own a train set!)

"We're the 1,000-pound gorilla in the oil markets," BNSF CEO Matt Rose told Bloomberg News. "Crude by rail is going to be really strong for us. It's been a real benefit to us to replace some of that lost coal business."

The Bakken oil formation isn't just an investing opportunity; it's transforming the U.S. energy landscape.

The Bakken Oil Boom

U.S. oil production in the first week of January broke through the 7 million barrel a day level for the first time since March 1993, according to the U.S. Energy Department. That's up from a low of 5 million barrels a day in 2008.

Data from the department also revealed that the United States met 83% of its energy needs in the first nine months of 2012. That is the highest mark since 1991.

Much of the gain in production (at least 40%) is thanks to Bakken, which is producing shale oil in greater amounts than originally forecast.

Speaking about increased U.S. oil production, Andy Lipow, president of energy consulting firm Lipow Oil Associates LLC, told Bloomberg News, "I don't think anyone expected the magnitude of the change [in oil production] in just one year."

Even the International Energy Agency (IEA) is a believer now. It recently forecast the United States would surpass Saudi Arabia as the world's number one oil producer by 2020.

Bakken Oil and the U.S. Economy

The surge in domestic oil production is of obvious benefit to the U.S. economy.

The U.S. Energy Information Administration (EIA) forecasts that U.S. oil imports will fall to their lowest in over 25 years next year. It says that oil imports would be only about 6 million barrels a day in 2014, the lowest level since 1987. That is also less than half the peak for U.S. oil imports hit in 2004-07 period.

The EIA says one benefit of less imports and more domestic oil production include job growth in the oil industry. That can be best seen in the Bakken area of North Dakota, where the unemployment rate is a mere 1.8%!

Another benefit is that increased production acts as a shock absorber against any price increase from geopolitical tensions in the Middle East.

The Bakken can also be a boon for investors - and BNSF isn't the only company profiting from Bakken oil.

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