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Seven hundred miles north of the Montana-Canadian border lays the most unlikely boom town in North America.
In this secluded, remote region of northeast Alberta, Canada, working-class people make 95% more than the national average income. In 2011, the average male made $134,000. Many make far more than that.
Welcome to Fort McMurray, population around 80,000. Incomes here aren't the only number raising eyebrows. The average single-family home now cost three quarters of a million dollars.
This area of the world didn't feel the real estate bust – quite the opposite in fact, as home prices have soared.
In 2007 a single-family home here cost "just" $588,000. Over the past four years prices have risen by nearly 28%, an average of 6.5% a year. Compare that to some of the most resilient towns in the U.S. where prices are still down 6% or so from 2007, and it is clear something is going on in Fort McMurray.
That something is oil, and there is a lot of it. Alberta's oil reserves help to make Canada the world's third-richest country in terms of proven oil reserves, with a total of 173.6 billion barrels.
Only Saudi Arabia and Venezuela have more.
But the oil here is different, very different. It's not held in rock reservoirs deep beneath the boreal forest and peat moss bogs. It is contained in sands that have been exposed by the current of the Athabasca River, and it is in a form called bitumen – a semi-solid form of crude oil.
Bitumen is like molasses when warm and a hockey puck when cold, and it was once used as a waterproofing agent for canoes.
Its physical properties mean it can be dug instead of pumped. And that's what they're doing in the Athabasca oil sands north of Fort McMurray – digging to recover more than 2 million barrels equivalent of crude oil every day.
It's a massive operation that has come with its own set of issues, from environmental to political to social. But one thing is clear … there is no turning back now. The vast oil sands of Alberta are being developed and even the native people, who used to fish and trap in the region, are stakeholders in oil sands projects.
The oil sands of Alberta now make up around 75% of Canada's oil production, and all estimates point toward production increases in the coming years. And they are fueling a gold-mining-like rush to Fort McMurray.
That rush has the full support of Canadian Prime Minister Stephen Harper, who according to a recent Bloomberg article has "…staked the future of the world’s 11th largest economy on natural resource wealth spreading across the country."
Thus far much of the wealth appears to be staying in the western part of the nation – or being dispersed through shares of companies cashing in on the oil sands boom.
If you're interested, a way for investors to play the trend is to invest in the biggest oil producing companies in Alberta, including Suncor (NYSE: SU) and Cenovus Energy (NYSE: CVE).
There are also a number of smaller companies providing support services to Alberta's titans of the tar sands, including one I recommended to Pay Dirt subscribers on November 16th. You can get the full report on this stock, which is already up 15%, with a trial subscription to Pay Dirt. And within the next week, you'll also receive my next issue which features two more "boom towns.”
Good Investing,
Tyler Laundon, MBA