Weekly Bakken Roundup – OAS and SLCA stay strong

Our 2013 picks have gotten off to a great start this year with Oasis (OAS: 8.60 -0.81%) up about 15% since the start of the year and US Silica (SLCA: 28.15 +1.22%) is up 20% since the start of the year.    With oil prices steadily creeping up as the market strengthens,   Bakken stocks have increased steadily over the last few weeks buoyed with the overall market.  In addition,  some key developments have occurred in the Bakken region in the past few weeks:

  • A new report out this month from the Federal Reserve Bank of Minneapolis indicates that the Bakken oil boom is now five times larger than the area’s oil boom of the 1980’s. Oil production from the Bakken increased 16 % from May thru October of 2012, while the Bakken area now accounts for 11 % of total U.S. oil production  (SOURCE:  kbzk.com)
  • Continental Resources (CLR: 36.91 -1.36%),  the top producer and leaseholder in the Bakken said it increased its year end 2012 proved reserves 54% to 785 million bbl of oil equivalent. With the 2012 increase, CLR said, it has grown its proved reserves 45% per year since the end of 2009.
  • Enbridge’s (ENB: 41.22 -0.70%) pipeline system has been underused for the past three months as railroads move more oil out of the Bakken shale play, a refining company told U.S. regulators. Enbridge plans to expand its pipeline network out of the Bakken but expects railroads to continue to create a competitive landscape for oil transportation out of the Bakken region.
  • Not everyone is so bullish on the Bakken,  Arthur Berman has a compelling article on why the Bakken Boom will not last forever.   Take a look at it, here


Until next time,  Keep drillin’


Bakken Predictions for 2013

After a stellar set of predictions in 2011,  our 2012 predictions were a bit off the mark.  However we are confident that we will have a roaring comeback in 2013 and a number of predictions will come to fruition.      In 2012 ,  we saw  the vast majority of Bakken producers end the year 15-20% off their highs (most peaked in Feb/March of 2012) but very close to where they started the year in 2012.    Effectively most Bakken plays traded sideways throughout the year as oil wallowed between $80-$90 for the better part of the year.

CLR 73.022 61.02 97.19 -24.92% 96.25 15.80
WLL 43.17 35.68 63.97 -32.45% 58.81 11.67
EOG 121.50 82.48 124.5 -2.47% 134.83 19.43
STO 24.80 22 28.95 -14.34% 27.22 8.53
HES 52.59 39.67 67.86 -22.43% 64.67 8.41
KOG 8.82 6.92 10.9 -18.90% 11.39 12.39
MRO 30.51 23.17 35.49 -13.96% 37.24 9.47

In 2013 however, we do expect a rebound of top tier Bakken stocks but this is largely predicated on the fact that the US economy will have a modest recovery (assuming congress  can get past the fiscal cliff issues).    Without further ado,  our top 3 predictions are below.

  • Oasis Petroleum (OAS: 8.60 -0.81%) hits $45 per share in 2013 or gets acquired.  –  This admittedly is a regurgitation of our 2012 prediction, but we feel strongly that Oasis has quality acreage and production ramp-up that will make it an attractive target.  With the exception of maybe 1-2 other O&G companies in the region,  Oasis is one of the closest things to a Bakken “pure play” stock.   For more detailed analysis on OAS, see our latest in-depth article on the company.
  • US Silica (SLCA: 28.15 +1.22%) hits $25 per share in 2013 –  We have outlined this stock a few times and it certainly is a market leader in Silica production in the Bakken Region .   The forward PE for this stock continues to be under 8 and has extremely strong cash flow which position it well for growth in 2013.
  • The Bakken Region will surpass 28 million barrels of production per month with 6000 producing wells. –   The Bakken region is continuing to maintain its growth trajectory with 30%+ year over year growth expected through 2020.    Some interesting stats on monthly production can be found at the North Dakota Dept of Mineral Resources site here.

Until next time,  keep drilling


Happy Thanksgiving: A helping of the Bakken

Happy Thanksgiving to all!       Thanks for taking timeout for a helping of Bakken during the holiday.

The market looks to have stabilized in the short term in anticipation of a deal in the works to avert a fall off the fiscal cliff.  After a downturn earlier this month,  the Dow saw a rebound of 2% this past week and most Bakken plays also pared some of their losses from a few weeks ago.     Here are some of the tidbits that surfaced over the last week.

  • Reuters analyst John Kemp stated Crude production from the Bakken and Three Forks formations could rise by another 50-100 percent in the next three years, and not start to decline until 2020 or even 2025, according to official projections from the North Dakota Oil and Gas Division.
  • Similarly , Chris Micsak, senior energy analyst with energy researcher Bentek, estimates that daily production will reach 748,000 barrels in November, with an additional 81,000 barrels coming from the Bakken’s Montana side
  • Canadian and Bakken crude grades strengthened against the benchmark U.S. oil price as TransCanada Corp.’s Keystone pipeline returned to service.   The 590,000-barrel-a-day pipeline was shut down unexpectedly for five days, constraining flows from North Dakota, when an “anomaly” was found on the pipeline during routine work.
  • Hess (HES: 45.65 -0.85%)  third-quarter oil and gas production rose 17 percent to 402,000 barrels of oil equivalent per day (boe/d). Production from the oil-rich Bakken nearly doubled to 62,000 boe/d, while the Waha concessions in Libya added 23,000 boe/d to output. Net income attributable to Hess rose to $557 million, or $1.64 per share, from $298 million, or 88 cents per share, a year earlier.
  • Continental Resources (CLR: 36.91 -1.36%) disclosed on November 7 that it has entered into an agreement to acquire producing and undeveloped properties in the Bakken for $650 million. The property includes leasehold of approximately 120,000 net acres, primarily in Divide and Williams counties, North Dakota, and production of approximately 6,500 Boe/d

Until next time, keep drillin’



Weekly Roundup: Bakken Passes the 600k bpd mark

Markets have settled down after making a significant move over the last 2 weeks.  Currently the dow is hovering around 13400 and the Nasdaq around 3140.    In Bakken news some of the stocks we have highlighted have made positive moves and the region recently surpassed a significant milestone.

  • Exxon Mobil Corp. (XOM: 82.69 -0.14%) agreed to buy Denbury Resources Inc.’s (DNR: 1.12 -1.75%) Bakken Shale assets for $1.6 billion in cash and interests in two oilfields.     The deal gives Exxon 50% more acreage in the region and allows Exxon to start the diversification process away from natural gas
  • On June 30, 2009, oil mysteriously jumped by more than $1.50 a barrel during the night, to reach its highest price in eight months, the kind of swing that is caused by a major geopolitical event.  Steve Perkins, a long standing, senior broker at PVM Oil Futures, spent $520 million on oil futures contracts totaling 7 million barrels of crude throughout the night during a drunken haze. Perkins was subsequently barred trading securities for 5 years.
  • US Silica (SLCA: 28.17 +1.29%) a company we profiled in August as the potential Bakken play for the next year,  has seen a very strong move of upwards of 35% from $10 to current levels in the mid 13’s.    The company reported solid numbers last quarters and is still growing at a 25% clip year over year.  In a recent conference,  US Silica stated that they would consider growing by acquisition of existing mines to maximize return on silica products that are used in fracking.      The company is still 50% below its analyst target of around $19 and has a forward PE under 8.   The stock is consolidating at current levels and could be poised for a breakout after earnings at the end of October.
  • Oil production from the North Dakota portion of the Bakken shale formation topped 609,000 barrels a day for the first time in July, up almost 70 percent from a year 2011.  At current growth rates,  Oil production could surpass 1 million barrels per day some time in 2017.

Until next time,  keep drillin’




Bakken Weekly Roundup – Acquisitions on the horizon?

Markets have been relatively rangebound over the last month with the Dow staying within the 13000 range and WTI crude also hovering in the mid 90’s.    With the election looming,  and a host of market moving macroeconomics in play such as European debt,  Quantitative Easing and the US Economy  ,  it will be hard to predict where the market goes over the next 2 months.   There continues to be chatter about Bakken oil companies being ripe for acquisition and our weekly roundup below reflects that sentiment

  • Reuters ran an article indicating that there could be an increasing number of potential buyers, mostly Asian companies such as CNOOC Ltd, that could take advantage of the cheap Bakken valuations before planned pipeline and railway projects are completed in the next two years.  The average 12-month forward P/E of Kodiak Oil & Gas Corp (KOG: N/A +0%), Whiting Petroleum Corp (WLL: 5.10 -3.04%), Oasis Petroleum Inc (OAS: 8.60 -0.81%) , Northern Oil and Gas Inc (NOG: 0.7403 -4.3293%), and Continental Resources Inc (CLR: 36.91 -1.36%) is less than half of those in Eagle Ford, according to Thomson Reuters StarMine data.  The full article can be found here.
  • Bakken crude continues to trade at about $17 per barrel discount to North Sea Brent benchmark. Average drilling and completion costs for wells in Bakken are among the most expensive in the United States, at about $8.5 million per well but could decrease by 30% as pipeline and rail infrastructure is put in place.
  • Shares of QEP Resources Inc. (QEP: 8.62 -2.60%) rose Friday after the company announced it would buy oil- and gas-producing land in North Dakota for $1.38 billion.  The have risen about 7% in the last week to just under $29 per share.   Specifically, QEP Energy unit reached a deal to buy 27,600 acres in North Dakota’s Williston Basin from several sellers.
  • Two big winners in the Bakken region could be  Canadian firms,  TransCanada (TRP: 50.32 +0.34%) and Enbridge (ENB: 41.22 -0.70%).  Enbridge, already one of the largest crude-oil transporters in North America, is competing head-to-head with TransCanada, which is well-known as the backer of the controversial Keystone XL pipeline project.  Enbridge is also aggressively building tank-storage capacity in the Bakken region and increasing its storage capacity by 2 million barrels at its Cushing, Okla., facilities, the community where West Texas Intermediate (WTI) prices are set.
  • A  Facebook page has been set up that chronicles major “Fails” in the Bakken Region.  With great growth comes a number of fails with heavy machinery.    The site has almost 15,000 likes , Visit it here



Until next time, keep drillin’



Bakken Weekly Roundup

In the last few days,  two of the stocks we have profiled recently have had some positive press.   Oasis Petroleum (OAS: 8.60 -0.81%) had a breakout on Friday hitting $30 for the first time in almost 3 months.   Per OptionMonster, OAS rose 3.62 percent to $29.80, with more of those gains coming late in the session after the options traded. This indicates that it was the work of one or more large institutional investors building a position in the company, which develops shale-energy resources in Montana and North Dakota.   In looking at the chart below,  OAS has long term support around $24 and short term support around $28 as it has moved above its 200 MA.    Oasis has a forward PE of about 13 and still could be a nice addition to a larger O&G player in the region


In other news,  US Silica got a much needed upgrade to a Buy rating from BB&T capital markets this morning.   As shown below, the stock has shown good support at $10 and has some resistance around $10.90.   The stock appears due for a breakout after a dismal performance since its IPO a few months ago.   Recent earnings were aligned with expectations and the stock still sports a forward PE below 6.

Until Next Time,  Keep Drillin


Oasis Petroleum blows out earnings, ramps up production dramatically

After market close yesterday,  Oasis Petroleum Inc. (OAS: 8.60 -0.81%)  announced financial results for the quarter ended June 30, 2012.   Oasis reported earnings of  $0.82 per share and increased net income to $76.0 million in the second quarter of 2012, up from $33.3 million in the second quarter of 2011 and $16.4 million in the first quarter of 2012, for an increase of 128% and 363%, respectively.     The reported EPS number trounced the high analyst estimate for the quarter which was $0.43 per share.  Oasis also increased average daily production to 20,353 barrels of oil equivalent per day (“Boepd”), a 158% increase over the second quarter of 2011.  In addition,  average daily production increased by 15% compared to the first quarter of 2012 and exceeded guidance range of 18,000 to 19,500 Boepd.     Average daily production by project area is listed in the following table:

Average Daily Production for the Quarter Ended (Boepd):
Project Area Jun 30, 2012 Mar 31, 2012 Change % Change
West Williston 13,715 12,131 1,584 13%
East Nesson 4,494 3,541 953 27%
Sanish 2,144 1,961 183 9%
Total Company 20,353 17,633 2,720 15%

The numbers bode well for Oasis outlook as well. Average daily production for the second quarter of 2012 was 20,353 Boepd, an increase of 158% as compared to 7,893 Boepd in the second quarter of 2011. Sequential quarter-over-quarter average daily production increased 2,720 Boepd, or 15%. In the second quarter of 2012, 91% of production was from oil.  More importantly,  the company raised the outlook for Q3 to 22,000 to 24,000 Boepd.   In early morning trading the stock was up more than 10% and could easily test $32 in the next week based on upward guidance.    The year over year eps growth of 40+% and forward PE on the stock is currently around 10 which makes it an attractive target for acquisition.


US Silica posts solid earnings, looks towards the future

Yesterday,  US Silica (SLCA: 28.17 +1.29%) posted solid earnings of $0.36 per share with the company reporting revenue growth of 41.2% to $104.6 million in the quarter.   Both top line and bottom line were  better than expected, but revenue guidance was slightly below expectations. The company expects that adjusted EBITDA would be $142 million-$150 million in line with previous guidance, so the earnings estimates should be kept intact for the next quarters.        The stock responded favorably jumping 10% on the day.


The forward PE on this stock is still extremely low compared to its peers and was not affected by the same product issues  (oversupply of resin coated proppant) that plagued Carbo Ceramics (CRR: 6.5899 -3.0897%) in its recent quarter.    We still continue to believe US Silica will pay off handsomely for investors who are holding for the long term.



US Silica could be a 5 bagger in the next 3 years

Over the past few years we have profiled a number of development,  exploration,  drillers as well as  oil & gas companies in the Bakken region.    Some of these have been prolific gainers for investors such as Brigham Exploration (bought by Statoil),  Northern Oil & Gas (NOG: 0.7403 -4.3293%) and Kodiak Oil & Gas (KOG: N/A +0%).    In looking at the next round of potential superstars in the region,  we see that the most promising stock,  US Silica (SLCA: 28.17 +1.29%)  actually has never harvested a drop of oil in it’s history.  It is neither a driller or producer,  in fact,  they make sand, specifically, fracking sand to be exact.     As boring as that sounds,  sand,  or silica is a critical in the fracking process.  Fracking sand refers to sand and similar  materials that serve as “proppants” — which are blasted under pressure into a shale gas well along with large quantities of water and industrial fluids to stimulate gas production. Proppants are used to “prop” open the underground cracks from which natural gas is harvested during hydraulic fracturing.

The company is also a leading producer of industrial minerals,  whole grain silica, ground silica, fine ground silica, calcined kaolin clay and aplite clay.  They have 200 products in these categories and the variety of industries and applications served by U.S. Silica includes oil and gas, glass, chemicals, foundry, building products, fillers and extenders, recreation, industrial filtration and treatment, and testing and analysis.  In other words,  their products are also used in a number of industries outside of Oil & Gas

US Silica had an IPO back in February of this year and has been largely under the radar of major investment houses.  In looking at a current chart below,  the stock is bottoming around $10 and is forming a triple bottom in that range.   In addition,  the stock is currently at the lower end of its Bollinger band indicating there could be a bounce towards $12 in the next few weeks.    There are only 3 investment houses that follow the stock,  Merrill Lynch, Morgan Stanley and Dahlman Rose & Co and they have an average price target of $25 on the stock which expects a reasonable forward PE slightly below 10.     The current forward PE is below 5,  yes, you read that right,  below 5 and the company expects to earn 2.06 per share in 2013.   Based on its 30% yoy growth and recent catalysts like the deal with Berkshire Hathaway’s BNSF Railways could easily push 2014 earnings to $2.8 – $2.9 per share which corresponds to a PE closer to 3 (note that industry peers have a PE closer to 12-15).      The company recently opened an office in Russia (which recently had a large shale find) and has a focus on capitalizing on fracking sand needs all over the globe.    Expect to see more offices open near large shale finds.     The stock has been currently plagued by thin trading with 100,000 shares causing 5% swings in the stock,  but as institutional investors start to track this stock, we expect the volume to start aligning with other Bakken plays and providing stability to the stock.   At current levels, the stock is extremely attractive and we wouldn’t be surprised to see the stock be an easy double by the end of 2012 to $20. In addition, if the stock can maintain 25-30% growth rates, and its PE multiple shows some improvement,  the company could easily grow to a $2.5 billion company with $850 million in Revenue by 2015 and a stock price around $45-50.    We’ll continue to track this stock over the coming months to see if investors have finally caught on.


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Bakken Stocks Weekly Roundup

The Dow lost more than 1% on Friday after a string of previous losses earlier in the week and stocks will be under more pressure today as well with Spain topping the list of bailout fears in Europe.  WTI crude continues to firm around $85-90 after rising to $92 last week.     Oil stocks were hit gave up some recent gains with most players being off 2-3% last week.   A notable recent mover includes Oasis Petroleum (OAS: 8.60 -0.81%) which has climbed about 18% to $28.10 after dipping below $24 a few weeks ago.  The move was attributed to technical buying.

52-Wk Range
OAS 28.10 17.99 35.46 Sparkline Chart
KOG 8.61 3.59 10.90 Sparkline Chart
NOG 16.00 13.25 28.00 Sparkline Chart
WLL 43.14 28.87 63.97 Sparkline Chart
CLR 76.05 42.43 97.19 Sparkline Chart
GEOI 35.33 14.56 38.76 Sparkline Chart
EOG 99.23 66.81 119.97 Sparkline Chart
STO 24.20 20.12 28.95 Sparkline Chart

As always the region stayed busy with a flurry of O&G news with the highlights listed below:

  • Montana officials indicated TransCanada made the right move by agreeing to tie its Keystone XL oil pipeline to the Bakken oil formation in Montana and North Dakota.  TransCanada plans to build the Keystone XL oil pipeline to carry oil from the Athabasca oil deposit in Alberta to Steele City, Nebraska.   There is a proposed extension that would allow approximately  100,000 barrels of oil per day pass through the line from the Bakken oil formation in the region.
  • A recent 13G filed with the SEC indicated Citadel Advisors owns 15.1 million shares of Kodiak Oil and Gas (KOG: N/A +0%). Kodiak is a $2.5 billion market cap E&P company-with a focus on oil and gas production in North Dakota’s Bakken Shale. In its 13F for the end of March 2012, Citadel had been the largest hedge fund holder of KOG with over 8 million shares.
  • North Dakota officials indicated recently that dry  holes are a rarity for drillers in the Bakken. Ninety-nine percent of the rigs hit oil, and nine out of 10 wells are profitable
  • Voyager Oil & Gas, Inc. (VOG: N/A N/A) released an operations update. Second quarter 2012 average production of approximately 900 barrels of oil equivalent per day (“BOEPD”), a 40% increase over first quarter 2012, which was in-line with Company projections; 6.44 net (150 gross) wells producing from the Bakken or Three Forks as of June 30, 2012 with 1.41 net (32 gross) Bakken/Three Forks wells added to production during the second quarter 2012; and An additional 1.22 net (31 gross) wells being drilled or awaiting completion as of June 30, 2012.

Stay tuned for our next segment coming in a few days.   The most promising play in the Bakken may not actually be a driller or oil producer.