Back to Basics – Picking up BSIC.OB here

Ok, so I’ve been watching this one but haven’t decided to pull the trigger until now. Today Basic Earth Science Systems (BSIC.OB) issued an updated on their Bakken Well. The Paulson 14-9H well had its best day near the end of May when it produced 687 barrels of oil. During May, the well produced approximately 5,400 barrels of oil over 14 days for an average of 387 barrels of oil per day. Currently BSIC is working on stabilizing the flow and at that point the production rates can be better estimated. Basic only has a 1.2469% working interest (0.9975% net revenue interest) in the well which is operated by Marathon Oil Company (MRO) so the revenue impact is not expected to be substantial in my mind.    The  Paulson 14-9H well was a nice friday tidbit but nothing to put on the refrigerator.   The next paragraph is what got my attention:

“In related events, the success of offset wells near our Banks Prospect, a 13,000 acre horizontal Bakken project, has dramatically enhanced the viability of our acreage. As a result, the Company and its partners have been approached by several companies wishing to acquire a portion of Basic’s acreage. While some offers are enticing, at this point, no agreements have been made. If we were to enter into an agreement, in addition to being fairly compensated for our investment and maintaining as much of our interest as possible, our objective would be to increase the effectiveness of the original joint venture agreement so that development could not be stalled by a handful of non-consenting owners.”

I think this is a VERY positive development for BSIC. Typically for a company as small as BSIC, it is difficult to scale operations and fund exploration and production. It appears they are open to divesting some of their prime Bakken acreage for NRI in return as well as compensation for the land. For a company with a tiny 40 million dollar market cap, this could be huge in terms of revenue and profit. A single lucrative deal could propel the company to a low single digit PE.

Disclosure: We own shares of BSIC.OB as of June 27, 2008. View our Disclaimer here

Morning roundup – After the storm

The Dow had a disaster of a day yesterday dropping more than 350 points. Oil hit a new record above $140 but the negative vacuum pulled down most of our Bakken plays. All in all however, there was buying amidst the panic selling and the sector was able to avoid an unabated selloff. The last 2-3 sessions where there was panic oil selling, buyers seemed to gravitate towards the sector throughout the course of the day to mitigate any further losses. Today we are mixed with a bias towards the upside on light Friday volume. Our earlier stock picks WLL & EOG are still holding up quite well. NOG has eased a bit, but we are still bullish on the stock.

Symbol Last Trade Change Volume Avg Vol (3m)
CLR 10:20AM ET 67.08 Down 0.20 Down 0.30% 150,609 1,491,270
EOG 10:20AM ET 129.33 Up 3.14 Up 2.49% 260,185 2,970,220
NOG 10:20AM ET 13.72 Down 0.63 Down 4.39% 151,218 552,992
KOG 10:20AM ET 4.15 Down 0.02 Down 0.48% 286,727 1,403,040
KDKN.OB 10:02AM ET 2.57 Down 0.03 Down 1.15% 16,268 257,676
BSIC.OB 10:16AM ET 2.60 Up 0.15 Up 6.12% 14,150 83,284.9
XTO 10:21AM ET 68.42 Up 1.28 Up 1.91% 1,346,774 6,614,890
MDU 10:20AM ET 32.58 Up 0.05 Up 0.14% 91,840 959,455
WLL 10:20AM ET 103.80 Up 1.99 Up 1.95% 79,602 890,035

North Dakota rising

As a followup to our previous post on the growth Bakken related exploration, we see that the North Dakota Petroleum council is trying to market the heck out of the Bakken craze. Below is a T shirt they are touting on their website and they state the demand is overwhelming (Are people really spending $16 + S/H for this). More importantly they outline the growth expected in the region. From their website:

According to a recent study, the petroleum industry in North Dakota needs to hire nearly 12,000 new employees by 2010 to keep pace with the industry’s rapid growth and to replace workers scheduled to retire over the next few years. The industry expects to need an additional 3,300 new workers in 2007 alone to keep up with growth, replacements, and retirements. Industry leaders say this is good news for people looking for a job or a higher paying job in North Dakota. According to Job Service, the average yearly wage in the oil and gas industry in 2005 was $60,330. Jobs in demand include everything from equipment operators and truck drivers, to engineers and geologists. For more information on the need for workers, see the “oil industry jobs” section on this web site.

photo of bakken shirt
Due to the high demand for the “Bakken Rocks”
T-Shirts, we have decided to extend the deadline for order forms until June 30, 2008.

Click Here to Order

Design on Back of Shirt


Other notables from the website:

  • The state’s only crude oil refinery is at Mandan. It has a daily capacity of about 60,000 barrels.
  • Oil was discovered on April 4, 1951 near Tioga in Williams County. That well, the Clarence Iverson #1, produced more than 585,000 barrels of oil over 28 years.
  • Prior to the discovery of oil in 1951, 64 wells had been drilled in the state dating back to
    1910. Since 1951, another 14,886 wells have been drilled in North Dakota.
  • The average crude oil posted price for North Dakota in 2007 was $64.36 per barrel. That
    represents $6.53 a barrel increase from the 2006 average.
  • The drilling rig count, which is a prime barometer for measuring new oil and gas activity, averaged 43 rigs a day in 2007. The peak year for drilling rigs was 1981, with an average monthly rig count of 119. The alltime high was in October of 1981 with 146 rigs operating.

Based on the limited capacity for refining, it looks as if some major refining or pipeline projects will inevitably have to be undertaken in the next few years around the region.

Bakken Crackin?

Yesterday and this morning, A number of Bakken Stocks are under quite a bit of pressure as an unexpected jump in the nation’s supplies of fuel and oil reported by the Energy Department fueled speculation that US demand is going to continue to drop and the oil bubble may burst.
In its weekly inventory report, the department’s Energy Information Administration said crude oil supplies rose slightly last week. Analysts surveyed by research firm Platts had expected a 1.7 million barrel decline.

In early morning trading, the XLE ETF is down over $2 and a number of Bakken stocks are facing intense selling pressure with many stocks off 5% or more. The next few weeks for Bakken stocks are going to be extremely volatile and we could see a trading range of 15% on these stocks. We are still bullish long term but are hedging here to mitigate risk. Remember that many of these stocks gapped up in a short time and may need some breathing room over the next few weeks. Investors will need to rely on good E&P news from the Bakken region to provide support.

Symbol Last Trade Change Volume Avg Vol (3m)
CLR 11:15AM ET 63.89 Down 3.35 Down 4.98% 560,824 1,468,790
EOG 11:15AM ET 125.50 Down 4.95 Down 3.79% 824,142 2,955,830
NOG 11:14AM ET 14.00 Down 1.18 Down 7.77% 382,696 535,466
KOG 11:14AM ET 4.51 Down 0.05 Down 1.10% 640,015 1,354,010
KDKN.OB 11:15AM ET 2.62 0.00 0.00% 54,970 257,956
BSIC.OB 11:10AM ET 2.56 Down 0.15 Down 5.54% 78,298 80,231.8
LEI 11:13AM ET 4.3001 Down 0.1499 Down 3.37% 48,355 158,489
XTO 11:15AM ET 66.17 Down 3.92 Down 5.59% 4,004,017 6,440,690
WLL 11:15AM ET 98.19 Down 4.39 Down 4.28% 193,786 883,147

Mountrail county is the new Manhattan (well not exactly)

Looking at yesterday’s North Dakota daily permit roundup below and data over the last few weeks, it looks like the activity in MountRail county is really heating up for the big boys including EOG, CLR, WLL & HESS. There is a lot of press lately on how farmers are turning into millionaires and there is an abundance of supporting development in the planning stages for the region. There is some speculation that this area could yield higher per capita incomes than New York, Connecticut and the DC suburbs in the next 10 years. The real winner could be the economy of North Dakota and surrounding regions as the planning for infrastructure (and accompanying jobs) is already speeding up. Earlier this month, wheels were set in motion for a pipeline project to handle the increased output of the region. Enbridge Pipeline is proposing a $120-million project to add more oil from western North Dakota and Eastern Montana as well as an upgrade to 11 pumping stations in North Dakota along an existing pipeline that runs from northwestern North Dakota to Clearbrook, Minnesota. If successful, the project would increase the pipeline capacity by almost 50% to 161,600 barrels a day. It is about time North Dakota had its time to shine in the domestic spotlight.

PERMIT LIST
#17408 – HESS CORPORATION, RS-J NELSON-156-91- 0708H-1, LOT 1 7-156N-91W, MOUNTRAIL CO.,
300′ FNL and 210′ FWL, DEVELOPMENT, ROSS, ‘Tight Hole’, 2307′ Ground, API #33-061-00786,
(Approved: 6/23/2008)
#17409 – EOG RESOURCES, INC., BURKE 21-30H, SESE 30-155N-90W, MOUNTRAIL CO., 200′ FSL and
275′ FEL, DEVELOPMENT, STANLEY, 14913′, 9-5/8 ” – 2030′, 2299′ Ground, API #33-061-00787,
(Approved: 6/23/2008)
#17410 – EOG RESOURCES, INC., BURKE 3-16H, NWNW 16-155N-90W, MOUNTRAIL CO., 400′ FNL and
400′ FWL, EXTENSION, STANLEY, ‘Tight Hole’, 2300′ Ground, API #33-061-00788, (Approved:
6/23/2008)
#17411 – CONTINENTAL RESOURCES, INC., LORIN 1-5H, SESW 5-145N-96W, DUNN CO., 150′ FSL and
1320′ FWL, DEVELOPMENT, JIM CREEK, ‘Tight Hole’, 2552′ Ground, API #33-025-00790,
(Approved: 6/23/2008)

EOG still looking solid here

Last week was not good for the Dow but certain Bakken plays such as EOG held their own quite nicely. EOG has formed a solid base with 50+ million shares traded in the $125-$130 region over the last 3 weeks and the stock trading at a number of moving averages (see chart below). Zacks Investment Research also issued a positive note last week on EOG:

We continue to see EOG shares as a core holding in the large-cap E&P space for the company’s demonstrated ability to achieve consistent production growth.

Selling the October 125 puts around $10.50 (and purchasing the 100 puts if you want to hedge) looks to be an attractive play although we concede there might be volatility in the short term due to the barrage of contradicting oil related news.

Moving Avg. Envelope (SMA,20,6)
Weighted Moving Avg (13)
Simple Moving Avg (13)

Please view our disclaimer here

Daily Contest – June 23th 2008 – BEXP (There will be a winner!)

UPDATE: CONGRATS D Zappoda! The stock opened at $16.90 which was .02 from your guess of $16.88. You win a $25 gift certificate…please spend it wisely.

There WILL be a winner this go round as I will pick the entry that is the closest to the actual opening price.

The Rules: Guess the opening price on Nasdaq of Brigham Exploration Co (BEXP) for TUESDAY’s (6/24) Opening Bell. You must guess the opening price to the second decimal place (ie 16.08). Just put your answer in the COMMENT section (bottom right hand corner of this post) and you are done…. although use a valid email address or i won’t be able to contact you!

All entries must be in by 6/23 11:59PM Eastern Time.

Prize: $25 Gift Card (or $25 sent to your Paypal account) whichever you prefer.

Only 1 winner is possible as well as 1 entry per person and I reserve the right to arbitrage any disputes. Below is a 5 day chart of BEXP

GOOD LUCK TO ALL



Latest Active Rig report in North Dakota Bakken region

The other day I posted a list of “confidential” wells in the Bakken area published by the North Dakota Oil & Gas.  Below is the latest list of Active Rigs as of June 19 2008.   As expected,  Continental (CLR) is the leader with 12 Active Rigs.   EOG, Marathon Oil & Whiting are also active with 8, 7 & 5 rigs respectively.

Also Continental had 3 permits approved in the last 3 days

17388 – CONTINENTAL RESOURCES, INC., BLEGEN 1-13H, NENW 13-151N-96W, MCKENZIE CO.,
270′ FNL and 1320′ FWL, DEVELOPMENT, BLUE BUTTES, ‘Tight Hole’, 2321′ Ground, API #33-
053-02909, (Approved: 6/16/2008)

17398 – CONTINENTAL RESOURCES, INC., KUKLA 1-21H, SESW 21-146N-95W, DUNN CO., 275′ FSL
and 1500′ FWL, WC, WILDCAT, ‘Tight Hole’, 2322′ Ground, API #33-025-00786, (Approved:
6/18/2008)

17394 – CONTINENTAL RESOURCES, INC., VIOLA 1-7H, SESW 7-160N-95W, DIVIDE CO., 300′ FSL and 1500′ FWL, WC, WILDCAT, ‘Tight Hole’, 2336′ Ground, API #33-023-00537, (Approved : 6/17/2008)

Rig Operator Well Name and Number
NABORS 49 BRIGHAM OIL & GAS LP CARKUFF 22 1-H
NABORS 688 BURLINGTON RES O&G CO BONNEY 34-3H
NABORS 59 BURLINGTON RES O&G CO FIREBIRD 11-12H
NABORS 177 BURLINGTON RES O&G CO ARCHER 14-25H
NABORS 52 BURLINGTON RES O&G CO WASHBURN 44-36H
CYCLONE 9 CONTINENTAL RESOURCES JOY 22-8SH
CYCLONE 18 CONTINENTAL RESOURCES MARSHA 34-34SH
CYCLONE 22 CONTINENTAL RESOURCES ELSIE 42-22SH
CYCLONE 27 CONTINENTAL RESOURCES WALTER 11-1SH
CYCLONE 21 CONTINENTAL RESOURCES OVERLEE 1-30H
PATTERSON 154 CONTINENTAL RESOURCES RONHOLDT 1-16H
CYCLONE 2 CONTINENTAL RESOURCES OSCAR 1-25H
CYCLONE 10 CONTINENTAL RESOURCES RODNEY 1-29H
CYCLONE 19 CONTINENTAL RESOURCES GALE 1-32H
CYCLONE 23 CONTINENTAL RESOURCES CROFF 1-2 H
PATTERSON 180 CONTINENTAL RESOURCES MARY ANN 1-15H
PATTERSON 136 CONTINENTAL RESOURCES OMAR 1-1H
CYCLONE 25 ENCORE OPERATING LP TRMU 41X-27H
CYCLONE 26 ENCORE OPERATING LP KULISH 14-2 SWD
NABORS 277 ENCORE OPERATING LP CHARLSON 11-16H
ENSIGN 67 EOG RESOURCES INC ROSS 2-03H
NABORS 161 EOG RESOURCES INC AUSTIN 12-05H
NABORS 148 EOG RESOURCES INC AUSTIN 10-34H
NABORS 149 EOG RESOURCES INC AUSTIN 18-21H
PIONEER 56 EOG RESOURCES INC AUSTIN 13-08H
PIONEER 57 EOG RESOURCES INC PARSHALL 4-20H
NABORS 337 EOG RESOURCES INC HOVDA 1-08H
ENSIGN 88 EOG RESOURCES INC WAYZETTA 12-20H
NABORS 455 FIDELITY EXPL & PROD CO DOMASKIN 11-29H
NABORS 358 FIDELITY EXPL & PROD CO MEIERS 11-19H
NABORS 417 FIDELITY EXPL & PROD CO PAULSON 11-25H
ENSIGN 46 HEADINGTON OIL CO LLC SAKAKAWEA FEDERAL 13X-35
NABORS 560 HEADINGTON OIL CO LLC THOMPSON 44X-20
NABORS 558 HELIS OIL & GAS CO. LLC LEVANG 4-28H
NABORS 272 HESS CORPORATION HA-EVENSON-152-95- 0310H-1
NABORS 165 HESS CORPORATION BB-OLSON-150-95- 09H-1
NABORS 556 HESS CORPORATION EN-PEDERSON-154-94- 0409H-1
H & P 241 HESS CORPORATION RS-SKAAR-156-91- 0633H-1
H & P 179 HESS CORPORATION RS-AGRIBANK A-157-91- 1102H-1
NABORS 557 HESS CORPORATION BL-BLANCHARD-155-96- 1522H-1
NABORS 742 HESS CORPORATION IM-GRUBB-159-89- 0805H-1
NABORS 140 HUNT OIL COMPANY HORST 1-25H
SAVANNAH 601 K T ENTERPRISES LLC KT ENTERPRISES 24-19 SWD
H & P 257 MARATHON OIL CO ROSEMARY ECKELBERG 41-26H
H & P 258 MARATHON OIL CO KEVIN BUEHNER 31-18H
PATTERSON 183 MARATHON OIL CO IRENE KOVALOFF 31-18H
NABR WELL 1401 MARATHON OIL CO LARRY REPP 31-16H
H & P 259 MARATHON OIL CO BROWN 24-9H
H & P 255 MARATHON OIL CO HAROLD BENZ 24-24H
H & P 256 MARATHON OIL CO MYRMIDON 1-2H
CYCLONE 20 MUREX PETROLEUM CORP SHANNON DUANE 11-2H
RED HAWK 351 MUREX PETROLEUM CORP MRP 18-1
ENSIGN 71 MUREX PETROLEUM CORP LINDA GAIL 30-31H
PATTERSON 490 PEAK NO DAK LLC VOIGT 24-11H
NABORS 481 PENN VIRGINIA OIL & GAS LP DVORAK 10-1H
BRONCO 8 PETRO HUNT LLC ARNEGARD 22A-2-1
ENSIGN 93 PETRO HUNT LLC USA 35D-1-1H
KEY 439 PETRO HUNT LLC USA 12B-2-1H
PATTERSON 462 PRIMA EXPLORATION INC FORTIFICATION 11-19H
ENSIGN 43 RIO PETRO LTD SUNDHAGEN 1
NABR WELL 164 SAGEBRUSH RESOURCES LLC CRAMER 1
NABORS 152 SAMSON RESOURCES CO LOKKEN 35-163-99H
PIONEER 44 SLAWSON EXPLORATION PROSPECTOR 1-36H
PATTERSON 167 SLAWSON EXPLORATION PROWLER 1-16H
KEY 233 ST MARY LAND & EXPLORATION CO WRRMU 21-33HR
NABORS 592 ST MARY LAND & EXPLORATION CO RYSTEDT 4-11H
PARAMOUNT 1 SUMMIT RESOURCES INC SUMMIT FEE 1-9H
PARAMOUNT 2 SUMMIT RESOURCES INC ROOSEVELT FEDERAL 2-4H
NABORS 267 TRACKER RES DEVMNT WEISZ 28-1H
NABORS 182 TRACKER RES DEVMNT TROTTER 25-1H
GREY WOLF 520 WHITING OIL AND GAS CORP KANNIANEN 11-4H
NABORS 527 WHITING OIL AND GAS CORP PENNINGTON 11-3H
NABORS 354 WHITING OIL AND GAS CORP SMITH 11-7H
KEY 257 WHITING OIL AND GAS CORP LITTLEFIELD 11-29H
NABORS 686 WHITING OIL AND GAS CORP SMITH 11-20H
H & P 180 WINDSOR ENERGY GROUP LLC WHITMORE 1-6H

Undiscovered Bakken Play – MDU Resources

This article provided by Guest Contributor Cary:

MDU resources, ticker MDU may not look like the typical Bakken E&P play. A quick look at their profile tells you the company is in the transmission and distribution of electricity, electric line construction, and natural gas distribution to residental neighborhoods in North Dakota, South Dakota, Montana, Wyoming etc. as well as construction. Seems like a good reason for the stock to be trading at a current PE of 13.50.

If you read carefully, however, MDU has a wholly owned subsidiary in Fidelity Exploration and Production Company. The company earned 70.9m last quarter with over 50m or 71% of earnings coming from Fidelity. MDU also upped guidence to 1.85 – 2.10 a share for 2008 up from 1.65 – 1.90. MDU owns 75,000 acres in the Bakken and plans to participate in 50 – 60 wells in 2008 alone. The company is actively redeploying rigs originally planned for other parts of the USA to the Bakken to speed up their drilling in the area.

Better yet, MDU states in their earnings that their latest guidence is based on around 8.00 per Mcf NG and – oil. Given current prices, we are looking at a further 30-40% upside surprise in earnings.

Lastly, the company has only 45-50% of its natural gas production hedged and only 5% of its oil hedged. This leaves signiicant upside ot any Bakken discoveries. Fidelity currently has 26 permits to drill in the Bakken and 9 rigs actively drilling, well on their way to their target.

MDU is not a fly-by-night company. They are experienced drillers with the resources to succeed. I do not expect this overlooked Bakken stock to be this cheap for long. While this will not have some of the instant gratification of some of the riskier low prices stocks, this has the potential to be a double by year end.

Below is a 3 month chart of MDU



Market convergence…..Bakken divergence.

If you would have looked at all the negative commentary on CNBC today regarding oil, financials and plunging through 12000 , you would assumed all your stocks did quite poorly today. Even oil was stagnant throughout the day with XLE only ending up 0.38%. But today is not like other days… today’s magic word of the day: divergence . One more time: di-ver-gence. Why is divergence important? Because it means that to some degree investors have disassociated broader market trends (including big oil) with bakken related plays. This bodes well for bakken for the remainder of 2008 as I suspect there will be extreme volatility in the market with housing, oil, inflation, geopolitical forces and election hoopla all exerting various levels of pressure.
Lets take a snapshot at what bakken plays did today while the dow was testing 3 month lows. CLR, EOG, WLL and XTO up 1-2% (good), NOG up 12% (great), KOG up 30% (priceless).  However,  with great gains comes great responsibility and we’ll see if our Bakken plays can sustain the momentum over the next few days and whether they can resist the urge to gap down.

Symbol Last Trade Change Volume Intraday
^DJI 4:04PM ET 12,029.06 Down 131.24 Down 1.08% 212,900,502
^IXIC 5:16PM ET 2,429.71 Down 28.02 Down 1.14% 0
CLR 4:01PM ET 73.85 Up 0.55 Up 0.75% 1,169,616
EOG 4:02PM ET 133.03 Up 1.02 Up 0.77% 2,636,795
NOG 4:00PM ET 15.84 Up 1.70 Up 12.02% 1,806,783
KOG 4:00PM ET 5.05 Up 1.21 Up 31.51% 9,681,693
KDKN.OB 3:58PM ET 2.77 Up 0.03 Up 1.09% 119,827
BSIC.OB 3:58PM ET 2.56 Up 0.10 Up 4.07% 73,244
XTO 4:05PM ET 71.61 Up 1.63 Up 2.33% 9,231,836
WLL 4:03PM ET 106.15 Up 1.86 Up 1.78% 872,862