Bakken Bubble?

The broader market continues to decline after the selloff on Friday.  There is concern that holding 11,000 may result in significant resistance for the markets and the Goldman Sachs news related to CDO fraud doesn’t help.    The price of oil is closing back towards $81 and investors in the Bakken region must be careful to protect their positions as the smaller Bakken related stocks usually see more volatile price action on down days.   Our Bakken Fund is still up almost 30% in little more than 2 months.  Although we are bullish long term,  the steep run up has made us cautious.  Below are some tidbits from the last week.

  • Many Bakken plays are under pressure today as oil continues to decline in the wake of the Goldman Sachs fraud that brought down the broader markets.   Sentiment “feels” like it is biasing towards the negative and traders will need to watch their positions closely to mitigate risk incurred by a broader market dip
  • NuStar Energy LP (NS.N) has unloaded its first rail shipment of Bakken crude oil from North Dakota at a terminal in St. James, Louisiana, and can handle capacity of 10,000 barrels per day, the company said in a news release Friday.      NuStar is working with BNSF, Union Pacific (UNP.N) and Canadian Pacific (CP.N) railroads on the initiative, a NuStar spokeswoman said.
  • Brigham Exploration (BEXP: N/A N/A) Planned a secondary offering  to bolster their exploration budget.  The company anticipates increasing its operated rigs running in the Williston Basin from four to eight by May 2011 and drilling a total of roughly 76 net Bakken and Three Forks wells during 2010 and 2011.   The stock has been quite volatile of late routinely seeing 2-5% daily swings over the last week.
  • US Energy [[USEG] issued a release that their  Jack Erickson 6-31 #1H well, which is operated by Brigham, produced approximately 2,323 barrels of oil and 1.98 MMCF of natural gas per day or 2,652 BOE/D during an early 24-hour flow back period. The well was completed with swell packers and 30 fracture stimulation stages. U.S. Energy’s initial working interest in this well is approximately 21% (~17% net revenue interest).
  • Halliburton CEO Dave Lesar noted the push towards the Bakken as a major driver for oil server activity. “The shift toward the major shales has continued unabated,” Lesar said in a conference call to discuss the company’s first-quarter earnings. Lesar noted many producers are shifting to oil-rich fields like North Dakota’s Bakken Shale and the Eagle Ford Shale in South Texas to take advantage of higher commodity prices.
  • GeoResources has established an operated Bakken shale project in Williams County, North Dakota. The Company has acquired approximately 71,000 gross (47,000 net) leasehold acres and intends to develop the acreage with two industry partners. The Company retained a 47.5% working interest (“WI”), representing approximately 22,300 net acres and is the operator of the project. We plan to drill at least three horizontal wells in the Middle Bakken Formation prior to year end. Recent activity in Williams County has confirmed commercial production in the Middle Bakken Formation, which is a primary objective for the joint venture. Secondary objectives include the Three Forks, Madison and the Red River Formations.
  • The number of active drilling rigs in North Dakota now stands at 108.  We are seeing about 5-10 rigs added per month which is consistent with the forecast from the major players in the region.

Again a note of caution to all Bakken stock holders over the next few weeks.  The market has topped 11,000 a few times and a flurry of bad news engulfed the markets on Friday as a result of Goldman’s CDO fraud case as well as some big name companies  not meeting investor expectations.   We will definitely be paring our Bakken holdings and be waiting on the sidelines for the next few weeks.  Time to play things a little safe and not get too greedy

Bakken Fund Hits 30% return

For questions on the Bakken Fund, please see our FAQ here

As oil topped $86 a barrel today our Bakken Fund hit a 30.6% return in a little more than 2 months of existence. The amazing run has exceeded even our optimistic outlook on stocks that operate in the Bakken region. Oil has gone up about 10% in the last 2 months and our plays have benefited greatly from stable oil prices. The Bakken Fund is outperforming the Dow & Nasdaq by about a 3 to 1 margin since inception. Our original rationale was to trade in and out of stocks in the Bakken Fund, but given the uptrend, we have not made any changes to the fund. Small Cap stocks in the region continue to forge ahead.    AEZ (AEZ: N/A N/A) continues to lead the way with an amazing 70% gain and KOG (KOG: N/A +0%) is not far behind with a 62% gain.   We could pack it in for the rest of the year at this point and most likely beat all major indexes for all of 2010 but what fun would that be?   Lets see how far we can ride this train.

Bakken Fund NAV: $13.06 YTD Return: 30.6%


Symbol  Price  Shares  Value  % of Fund Gains  Today  Return
AEZ $7.12 23,765 $169,206.80 12.95% $71,827.26 4.09% 70.65%
KOG $3.73 15,985 $59,624.05 4.56% $22,869.37 6.57% 62.22%
GEOI $16.89 8,698 $146,909.22 11.25% $45,718.68 8.62% 45.18%
NOG $17.38 8,090 $140,604.20 10.76% $40,481.07 4.07% 40.43%
WLL $86.36 1,390 $120,040.40 9.19% $32,763.81 2.58% 32.60%
BEXP $17.96 6,710 $120,511.60 9.22% $29,158.19 4.91% 29.13%
CLR $45.38 2,540 $115,265.20 8.82% $22,439.20 2.28% 22.34%
SM $37.90 3,020 $114,458.00 8.76% $21,172.31 3.38% 21.24%
MRO $32.42 3,395 $110,065.90 8.42% $15,177.26 1.03% 15.10%
EOG $97.77 1,000 $97,770.00 7.48% $7,421.50 2.29% 7.45%