Tidbit of the day

Unnoticed tidbit is BEXP’s SEC disclosure that BlackRock has accumulated 7% of their stock. A couple of points to glean from this:

1) The smart money is buying BEXP.
2) Chances of BEXP dropping precipitously is greatly reduced as Blackrock will be looking for opportunity to load up.
3) As much as die hard investors probably don’t want to see this, there is a decent chance that BlackRock will be positioning to engineer a sellout.
4) Conversely, BlackRock may be content to take a substantial interest or take it private and enjoy the benefits of a pure Bakken play.

BEXP closed at$33.86 yesterday and looks strong in premarket today.

33.86 +1.70‎ (5.29%‎)  Feb 23 4pm ET
34.50
+0.64‎ (1.89%‎)  Pre-Market
Open: 32.25
High: 34.18
Low: 32.20
Volume: 1,300
Avg Vol: 2,180,000
Mkt Cap: 3.96B

Mideast crisis in focus

Italian oil and gas company Eni's plant in near Wafa, Libya
        Italian O&G company Eni's plant near Wafa, Libya

Now that the crisis in Egypt has waned a bit, some expected relative stability returned to the region and oil to drop to the 80’s where it stood a few months ago.    Current reality however is far from peaceful.   Protests are escalating in Libya, Bahrain and Yemen and the story is far from over in Egypt as world leaders are cringing every morning to see which Mideast country is next in the headlines.   Unlike Egypt, which had an ancillary effect on oil prices, the threat in Libya has a direct impact.   Unrest by the masses in Libya has at the very least an underlying if not outward connection to the country’s oil production and the wealth generated by those exports.    In 2009 there was an attempt to redistribute oil wealth to the Libyan people, but the reform was blocked to the dismay of the populous.

As of Monday morning, oil had already surged 4% topping $105 for Brent Crude with BP confirming that it is preparing to evacuate families and 140 employees from Libya.  Other major oil companies in the country are also in the process of evacuating and the 1.8 million barrels a day (bbl/day) of production is in serious jeopardy for the next few weeks (if not longer). Bakken plays (especially pure plays) stand to benefit greatly from this unrest.   Not only is upward price pressure on oil increasing, but for Bakken oil producers,  perhaps more importantly,  none of their reserves are at risk.   In fact, as global production volumes become increasingly unsteady, the Bakken region will address (at least partially) the need for domestic production and actually could be viewed as a “flight to quality” versus large multinationals.    In looking at a number of the Bakken plays below, most have performed well in the last year and are sitting near 52 week highs.     At the same time,  most are relatively small O&G companies with market caps under 10 billion USD and could be strategic fits for larger multinationals looking to de-risk their production portfolios.     There is a real potential for all of our Bakken plays to tack on another 10-15% in PPS in the next 2-3 weeks.      The Mideast is a political powder keg waiting to blow and if production is materially impacted for any significant period,  we could see an upward spike that may test the 2008 highs when oil hit $140 per barrel.

Symbol Trade Market Cap P/E PEG Ratio 52-wk Range
BEXP 32.52 3.80B 110.99 1.42 13.45 – 32.99
CLR 63.84 10.86B 41.21 1.44 37.02 – 65.78
WLL 124.08 7.26B 32.57 1.66 70.52 – 129.52
EOG 108.89 27.66B 54.53 2.08 85.42 – 114.95
NOG 27.85 1.41B 131.37 3.10 11.11 – 30.30
NFX 68.53 9.17B 14.98 1.56 44.81 – 76.55
HES 85.00 28.09B 13.14 0.88 48.70 – 86.12

Look for more in-depth analysis later this week with our Weekly Roundup segment.

Weekly Roundup

Bakken plays continue to be on fire with oil reaching monthly highs due to unrest in Egypt and Tunisia and a risk of civil unrest spreading to other countries. Despite the fact Egypt is not a major oil producer, the fact that 8% of the worlds oil passes through the Suez Canal in Egypt is what is rattling oil markets. Oil will continue to push higher as tensions escalate in the region. Similarly, if Mubarak steps down and the crisis dissipates, we could easily see a 5-10% drop in oil.     Below are some tidbits from the Bakken:

  • As we predicted a few months ago,  some lawmakers are stirring up some concerns that the use of diesel during the fracking process is a violation of the Safe Water Drinking Act.   The diesel fuel was used by drillers during  hydraulic fracking, where  water, sand and chemicals  such as diesel fuel are injected under high pressure into rock formations deep underground. The link article to the NY Times article is here
  • ONEOK Partners LP will invest another up to $305 million into its already significant stake in the Bakken Shale over the next 3 years, the Tulsa-based natural gas and natural gas liquids mover and processor announced.   ONEOK (Yahoo! – 403 Forbidden — error 403It has come to our attention that this service is being used in violation of the Yahoo Terms of Service. As such: the service is being discontinued. For all future markets and equities data research ) has hit 52 week highs around $59 in recent days.
  • Our stocks to watch in 2011,  Brigham Exploration and Continental Resources are both up more than 10% in the last 5 trading days.    Brigham recently had positive news on Q4 production coming in at almost 11,400 boe/d with 80% of that volume being crude.   In addtion,  Jefferies came out on 1/28 increasing its price target from $32 to $48 as a result of accelerating production and Brigham’s proven reserves of 1 tcfe.
  • Hess looks to increase their production in 2011 by ramping up additional wells.    Hess, currently has 18 wells in the Bakken, produced an average 15,000 barrels of crude per day and is looking to finish the year north of  20,000 barrels per day.
  • U.S. Energy (Yahoo! – 403 Forbidden — error 403It has come to our attention that this service is being used in violation of the Yahoo Terms of Service. As such: the service is being discontinued. For all future markets and equities data research ) a 166 Million dollar micro-expects to spud approximately 40 gross and 13 net wells with capital expenditures of approximately $45.7 million in its 2011 oil and gas drilling program.   The Company has allocated an estimated $33.2 million to be spent in the Williston Basin region.

Till next time