Stability continues in oil

Oil is hovering around $58 per barrel and our stocks mentioned in our last post, WLL and CLR are both up roughly 50%.    The strategy of writing covered calls still appears to be valid and we don’t expect another implosion in oil prices in the next few months as the summer driving season is around the corner.  We are steering clear of BEXP in the short term due to the large hedging losses of over $100 million that they reported today as well as share dilution with a public offering of 30 million shares.   The shares are going to be under pressure in the short term.    Goldman Sachs expects oil to drift to $45-50 per barrel in the short term and then reverse course and hit $65 in the medium term.    This is somewhat in line with my thinking as I expect oil to be rangebound between $50 and $70 for the remainder of this year.    We are seeing trends with some of the smaller players issuing stock to raise capital and I think that will probably continue and provide some downward pressure going forward.

NOG	10:17AM ET	5.91	0.10	1.72%	62,296	227,463
WLL	10:22AM ET	37.64	0.74	1.93%	243,728	1,601,390
SM	10:22AM ET	19.86	0.01	0.05%	64,633	1,315,190
EOG	10:22AM ET	70.35	0.03	0.04%	415,862	4,344,980
CLR	10:23AM ET	25.45	0.42	1.62%	247,788	1,359,710
MDU	10:22AM ET	16.84	0.16	0.94%	217,253	1,283,750
GEOI	10:18AM ET	7.57	0.03	0.39%	2,612	45,954.8
BSIC.OB	May 13	0.79	0.00	0.00%	0	38,635.9
WSEG.OB	9:30AM ET	0.038	0.001	2.70%	17,000	55,187.1
KDKN.OB	9:43AM ET	0.225	0.00	0.00%	31,300	100,577
BEXP	10:22AM ET	2.87	0.62	17.77%	800,613	677,027
KOG	10:23AM ET	0.93	0.15	13.89%	1,031,881	1,195,120

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Bakken strategy

It seems that oil has bottomed and in some strange way may actually turn out to be a flight to quality amidst the financial turmoil that has overwhelmed the markets.   We see that XLE has massive support at 40 and oil is currently rangebound between 30 and 40.     Gas at the pump bottomed around 1.60 and 1.70 and now is climbing back above $2 in many parts of the country.   Our Bakken plays have also been quite rangebound with most in a 10% trading range.    The pure plays are off about 80% from their highs and downside from here is another 20% from current levels unless we enter a full on recession.  I am still content going long WLL or  CLR and selling monthly out of the money calls to hedge my trade.  This way I can earn 5%+ per month regardless of what the stock does by selling these calls.   Of course,  if these stocks are cut in half due to futher deterioration,  it will take a while to get your money back!   Good luck

Symbol	Last Trade		P/E	Pct from Yr High	Short Ratio
NOG	Feb 26	2.73	N/A	83.35%	11.1
WLL	Feb 26	23.75	4.00	78.87%	1.6
SM	Feb 26	13.46	9.28	79.48%	4
MDU	Feb 26	15.16	9.51	57.10%	1.3
GEOI	Feb 26	6.19	4.77	78.71%	12.7
BSIC.OB	Feb 26	0.61	7.92	79.93%	N/A
WSEG.OB	Feb 26	0.0330	N/A	N/A%	-
CLR	Feb 26	17.31	7.83	79.35%	3.9
BEXP	Feb 26	1.33	3.05	92.73%	5.1
KDKN.OB	Feb 26	0.37	N/A	89.97%	-
KOG	Feb 26	0.2506	N/A	95.44%	3
EOG	Feb 26	51.41	5.29	64.54%	1.3

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Time has passed but nothing has changed

About a month has passed and not much has changed with our Bakken plays.  Oil is still around the $40 per barrel mark and any increase seems to be tempered by the doldrums of the dow which is in a trading range between 7800-8800 over the last month.   Today MDU reported a fourth-quarter loss on Tuesday, partly due to a non-cash charge related to lower energy prices at its natural gas and oil operations. The net loss was $11.4 million, or 6 cents per share.   The stock was off 5% in early trading.   In addition, BP,  a 130 billion dollar oil giant, saw a $3.3 billion dollar loss due to the precipitous drop in oil prices.   If the big players are seeing this bad an effect from falling oil,  we should expect our bakken plays to report losses over the next few weeks as companies report.    We can only hope that these losses are already priced into the shares.  Whiting Petroleum had a share offering that raised about $200 million about a week ago which sent the shares down more than 30% but it may be attractive entry point around $27 as it should have the cash to weather the storm.

Good luck to all!

Symbol	Last Trade		Change		Volume	Avg Vol (3m)
NOG	10:19AM ET	3.04	0.00	0.00%	18,273	226,852
WLL	10:19AM ET	28.450001	0.179998	0.63%	381,272	1,654,570
SM	10:19AM ET	19.27	0.28	1.47%	56,722	900,661
MDU	10:19AM ET	18.82	1.11	5.57%	415,591	1,349,880
GEOI	10:19AM ET	7.39	0.03	0.41%	4,824	76,396.8
BSIC.OB	Feb 2	0.91	0.00	0.00%	0	38,635.9
WSEG.OB	10:02AM ET	0.059	0.001	1.67%	9,200	124,269
CLR	10:19AM ET	20.50	0.10	0.49%	138,567	1,525,500
BEXP	10:19AM ET	2.38	0.04	1.71%	155,535	746,571
KDKN.OB	10:09AM ET	0.495	0.00	0.00%	700,500	95,348.4
KOG	10:17AM ET	0.2999	0.0001	0.03%	257,438	690,510
EOG	10:19AM ET	66.91	0.17	0.25%	525,409	4,191,610

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Hoping for a happy new year

The last trading day of the year led to modest gains but did not erase the painful 2008 that most bakken investors experienced.   The vast majority of our bakken plays were down 70-80% on the year as oil plummeted from $147 per barrel down to $40.    Pressure will continue to be exerted on the sector until oil can rebound to the $60-70 range.    In 2009, if oil stays at current levels, there will be smaller players that will file Chapter 11 because  they can’t raise the necessary capital and don’t have the cost structure to make money at $40 oil.    We ended the year with 80 active drilling rigs in the bakken region.   About 20-30% fewer than expected earlier in the year.     Some notable companies will deliver earnings in January and at that time we will get a clearer picture of how the precipticous drop in oil affected the bottom line.

bakken

Symbol	Last Trade		Change		Volume	Avg Vol (3m)
NOG	Dec 31	2.60	0.22	9.24%	356,624	270,654
WLL	Dec 31	33.46	1.41	4.40%	741,065	1,475,580
SM	Dec 31	20.31	0.59	2.99%	764,286	1,020,350
MDU	Dec 31	21.58	0.23	1.08%	912,046	1,675,130
GEOI	Dec 31	8.69	0.11	1.28%	53,428	104,125
BSIC.OB	Dec 31	0.6001	0.0299	4.75%	19,200	38,635.9
WSEG.OB	Dec 31	0.021	0.002	10.53%	453,230	142,440
CLR	Dec 31	20.71	0.09	0.44%	960,317	1,865,200
BEXP	Dec 31	3.20	0.07	2.24%	599,393	890,132
KDKN.OB	Dec 31	0.60	0.03	5.26%	110,160	95,348.4
KOG	Dec 31	0.31	0.02	5.08%	2,121,081	849,023
EOG	Dec 31	66.58	0.76	1.15%	2,282,313	4,796,620

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Trying to hang on

Our bakken plays have held on fairly well considering oil is still drifting towards $30 per barrel.   This is partly because there is hope that the OPEC cuts of 2 million barrels per day will cause a mid term reversal in the price of crude over the next few months.   Our earlier call on CLR looks pretty good with the stock up 33% (from $15 to $20) in the last few days.    We will consider getting into WLL if it goes below 30 as well.

bakken

Symbol	Last Trade		Change		Volume	Avg Vol (3m)
NOG	10:00AM ET	3.17	0.17	5.09%	34,216	284,335
WLL	10:00AM ET	32.76	2.37	6.75%	145,488	1,501,340
SM	10:00AM ET	19.93	0.82	3.95%	36,350	1,065,490
MDU	10:00AM ET	21.00	0.36	1.69%	215,711	1,718,310
GEOI	10:00AM ET	7.4596	0.1304	1.72%	14,531	113,672
BSIC.OB	9:53AM ET	0.646	0.054	7.71%	2,500	38,635.9
WSEG.OB	9:44AM ET	0.03	0.01	14.29%	65,850	141,765
CLR	10:00AM ET	19.34	1.27	6.16%	128,363	2,021,960
BEXP	10:00AM ET	3.82	0.15	3.78%	61,656	956,982
KDKN.OB	9:59AM ET	0.60	0.05	7.69%	4,400	95,348.4
KOG	10:00AM ET	0.3701	0.0001	0.03%	47,100	894,449
EOG	10:00AM ET	67.38	2.22	3.19%	328,205	5,068,030

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