Mailbag Roundup

Below are some recent questions via email I’d thought I’d share:

Q: What happened to WSEG, It has gone down quite a bit to .19 since you blogged about it. Is it worth buying here?
A: I still believe WSEG could be a 10 bagger although the potential exists for it to gravitate to under .10 cents if no positive developments occur in the next 12 months. I am a buyer at .19 but this should be a tiny portion of any portfolio (< 5%). Continue to expect volatility in this stock.

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Q: What about some info on non E&P companies that may benefit from the Bakken?
A: We are actively looking at this now and should have a blog entry or two shortly. There are a number of ancillary companies such as transportation and drillers that could benefit from the bakken

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Q: What are your favorite picks now that oil has dropped quite a bit
A: SM & CLR look very attractive under $50. For something a little risker, NOG looks good under $8.

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Q: Could you please tell me what “confidential” oil well means? I have one that is listed on your site, and would like to understand more about the classification.
A: When an oil company is exploring in a new territory they have the option to list the well as confidential (also commonly known in the industry as a “tight hole”) and release limited data on the well; however, by state law, they must release full data to the state regulatory agency overseeing the operation after a period of two years.

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Active Drilling Report - August 28, 2008

The latest Active Drilling Report shows that the number of Active Drilling Rigs has increased by 4 over the last report.  Continental is still far and away the leader with 18% of all Active Drilling Rigs with Marathon, Hess and  EOG running a distant second.    It is also interesting to note that Nabors is far and away the leader in terms of the rig provider with more than 30 rigs in the region.    This is still a tiny percentage of Nabors overall rigs but it is possible that in 2-3 years Nabors could be an ancillary Bakken play with over 100 rigs in the region.

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Daily Roundup - 8/25/08

It looked like it was going to be decidedly negative day for Bakken stocks today but in the afternoon, most of the losses were pared as Tropical Storm Gustav formed in the Caribbean which kept oil prices above $115.   Many of our plays including WLL and CLR have gained close to 10% in the last week or so and we are hoping that the gains have staying power with the latest uptick in oil prices.    Also,  in the last 2 weeks major analysts have issued the following positive recommendations/upgrades on Bakken plays: The general uptrend continues to be intact and as stated before,  the price of oil needs to stabilize before a longer term uptrend can be forged by our basket bakken stocks.

Company                                    Analyst                                      Rating

Kodiak Oil & Gas (KOG)                        RBC Capital Markets                               Outperform

Whiting Petroleum (WLL)                      Bank of America                                     Buy

EOG Resources                                     Oppenheimer                                         Buy

Saint Mary’s Land & Exploration          Sun Trust Rbsn Humphrey                      Buy

bakken

Symbol	Last Trade		Change		Volume	Avg Vol (3m)
WLL	4:02PM ET	93.42	0.29	0.31%	730,230	1,128,700
MDU	4:03PM ET	32.06	0.41	1.26%	661,728	1,110,280
SM	4:00PM ET	42.28	0.33	0.77%	921,540	1,467,120
CLR	4:02PM ET	49.53	0.92	1.82%	2,005,769	1,886,790
EOG	4:02PM ET	102.21	1.43	1.38%	2,470,874	3,853,550
NOG	4:00PM ET	7.19	0.25	3.36%	169,975	616,788
KOG	4:00PM ET	2.98	0.00	0.00%	717,581	1,377,920
KDKN.OB	3:28PM ET	1.63	0.12	6.86%	20,483	164,523
BSIC.OB	3:27PM ET	1.76	0.01	0.57%	7,825	60,198.4
XTO	4:02PM ET	48.18	0.16	0.33%	9,251,943	12,135,100

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Strong Bakken buying today on dollar weakness

Has it gotten to the point that we hope that hurricanes will form in the Gulf Coast to prop up our oil stocks? Sadly enough, for many, it definitely has, although they will state they aren’t looking for any human losses, just some disruption in supply. Today, tropical disturbance Fay missed oil rigs in the Gulf of Mexico, but shareholders of Bakken stocks were probably pleased that a weak dollar combined with an uptick in heating oil buoyed our plays today. Among the big gainers today were 2 of the “pure plays” in the group Continental Resources (CLR) and Whiting Petroleum (WLL) which were both up more than 5%. In addition, Venezuela’s Oil Minister Rafael Ramirez indicated that it’s may propose an oil production cut at the next OPEC meeting if crude prices decline further. The good news for Bakken investors is that oil does appear to be oversold. For example, the chart below indicates that the Energy SPDR (XLE) is currently trading below its 20,100 & 200 Day Moving Averages and trading close to its lower Bollinger Band. Volatility, however will continue to reign and expect to see swings of $4 and up within a matter of hours as competing forces battle to determine the long term trend of oil.

Symbol	Last Trade		Change		Volume	Avg Vol (3m)
WLL	4:01PM ET	89.64	5.99	7.16%	744,910	1,180,390
MDU	4:02PM ET	31.58	0.11	0.35%	564,635	1,125,130
SM	4:01PM ET	42.99	1.79	4.34%	919,588	1,444,730
CLR	4:04PM ET	47.65	4.11	9.44%	2,383,706	1,871,040
EOG	4:02PM ET	99.88	5.14	5.43%	4,166,094	3,844,690
NOG	4:00PM ET	7.39	0.05	0.68%	311,832	641,200
KOG	4:00PM ET	3.03	0.13	4.48%	758,228	1,459,890
KDKN.OB	3:59PM ET	1.65	0.15	8.28%	35,126	195,115
BSIC.OB	2:26PM ET	1.60	0.05	3.03%	20,993	78,292.3
XTO	4:01PM ET	46.80	1.35	2.97%	15,414,211	11,663,700

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Is it over yet?

Are we still looking for the bottom in oil?   Trading has been very choppy over the last 10 trading days for our bakken plays. At this point, we are still waiting for this elusive bottom and only then can we form a long term base. Three months ago, the conflict between Georgia and Russia would have elevated oil prices by $5-10 a barrel due to speculation of potential disruption around the BTC-pipeline in southern Georgia. These days, however, the speculative nature has dissipated and there is no jump in oil as the overall downward pressure is still there with prices straddling $114 per bbl with the latest gasoline inventory data released today. The downtrend has seemingly beaten down bakken stocks disproportionately as much of the gains that were added in June and July are gone.   Overall though,  bakken stocks are more or less now tracking with the price of oil and we are not going to see stabilization until oil settles in a $10 trading range for a sustained period of at least 1 month.  If we look at Continental Resources (CLR), for example,  it had a huge runup after the USGS reported the positive oil reserve data in the bakken region, but the bottom fell out in late July and the sector experienced multiple contraction and eventually CLR  converged toward the price performance of XLE (an ETF of major oil companies) as shown below.    The good news is that our bakken plays really look like good values here but that is predicated on oil staying above $110 per barrel.    If we see significant price erosion to $80 per barrel,   then we could see another 25-30% haircut from current levels.

bakken

Symbol	Last Trade		Change		Volume	Avg Vol (3m)
WLL	1:26PM ET	85.65	2.51	2.85%	402,560	1,179,810
MDU	1:26PM ET	31.50	0.10	0.32%	401,060	1,132,000
SM	1:25PM ET	41.48	1.66	3.85%	1,227,702	1,431,130
CLR	1:26PM ET	45.49	2.97	6.13%	1,139,717	1,836,360
EOG	1:26PM ET	96.96	2.62	2.63%	1,971,652	3,824,920
NOG	1:26PM ET	8.25	0.15	1.85%	435,275	633,691
KOG	1:26PM ET	2.90	0.24	7.64%	395,706	1,440,860
KDKN.OB	1:18PM ET	1.61	0.00	0.00%	15,800	222,322
BSIC.OB	1:21PM ET	1.68	0.28	20.00%	148,844	83,818.5
XTO	1:26PM ET	45.64	0.78	1.68%	7,397,819	11,343,400

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