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Bakken Bubble?
Posted by bakkenexpertThe 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: 0.00 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
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Tags: aez BEXP Brigham CDO GEOI goldman sachs GS HAL Halliburton NOG Nustar Red River union pacific
Points well made…
My Portfolio although weighted heavily to O & G producers is split in groups with 3 different objectives and trade triggers.
Short term — I look at WTI crude on Bloomberg.com first thing every morning. Pretty good guide as to what might happen that day. More than .5% change and consider lightening up.
Intermediate term — Watch point and figure indicators on my Visual Trader software and watch the trending of particular stocks relative to XOIL (Price of Crude). When Point and figure turns South think of vacating positions.
Long term — Based solely on company acreage, Bakken concentration and corporate financial condition. Unless these change we ride the dips.
Bottom line IEA just raised their forecast for increase in 2010 world demand to 1.67 BBL or a total consumption of nearly 87 million BBL per day. That is 2% higher than 2009! Whether you buy Peak Oil theories 100% or not ( remember you can go back as far as the ’30s and find articles/books touting that the world would run out of oil in 5 years.), it implies price pressure to move crude North of $100. Volcanoes and Goldman Sachs fiascoes may defer this eventuality but cannot stop it.
I’ve noted that every 1% change in WTI crude suggests as much as a 3% change in stocks focused on the Bakken, ie BEXP, AEZ, NOG, KOG. So while today at times looked like a blood bath or a bubble bursting, today I view it as typical crude price driven volatility for these stocks. Tomorrow if 2) above is violated I may change my story.
Once again if you followed the intraday pricing, 11:00 to 12:30 Mountain time was the days lows.. best time to buy…. often the worst time to sell. For a variety of reasons including high interest in the Bakken and comparatively small number of shares outstanding Bakken focused stocks have high volatility. If you don’t like roller coasters it’s best not to ride this one. Personally between margin and option positions in these stocks I routinely expect 5% to 8% daily portfolio swings! As long as I have two plus days for every down day at these percentages I wear a very big smile.
Happy trading.
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