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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A good time to step in?

So oil has continued its descent to the mid 40’s but oil stocks have been fairly rangebound for the last 2 months with XLE bouncing between 40 and 50.     Bakken stocks have been particularly hit hard when compared to other oil stocks because of a number of investor concerns including recovery costs,  drilling costs and loss of any premium associated with growth in the Bakken region.     Of utmost concern is the recover costs per barrel in the bakken region.  There is no exact number, but there have been published reports that it costs upwards of 5 million to establish a productive well in the region and that production costs are anywhere from $30-50 per barrel.     If this is true,  some of the Bakken players can expect to see their margins squeezed in upcoming quarters but in terms of the pps,  it looks to be baked into the stocks as most are down over 75% year to date.     I’m content that CLR doesn’t have much down side from its current price around $15 and if so,  who cares at this point.    I’ll sell covered calls at a strike of 17.5 or 20 until I make a nice profit or the stock just “goes away”.    On another note, below we can tell that most of the short interest is out of these stocks by now and our bakken plays are really just tracking with the price of oil at this point.  In other words,  don’t expect any of these to gap on the upside on news specific to the company in the short term.    Supply and demand will account for 80% of the price movement for the forseeable future.

Fundamentals

Symbol	Last Trade		P/E	Pct from Yr High	Short Ratio
NOG	2:01PM ET	2.75	N/A	83.23%	9.5
WLL	2:01PM ET	29.46	4.16	73.79%	1.1
SM	2:01PM ET	17.56	4.46	73.22%	2.9
MDU	2:01PM ET	19.82	9.12	43.92%	1.1
GEOI	1:48PM ET	6.59	5.08	77.34%	3
BSIC.OB	12:01PM ET	0.75	3.93	75.33%	N/A
WSEG.OB	12:35PM ET	0.05	N/A	N/A%	-
CLR	2:01PM ET	15.74	7.12	81.22%	1.7
BEXP	2:01PM ET	2.77	6.35	84.86%	5.6
KDKN.OB	1:11PM ET	0.60	N/A	83.74%	-
KOG	1:57PM ET	0.4359	N/A	92.07%	1.6
EOG	2:01PM ET	71.70	7.69	50.55%	1.4

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Groundhog day returns

After watching the dow rally to the 9600 level and then go below 8000 yesterday,  we saw a furious rally of 500+ points.   Oil stocks including our bakken plays rallied as well, even though oil is well under $60 per barrel.   The rally however, was on no real positive news and therefore didn’t have follow through thus far today.    Bakken plays still are gravitating back to their 52 week lows and buyers should be cautious buying into any rallies.    Hedging is still prudent on every long purchase one would make as the market is still very volatile.    All of our stocks seem to be gravitating to a PE of 10 or below and the higher multiple we enjoyed earlier in the year has waned.

bakken

Symbol	Last Trade		Change		Volume	Avg Vol (3m)
NOG	11:02AM ET	4.16	0.17	3.93%	69,504	331,758
WLL	11:03AM ET	42.20	1.38	3.17%	432,497	1,383,850
SM	11:03AM ET	20.05	2.29	10.25%	170,378	1,215,760
MDU	11:03AM ET	18.96	1.33	6.55%	382,106	1,519,250
GEOI	11:02AM ET	7.86	1.04	11.69%	38,214	129,927
BSIC.OB	10:24AM ET	0.95	0.04	4.40%	9,500	38,635.9
WSEG.OB	10:07AM ET	0.0570	0.0100	14.93%	18,800	294,761
CLR	11:03AM ET	22.42	2.51	10.07%	354,058	2,188,010
BEXP	10:59AM ET	4.7500	0.4300	8.30%	98,238	961,953
KDKN.OB	10:42AM ET	0.52	0.00	0.00%	43,940	95,348.4
KOG	11:02AM ET	0.42	0.03	7.73%	195,610	1,036,910
EOG	11:03AM ET	80.63	4.34	5.11%	1,801,247	4,910,560

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Bottom is forming

The market has taken a somewhat predictable yet still very volatile pattern over the last few weeks.  We see resistance when the dow approachs the 9200-9500 range and we have seen three retracements to the 8500 range.    Oil has retraced into the high 50’s twice and then bounced back into the 60’s.   Oil investors are viewing this as a positive sign and the start of a long term bottom.   Most of our bakken plays are holding steady around 30-50% higher than their 52 week low.    With a deep recession in progress and investors looking for a flight to quality,   oil as a commodity may be back in fashion soon and we may see a sector rotation back into oil.     EOG and MDU showed quite a bit of strength today as Citigroup upgraded the natural gas sector citing valuation.

Symbol	Last Trade		Change		Volume	Avg Vol (3m)
NOG	Nov 7	5.03	0.19	3.64%	161,035	346,774
WLL	Nov 7	43.96	0.38	0.87%	1,962,646	1,380,350
SM	Nov 7	22.73	1.08	4.99%	631,127	1,211,560
MDU	Nov 7	18.61	0.93	5.26%	1,026,779	1,483,210
GEOI	Nov 7	11.23	0.28	2.56%	46,722	133,912
BSIC.OB	Nov 7	0.97	0.03	3.00%	5,500	38,635.9
WSEG.OB	Nov 7	0.06	0.05	47.83%	725,322	447,142
CLR	Nov 7	25.19	0.16	0.63%	1,802,370	2,219,850
BEXP	Nov 7	6.04	0.26	4.50%	499,226	962,539
KDKN.OB	Nov 7	0.60	0.02	3.45%	58,040	95,348.4
KOG	Nov 7	0.60	0.09	13.04%	2,361,940	1,043,750
EOG	Nov 7	79.88	2.71	3.51%	3,500,837	4,830,430

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Strong Follow Through

Our recent cycle of successive groundhog days have temporarily ceased with solid upticks over the last 3 trading days.   Oil saw a temporary bottom around $59 a few days ago and has bounced strongly off that mark into the mid sixties.     It has also helped that Exxon-Mobil reported some jaw dropping profits of $14 billion as well as some good news from our bakken plays as listed below:

• Brigham Exploration Company (NasdaqGS:BEXP - News) announced three high flow working interest Bakken discoveries, participation in its first Anadarko Basin horizontal Woodford shale well
• Continental Resources (CLR) stated its third-quarter net income soared to a record of $112.4 million, or $2.65 per share, on revenue of $388.4 million which is up 135% from same quarter last year.   The news sent the stock up over 10% today
• Basic Earth Science Systems, Inc. (Basic Earth) (OTC Bulletin Board: BSIC - News) announced that its Board of Directors has authorized the repurchase of up to 500,000 shares of the Company’s outstanding common stock over the next 18 months.  This is quite unusual for a company of this size and signals that the mgmt of the company feels strongly that the stock is undervalued.

bakken

Symbol	Last Trade		Change		Volume	Avg Vol (3m)
NOG	1:03PM ET	4.74	0.18	4.06%	132,642	367,429
WLL	1:05PM ET	47.85	6.85	16.71%	1,965,892	1,342,220
SM	1:05PM ET	23.21	0.92	4.13%	423,417	1,271,550
MDU	1:05PM ET	18.55	0.85	4.80%	764,356	1,442,780
GEOI	1:04PM ET	12.82	0.41	3.30%	41,570	130,341
BSIC.OB	12:02PM ET	0.90	0.08	9.76%	2,500	38,635.9
WSEG.OB	9:52AM ET	0.12	0.01	9.09%	3,700	573,402
CLR	1:05PM ET	28.40	2.76	10.76%	1,256,084	2,248,770
BEXP	1:05PM ET	6.99	0.55	8.54%	433,091	1,027,970
KDKN.OB	12:30PM ET	0.60	0.08	15.38%	640,041	95,348.4
KOG	1:02PM ET	0.71	0.00	0.11%	181,168	1,038,580
EOG	1:05PM ET	75.01	2.43	3.35%	2,558,985	4,877,390

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