Mideast crisis in focus

Posted by bakken

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.

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Happy New Year! 4 Bakken predictions for 2011

Posted by bakken

It has been a banner year for companies operating in the Bakken region.   Brigham Exploration (BEXP: 0.00 N/A) ,  Northern Gas & Oil (NOG: 17.18 -0.58%)  saw gains over 100% and American Oil & Gas was acquired by Hess corporation (HES: 44.60 -1.22%).   Bigger players such as Continental Resources (CLR: 71.31 +0.62%) and Whiting Oil (WLL: 44.20 -0.20%)] also rebounded in a big way and are within striking distance of all time highs in 2011.

Symbol	Trade	Market Cap	P/E	PEG Ratio	Pct from Yr Low
NOG	27.21	1.37B	132.09	3.16	159.89%
HES	76.54	25.14B	10.33	0.71	57.17%
CLR	58.85	10.01B	37.99	1.38	62.26%
WLL	117.19	6.86B	30.64	1.68	87.03%
BEXP	27.24	3.18B	92.34	1.29	116.53%
EOG	91.41	23.22B	45.80	5.93	7.01%
SM	58.93	3.72B	23.51	-28.62	91.95%
GEOI	22.21	438.05M	21.19	N/A	96.72%

So what will 2011 bring for the Bakken region?   Of course,  specific predictions are rarely accurate but in the spirit of the new year we will give it our best shot.   Underlying assumptions in our predictions are that oil prices will sustain over $90 per barrel over the majority of 2011 and that the overall domestic and global economies will continue a recovery albeit slow and sometimes painful.

PREDICTION #1 -  Brigham Exploration (BEXP: 0.00 N/A) gets acquired by a large O&G in the region such as EOG.

It is no secret that Brigham Exploration is one of the best executing pure plays in the Bakken Region.  Their expertise in multi-stage fracking is a boon for a larger player with untapped acreage.    They may look expensive on paper to some with a forward PE around 30,  but an acquisition would be focused around operational synergy with Brigham’s drilling prowess,  not necessarily looking at their current revenue numbers.

PREDICTION #2 -  PetroBakken goes up 50% in 2011 .

Although, most US based Bakken players did well in 2010,  PetroBakken (PBN on TSX),  just across the border did not fare as well.   Declining production and sub-par execution related to a number of factors such as bad weather caused many big investors to shun this stock for most of 2010.   PetroBakken has no shortage of opportunity with 210,000 net undeveloped acres with 1,000+ locations in the Bakken region “North of the Border”.      The company will put upwards of 20 rigs into action in 2011 and has a focus on Bilateral well drilling under their “Bakken 3.0″ strategy which should increase Bakken boepd significantly over the next 12 months.  More about their strategy can be found on their latest presentation posted in Dec 2010

PREDICTION #3 -  Continental Resources (CLR: 71.31 +0.62%)  tops $75 per share in 2011 .

Continental has banked a lot on their ECO-pad strategy in the latter half of 2010 and that strategy is already paying dividends.  Continental Resources has nearly doubled its production from the North Dakota Bakken during 2010, growing from an average of 8,384 (BOE) per day during the 4th quarter of 2009 to 15,000+ BOE per day in Q3 2010.   We expect production to top 21,000 BOE per day by the end of 2011.   With seemingly few factors that can stop a 30% sustained growth rate for CLR,  a move above $75 seems quite probable in 2011.

PREDICTION #4 -  Bakken drilling continues to surpass estimates and will yield record production in 2011

The growth train that is the Bakken was derailed slightly in 2008 amidst the economic crisis but came back with bang in 2010.   North Dakota is currently is pumping about 350,000 barrels of crude per day and was on pace to produce about 110 million barrels in 2010, up from about 80 million in 2009.   In 2011, we expect the following

• Record production in excess of 140 million BOE in 2011
• Well completion time averaging 23 days in 2011 (was over 60 days 2 years ago)
• USGS revision that outlines more than 11 billion barrels of recoverable oil in the Bakken region
• 1900 new wells in North Dakota (200% growth from 2010)

We’ll check back in a few months to see how our predictions have fared,  but based on the solid growth in 2010,  we are not worried about what we’ll find.    Have a great start to 2011!   Look for more insight in the coming days on new plays in the region

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