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Michael Filloon, Split Rock (373 clicks)
Oil & gas, small-cap, research analyst, growth at reasonable price
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In the seventh installment of "Oil and Gas Stocks With Continue Upside," I am focusing on market caps of $7 billion or higher. As before, the focus will be on companies that are increasing oil production or already have oil as the majority of revenue. World oil demand is close to supply capacity. This should push oil prices appreciably higher by the end of 2011.

Whiting Petroleum Corp. (WLL) has 304.9 MMBoe of proved reserves, with 83% oil reserves. It has 67.9 MBoe/d of production in the fourth quarter of 2010. Whiting saw margin widen to 67% in 2010. Lease operating expenses decreased by 8%, and exploration expense decreased 3%. Daily production since 2007 has increased 61%. Eighty percent of Whiting's proved reserves are concentrated in the Permian and Rockies. Fourteen percent of reserves are in Whiting's mid-continent region, with the remaining 6% split evenly between the Gulf Coast and Michigan. Whiting is a top oil producer in three states.

  1. #2 in North Dakota
  2. #3 in Oklahoma
  3. #17 in Texas

The majority of production comes from the Rockies (60%) and the Permian (18%). Fourteen percent of production comes from its mid-Continent properties. Whiting's cost per barrel of oil are low. It purchased acreages early, decreasing its cost per acre.

  • Permian-$9.22 Cost per Barrel of Oil Equivalent
  • Rockies-$12.91 Cost per Barrel of Oil Equivalent
  • Sulpher Creek-$12.44 Cost per Barrel of Oil Equivalent

Whiting's exploration and production budget for 2011 is $1.2 billion. 52% or $707 million will be spent on the Bakken/Three Forks. Three hundred and fourteen million dollars, or 23%, will be spent on EOR projects, and another $92 million on the Permian. This company has good locations, and a large inventory to drill. If you would like to read a more in depth article read Whiting Petroleum Will Continue to Grow for Years to Come.

Denbury Resources (DNR) is a green oil company. Denbury is the leading enhanced oil recovery company in the United States. Denbury has a CAGR of 33% over the past 11 years. Denbury maintains it can grow between 13% to 15% per year for the next decade. This number does not include its large Bakken acreage. Denbury built its EOR business in the Gulf Coast and has expanded into the Rockies. Denbury estimates that 3.4 to 7.5 billion barrels of recoverable oil are in the Gulf Coast. The Rockies offer another 1.3 to 3.2 billion barrels. Denbury's reserves are 85% oil. In the fourth quarter of 2010, Denbury produced 63,712 Boe/d. For the full year of 2010, it produced 62558 Boe/d compared to 34127 Boe/d in 2009. That year, proved reserves were 207.5 MMBoe, and 397.9 MMBoe in 2010. Denbury's Rockies and Gulf Coast properties have an estimated 725 million barrels in 3P reserves. Denbury maintains its EOR leaseholds have a competitive IRR (36%) when compared to the Bakken (34%). Its Bakken acreage is 266,000 net acres. This leasehold has potential reserves of 350 MMBoe while proved reserves are 46.7 MMBoe. The Bakken has five rigs running with the possibility of seven by year end. Production of 8700 Boe/d is expected by the end of 2011. Denbury has a $1.2 billion cap ex this year, with $350 million to be spent on the Bakken. Denbury's oil production is 85% hedged.

Concho Resources (CXO) is a company increasing its liquids drilling platform. In the fourth quarter of 2010, Concho had production of 54.4MBoep/d. 2010 proved reserves were 323.5 MMBoe. Concho has 788367 gross and 374743 net acres. Ninety eight percent of its acres are in the Permian. It estimates having 6200 drilling locations. Concho is a leading Permian producer with focus on three locations:

  • Wolfberry-14 Rigs
  • Yeso-13 Rigs
  • Delaware Basin-5 Rigs

The three locations are liquids rich and well costs are low. Concho had production growth of 42% in 2010, and organic growth of 32%. Proved reserves grew 53% with reserve replacement up 858%. In 2010, 662 gross wells were drilled with 32 rigs. Concho closed the sale of its Bakken properties for $196 million. Concho has a $1.1 billion capital budget for 2011:

  1. 62% New Mexico Shelf
  2. 23% Texas Permian
  3. 15% Delaware Basin

Concho's unhedged position is 55%. Since 2006, production has a CAGR of 42%. Concho's proved reserves have a CAGR of 43%. Low costs, increased production and higher oil prices should contribute to a good 2011.

Pioneer Natural Resources (PXD) has more then 20,000 liquids rich drilling locations in low risk plays. Spraberry and the Eagle Ford are locations of emphasis for Pioneer. Pioneer believes it can create compound production growth of 18% through 2013. This would generate 30% compound annual cash flow growth. Pioneer had liquids production growth of 44% in 2010. Pioneer has a 2011 capital program of $1.6 billion. One point one billion dollars will be spent on Spraberry development. Pioneer expects large increases in operational cash flow, with $2.1 billion in 2012 and $2.6 billion in 2013. Pioneer has 13,000 possible drilling locations at Spraberry. Spraberry vertical wells average an IRR of 50%. Eagle Ford wells yield an IRR of 110%. The Barnett shale has a possibility of 600 drilling locations. At current strip price and approximate well cost of $2.8 million an IRR of 50% is garnered. These locations are allowing an increase in liquids over the long term.

Continental Resources (CLR) is a Bakken play. Continental states it is the number one oil producer in the Williston Basin. Twent production growth was seen in the fourth quarter year over year. Continental states it can triple production and reserves by 2014. Thirty five to 37% in production growth is expected in 2011. Continental has a $1.75 billion cap ex. It has 669,560 net undeveloped Bakken acres and 3,392 net undeveloped oil locations. Total net acres in the Bakken are 855936. Reserve replacement in 2010 was 779%. The fourth quarter production in 2010 was 64% higher then the fourth quarter of 2009. From 2005, proved reserves had a CAGR of 33% through 2010. Total proved reserves were 365 MMBoe at the end of 2010. Fifty four percent were from the Bakken and 105 gross wells were drilled. Twenty two thousand five hundred and twenty Boep/d is generated from its Bakken leaseholds. Continental has 24 operated rigs in the Bakken.

Continental's Anadarko Woodford has 267542 net acres. This liquids rich play has 10 Continental rigs drilling of the 48 industry total. Its Arkoma Woodford has 43,613 net acres and 4,403 Boep/d as of the fourth quarter of 2010. Continental is also in the D-J Basin. It has 71,712 net acres and 52 MMBoe potential net unrisked reserves. Continental has 224 net possible locations. It is possible that Continental will grow reserves significantly in the near term. It seems the majority of this will be coming from the Anadarko Woodford and Bakken. Its $1.75 billion in cap ex will be spent on:

  1. ND Bakken $1.035 Billion (71%)
  2. Anadarko Woodford $345 Million (21%)
  3. Montana Bakken $102 Million
  4. Red River $65 Million
  5. Arkoma Woodford $26 Million

Continental Resources: Lots of Bakken Upside is a more in depth article on this company.

Penn West (PWE) estimates it will have 65% of production coming from oil in 2011. It is the number one producer of light and medium oil in western Canada. Seventy percent of reserves and 68% of reserve additions in 2010 were liquids. Penn West has over 8,000 drilling locations. Penn West will drill 100 to 110 new wells in the Cardium with seven rigs. Penn West will be drilling 80 to 110 wells in Waskada with five rigs. Seventy five to 90 wells will be drilled in Colorado with two rigs. The Peace River partnership has seven rigs running, and are drilling pilot wells. In Cordova, three rigs drilling 15 to 20 appraisal wells. In summary, Penn West is focused on light oil plays. They are highly levered to western Canada, and are focusing on horizontal, multistage development.

Noble Energy (NBL) is estimated to grow earnings 34.6% next year. No simple feat for a company with a market cap over $16 billion. In the last five years, Noble discovered 2 billion barrels of oil equivalent. Its total net resources are:

  • Proved Reserves are 1092 MMBoe
  • Risked Resources are 4600 MMBoe
  • Unrisked Resources are 8400 MMBoe

Noble has 830,000 net acres in the D-J Basin. Noble has seven vertical and four horizontal rigs here. Noble is producing 55,000 Boe/d in the Niobrara. This area has a large inventory of vertical and horizontal well locations. Noble also operates in the deepwater Gulf of Mexico and averages 70% liquids production. Noble's Galapagos project is two-thirds oil. First production is expected at the end of this year. It is estimated, production of 7000 to 8000 Bbls/d. Noble has multiple areas in West Africa producing gas and condensate. Alba field has net volumes of 225 MMcf/d and 20 MBbls/d. Noble's eastern Mediterranean is a reliable, high margin location. It is the largest deepwater gas discovery in a decade. Noble is focused on two areas of business. The first is liquids production. Oil and NGLs have very good margins, and increasing demand. The second is international gas. Natural gas in the United States has seen supply outpacing demand. International gas is a different dynamic, and is seeing much better margins.

These seven companies have good fundamentals, in a high margin oil environment. Although I do not own any of these names the top three are:

  1. Denbury
  2. Whiting
  3. Continental

Long term, oil's fundamentals have not changed. Expect oil to push higher during the summer driving season. For more information on stocks with upside, read these articles:

  1. 8 Small Oil and Gas Stocks With Continued Upside Part 1
  2. 7 Oil and Gas Stocks With Continued Upside Part 2
  3. 8 Oil and Gas Stocks With Continued Upside Part 3
  4. 7 Oil and Gas Stocks With Continued Upside Part 4
  5. 7 Oil and Gas Stocks With Continued Upside Part 5
  6. 7 Oil and Gas Stocks With Continued Upside Part 6

Source: Whiting Petroleum Corp. (WLL), Source: Denbury Resources (DNR), Source: Concho Resources (CXO), Source: Pioneer Natural Resources (PXD), Source: Continental Resources (CLR), Source: Penn West (PWE), Source: Noble Energy (NBL)This article is a list of oil and gas stocks, it is only a list and should not be considered a buy recommendation. I will from time to time write of what companies I am invested in. If there is any clarification of my holdings, please check my portfolio on SeekingAlpha.com. Considerable losses can be obtained while investing, so please fully research any company you are planning on investing in, before making a stock purchase.

Source: 7 Oil and Gas Stocks With Continued Upside Part VII