Investing in the Bakken: 8 Oil Drillers Under $1 Billion Market Cap

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 |  Includes: AXAS, FOR, GEOI, GMXRQ, REN, SSN, TPLM, USEG
by: Michael Filloon

In "Investing in the Bakken Part 1: 8 Companies with a Market Cap Under $1 Billion," I covered oil and gas exploration and production companies in the Bakken. This is an update of those companies.

Credo Petroleum (NYSEARCA:CRED) has 7,260 gross or 5,734 net acres in North Dakota. Its acreages are in Dunn, McKenzie, Mercer, and Mountrail Counties. Credo controls more then 150,000 gross acres in Kansas and 75,000 gross acres in Northwest Oklahoma. Credo has drilled five wells to date in the Bakken. Three are excellent producers. Two smaller interest wells are awaiting completion. Credo will drill 9 wells in 2011. By Credo estimates, 200 gross wells have been drilled in the Fort Berthold Reservation. Well spacing is four per 1280 acres. Average well cost is $6.5 million. Reserves per well are 350 MBO and 300 MMCF. Net reserves are 4.2 Million Bbls and 3.6 BCF. Credo's PV10% is $84 million, using $85/barrel pricing. Credo believes well spacing is estimated too high, and may add more locations to current estimate. An example of a current Credo well is Petro-Hunt 3A. Credo has a working interest of 18.75%. Its IP rate was 1,367 BOEP/D. Credo's current per acres valuation may be higher then previously estimated. November of last year, Williams (NYSE:WMB) spent $925 million on 86000 acres. This purchase was $11,000 per acre. It was significantly higher then the $5,300 Hess paid in the same area. One variable to watch is derivative losses. Credo's 2010 derivative losses were (705,000) versus a loss of (14,000) for the final three months of 2009. Credo had a year over year increase of 19% oil production and 13% increase in comparable earnings. Oil accounts for 69% of production. Lastly, watch this company's success rate. There have been some recent dry holes in Kansas. Although these are inexpensive wells, it could place a downward pressure in earnings. For a more in depth article please read "Credo Petroleum: Worth a Look."

GMX Resources Inc. (GMXR) recently acquired 26087 net acres in the Bakken. GMXR has 134 locations with average working interest of 45% to 55%. Bakken potential reserves are 30 MMBBLS. GMXR has a possible 34 operated units. In the Bakken/Three Forks-Sanish its EUR is 500000 BOE. GMXR has been aggressive in its change from gas to liquids. In the Bakken, GMXR estimates it will produce 17,219 BBLS of oil and NGLs in 2011. This is an average of 47 BPD. In 2012, it estimates total production of 291,697 BBLS. This is an increase to 799 BPD. This year, GMXR will drill 1.3 new net wells, and 7 net in 2012. Currently GMXR is planning 4 wells per 1280 acres. It should be noted that Brigham (BEXP) went to 8 wells in the Bakken/Three Forks. One rig is planned in the Bakken starting in September of 2011. The second rig will begin sometime between the fourth quarter of 2011 and March of 2012. GMXR's acreage in the Bakken can be separated into three parts:

  1. Greater Lewis and Clark-16516 net acres (10156 in ND)
  2. Rough Rider South-5959 net acres
  3. Rough Rider North-2929 net acres

The Greater Lewis and Clark is de-risking quickly. Whiting (NYSE:WLL) is spending $278 million or 44% of total Williston Basin drilling cap ex. From 2009 to 2010 five wells were drilled with an IP of over 1000 BOE. Wells have had success with 10000 foot laterals and frac stages of 28 to 30. The Rough Rider South has had 92 wells with IP rates of over 1000 BOE from 2009 to 2010. The Rough Rider North had 62 wells drilled with IP rates over 1000 BOE from 2009 to 2010. GMXR states the Bakken EUR is 500000 BOE. Gross well cost of $7 million. F&D costs are approximately $17.50/barrel. GMXR 2010 drilling cap ex is $2.52 million in the Bakken. In 2011, GMXR states this will increase to $47.671 million. The estimated first well spud date is July first of 2011. On April 11th of 2011, GMXR announced record production for the first quarter of the year. This represented a 14% increase over the fourth quarter of 2010. It was an 89% increase over the first quarter of 2010.

U.S. Energy Corp. (NASDAQ:USEG) has production upside in the Bakken and Eagle Ford. USEG is looking to monetize geothermal assets and an apartment complex. The cash from these transactions will be used for further exploration and production of oil. It also has a molybdenum play with Thompson Creek (TC). USEG has Bakken/Three Forks exposure in North Dakota and Montana. Its drilling participation agreement with Brigham (BEXP) has 14 current producing wells. This JV has 100% success. Brigham is the operator with USEG as a working interest partner. This agreement is to fund incremental drilling of fifteen 1280 acre spacing units within Brigham's Rough Rider acreage in Williams and McKenzie Counties in North Dakota. It encompasses 19,200 gross or 5500 net acres. Over 2009 and 2010, 15 wells were drilled. The acreage is now held by production. To date, 18 wells have been drilled with four wells awaiting completion. These wells should be completed with in the month. Depending on the number of wells per 1,280 acres, gross drilling locations of 90 or 120 will be garnered. IP rates with Brigham have been between 1,544 BOED and 4,030 BOED. Stages have been between 28 and 32.

USEG has a drilling participation agreement with Zavanna on 29410 gross or 6200 net acres. This three well initial drilling program is in McKenzie County, North Dakota. The first two wells are drilled to depth. The third well was spud the last week of March, and is currently drilling to depth. Precision (NYSE:PDS) will be drilling one well per month through March of 2012. Completions to begin in July of 2011. USEG is participation for 35% of Zavanna's working interest. Potential locations are between 186 and 248. USEG's 2011 drilling cap ex is $45.7 million. Thirty-three point two million dollars will be spent on the Williston Basin. Forty gross or 13 net wells will be completed this year. Eighteen gross Bakken wells will be completed. Ten wells will be completed with Zavanna, 4-6 with Brigham and 2 with Murex. Total proved reserves increased 80% in 2010. Seventy-nine percent of reserves are oil. For a more in depth article please read "U.S. Energy Corporation: An Oil and Molybdenum Play."

Triangle Petroleum (NYSEMKT:TPLM) is a relatively unknown Bakken player. It has 412,924 net gas levered acres in Nova Scotia. Triangle has 30,000 net acres in the Bakken with an average cost of 2,600 per acre. Triangle states they are looking to increase this holding to 100000 net acres. Management estimates 180 net unrisked locations. Its 12 month drilling program assumes 75 gross or 10.6 net wells. Triangle's drilling budget is between $80 and $90 million. Triangle has set aside $50 million for land acquisition. As of March of 2011,Triangle production was 90 BOPD. It has 7,000 net operated acres in Williams County, North Dakota and Roosevelt County, Montana. 1.6 net operated wells will be completed in the next 12 months. One rig will be running as of the fourth quarter of 2011. Triangle has 23,000 net non-operated acres in McKenzie County, North Dakota. Production and cash flow will be used to fund operated position. 12 net non-operated wells will be completed this year. Triangle estimates 30% to 40% of undeveloped acreage will be converted to HBP. Of the 14 wells participated:

  • 3 producing
  • 11 drilling/completing
  • 10 wells to spud in 30 days
  • 34 wells permitted

Triangle's $153.7 million capital allocation plan includes:

  • Drilling-$85 million
  • Land Acquisition-$50 million
  • Infrastructure-$10 million
  • Working Capital-$8.7 million

Triangle is working with respected names:

  • Continental (NYSE:CLR)
  • Kodiak (NYSE:KOG)
  • Oasis (NYSE:OAS)
  • Petro Hunt
  • Slawson
  • Tracker
  • Whiting (WLL)
  • XTO (NYSE:XOM)
  • Newfield (NYSE:NFX)

For a more in depth article please read "Triangle Petroleum: Speculating in the Bakken."

Samson (NYSEMKT:SSN) has had a spectacular year. This is from its Niobrara acreage, but this company wants to add to its Bakken acreage. I own this stock and will continue to, as I believe the seismic will show considerable upside. Samson has been outspoken about its want to add Bakken acreage. It currently has 3,303 gross or 1,200 net acres. This is located in McKenzie County, North Dakota. Two wells have been recently fracced. One 5,000 foot well to complete on 640 acre spacing, and three additional 10000 foot wells to complete on 320 acre spacing. Samson's North Stockyard has the potential for 6, 640 acre Bakken producers. Samson states it has one 640 acre well to drill, with three additional 320 acre spaced wells.

Hartleys did a report on Samson dated April 1, of 2011. It stated Samson achieved a maximum flow rate of 1320 barrels of oil per day, in its Rodney #1-14. It needed 15 frac plugs to choke back oil flow. The Hartleys' report shows Samson's stock tripling if it can emulate other wells in the Niobrara. This report is from a company that does work for Samson, so please consider this with respect to objectivity. In summary, Samson is doing very well. Samson will have the results of the 3D seismic on the Niobrara and an announcement of the purchase of additional Bakken acres, in the near future. For a more in depth article please read "Samson Oil and Gas: Ten Bagger."

Abraxas Petroleum (NASDAQ:AXAS) has 109,658 gross or 20,835 net acres in the Bakken/Three Forks. One hundred percent of this is held by production. It has 680 gross or 130 net unrisked locations. The Bakken/Three Forks is eight wells per 1,280 acre unit. Abraxas' 2011 drilling program is 15 gross or three net wells. This will require $25.5 million. Accelerated drilling will begin in the second half of this year. The economics of Bakken wells are:

  • $8.5 million D&C Cost
  • EUR of 500MBOE
  • IRR of 36%

The first operated (60% WI) Abraxas Three Forks well was completed. It had a 1,705 BOED unrestricted rate. Its first operated (79% WI) Middle Bakken well will be completed in the second quarter of this year. In 2011, Abraxas is expected to complete 5 gross or 2.5 net operated wells. Ten gross or .5 net non-operated wells will be completed. Its Bakken acreage is in these areas:

  • Harding/Rough Rider-7010 Net Acres
  • North Fork/Nesson-3540 Net Acres
  • Carter-3200 Net Acres
  • Sheridan-2340 Net Acres
  • Nesson-2270 Net Acres
  • Elkhorn Ranch/Lewis & Clark-2035 Net Acres
  • Elm Coulee-440 Net Acres

January 4 of 2011, Abraxas announced the completion of its first operated Three Forks well. It was a 25 stage 9,800 foot lateral. This well was operated at a restricted rate initially due to mechanical problems. Difficult weather also caused a back up of oil inventories. From November of 2010 to January 2011, it produced 13.5 MBBL of oil, 21.0 MMCF of gas and 2.5 MBBL of NGL. The unrestricted flow rate was 1008 barrels of oil, 2.44 MMCF and 290 barrels of natural gas liquids. Abraxas has 60% working interest.

In summary, Abraxas has good acreage in some of the best unconventional plays in the United States. Abraxas stated in its 2010 annual report it was having difficulty getting services in a timely fashion. It also stated these services were expensive. This may slow Bakken development for the company in 2011. Abraxus NAV could be much higher as acres are de-risked. The estimated net asset values per share are:

  • Proved Reserves-$2.57 (26.6 MMBOE)
  • 2P Reserves-$16.37 (82.8 MMBOE)
  • 3P Reserves-$32.71 (182.5 MMBOE)

As the acres are de-risked, share price to rise significantly. For a more in depth article please read "Abraxas Petroleum Built Around Solid Assets."

GeoResources (NASDAQ:GEOI) has 32,500 net operated acres in the Bakken. It has 12,500

net non-operated acres. This is a little less then double its Eagle Ford leasehold. Thirty two percent of proved reserves are in the Williston Basin. Its Bakken acres are located in Williams County, North Dakota. GeoResources began drilling here is September of 2010. It partnered with Slawson Exploration Company in its non-operator acreage. The majority of these acres are in Mountrail County, North Dakota. Slawson has 5 rigs running. GeoResources has 9000 acres in Roosevelt/Richland County Montana. 7,500 acres are operated and 1500 non-operated.

GeoResources operated acres in Williams County has interest in 100 spacing units. Its first well had an IP of 685 BO/D. GeoResources has one rig running and plans to add a second this summer. On average, wells will cost $5.6 million. A short lateral was used with in this 640 acre unit. GeoResources' second and third wells are 1,280 acre units with long laterals. The neighboring oil production companies have had promising results. The closest nine wells to the south had IP rates from 972 to 1947 BO/D. There are 4 to 5 rigs operating close to GeoResources leasehold. GeoResources operated acres are near good operators. The company and its results are:

  • Brigham Exploration (BEXP)-Between 1339 BOE/D and 2265 BOE/D
  • Oasis (OAS)-Between 1119 BOE/D and 2080 BOE/D
  • Newfield (NFX)-Waiting on results

GeoResources has 10% to 18% working interest in its non-operator acres. Eighty-five wells have been drilled here at 100% success. Evaluation of Mountrail County by Slawson and others shows the possibility of second and third wells in working units. Slawson is currently testing the Three Forks. EOG (NYSE:EOG) and Whiting (WLL) have both had promising results near GeoResources' minor working interest. Bakken development economics is promising. GeoResources states a Bakken well with an EUR of 350 MBO would have:

  • IP of 500 BOP/D
  • IRR of 25% ($80/BBL & $5MCF)
  • IRR of 34% ($90/BBL & $5MCF)
  • Payout in 3 years
  • ROI 2.2

A Bakken well with an EUR of 700 MBO would have:

  • IP of 1100 BOP/D
  • IRR of 89% ($80/BBL & $5MCF)
  • IRR of 150% ($90/BBL & $5MCF)
  • Payout in 1.2 years
  • ROI 4.9

GeoResources recently increased its 2011 budget. It was raised from $88 million to $114 million. Of this $114 million, $29.5 million will be spent on the operated Bakken acres. This will be used to fund 18 wells and completions of 2010 wells. $21 million will go to Bakken non-operated acres. Next year's budget is estimated at $173 million. In its most recent operations update, GeoResources blamed weather conditions for slowing progress. On March 9th, GeoResources had proved reserves of 24 million barrels of oil equivalent. Sixty percent is oil and 74% proved developed. It produced 1,060,000 barrels of oil, and 4,789 MMCF of gas. This equates to 1,858,000 barrels of oil equivalent. Proved reserves grew 16% year over year. Oil reserves grew 26% while gas reserves increased 4%. For a more in depth article please read "GeoResources: A Play on Eagle Ford and Bakken Shales."

Resolute Energy (NYSE:REN) has 90% liquids production. Its Bakken acres (33,415 total) are divided into three locations:

  1. New Home-23528 net acres
  2. Paris-8425 net acres
  3. Shep-1423 net acres

Its five wells were drilled in the Bakken in 2010. Two are currently producing. Two wells are fracced and untested. One well is waiting to be fracced. An estimate of 20 wells will be drilled in 2011. The New Home and Paris prospects have current producers near Resolute's acreage. GeoResources has three in the New Home (Williams County) prospect:

  1. G3 Carlson 1-11H is on a 640 acre unit, had 18 stages and tested at 685 BOPD in 24 hour testing. It is currently producing.
  2. G3 Siirtola 1-28-33H is on a 1280 acre unit, had 30 stages and 840 BOPD during frac flowback.
  3. G3 Anderson 1-24-13 is on a 1280 acre unit, had 30 frac stages and stimulation complete. Flowback started.

Marathon is operating in the Paris prospect (McKenzie County):

  1. Watson 14-32H is on a 1280 acre unit. 24 frac stages were used and Marathon is currently setting the pump
  2. Forest 14-2H is on a 1280 acre unit. 24 frac stages were used and Marathon is awaiting completion.

Resolute's 2011 capital expenditure program is $120 million. Forty-two million dollars will be spent on the Bakken. Resolute is an interesting company. Ninety-three percent of its revenue comes from Aneth field, the other 7% from Wyoming acreage. Resolute is just beginning to have production from its Bakken acres. Cash flow from operations should be able to finance considerable Bakken and Aneth development. Look for significant increases in oil production. For a more in depth article please read "Resolute: Stable Production and a Bakken Upside."

I will continue to follow companies in oily unconventional plays throughout the United States. This includes the Bakken, Eagle Ford, Niobrara, Wolfcamp (Permian), and Austin Chalk. For more of my articles at Seekingalpha.com, go here.

Disclosure: I am long SSN.

Sources: Credo Petroleum (CRED), GMX Resources Inc. (GMXR), U.S. Energy Corp. (USEG), Triangle Petroleum (TPLM), Samson (SSN), Abraxas Petroleum (AXAS), GeoResources (GEOI), Resolute Energy (REN), Credit Suisse Research Note 4-4-1.1.

Disclaimer: This article is a list of small companies in the Bakken shale, and is not a buy recommendation. I would encourage anyone looking to invest in these names, to do their own research, or ask their broker for any information needed on these companies.