Bakken Update: Oil Companies With $6-$12 Billion in Market Cap

Includes: BTE, CLR, DNR, NFX, QEP, WLL
by: Michael Filloon

The Bakken has created an influx of oil producers. Oil exploration and production companies continue to increase production of the unconventional resource. This has created a glut of crude at Cushing. We are seeing new techniques and technologies that are increasing IP [initial production] rates and EURs [estimated ultimately recoverable oil]. Longer laterals, increased stages, mobile rigs, ceramic proppant, and smart pads are increasing shale oil production.

Baytex Energy (NYSE:BTE) has reserves 91% weighted to oil (18% light oil). The company began buying Bakken acreage in 2007. Last year, it focused on Divide and Williams Counties in North Dakota. Baytex has 303400 gross or 126400 net acres, of which 257985 gross or 109435 net were undeveloped at the end of 2010. In 2010, it drilled 26 gross or 9.5 net wells. Baytex plans to drill 22 gross or 9.4 net wells in the Bakken/Three Forks. The Bakken is giving Baytex access to light oil reserves. These reserves will continue to increase as development expands. Three percent of production comes from the United States. As of December 31st of 2010, Baytex had proved plus probable reserves of:

  • Blue Sky-83.9 Mbo

  • Bakken/Three Forks-19.4 Mbo

  • Redwater-3.9 Mbo

  • Dodsland/Kerrobert-2.9 Mbo

Baytex has a total proved plus probable reserves of 110.1 millioin barrels of oil and bitumen. Its Bakken/Three Forks well average has:

  • IP rate of 420 Boe/d

  • EUR of 420 M/boe per well

  • Well cost of $5.7 million

  • Potential net locations of 100 to 300

  • Contingent resource (low) of 31.2 million barrels of oil

  • Contingent resource (high) of 145.4 million barrels of oil

Baytex has outlined the increase in production from Bakken wells. In 2004 to 2008 and 1280 acre spacing, IP rates were 190 bbls/d and EUR was 150 Mboe. In 2009 to 2010, IP rates increased to 420 bbls/d and EUR improved to 420 Mboe. In summary, Baytex has a very nice chart and a healthy dividend. It is a Canadian heavy oil play with Bakken upside. Full year EPS estimates of five analysts average $2,39, or a 55.2% increase over 2010. Revenue estimates for 2011 are $1.16 billion, or a 15% increase over 2010.

Continental Resources Inc. (NYSE:CLR) is currently the #1 oil producer in the Williston Basin. The company has proved reserves of 365 MMboe. 43% is from ND and 11% is from the Montana Bakken. Continental began drilling in ND in 1995. It began Montana Bakken operations in 2003. The North Dakota Bakken program started in 2004. It has the largest leasehold in the Bakken at 856000 net acres. It is the most active company there with 24 operated rigs. Continental states that it is the pioneer of the Three Forks reservior development and in the use of the ECO-Pad.

Pioneer's 2011 cap ex is $1.1 billion dollars. This will drill 151 net wells. There have been several estimates of recoverable reserves. Last year, Continental stated the Bakken/Three Forks had 20 billion barrels of recoverable oil. In 1995, the USGS estimated 151 million barrels were recoverable. By 2010, the number increased to 6.2 billion. How many barrels will be recoverable by 2020?

Continental is engaged in a 320 acre developement of the Bakken/Three Forks. There are eight potential wells per 1280 acre unit. Four Middle Bakken and four Three Forks wells. These eight wells have an EUR of 4.1 MMBoe. There are 173 rigs drilling. Approximately 2000 wells are being added per year. The NDIC estimates 21000 to 50000 new wells in the next 10 to 20 years. With 200 rigs, the Bakken could be producing 1000000 Bopd by 2015.

On February 23rd, Continental announced an increase in 2010 production of 16% over 2009. Proved reserves increased by 42%. Fourth quarter of 2010 Bakken production was 64% higher than the fourth quarter of 2009. On the first of March, Continental announced an offering of 10 million shares. It is currently accelerating plans to grow the company. Continental has stated plans to triple in size in five years. Production is estimated to increase by 35% to 37% in 2011. That is 5% to 7% above the previous estimate. Twenty three analysts estimate Continental's EPS to be 55 cents. The first quarter of 2010 EPS was 43 cents. The quarterly estimated revenue of 11 analysts for this quarter is $319.61 million. Continental reports quarterly earnings on May 4th.

Denbury Resources (NYSE:DNR)
is an enhanced oil recovery company. It has a 33% CAGR in EOR production over the past 11 years. Denbury estimates the next 10 years will provide a CAGR of 13% to 15% in EOR. At this pace, it will have estimated production of 120000 bbls/d by 2020. Denbury's Encore acquisition provided it with 275000 net Bakken acres, plus EOR properties. The Bakken added 3P inventory of 350 million barrels. Denbury has the ninth largest leasehold in the Bakken. At $80 NYMEX, the Bakken has an IRR [internal rate of return] of 34% and ROI [return on investment] of 2.9. The Bakken well F&D [finding and development] cost is $17.85/barrel. The average operating cost over the life of the well is $5.75/barrel. Average NYMEX differentials is $10/barrel. Estimated gross margin is $46.40/barrel. Proved reserves are 46.7 MMBoe as of 12-31-10.

Denbury is engaged in an operated five rig program in the Bakken. A sixth rig will start in the third quarter of this year. A seventh rig could potentially be added before the year end. The Bakken added fourth quarter of 2010 production of 5193 Boe/d. The targeted 2011 production is 8700 Boe/d. Denbury's 2011 capital budget is $1.3 billion. It will spend $350 million on the Bakken. Denbury's 2011 Bakken well activity has four completed and one with seven out of 23 stages finished. The 24 hour IP rates of completed wells have a high of 2006 Boe/d and a low of 1501 Boe/d. The average estimate of 20 analysts is an EPS of 27 cents. The first quarter of 2010 Denbury posted an EPS of 6 cents. Eight analyst estimates produce an average revenue of $503.26 million. This would be a 14.7% increase. Denbury reports earnings on May 5th.

Whiting Petroleum Corp. (NYSE:WLL)
derives the majority of production from its Rocky Mountains assets. Its Bakken probable and possible reserves are 75 MMBoe. $707 million of 2011 cap ex will be spent on the Bakken. Whiting's cost per barrel of Bakken oil is $12.91. Bakken total resource potential is 127 million barrels of oil, 11 million barrels of liquified natural gas, and 70 Bcf of natural gas. In the first quarter of 2011, Whiting continued to see margin improvements. In 2010, Whiting had a realized price of $61.48 Boe. The first quarter of 2011, increased to $70.34 Boe. Whiting plans to drill 100 wells in the Bakken in 2011. Listed by area:

  • Sanish/Parshall- 99 wells in 2010 and 106 in 2011

  • Lewis & Clark- 12 wells in 2010 and 51 in 2011

  • Hidden Bench/Tarpon-12 wells in 2011

  • Starbuck- two wells in 2011

  • Cassandra- two wells in 2010 and 2 wells in 2011

  • Big Island- one well in 2011

Whiting's 603702 net acreas cost $354 per net acre. As of 4-11-11, Whiting has drilled 22 wells in the Sanish field. These wells have:

  • 58.53% working interest
  • Highest IP rate 3385 Boep/d

  • Average 24 hour IP rate-1581 Boep/d

  • Average the first 30 days- 708 Boe/d

  • Average the first 60 days- 605 Boe/d

Over the past 6 months, Whiting has drilled 72 Bakken wells. In 2011, Whiting has drilled 17 Lewis & Clark wells. These wells have:

  • 76% working interest

  • Highest IP rate - 3612 Boep/d

  • Average 24 hour IP rate -1148 Boep/d

  • Average the first 30 days - 522 Boep/d

  • Average the first 60 days - 419 Boep/d

Whiting missed first quarter of 2011 earnings by 4 cents per share. It beat on revenues by $20.8 million. Increasing costs have been difficult for Whiting, but the company guided up second quarter production.

QEP Resources (NYSE:QEP) has 89000 net acres in the Bakken. It is using 5000 to 10000 foot laterals. QEP is reporting well costs between $6.5 and $8.5 million. Proved reserves in the Bakken are 26.6 MMBoe. It has 71 PUD locations on 640 spacing units. EURs are between 350 and 750 Mboe/well. QEP has three operated rigs in the Bakken. QEP's leasehold in Parshall has neighboring wells with IP rates from 750 to 3000 Bopd. Its holdings in Bailey field have IP rates of 500 to 1000 Bopd. QEP also has a proposed 10 well pad near a current well of the company, with an IP rate of 1374 Boep/d. It has estimated short laterals will produce 998 Boep/d. Long laterals will average 1530 Boep/d.

On April 26th, QEP reported adjusted EBITDA of 305.8 million. This was a 14% increase over 2010. Its EPS was inline with expectations of 30 cents. Natural gas production decreased by 18%, but crude oil production increased by 28%. QEP has reported rising service costs, as 1500 hp rigs are in demand in most basins.

Newfield Exploration(NYSE:NFX)
has a very good group of locations. Newfield's production broken down by location:

  • 40% Mid-Continent

  • 22% Rockies

  • 15% ONGC

  • 12% International

  • 11% GOM

Newfield's diversification shields investors from downside. It has overall production growth of 8% to 12%, with domestic oil up approximately 50%. Current 2011 Cap ex will be covered by cash flow.

Newfield has 174000 net acres in the Bakken. It has a five rig program, and 10 wells are waiting on completion. The last well completed in the Westberg had a 24 hour IP rate of 4468 Boep/d. Two wells in Aquarium/Watford had IP rates of 3417 Boep/d and 3311 Boep/d. Forty wells or more will be drilled in the Williston Basin in 2011. Production growth of over 200% is estimated this year. Newfield is seeing inflation in its business. It is more prevalent in the Bakken as service providers are raising rates. QEP also has reported this problem. Due to this, Newfield has increased its Cap ex by $200 million in 2011. Newfield also cites poor weather for its decreased production this winter. Many wells remained idle as trucks were unable to haul barrels out. Wells must be shut down if capacity of storage is reached. In the first quarter, Newfield recorded a net loss of 13 cents per diluted share. Much of this is due to a derivatives loss of $1.11 per share. Without the loss, Newfield would have beat the street by 4 cents at 98 cents per share.

I would watch these names as they are reporting rising well service costs. Rigs of 1500 hp are in high demand. Pressure pumping is also difficult to obtain. Companies are looking for long term contracts just to obtain services. Many of these companies believe they are able to withstand much of this, as they cut expenditures to cover increased rates. Watch these names, as some companies will make or miss earnings based on these costs.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This list encompasses a group of stocks in the Bakken at a designated market cap. It is just a list and not a buy recommendation. Stocks can have significant risk, and a substantial part of an investment can be lost. Please study any stock you plan to invest, as the limited information with in this list would not be enough information to make a decision.

Sources: Baytex Energy (BTE) Source: Continental Resources Inc. (CLR) Source: Denbury Resources (DNR) Source: Whiting Petroleum Corp. (WLL) Source: QEP Resources (QEP) Source: Newfield Exploration (NFX)