A Look at the Biggest Leaseholders in the Bakken

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 |  Includes: CLR, COP, EOG, HES, WLL
by: David White

The Bakken Shale Oil Field stretches from Canada into North Dakota and Montana. It could hold up to 3.65 billion barrels of recoverable oil, perhaps more. This is the biggest U.S. discovery since the Arctic National Wildlife Refuge in Alaska (10 billion barrels). This field is in the initial stages of development, but it promises to be one of the most lucrative fields ever.

The success rate for wells is fantastic. It is only a matter of permitting, drilling, etc. before it becomes incredibly productive. Given this, it seems a good idea to identify the biggest leaseholders in the Bakken Field. By net acreage, they are Hess (NYSE:HES), Continental (NYSE:CLR), EOG, Whiting (NYSE:WLL), and ConocoPhillips (NYSE:COP). These companies are likely to be the biggest beneficiaries of this great find; some or all may be great long term investments.

To help you decide which you might wish to invest in, I have compiled a table of fundamental data on each company below. I note the net acres data is changing all of the time. I have attempted to give up to date figures. The fundamental data below (other than net acreage) are from Yahoo Finance and TD Ameritrade.

Stock

HES

CLR

EOG

WLL

COP

Net Bakken acres

>900,000

855,936

600,000

552,000

460,000

PE

12.34

66.53

171.67

25.93

9.78

FPE

9.70

19.96

17.85

11.88

8.42

Price

$79.83

$65.86

$108.15

$66.05

$74.53

Analysts’ 1 yr. Target Price

$96.31

$75.66

$120.35

$80.39

$83.71

Avg. Analysts’ Recommendation

2.3

2.3

2.5

1.9

2.5

Beta

1.06

1.65

0.96

1.92

1.17

Price/Book

1.57

9.43

2.75

3.09

1.62

Price/Cash Flow

5.81

29.51

14.15

12.74

5.33

Short Interest as a % of Float

1.00%

9.70%

3.00%

4.40%

0.80%

Total Cash/share (MRQ)

$4.80

$0.05

$3.10

$0.16

$7.91

Growth Estimate Next 5 Years

9.90%

15.00%

14.67%

16.94%

1.35%

Total Debt/Total Capital (MRQ)

23.46%

43.39%

33.80%

27.75%

N/A

Quick Ratio (MRQ)

--

0.77

0.95

--

--

Interest Coverage (MRQ)

16.0

--

4.22

1.22

26.65

Return on Equity (TTM)

15.74%

15.03%

1.59%

8.66%

N/A

EPS Growth (MRQ)

66.44%

-191.21%

-86.62%

-77.81%

50.13%

EPS Growth (TTM)

85.07%

136.03%

-70.47%

145,276.90%

118.21%

Revenue Growth (MRQ)

14.05%

-55.99%

1.61%

23.05%

27.28%

Revenue Growth (TTM)

12.50%

33.99%

27.43%

36.88%%

26.50%

Annual Dividend

$.40

--

$0.64

--

$2.64

Gross Profit Margin (TTM)

25.66%

88.53%

86.79%

82.12%

14.89%

Net Profit Margin (TTM)

7.08%

20.05%

2.63%

16.87%

5.85%

Market Cap

$26.73B

$11.15B

$27.50B

$7.80B

$108.50B

Enterprise Value

$32.76B

$12.55B

$33.19B

$8.99B

$131.93B

Click to enlarge

HES, EOG, and COP are the biggest of the five by market capitalization. COP is so much bigger, the Bakken is not likely to be as important to its overall future performance as the respective Bakken holdings will be to the other companies. Still, COP looks like a solid investment.

By contrast, HES has huge holdings in the Bakken Field. It is a fundamentally solid company, with a five-year predicted growth rate of 9.90%. While excellent for a large oil company, this is likely an underestimate, given the quickly increasing demand for oil (without a simultaneous increase in supply). HES looks like it will be an excellent longer term investment. Its 900,000+ net acres of the Bakken play seem very likely to translate into great earnings and revenues growth over the next 10 years or so. A two-year chart of HES is below.

[Click all to enlarge]

Click to enlarge

HES has risen a lot in the last six months, but its fundamental numbers indicate it has considerable upside. Its Bakken development seems likely to add considerably to this as time goes on. If you care about safety, Hess may be the best long-term grower for you.

CLR and WLL are smaller, less stable companies with inflated PEs. They are questionably able to pay their bills. However, they have great growth potential. Their price performance in the last two years shows just how good that potential is. If the economy does not turn south on us again, they should do very well indeed. The two-year chart of each is below.

CLR:

Click to enlarge

WLL:

Click to enlarge

I especially like WLL’s chart, but both of these companies seem to have great price performance charts. The companies are riskier fundamentally than HES, but they may be well worth investing in. Each investor should decide for himself/herself how much risk he/she is willing to take on. The Bakken holdings of these two companies are large in comparison to their market caps. They both could have far to run. However, they will likely be much more susceptible to market pullbacks and economic troubles than a large, fundamentally strong company such as HES.

The Bakken Field gives every indication of being one of the most prolific discoveries of recent times. Every one of the above companies is likely to benefit tremendously. This oil and gas play is not 5000+ feet underwater or far off in the Arctic tundra. It is easily extractable with modern techniques. This means every one of the above companies is likely a good investment. Still, as explained, some may be better investments than others.

Just at the moment the overall market is showing signs of weakness. The BRIC countries are tightening to try to curb inflation, and the EU is struggling to avoid a massive credit crisis. This last is threatening to worsen quickly.

Oil has been falling. Currently it is at $110.68. The near-term major support is probably near $95. Other support is at $105. This means oil could continue down if the overall market and the general commodity retracement continues. If you can identify a turning point, that might be a good time to get into any of the above stocks. If you look at the fast stochastic indicator charts below each price chart, you can see that each stock is nearly to the oversold point. Each seems likely to go down a bit more, but each may turn upward soon. Perhaps a safe strategy is to average in over the next two to three months. The recommendation of these companies is a long-term one, in that they should pay off in the long term. However, it is good not to get in near a top if possible. If the EU credit crisis finally escalates, some are predicting a dramatic fall in the major averages. It is best to be aware of this possibility.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HES over the next 72 hours.