Cramer Likes Continental In The Bakken: Here Are Some Others With Plenty Of Upside

 |  Includes: CHK, CLR, EOG, KOG, SM, SSN, STO, TPLM, WLL
by: Michael Filloon

Jim Cramer of "Mad Money" has done a very good job of helping the average investor take control of their investments. I do not generally watch his show, but yesterday he was in Killdeer, North Dakota. It is likely the population is larger than its last census of 751 people, as the oil companies are moving workers in from all over the United States to work the Bakken shale. If you don't know where it is, you are not alone. The top U.S. oil companies know where it is at, and that's what matters.

Mr. Harold Hamm, the CEO of Continental (NYSE:CLR) had several things to say about the progression of the Williston Basin. He stated estimated ultimate recovery (EUR) of 600 MBoe is expected from each Bakken well. This is important as it was a recent upgrade from the previous estimate of 518 MBoe. Mr. Hamm also stated that Eco-Pads will be used by almost all Bakken producers going forward. In a nutshell, it allows for more than one well to be drilled from one location. This significantly decreases down time, as the rig does not have to be moved from location to location. Mr. Hamm also stated that "only 15% of the Williston Basin has been drilled" and claims "24 billion barrels can be recovered in the play." He also stated "Currently 6000 wells have been drilled, with an estimated 48000 total wells to be drilled in the Bakken." Continental estimates its 2011 production growth in the range of 36%-39%. Mr. Hamm also said it has "hedged Continental for $90 oil," which he believes will provide the revenues needed for continuing operations. Mr. Hamm pointed out that his company has regained momentum after weather delays, and this is proved by its production of 61000 Boe/d in July. Continental's current Bakken lease position is 901,370 net acres.

Continental is an excellent way to play the Williston Basin, but there are others I believe will be as good if not better. EOG Resources (NYSE:EOG) has 600000 net acres in the Bakken/Three Forks. It is the biggest oil producer in North Dakota. EOG has a 10 rig program, and plans 106 gross wells this year. It has had consistent well results:

  • Fertile 19-29H (Core Acreage) Initial production of (IP rate) 1008 Bo/d
  • Fertile 45-29H (Core Acreage) IP rate of 1223 Bo/d
  • Liberty LR 21-36H (Core Acreage) IP rate of 1201 Bo/d
  • Clarks Creek 3-0805H (Three Forks) IP rate of 1384 Bo/d
  • Hardscrabble 13-3526H (Stateline Area) IP rate of 1474 Bo/d

Remember these results are only based on oil and not oil equivalent. The Fertile wells were good, but in an area that has a good history of results. The Clarks Creek is a Three Forks well. Hardscrabble might be the best well based on location. The Stateline Area is on the North Dakota side, but much closer to the Montana border. This shows the viability of this part of the play and helps to substantiate other smaller companies with Montana acreage. EOG is a very large company that has done a very good job of switching its natural gas production to liquids. It continues to outperform estimates.

Whiting (NYSE:WLL) was the second largest oil producer in North Dakota at the end of 2010. It has 680,137 net acres in the Bakken hydrocarbon system. It has 65056 net acres in the Sanish area. This has been a great performer. In 2011, Whiting has drilled 21 wells in the Sanish with an average IP rate of 2020 Boe/d. These wells have a 90 day IP rate of 545 Boe/d. Whiting has an aggressive 2011 Bakken drilling program:

  • Sanish/Parshall-95 wells
  • Lewis & Clark-48 wells
  • Hidden Bench/Tarpon-26 wells
  • Starbuck-7 wells
  • Missouri Breaks-1 well
  • Cassandra-8 wells
  • Big Island-3 wells

Whiting has a 2011 exploration and development budget of $1.6 billion. 48% or $767 million will be spent on the Bakken. I believe Whiting is a good investment. It is levered to the Williston Basin and is spending to develop the play quickly. This is another good investment.

SM Energy (NYSE:SM) has 204,000 net acres with Bakken/Three Forks exposure. It has three rigs running in the area. Of its $1.55 billion 2011 cap ex program, SM will spend $190 million on the Bakken. SM Energy is more levered to the Eagle Ford than the Bakken, but it had a very good second quarter. I believe this trend will continue. SM plans to spend an additional $185 to $205 million on the Bakken in 2012. This is a very good company with a conservative balance sheet and has been beating estimates.

Brigham (BEXP) may be the best way to play the Bakken. It is a pure play on the Williston Basin. It has 375800 net acres in the Bakken. Brigham has completed 79 North Dakota Bakken/Three Forks long laterals with an average IP rate of 2803 Boe/d. Its Montana Bakken wells have an average IP rate of 1576 Boe/d. By the first quarter of next year it will be running 12 rigs which will produce a 132 gross well annual run rate. Brigham consistently outperforms it competitors. In the first quarter of 2011, it had an average IP rate of 2681 Boe/d. This was 69% better than the average of all companies in the Bakken that completed a first quarter well. Brigham has drilled 6 of the top 10 highest IP rates in the Bakken. In summary, Brigham is my favorite play on the Bakken. It is a pure Bakken player with years of inventory to complete. It consistently outperforms competitors, while keeping costs down and using new technologies to improve well outcomes.

Kodiak (NYSE:KOG) is also a pure Bakken player. It has 93,500 net acres. Kodiak has four operated rigs in the play and plans a fifth in the fourth quarter of this year. It also has two non-operated rigs. Kodiak has a $230 million 2011 capital program. This will fund 26 net wells with 21 net wells operated. Kodiak projects its long lateral Bakken wells will have EURs of 650 MBoe to 850 MBoe. These estimates are higher than competitors, but its two recent wells could be to the high end of its projections. Kodiak may be the best value of this group based on growth estimates. There could be a very large move to this stock if it continues to get very good IP rates.

Triangle Petroleum (NYSEMKT:TPLM) has become interesting as its stock dropped by more than 50% since its 52 week high of $9.73. Triangle has accumulated substantial acreage in the Bakken. It has72,050 net Bakken acres and 413,000 net acres in Nova Scotia. 44% of Triangle's Bakken acres are operated. Of its 30000 core net acres, 22,000 are in Dunn, Divide, McKenzie, and Williams Counties. Triangle's 42,050 operated acres are in Roosevelt County in Montana. Its first operated rig will arrive in September. It plans to drill 12 net wells by the end of next year. Triangle has $110 million in cash and zero debt. For more in depth information on Triangle go here.

Samson (NYSEMKT:SSN) has pulled back from its 52 week high of $4.75 to $2.36. This pullback has made Samson a value. It still has its acreage in the Niobrara, plus right to first refusal to participate in wells with Chesapeake (NYSE:CHK). Samson has 1,200 net acres in the North Dakota Bakken. This project has had very good production from its 6 by 640 acre Bakken producers. Samson has 3 additional on 320 acre spacing. Samson recently announced the purchase of 20,000 net acres of leases in Roosevelt County, Montana. Fort Peck Energy has the option to buy back 33.334% of the 20000 net acres plus the same percentage of the two first horizontal wells by reimbursing Samson. Samson has the option to purchase an additional 20000 net acres, bringing the total to 40,000 total net acres. If all goes well, Samson will then purchase an additional 50,000 net acres with Fort Peck Energy. Continental and Brigham have both had good well results near Samson's newly acquired leasehold. The most recent is Brigham's Johnson 30-19 which had an IP rate of 2962 Boe/d. If well results continue to impress it could mean there is significant upside to both Samson and Triangle.

In summary, there are very good ways to play the Bakken. These companies are better positioned in my opinion, but all of the oil and gas names are currently on sale. Although these names have sold off, I would look at this as an opportunity to start positions in good companies.

Disclosure: I am long BEXP, TPLM, KOG. This is a list of companies operating in the Williston Basin. It is only a list and not a buy recommendation.