Kodiak Oil & Gas (KOG) has taken an acreage position in the Bakken and, over the last two years, has turned itself into a full fledged aggressive growth oil stock - Kodiak's stock price has quadrupled as it aggressively leveraged its acreage position and issued more stock and debt to acquire additional premium Bakken acreage and start a multiple rig drilling program. Kodiak now trades at a significant premium to comparable Bakken stocks when valuing either acreage or production. Emerald Oil (EOX) trades at a significant discount to comparable Bakken stocks on an acreage basis when its production is netted out. Emerald Oil is the creation of a merger between Voyager Oil and Gas and Emerald Oil. Although Voyager was the acquirer, they decided to use the Emerald Oil name.
At the time of the merger, I raised questions about the wisdom of the merger for Voyager shareholders. Voyager didn't seem to have the capital to execute the plans to smoothly turn itself into an operating company. In fact, the newly merged company dropped in value by almost 60% and was forced to issue a large amount of stock to make an additional operated acreage acquisition, pay down debt, and raise operating capital to fund its capital expenditure program. But after raising the additional capital via dilution, Emerald has emerged as a company with a very undervalued Bakken acreage position and the capital resources to execute a one rig drilling program. Like Kodiak, this company has shown a willingness to be aggressive to build a much larger oil company, and investors can now get in at a discounted price.
Emerald Oil has just had a reverse split of 1 for 7 and now has 23.7 million shares outstanding. The company has a current market-cap of $134 million, with $19 million in cash and only $15 million in debt and an enterprise value of $130 million. Emerald has acreage positions in the Heath Shale and the Sandwash Niobrara, but its main asset is 48,100 net acres in the Bakken. Emerald also exited the second quarter with 938 Boepd in production from the Bakken. Recent transactions in the Bakken have valued a flowing barrel of oil at $60,000. To be conservative, this analysis will use $50,000 as the value of a daily flowing barrel of Bakken oil equivalents. When Emerald's production is netted out with a valuation of $47 million, Emerald has a remaining enterprise value of $83 million. Emerald's Bakken acreage is being valued by the stock market at $1,725 per net acre after netting out production. For comparison purposes we will net out the production of other Bakken companies to reach a valuation by the stock market of their net acreage positions.
For starters, Halcon (HK) just purchased 81,000 net Bakken acres and 10,500 Boepd in production from Petro-Hunt, LLC for $1.45 billion. When the production is netted out, Halcon valued the net Bakken acres they purchased for $11,420 per net acre. Kodiak Oil & Gas has an enterprise value of $3.31 billion. Kodiak, the current Bakken premium valuation leader, has 155,000 net Bakken acres and 12,696 Boepd in production. When netting out its production @ $50,000 per flowing barrel, Kodiak's acreage is valued at $17,258, which is 10 times more than the market valuation assigned to Emerald Oil's acreage.
Oasis Petroleum (OAS) has an enterprise value of $3.34 billion, with 320,000 net Bakken acres and 20,400 Boepd. After netting out Oasis production, the stock market is valuing Oasis acreage at $7,250 per net acre, which is almost 4 times the valuation assigned to Emerald.
Triangle Petroleum (TPLM) has an enterprise value of $300 million with 86,000 net acres and 1,120 Boepd. After netting out Triangle's production, the market is valuing Triangle at $2,837 per net acre.
Northern Oil and Gas (NOG) has an enterprise value of $1.25 billion with 180,000 net acres and 11,200 Boepd in production. After netting out production, Northern's acreage is valued by the market at $3,833 per net acre.
Finally, the only Bakken company with a lower valuation per net acre than Emerald is U.S. Energy (USEG). U.S. Energy has an enterprise value of $53 million with 5,550 net Bakken acres and 1,414 Boepd. After netting out U.S. Energy's production valuation of $70.7 million, the stock market is paying investors $3,100 per net acre to just take the acreage off the market's hands. U.S. Energy also has zero value for 4,136 net Eagle Ford acres with Crimson Exploration (CXPO) that were recently de-risked and are surrounded by Chesapeake Energy (CHK). Chesapeake considers its Eagle Ford acreage the most valuable per net acre position in its portfolio. Chesapeake, however, does not have a position in the Bakken Shale.
Compared to comparable Bakken stocks, Emerald Oil offers investors a chance to get in on an aggressive Bakken growth stock reminiscent of Kodiak at a significant discount. As with all small-cap oil companies, Emerald has the risk of a sharp drop in oil prices which could significantly limit its access to capital to execute its plans.
Disclosure: I am long USEG.