Stone Fox Capital's  Instablog

Continental Resources (CLR) announced early today a huge expansion in their drilling plans for the Bakken Shale in the Montana and North Dakota area. Forbes.com has some info about the move. Basically CLR had originally expected to end 2009 with 6 rigs working, but now they expect to be using 9 rigs. Then by mid 2010, they expect to be utilizing 23 rigs. Thats 17 more rigs that CLR will be putting to work.

This is just one company operating in the Bakken Shale, not to mention Haynesville or the Marcellus Shale. Its unclear whether Bronco Drilling (BRNC) will benefit directly from this expansion, but it should benefit from the overall capacity utilization in the sector leading to higher day rates and margins.

BRNC just began benefiting from a contract for 6 more rigs in Mexico working on drilling for PEMEX. Also, with the push in the US for more reliance on natural gas, BRNC seems like one of the best plays left. Most natural gas producers have already surged off the bottom along with the bigger drillers. BRNC still trades at a fraction of its highs.

BRNC has a book value of over $14, making the current stock price of $6 very attractive. They are still losing money and will continue to for a few more quarters at leasr, but the market seems to be improving very quickly at this point.

Buy BRNC off the CLR news, but be careful as BRNC announces Q3 earnings tomorrow. The sector isn't jumping today which is surprising, but for us that provides a buying opportunity. We'd suggest buying a half position expecting the guidance going forward to be upbeat.


Disclosure: Long BRNC