5 Bakken Oil Plays For Your Portfolio

Includes: HES, STO, WLL, XOM
by: Mike Perinotti

The Bakken shale formation is one of the most promising formations in North America. Primarily located in North Dakota, Montana and Saskatchewan, experts estimate there to be about 18 billion barrels of recoverable oil given today's technology. New rock fracturing technology has turned what was once thought to be a very difficult formation to drill into a booming oil development. By 2015, the Bakken formation is expected to produce about 1.2 million barrels per day. Large and small cap oil companies alike have made strong pushes over the last couple years to increase both acreage and output in the region. With the U.S. expected to overtake Saudi Arabia and Russia as the world's top oil producer by 2017, Bakken oil companies should be a necessary addition to an investor's portfolio.

Exxon Mobil (NYSE:XOM)

I'll start with the big boys. In September, 2012, Exxon Mobil, the largest U.S. oil company, paid about $1.6 billion to add 196,000 acres to their Bakken shale property portfolio. This move upped their total holdings in the region to nearly 600,000 acres. Exxon Mobil bought the property from Denbury Resources Inc. and is expecting production of more than 15,000 barrels per day from the addition. In 2012, Exxon Mobil was the sixth largest Bakken operator by gross operated production.

Energy investment bank Simmons & Co. told clients, "We expect more of these deals from the majors in the future, given the majors' collective struggles to grow production and replace reserves, their significant financial resources, and given the fact that they have come to believe that the United States' unconventional oil growth story is a durable one."

The International Energy Agency (NASDAQ:IEA) sees the U.S. becoming a net oil exporter around 2030 and self-sufficient in energy by 2035. It's no wonder major oil companies like Exxon Mobil are scooping up more acreage of the red hot Bakken oil formation.

Hess Corp. (NYSE:HES)

Although Hess is a well-known oil company, its $24 billion market cap is significantly smaller than the giant oil majors. Hess has operations in the Eagle Ford and Utica shale oil deposits in addition to the Bakken formation. Hess sees U.S. shale operations growing by a solid 27% by 2017.

Hess was one of the first companies in the Bakken and has built up holdings of over 900,000 acres, more than oil titan Exxon Mobil. The Company has announced plans to increase production to 120,000 barrels a day by 2015. With Bakken production for Hess up 87% in 2012 from the year before, that number may not be too far away. Not to mention the company cut drilling and completion costs by more than 30% in 2012 from $13.4 million per well in the first quarter to $9 million in the fourth quarter.

"We have built a strong position in the Bakken, which is arguably one of the best shale oil plays in the world," said john B. Hess, chairman and CEO. Hess is expected to produce an average between 64,000 and 70,000 barrels a day in 2013. In 2012, Hess was the third largest Bakken operator by gross operated production.

Statoil ASA (NYSE:STO)

Statoil, Norway's biggest oil company, bought Brigham Exploration Co. in 2011 for a staggering $4.4 billion to get a stake in the Bakken formation. That move placed Statoil in the top 10 holders of Bakken shale acreage along with oil giants Exxon Mobil and ConocoPhillips.

Statoil CEO Helge Lund said, "By entering the Bakken and Three Forks we get immediate operationship. It's important for us to position ourselves in the best unconventional areas and all the areas we're in now have very competitive cost levels." In 2012, Statoil was the fourth largest Bakken operator by gross operated production.

Other recent acquisitions by Statoil include $3.38 billion in assets from Chesapeake Energy Corp. in 2008 and Eagle Ford shale acreage from SM Energy Co. for $225 million.

Norstra Energy Inc. (OTC:NORX)

A much less known Bakken player, Norstra Energy, recently entered into an agreement with Summit West Oil LLC for their South Sun River Bakken Prospect. The Company's management identified this 10,000 acre formation as an excellent target for Bakken wells. The land has about 10 years left on most of the leases and the company has already invested $5,000,000 in drilling this year. Drilling is expected to commence this summer.

Norstra management believes the South Sun River Prospect to be well within the maturity window and oil is confirmed with the offsetting Krone well that is just over 1 mile away and drilled by Shell Oil Co. Norstra has also signed the industry standard A.A.P.I. Form 610-1982 Operating Agreement with Summit West Oil to be lead operator for the first three Bakken wells. Summit West is an experienced operator with excellent industry connections and relationships with the Montana Board of Oil And Gas. Summit West operated three wells in 2012 and completed each in a timely fashion.

Norstra is in the process of assembling a technical team right now that is expected to confirm the first Bakken drill location very soon. CEO and third generation geologist Glen Landry said, "This is a fantastic opportunity for Norstra and its shareholders. I believe that this area of Montana could become the next Williston basin in time and we're well positioned to be a player in the area." For those oil investors looking for a young, blooming flower in a field of tall plants, Norstra could provide explosive growth should they successfully drill their newly acquired Bakken holding. However, it is important to note that there are often times increased risks when considering an investment in micro-cap companies. The company's statements are considered to be forward-looking and not proven or historical.

Whiting Petroleum Corp. (NYSE:WLL)

In 2012, Whiting was the number one Bakken operator by gross operated production. Whiting holds 714,567 acres in the Williston Basin (Bakken/Three Forks) and continues to outpace the competition in F&D costs. Whiting's 3-year average costs are about $19.00 per barrel vs. an industry average of $25.88 per barrel. And with a market cap hovering around $5.7 billion, I could easily see an oil giant like Exxon, Chevron or Occidental Petroleum scooping up Whiting to drastically increase Bakken holdings. In December of 2012, Whiting's operated Bakken production of 66,156 barrels a day was higher than any other North Dakota company, the type of production you expect from an oil major.

In addition, at the end of 2012, Whiting had over 378 million barrels of proved reserves. The company completed nearly 193 wells in 2012 while only planning for 160. To follow up a banner year, the company plans to spend $1.9 billion in 2013.

To put things into perspective, Exxon Mobil spent $1.6 billion to acquire 196,000 acres in the Bakken formation in 2012. If Exxon Mobil made a similar investment 3.5 times greater, they could acquire the $5.7 billion market cap Whiting Petroleum Corp. However, 3.5 times their 196,000 acre acquisition is only 686,000 acres. By acquiring Whiting, Exxon Mobil would add 714,567 acres to the Bakken holdings, 28,567 acres better than their 2012 acquisition using the same ratio. Of course, this is all theoretically speaking and does not take into account the premium Exxon Mobil would have to pay to acquire Whiting Petroleum.

Editor-in-chief of Energy Tribune, Economides, was quoted saying,"The last time I looked, we were producing 150,000 barrels per day in the Bakken. Today it's nearing 600,000 barrels. I don't think there's a story like this in the history of U.S. oil and gas."

The numbers don't lie, the United States is moving towards becoming the top oil producing country in the world. And the Bakken Oil Formation could be at the forefront. Oil investors should research the above companies in depth and adjust their portfolios to take advantage of the U.S. and Bakken oil booms. It is only a matter of time before the United States is a completely oil independent country and the main reason for that will be the reserves and production coming out of the Bakken Oil Formation.

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

Business relationship disclosure: I wrote this article myself, and it expresses my own opinions. I have received two thousand dollars to write this article. I have a business relationship with a company whose stock is mentioned in this article.