Bakken Oil Producers Begin To Outperform The Market

Includes: CLR, GS, KOG, OAS, WLL
by: Michael Fitzsimmons

Bakken oil producers Kodiak Oil & Gas (NYSE:KOG), Whiting Petroleum (NYSE:WLL), Continental Resources (NYSE:CLR), and Oasis Petroleum (NYSE:OAS) have really taken off in September and have outperformed the S&P 500 by more than 2.5x over the past three months.

KOG Chart

KOG data by YCharts

Upcoming Q3 earnings are expected to ride the wave of growing production and recent higher oil prices. In addition, analysts at Goldman Sachs (NYSE:GS) predicted Bakken production growth will exceed Wall Street expectations. The bullish report seemed to put pep-in-the-step of the group.

The Goldman report published a curve (see above) showing sharp production growth in the Bakken will continue until production levels off around 2 million bpd in the 2023 timeframe. Note the three benches of the Three Forks will be significant contributors to overall production growth over the next 10 years.

Pad drilling, higher efficiency, and improving well results should boost returns in the sector. Companies like Kodiak are implementing array fracking completion techniques that are generally believed to boost oil-in-place recoveries and will eventually result in higher year-end proved reserves bookings.

WTI Crude Oil Spot Price Chart

WTI Crude Oil Spot Price data by YCharts

An additional catalyst for the group comes in the form of nicely higher year-over-year oil price comparisons. While the Bakken producers may have suffered from the WTI/Brent spread over the past couple of years, new rail and pipeline infrastructure have largely solved the exit capacity constraints. As a result, the large WTI-to-Brent discount has narrowed significantly while at the same time oil prices are generally $20 higher than the year ago period. Q3 earnings should be outstanding for the Bakken producers. Expect every oil producer mentioned in this article to outperform heading into the Q3 earnings reports.

Disclosure: I am long WLL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am an engineer, not a CFA. The information and data presented in this article was obtained from company documents and/or sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for investment decisions you make. Thanks for reading and good luck!