3 Ways To Play The Bakken Buyouts

Includes: KOG, OAS, QEP, WLL, WPX
by: Activist Stocks


The Kodiak-Whiting deal has sparked a lot of buyout interest in the Bakken shale.

The three stocks below are worth a closer look.

But there still appears to be one of the purest plays in the space that's quite enticing.

The M&A frenzy looks here to stay. At least as long as there's cheap money available (read: as long as companies can borrow at low interest rates).

Things have already started out with a bang this week. Dollar Tree is merging with Family Dollar, Zillow is buying Trulia and Hospira might be the latest company to take advantage of the tax inversion frenzy.

Other areas of the market that are offering impressive value include oil and gas. Most notably, one of the fastest-growing shale plays in the U.S., the Bakken.

This oil and gas play in North Dakota has been an oil producing machine. Oil production in the region has grown at an annualized 28% since 2008.

Hence the reason one of the leading Bakken operators, Kodiak Oil & Gas (NYSE:KOG), is up nearly 1,500% over the last five years.

SPDR S&P Oil & Gas Exploration & Production ETF is up nearly double what the S&P 500 has returned year-to-date.

The three oil and gas companies below all have market caps of around $6 billion or lower. Making them easy takeover targets for a larger company looking to increase its exposure to one of the fastest-growing shale plays in the U.S., the Bakken.

The recently announced merger of Kodiak Oil & Gas and Whiting Petroleum (NYSE:WLL) has brought the Bakken in full focus.

Shares of Kodiak and Whiting are each up over 40% year-to-date, but there could be better options for investors wanting to play the Bakken.

Billionaire John Paulson owns shares of Kodiak and Whiting, but he also owns shares of Oasis Petroleum (NYSE:OAS). It is the purest play on the Bakken. Over 85% of its reserves are tied to oil, and as oil prices remain strong, that's good news for Oasis. Oasis owns more acreage in the Bakken than Kodiak, with over 500,000 acres, compared to Kodiak's under 200,000 acres.

At the Delivering Alpha conference, Paulson noted that "what's going on in the oil sector in the U.S. is just amazing." Oasis trades as the cheapest of the five stocks listed on a P/E basis, and its P/E-to-growth ratio is a mere 0.8.

QEP Resources (NYSE:QEP) is spinning off its midstream assets in an effort to become a pure oil and gas explorer and producer. Over 50% of its CapEx spending was in the Bakken last year. It has roughly 90,000 acres in the Bakken.

QEP Resources also has activist Jana Partners pushing for change at the company, owning just over 5% of the company. As a result, QEP Resources Leon Cooperman also called QEP Resources as one of his top picks at this year's Delivering Alpha conference.

WPX Energy (NYSE:WPX) is the oil and gas exploration company that was spun out of Williams Cos. back in 2011. WPX has 84,000 net acres in the Bakken. But it's also been one of the worst-performing oil and gas performers with a presence in the Bakken year-to-date.

WPX believes it has grown to become the largest natural gas producer in Colorado, where its Piceance Basin properties currently comprise its largest area of concentrated development drilling. Its recent focus has been on its liquids resources in the Bakken, due to the fall in natural gas prices. As part of this, it's looking to divest certain non-core assets, such as its APCO assets in Argentina.

All three of the above stocks are interesting plays on the Bakken shale. However, for investors looking for a pure play on the Bakken, Oasis is the best choice. It has more acreage and drills in the shale than Kodiak, and is also still very cheap.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.