Investing in the Bakken (Part I): 8 Companies With a Market Cap Under $1B

by: Michael Filloon

Over the past week, I have been asked several questions regarding smaller sized companies that have acreages in the Bakken. Although it is not difficult to find these companies, it is difficult to know whether they will profit from their Bakken holdings and by how much. These emails have increased due to the increase of oil prices in the short term. It seems that more interest is brewing and will continue to do so as the price of oil increases. In this article, I would like to make it clear that the stocks mentioned are highly volatile and will have large price increases and decreases over the period of one day; it would be unwise to invest or speculate any money that you are unable to lose.

On February 14th of this year, I wrote an article on Resolute Energy Corp. (NYSE:REN), a very interesting company with stable production and Bakken upside. This company is one that I have been watching for some time, and looks to be headed in the right direction. This company is not a pure play on the Bakken but has some other interesting holdings. Resolute's holdings in the Bakken/Three Forks total 33,695 net acres. This company's active development program has two wells completed and three awaiting completion as of February 16th of this year. Recently, the company CEO stated that the company had planned to have all five wells completed in 2010, but only two were finished. It is planned that once Resolute finishes all five wells, by midyear, a full scale development program will be instituted. An estimated 20 wells will be drilled in 2011 if all goes as planned. Resolute has other areas of development, including:

  • Aneth Field - Large field engaged in CO2 expansion through enhanced oil recovery procedures. Most of Resolute's production comes from this area.
  • Big Horn Basin - 70,000 net acres and pursuing multiple horizontal projects.
  • Hilite Field - 45,000 net acres HBP with Niobrara potential.

Resolute is a 90% liquids play, which is also important. Resolute is also seeking entry into the Permian and San Joaquin Basins. The Black Warrior Basin is another operational area of interest.

GeoResources (NASDAQ:GEOI) is a play on Eagle Ford and Bakken shales. On January 28th, 2011, I wrote about the company due to its acreages in these areas. Currently GeoResources has 32,500 net operated acres and 13,500 net non-operated acres in the Bakken. Operated acreage is in Williams County while non-operated is in Mountrail County. The rest of this Bakken holding is in eastern Montana. This company also has 21,000 net acres in the Eagle Ford. GeoResources has 56% oil production. The company also has 29,000 net acres in Giddings Field of Austin Chalk. This is mostly dry gas and liquids rich gas. GeoResources has Louisiana holdings as well. The two most bullish reasons to own GeoResources are its increased production and because it is getting more oily.

I covered Abraxas Petroleum Corporation (NASDAQ:AXAS) on January 26th, 2011 because of its solid assets. These solid assets include:

  • Bakken/Three Forks 20,835 net acres
  • Eagle Ford 8,333 net acres
  • Niobrara 18,700 net acres
  • Pekisko Fairway 9,120 net acres
  • Alberta Bakken 10000 net acres
  • Texas 8700 net acres

Abraxas is targeting 50/50 gas to oil mix of production. 2011 cap ex is 100% liquids.

Samson Oil & Gas (NYSEMKT:SSN) is a stock I have covered for sometime. Not only is this stock a ten-bagger (see here), but it is also increasing its Bakken acres. This stock is mostly a play on the Niobrara and should be considered as such, but I have owned this one since it was trading for a little over a dollar, and I am still long. Samson has 1,200 net acres in the Bakken and is looking to add acreage. This company also has 14,000 net acres in the Niobrara. A royalty payment on acreage sold to Chesapeake (NYSE:CHK) and Halliburton (NYSE:HAL) is farmed in.

Triangle Petroleum Corporation (NYSEMKT:TPLM) is a company I own and have been following for some time. This story is intriguing due to Triangle's speculating on the Bakken (see here). Triangle has approximately 15,000 net acres in the Bakken (McKenzie and Williams Counties), which it plans to increase to 30,000 acres by the end of 2011. It currently has nine wells drilling here with 30 planned (6 net) for 2011. In Nova Scotia, Triangle has 412,924 acres. This company has $54 million in cash and zero debt.

US Energy Corporation (NASDAQ:USEG) is another interesting Bakken player. The reason it is different is because it is an oil and molybdenum play (see here). US Energy has agreements with Brigham Exploration (BEXP), which currently has 14 producing wells and a 100% success rate. US Energy has 5,500 net acres with Brigham. US Energy also has a deal with Zavanna for 6,200 net acres in McKenzie County North Dakota. US Energy is currently in a three well drilling program with Zavanna. It believes that between these two areas there is a possibility of 276 gross locations. US Energy has 2,400 net acres in the San Joaquin Basin with Cirque Resources. The Anadarko Basin is another location of 3,000 net acres for US Energy. The onshore Gulf Coast has US Energy working with Petroquest (NYSE:PQ), Yuma E&P, Houston Energy, and Southern Resources (all separate projects). These projects encompass over 90,000 gross acres with varying working interest. US Energy also has a very large molybdenum resource that it is currently working with Thompson Creek Metals Company (TC) to mine. This has 800 million pounds of MoS2 potential. Lastly, US Energy also has projects with respect to geothermal, uranium, and real estate.

GMX Resources Inc. (GMXR) recently bought into the Bakken. This move has been met with mixed reviews. Some say that this is a great value, while others believe that the company was very late to the Bakken party. GMX currently has 26,087 net acres in the Bakken. GMX has 40,643 net acres in the Niobrara. GMX's exhisting core acres are in the Haynesville/Bossier (44,032 net acres) and Cotton Valley (46,651 net acres). GMX has planned to focus cap ex at the Bakken and Niobrara acreages for the purpose of increasing margins through liquids. These oily assets look good; however, while I have not researched this company well enough, it seems that it has really stretched to get more liquids focused, which could signal a tough road ahead.

On February 14th, I mentioned that Credo Petroleum (NYSEARCA:CRED) was worth a look (see here). The reason for this is the turnaround that Credo has seen. A former natural gas producer, it is now trying to become a liquids producer. It has approximately 6,000 net acres on the Fort Berthold Indian Reservation. Credo believes this Bakken space could have up to 50 drillable units. In Nebraska and Kansas, Credo has approximately 140,000 gross acres. Credo is increasing wells in this area drilling at the pace of two to three per month to help increase overall oil production for the company. In Kansas and Nebraska, Credo's working interest ranges from 12.5% to 95%. In Colorado, Utah, New Mexico and Wyoming, Credo has working interest in approximately 75 wells and royalties are garnered from an additional 1,200 wells, most of which are coal bed methane producers. Credo recently bought into the Cherokee oil play in eastern Colorado. 3,500 net acres are currently being evaluated. In Oklahoma and the Texas panhandle, Credo has 70,000 gross acres. Much of this is natural gas, but certain sections of the Texas panhandle are thought to be oil-rich zones. Credo can begin to drill the Oklahoma acreage depending on natural gas prices.

If you are looking to invest in companies with positions in the Bakken with a market cap below $1B, these are a few names with which I am familiar. With the run up in the price of oil, the Bakken play has garnered increased interest. As a mostly oil play, profits from many of these companies are thought to be quite good going forward. As the price of oil increases, so does the market cap of companies drilling the Bakken shale. Also, valuations and growth rates can give an idea of what is going on with a stock.

Here are some metrics:

Resolute Energy Corp. (REN)

  • Forward P/E Ratio (1yr.) - 53.71
  • 2011 Earnings Growth Estimate - 127%
  • 2012 Earnings Growth Estimate - 25.9%

GeoResources Inc. (GEOI)

  • Forward P/E Ratio (1yr.) - 20.26
  • 2011 Earnings Growth Estimate - 120.2%
  • 2012 Earnings Growth Estimate - 28.2%

Abraxas Petroleum Corp. (AXAS)

  • Forward P/E Ratio (1yr.) - 25.32
  • 2011 Earnings Growth Estimate - (-112.5%)
  • 2012 Earnings Growth Estimate - 1200%

Samson Oil & Gas (SSN)

  • Forward P/E Ratio (1yr.) - N/A
  • 2011 Earnings Growth Estimate - N/A
  • 2012 Earnings Growth Estimate - N/A

Triangle Petroleum Corporation (TPLM)

  • Forward P/E Ratio (1yr.) - N/A
  • 2011 Earnings Growth Estimate - 33.3%
  • 2012 Earnings Growth Estimate - 100%

US Energy Corp. (USEG)

  • Forward P/E Ratio (1yr.) - 70.89
  • 2011 Earnings Growth Estimate - 115.8%
  • 2012 Earnings Growth Estimate - 50%

GMX Resources Inc.(GMXR)

  • Forward P/E Ratio (1yr.) - 9.88
  • 2011 Earnings Growth Estimate - 220%
  • 2012 Earnings Growth Estimate - 75%

Credo Petroleum (CRED)

  • Forward P/E Ratio (1yr.) - N/A
  • 2011 Earnings Growth Estimate - N/A
  • 2012 Earnings Growth Estimate - N/A

Disclosure: I am long SSN, TPLM. Many of the stocks listed can vary greatly in price due to changes in commodities such as oil. I suggest that you study the companies you would like to invest in, as this is just an overview of companies with acreages in the area, and not a recommendation to buy them.