The company I’m talking about is a little known exploration and production player called Kodiak Oil & Gas Corp (NYSE:KOG). It operates primarily in the Bakken oil field in North Dakota, and is seeing triple digit year-over-year production gains and 26% quarter-over-quarter gains.
Upcoming quarters
In the latest quarter Kodiak Oil & Gas Corp (NYSE:KOG) missed expectations, but provided guidance forecasting a great Q2 and Q3, which will see strong EPS gains due to increased production growth as more projections come online. Kodiak Oil & Gas Corp (NYSE:KOG) has reduced the time from spud to production from 30 to 20 days this year, and plans on reducing its rig count from 7 to 6 to boost margins.
Kodiak is also planning on adding a new crew this May to help get projects online faster and keep up with maintenance, which could act as a small catalyst until next quarter or a production update. This company is trading at the lower end of its 52-week trading range and is significantly undervalued versus its growth expectations. Kodiak Oil & Gas Corp (NYSE:KOG) does have a lot of debt ($1 billion), but this is manageable, as Kodiak continues posting strong production gains and is now consistently profitable.
Another cheapo
Another cheap shale play is Northern Oil & Gas, Inc. (NYSEAMEX:NOG), which trades with a PE (TTM) of 11.4, saw 30% production growth year over year last quarter, and is projected to grow its EPS by 18% this year. Northern Oil & Gas, Inc. (NYSEAMEX:NOG) operates primarily in the Bakken and Three Forks play as well, but also owns a bit of land west of that in Montana that is still a part of the Bakken play.
Right now, 72% of Northern Oil & Gas, Inc. (NYSEAMEX:NOG)’s North Dakota acreage is developed and 63% of its total holdings are developed, leaving ample room for Northern to keep drilling and boosting production. Northern Oil & Gas, Inc. (NYSEAMEX:NOG) also acquired interests in another 6,022 net mineral acres in Q1 2013, boosting its holdings to 181,823 net acres primarily in the Bakken.
A bigger player
If you are looking for a bigger player that is more stable, look no further than Hess Corp. (NYSE:HES) , which has plans to boost Bakken Shale output to 120,000 bpd by 2015. This would be a sharp uptick from 65,000 bpd from the beginning of 2013. Hess’s cost to drill a well in the Bakken has fallen by 36%, from $13.4 million to $8.6 million. This means that while Hess Corp. (NYSE:HES) is boosting oil production, it is also boosting margins, making it even more profitable.
Hess Corp. (NYSE:HES) plans on bringing 175 more wells into production in North Dakota, with two thirds of that in the Bakken and the other third in the Three Forks. Hess Corp. (NYSE:HES) also pays a small 0.5% dividend. While Hess Corp. (NYSE:HES) isn’t a Bakken pure play, its growth potential is still huge. It also trades at 1.1 times book value, so even if the price of oil goes down, you are protected.
Middle East conflicts
All of these players are very sensitive to oil prices, as they need $90-plus prices to keep building out infrastructure, paying off debt, and drilling.
Middle East conflicts can affect oil prices. Case in point: the United States and Russia recently signed an unexpected accord to reach out to both the rebels and loyalists in Syria to end the bloodshed. This was a move hailed by most, but it hasn’t really changed anything, as both sides remain bitter and entrenched in their own beliefs. You don’t easily forget 70,000 slaughtered civilians (estimated total deaths in the Syrian war). The Syrian war has the potential to spill over into neighboring countries, pushing oil prices up even further, as Syria is right next to around 35% of the world’s oil production.
The important thing to take away from this is that Syria is a longstanding ally of Russia; if it were to go to the bargaining table, Syria would listen to Russia, if anyone. But most likely the fighting will keep going on until one side gets the upper hand (probably the rebels in the end, with the backing of the U.N. and U.S.) and kicks the other out. While the fighting intensifies, however, oil prices will head higher. Consider this: even after the accord was signed, West Texas Intermediate was still trading at over $96 a barrel.
Final thoughts
The Bakken is still alive and well, with players big and small experiencing major production gains. These production gains, coupled with cheaper ways (such as multi-pad drilling and better water infrastructure) to extract domestic oil and gas, will lead to large returns in the future.
The article The Bakken Is Still Roaring originally appeared on Fool.com.
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