North Dakota Crude Oil Production data by YCharts
Invest in the Small Firms
Based on the daily crude oil production figures from December 2012, Whiting Petroleum Corp (NYSE:WLL) is the top producer in North Dakota’s Bakken field. Overall, the majority of the firm’s production is found within the Rocky Mountain region.
Michigan and the Gulf Coast together only produced 4 million barrels of oil equivalent per day (MBOE/D) compared to 63 MBOE/D in the Rocky Mountain region during Q4, 2012. These numbers show just how heavily Whiting Petroleum Corp (NYSE:WLL) is exposed to the Bakken formation.
The firm has a number of positive aspects. One of its major strengths is the fact that approximately 80% of its proven reserves are crude oil. This means that as the firm continues to develop its assets, it will benefit from strong crude prices, while low natural gas prices will only have a minor effect. Also, as pipelines and railways are developed, the price the firm receives for its oil will continue to increase.
The firm’s total debt to equity ratio of 0.52 is not excessive. The company is growing and a healthy amount of debt helps to finance growth and take advantage of the historically low interest rates. Whiting Petroleum Corp (NYSE:WLL)’s return on investment of 7.9% is not amazing, but it’s cash flow positive, with a profit margin of 19.1%. Overall, the company is a good growth story.
Continental Resources, Inc. (NYSE:CLR) is another large producer in the Bakken formation. In Q4, 2012 it posted a production rate of 68 MBOE/D in this area. The firm’s work is not over yet. It plans to bring production to 300 MBOE/D in 2017, from 98 MBOE/D in 2012. The company continues to try and save costs. It has started to drill multiple wells from a single pad to increase profits and synergies. Recent data shows that $7.5 million can be saved by using a six-well pad rather than six single wells.
The firm’s total debt-to-equity ratio of 1.12 is significantly more than the other two firms mentioned here, but that figure’s acceptable, as long as growth continues. Continental Resources, Inc.(NYSE:CLR) looks better on paper than Whiting Petroleum Corp (NYSE:WLL). With a gross margin of 89.5% and a profit margin of 30.6%, Continental Resources, Inc.(NYSE:CLR) has a significant lead. The increased inefficiencies from pad drilling will only increase this lead. A major drawback to Continental is its debt load, but as long as oil prices don’t collapse, the company should be fine.
Invest in Oil-Service Firms
Halliburton Company (NYSE:HAL) is larger than either of these producers. It has worldwide operations and uses its experience and capital base to help develop complex wells and formations. In the modern day, drilling for oil is not simply taking a shovel and digging a hole. A complex network of seismic research and horizontal drilling is used to get more oil out of harder-to-reach spaces.
Halliburton has a number of profitable case studies and early experience within the Bakken formation. Still, low natural gas prices impact the firm. Low prices decrease demand for wells and Halliburton’s services.
With a total debt-to-equity ratio of 0.31, the firm has room to grow. Its profit margin of 9.3% and gross margin of 21.3% show that even with the natural gas downturn, the company is profitable and run effectively.
Where to Invest?
Continental Resources, Inc.(NYSE:CLR) is the higher-margin opportunity, but this comes at the cost of a higher debt load. Whiting offers exposure to similar areas with less debt and lower valuations, but its margins are lower. Halliburton is a third way to take part in the Bakken formation. The downside to Halliburton is that its variety of services and clients makes it a play on global capital expenditure. Whiting Petroleum Corp (NYSE:WLL) and Continental Resources, Inc.(NYSE:CLR) are the better options to directly invest in the Bakken formation.
The article Looking for Growth? Don’t Ignore North Dakota Oil originally appeared on Fool.com and is written by Joshua Bondy.
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