“The #1 Oil Play in the Country”

That’s what the folks who write Energy and Capital are calling the North Dakota/Montana oil rush — drilling into what’s popularly referred to as the Bakken Shale oil resource or the Williston Basin — that’s keeping unemployment low and making millionaires of some lucky North Dakota ranchers.

And they think that beneath this widely covered story of Bakken riches, which got a lot of play in oil’s runup to $147 last year but has been a bit quieter since, there’s an even better story in the Three Forks/Sanish Formation that might contain even more oil, beneath the Bakken Shale.

That’s not the story for us, though — no, the story for us is the tease … and tease they do, my friends … they tell us not only that “North Dakota’s Recession-Proof Secret” will continue to thrive, but that there will be a second round of riches to come for savvy investors.

And, of course, they’ve got the three best companies to invest in to make your dreams of Bakken/Three Forks riches come true … if only you’ll sign up to subscribe to the $20 Trillion Report, their newsletter that “normally” sells for $495 a year (I expect that price has never actually been paid … the “real” price that always seems to be offered is $99).

Here’s how they describe the potential:

“If geologists and officials are right about Three Forks, they could soon be confirming this giant basin as a a separate oil-producing formation… one of major significance to our national energy landscape… one that could literally double the output of the Bakken… one that could finally break our addiction to Saudi oil.

“And the best part for investors?

“Let me just say this. A trio of companies operating here – ones we’ve already played once for gains – could be the juiciest profits you add to your portfolio over the next few years.

“Again, we’re still holding these companies… some of which we’ve advised our readers to close 50% of their positions to secure profits… others of which we’ve recommended buying more on dips.

“And now, the day we’ve been waiting for has finally come. Targets are set squarely on our Bakken – Three Forks plays to seize all the gains that Round 2 has to offer.”

So I can hear the eager cries from the hallowed halls of Gumshoe University — please, tell us, what are those three companies?!

Let’s find out, shall we?

First, a little of the verbiage that they use to describe the oil formation, FYI:

“The USGS estimates 4.35 billion barrels of recoverable oil in the Bakken, which stretches from the Dakotas and Montana into Canada.

“Now it’s no secret that oil rigs have been producing Bakken oil with great success for the last several years… as technological advancements have finally unlocked the formation’s massive net potential.

“The Bakken, on its own, is already a vital piece of the domestic oil landscape.

“In fact, the Bakken was recently called “the #1 oil play in the country,” in an Oil & Gas Financial Journal interview with Mark Williams, senior VP at Whiting Petroleum – one of the leading producers in the Bakken.

“But it’s the latest news – sweeping the entire state and its 641,500 residents – that has oil companies and North Dakota residents understandably pumped.

“That’s because — according to geologists and state and industry officials — we may be looking at another oil formation… one that’s every bit as big and resource-rich as the Bakken.

“It’s the gargantuan Three Forks/Sanish formation. It lies beneath the Bakken.

“Bakken + Three Forks = “A “Sh__t Ton of Oil”

“…. geologists and officials are busy determining if the gargantuan Three Forks-Sanish formation is a separate oil-producing formation… or an “oil drip pan” for the Bakken.

“Now we already know the Bakken is a homerun play for many drillers… and individual investors. (There’s still a mad dash to set up shop and begin extracting the Bakken’s rich oil resources… most notably in the new boom state of North Dakota.)”

So that’s the basics … who are the three companies?

They start by teasing one that pays regular distributions — an income investment:

“One company has been there since the beginning of the Bakken boom… and is already selling its oil to the market. And the best part about it – this company is sharing its Bakken profits with everyday investors.

“You see, for the past seven years, this company has distributed its net profits in the form of MONTHLY cash payments. They have sent their shareholders profit-sharing checks for 96 months in a row… and the check amounts are on the rise.”

They then go on to give the actual US$ amounts of their annual cash distributions — $3.83 in 2001, $2.07 in 2002, $3.04 in 2003, $3.22 in 2004, $3.63 in 2005, $4.42 in 2006, $4.71 in 2007, and $4.75 in 2008.

And then later, they give some more clues about the three companies — they list what appears to be the same firm as “Bakken – Three Forks Millionaire Opportunity #2″ …

“The second opportunity is an aggressive income play. This company has been involved in the Bakken for years, and has significant acreage in the play.

“Additionally, this company is a high-yielding equity investment in the oil and natural gas business. They have built a balanced and diversified portfolio of producing properties across the United States with a focus on large resource plays, like the Bakken.

“They have a strict discipline of paying a significant portion of their cash flow to investors each month. And after having paid out over $3 billion to shareholders during its tenure as well as having a dividend yield of 9%, it’s hard to argue otherwise….

“With a P/E ratio of 4.74 compared to an industry average of 10.17 and a price to sales ratio of 2.00 compared to 3.77 for the industry, this company is sorely undervalued.

“Based on conservative valuation models, we believe this stock has the potential to double in the next 12 to 24 months.

“And that’s on top of the cash payments it pays out every single month.”

Now, it’s possible that they are referring to two different companies here — but I don’t think so, the implication is certainly that the company paying out these high dividends is one of the three companies they specifically are teasing, and there’s only one of the three that’s an income play, so I meshed all their clues together.

And this has to be Enerplus Resources (ERF)

ERF is one of the dominant Canadian energy trusts, a pass-through vehicle kind of like a REIT that generates cash and passes it through to investors without having to pay taxes. These have been huge favorites of income investors over the past decade because most of them are in the oil and gas business in some way, and they’ve been able to pay out massive dividends over the years to investors thanks, in part, to rising energy prices.

Of course, they got so popular that the Canadian government started panicking about tax revenue, especially with so many foreign investors interested in these trusts … so the trusts as they now exist are going bye-bye, after the “Halloween surprise” of 2006 they’re scheduled to lose their favored tax status by 2011.

Some of these funds will continue to have tax credits or other offsetting bookkeeping for a year or few after the tax law changes, but they are all trying to plan now for an era when they have to pay taxes — which means that if they want to continue to be income-focused vehicles, or even thriving companies in some cases, they might want to grow production to help make up for that tax bite. That’s what Enerplus is doing in the Bakken and in other areas — they just announced a big investment in the Marcellus Shale, the big shale gas (as opposed to oil) resource centered in Western Pennsylvania.

Which brings us to the two keys for Enerplus: Natural gas, and whatever the heck investors do in 2011. Enerplus would probably be my first pick if I were looking at a Canadian trust today, if only because I think they’ve got the experience and the proven track record as one of the leading trusts for many years, and they’ve got a plan for converting to a corporation and seem to be on track to do so with a reasonable balance sheet. They currently plan to convert to a dividend-paying corporation late next year, and expect that they have tax pools that will provide some shelter until 2013, when they’ll become a fully taxed corporation at a rate they estimate to be in the 10-15% range, which should — if energy prices remain high — allow for dividends to remain attractively large. Perhaps not as enticing as the current 10% or the 15%+ that folks got used to in the boom days, but probably still large relative to other oil companies.

Enerplus carries less debt than most of the big Canadian trusts, and it is making good long-term investments in what they call those “tight” oil and gas fields — the shale plays like Williston and Marcellus, as well as “tight gas” in British Columbia. They yield about 10% now, but they’re still putting almost half of their cash flow into investment and development, so they’re not just running out the string and finishing production at their mature fields, they do have a growth strategy (or some cynics might call it a survival strategy). Enerplus does not have a lot in North Dakota, but they do have fields in Saskatchewan and Montana that are part of the same basin, and much of their production is currently in conventional oil and gas in Alberta.

I also like Enerplus, on balance, because they’ve proven that they’re aggressively strategic even as they maintain large dividends — they invested in the oil sands years ago and realized gains on that, and are continuing to develop some of those properties, and they are flexible enough to shut in production — they have at least one conventional natural gas resource that they’ve shut down for now because prices are so low, but they continue to invest in other longer-term growth plays in natural gas and oil.

Of course, I don’t actually own shares of this one — I did, many years ago, but haven’t looked seriously at the trusts since the tax law change. It does look like the big ones are making reasonable plans now, and that the post-2011 framework is trying to evolve so that investors are beginning to understand how they’ll operate, whether they’ll pay dividends, and how their businesses will grow, so perhaps now’s as good a time as any to take a closer look — for a while investors were frantic about whether or not the tax law change would be overturned, but now folks seem to be settling down and accepting reality and planning for it, with the trusts at generally much lower prices. So if you can get your head around a significant corporate conversion next year, and expect oil and gas prices to climb, there are probably lots of worse places to look for an investment return — Enerplus won’t let you get rich quick off of Bakken or Three Forks discoveries, but they may be able to get you there a bit more slowly.

If you’re interested in the trusts in general, you might also like MLPs, which are generally midstream operators, not often producers, or the US royalty trusts, which are simpler closed-end trusts that can’t make capital investments like the Canadians can (so they can’t really grow) … the last article that I wrote that covered many trusts was for what the Oxford Club was calling a “gas rebate” plan, which was absurd, but they did choose some interesting trusts, you can see that article here.

And I wasted a lot of my words on just this one stock today — what are the other two that they tease?

“Bakken – Three Forks Millionaire Opportunity #3

“The third opportunity to take advantage of the next great American oil boom is through an independent exploration, development and production company. It utilizes a revolutionary 3-D seismic imaging technology to systematically explore and develop domestic oil and gas reserves.

“The use of this 3-D seismic technology reduces drilling risk and compounds their ability to grow reserves and production volumes.

“The company also recently released record drilling results in this burgeoning play, and is now planning to complete the wells.

“But that’s just the beginning.

“You see, this company is aggressively snatching up quality land, and has already tacked on more than 290,000 Bakken acres to its growing list of assets. Out of the 71 Three Forks wells so far, more than half are in production, with another 11 on the verge of being completed.

“And their booming oil revenues are nothing new. Take a look:

“Now, this is just a taste of how things will turn out as oil begins to trade higher. And as a direct result, this company’s profits are expected to grow at a huge rate.This company, like the first one, is a huge growth play. It is currently trading at a huge discount with a price to sales ratio of 2.35 compared to an industry average of 11.04.

“Not to mention the insider purchases we’ve seen over the last 2 years…”

This one, though some of those clues are very stale, must be Brigham Exploration (BEXP).

They do indeed use 3-D seismic imaging as a key tool in their exploration program, and they have over 290,000 acres in the Williston Basin — they say that they are the “Most leveraged (acreate to market cap) public company in the basin.”

They don’t trade anywhere near that 2.35 price/sales ratio anymore, however — the shares collapsed entirely over the Winter, when low oil prices and funding difficulty dropped the shares to near a dollar, but they’re now back up to about $9.50 and the price/sales is back to a more average 9.

Brigham lost a lot of money last year, but that was largely because of a big acquisition program of capital spending, and drilling costs. They just did another equity offering a month or two ago to raise money for more drilling and to complete a few wells that were nearly done, and they’ve extended their debt maturities to 2012 and hedged about half of their production through the end of next year, so all of that financial recovery stuff is nicely reflected in the big boom the shares have seen, and it would appear that they’re now well positioned to profit if the wells play out and the oil price stays nice and high, but I’m otherwise certainly not an expert on these guys, so feel free to share if you’ve any BEXP thoughts rattling around in your noggin.

Next!

Well, I’ve already bollixed up the order these were pitched in, so I might as well finish with number one.

“Bakken – Three Forks Millionaire Opportunity #1

“The first opportunity is an explosive growth stock that has catapulted since being upgraded to the AMEX exchange in February 2007.

“Since being upgraded this stock hit a high of nearly $15 – including a 233% gain in just over one year. We cashed out with a gain of over 103%… and now we’re ready to take our second round of profits.

“And that is just the beginning…

“The main catalyst for the company’s stock price spike is an increase in its acreage position in the Bakken Basin to 65,000 net acres.

“They are gobbling up land in this precious region with fervor second to none.

“Over the past two years, insiders of the company have purchased more than 120,000 shares. They know that the Bakken play is a fortune-maker.

“With a deep foothold in the Bakken and the expansion of wells throughout the region – there is no telling how high this stock could go. Companies in similar situations have seen their stock rise to over $100 a share. Right now you can buy it for under $7 a share.

“But let me be very clear: we are talking about the potential for several hundred percent gains. This company trades at a market cap of just $232 million. So it’s very small. With its firm foothold in the Bakken, its market cap could easily balloon to over $1 billion! Right now the company’s stock is under the radar. But with the recent positive news coming out of the Bakken combining with the potential for the Three Forks, this company could jump as much as 300% in just a couple of days…

“By combining experienced management, low overhead and aggressive acreage acquisition, this company is one of the nation’s fastest growing small-cap gas and oil exploration and production companies. And that spells a higher stock price and more cash in your pocket.”

This one is Northern Oil and Gas, a company that was created to capitalize on the Bakken and that rode the fortunes of that basin up and down over the last two years — spiking to $15 a share in 2008 and collapsing to $2 earlier this year. The shares are right now slightly over $7, but close enough. Market cap is now a bit over $250 million, but it’s certainly still small relative to some players, and it’s in the early days of production — the trailing PE is 106, but analysts expect their earnings to double this year and jump a couple hundred percent more in 2010, to 45 cents a share (and no, I have no idea what oil price they’re using to make that 45-cent guess … the low estimate for 2010 is 24 cents, so there’s a wide range). Bloomberg profiled the NOG guys (with a nice swashbuckler photo) back when the Bakken was on the tip of every investor’s tongue in the Spring of 2008, so that’s an interesting read if you want some of the background.

And that 120,000 shares that insiders have purchased over the past two years? I wouldn’t put too much weight behind that, most of the insiders have been rabid sellers whenever it got up to $10 a share or so, and they have definitely sold — and been given — a lot more than they’ve bought.

And other than that, whatever you think about oil prices is probably something close to what you think about the Bakken and these two “growth plays” — Enerplus is a bit more nuanced, but NOG and BEXP are bets on high oil prices and continued success with horizontal drilling and profitable production in the Williston Basin … more prescient investors would have jumped in when they were in financial turmoil back at the market bottom, but back then most of us thought the world was coming to an end, so jumping on a Bakken wildcatter wasn’t exactly at the front of our minds — the guys at the $12 Trillion Report have been pushing these same companies in previous Bakken teases, and this latest updated version has been circulating for a few weeks now … I never wrote about them before, but I know a good number of my readers tried to ride the Bakken wave, so perhaps they can share their wisdom (hopefully not too hard-earned).

And imagine we’ll keep seeing this same teaser letter as long as oil is in the news — if we dip to $35 again, which I don’t personally expect (that might make it more likely), all bets are off and these picks (and the teaser ad) might go back into hibernation again. What do you think — will the Bakken bring us closer to oil independence, and make us rich as we invest in these three companies? Or is this just a handy story to sell a newsletter? Somewhere in between?

The author will always disclose any direct long or short equity, debt or option position in any stocks written about as of the day of publication, and will not trade in any stocks mentioned for three days (72 hours) after publication. Full disclaimer is at the bottom of the page.

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1. I have sowned and sold BEXP and NOG, buy low, sell high. When they hit $16+, I sold and then rebought when they dropped. I still hold both and love their posiyions. BEXP has seveal holes drilled but not punched through, waiting on price rise. CLR is another good ply with WLL,EOG and som other juniors. I love Bakken and if you are interested in a newbie, PPY.V moved to Bakken, bought for 0.25, sold $4.00, but this time they have a land position of their own, possible again mover as they own their own rig.

   [Reply]

   Posted by Darrell Motes | September 9, 2009, 1:12 pm

2. TAKE A LOOK AT A REAL OPPORTUNITY TO MAKE SERIOUS MONEY THEN CALL ME GO THIS WEBSITE http://WWW.TRUMPNETWORK/RICHARDBATISTA
   9176731817

   [Reply]

   

   StockGumshoe Reply:
   September 9th, 2009 at 1:20 pm

   Really? The Donald is now doing network marketing of strange health products? It seems so sad, though at least he didn’t rename the products the Trump Diet Snax.

   Can’t decide if it’s more or less pathetic than Trump Steaks or Trump Vodka, but man oh man the guy sure knows how to license the hell out of his “brand.” Maybe he’ll get bought by Disney next.

   [Reply]

   Posted by RICHARD | September 9, 2009, 1:13 pm

3. Great work, Gumshoe. Love the site.

   Although I couldn’t agree more on Enerplus, I’ve also had huge success lately with companies like Brigham, I’m on the edge of my seat, waiting to see who else is going to see similar gains.

   Personally, I think it all comes down to who has keep improving their frac techniques.

   Keep cracking those safes.

   -George

   [Reply]

   Posted by George M. | September 9, 2009, 1:22 pm

4. I was wondering if any of you have any info on this teaser;

   YES! Please rush me Profits in Paris: Earn 4,620% from this Secret Oil Discovery – the in-depth report detailing the company behind the $2.8 trillion oil discovery beneath the Eiffel Tower. I am also claiming my additional research reports, detailed below, at no additional cost. And please start my full-year subscription to The Money Map Report.

   [Reply]

   

   don freiburger Reply:
   September 21st, 2009 at 10:35 pm

   How can I find out the name of the Tiny Texan, so I can follow and purhase some of gtheir stock. Thank You Don Freiburger

   [Reply]

   Posted by Fed | September 9, 2009, 1:35 pm

5. What can you tell me about another small unknown company operating in the Bakken formation area, also owning 470 square miles located in the northeast of Utah in the Uinata Basin. That company is Cobra Oil & Gas. (CGCA) Energy giants like Exxon, Pioneer and Questar have taken a position in this company, Exxon to the tune of 12.5% interest. Cobra also secured $10 million from Baden Energy. They also have secured interest in Montana and North Dakota. Can you shed some light on this company?

   [Reply]

   

   stockcrazy10 Reply:
   September 9th, 2009 at 3:04 pm

   http://www.stockgumshoe.com/forum/teaser-challenges-and-solutions/lebedbiz-new-alert-my-top-pick-for-the-summer/page-2

   Please look at post #52.

   You can find other references to CGCA using the Search function.

   [Reply]

   Posted by Ed Haney | September 9, 2009, 2:07 pm

6. http://finance.yahoo.com/q/ta?t=1y&s=ERF&l=on&z=m&q=l&c=bexp%2C+nog

   Two losers & one just above break even!

   One of this companies is going t/b #1?

   [Reply]

   Posted by SageNot | September 9, 2009, 2:10 pm

7. The Paris Play from Money Map is Toreador Resources which moved from Texas to France.

   [Reply]

   

   stephen Reply:
   September 10th, 2009 at 2:44 pm

   thanks steve. i am a ghanaian looking forward to investing in this company.can you provide further info finaciallh.thanks once again

   [Reply]

   Posted by Steve | September 9, 2009, 2:55 pm

8. Does anyone know of a E&P company that leased

   76,000 acres recently in the bakken play and is

   listed in the pink sheets ????

   [Reply]

   

   Darrell Reply:
   September 9th, 2009 at 7:41 pm

   I believe it was 26,000 acres and it was CGCA. Darrell

   [Reply]

   Posted by dave | September 9, 2009, 3:10 pm

9. What is the #1 oil stock?

   [Reply]

   Posted by Bo Flygare | September 9, 2009, 4:39 pm

10. Ya’ll looking for more info, might try; “Bakken Blog” and the NO.DAK. dept of commerce or something like that. Bo. #1 where, Bakken? Most of the biggies are there, Conoco, Hess who bought Headington, EOG, XTO. and many smalls are grabbing land positions…you have to rate them yourself.

    [Reply]

    Posted by Darrell | September 9, 2009, 7:33 pm

11. You did it again Gumshoe!
    For those of us that didn’t pay attention, Coeur D Alene Mines (CDE) took off today going up @10% today. Can’t remember but think you discussed this stock when it was @$8. Now they’ve resolved their issues and Corps of Engineers is working things out. I’m sure the gold price has something to do with the price jump, but wish I coulda woulda!

    [Reply]

    Posted by Masterblaster | September 10, 2009, 2:00 pm

12. Thanks for the great write up, Travis. For those interested in drilling activity in the Bakken formation try visiting the web site Bakkenstocks.com.

    [Reply]

    Posted by Tom K. | September 10, 2009, 9:40 pm

13. LPIH an OTCBB stock appears to be doing things right! This Chinese Oil distributor took 20% hit on Friday ….but WATCH it on MONDAY! LPIH is ripe for a merger or aquisition !

    [Reply]

    Posted by Peter | September 13, 2009, 12:57 pm