Looking for a play on oil right now? No, no one else is either — but perhaps that means it’s a good time to take a little gander. Oil prices have been falling since June thanks to a glut of supply that’s been so substantial, with rapidly increasing US production and boosts from Libya and Iraq, among others, that we’re not even all that scared about airstrikes in Syria anymore.

But still, lots of companies can make plenty of money with oil at $90… and jumpy investors are always looking for the next growing oil producer, since a business where you can just pump stuff out of the ground and sell it is a pretty damn good business when you have good ground to start with. So if you’re interested in a US oil stock, let’s dig in to the latest teaser pitch from Robert Rapier at the Energy Strategist and see what he’s recommending.

The lead-in to the ad pretty much tells the story…

“Phase 2 of the Bakken Bonanza Is Underway

“My Top Recommendation Boasts 85,000 Prime Acres in the Core of the Phase 2 Bakken. Plus, a ‘Secret Weapon’ Who Is Guiding Them to Eye-Popping Recovery Rates….

“U.S. GEOLOGICAL SERVICE DOUBLES PROJECTIONS FOR BAKKEN-THREE FORKS RECOVERABLE CRUDE OIL; ESTIMATES
JUMP TO 7.4 BILLION BARRELS (Associated Press)

“Take it to the bank—Phase 2 of the Bakken-Three Forks phenomenon is about to create a new generation of shale-oil millionaires.”

So… yes, the USGS did double their estimate of the Bakken-Three Forks potential to 7.4 billion barrels (plus more natural gas and natural gas liquids), but that was about a year and a half ago (summarized in this Reuters article, just FYI). Much of that increase comes from adding the Three Forks formation to the Bakken as one contiguous “field” — the Three Forks is below the Bakken shale layer, and it extends further in some directions but has been studied less closely than the “core” Bakken so far.

So which company is Rapier teasing for his fairly pricey newsletter? (FYI, it’s $297/year at their “discount price”, or $508 a year if you foolishly opt to pay quarterly… and unlike most, they’ll renew you at whatever the current rate is in the future instead of locking in today’s price — which, as I read it, would mean $297 this year and then, surprise!, $597 next year when your subscription automatically renews).

We do get some more clues, after a brief soliloquy comparing the Bakken shale to an Oreo cookie:

“This Hidden Gem wields a ‘secret weapon.’ He’s a maestro of the complex art of geo-steering drill bits through two miles of rocky shale—and then following them with uncanny accuracy to the oil-laden ‘creamy center’ of the Bakken cookie as it undulates beneath the surface of the Earth.

“As I write, this driller is producing stunning recovery rates that are the talk of the Bakken region—even drawing comparisons in some holdings to the rates of Bakken oil giants like Continental’s double-digit return and EOG Resources’ triple-digit return.”

Who is this “maestro?” More about him from the ad:

“On the rolling plains of western North Dakota, near a couple of specks on the map named Killdeer and Grassy Butte, there’s an artist at work.

“In a nutshell, this fellow is a well-driller extraordinaire.

“When speaking of him, admiring colleagues are inclined to say he has a “particular expertise” in one of the most exacting professions on planet Earth—geo-steering a drill bit to the sweet spot of a shale formation.

“With over 20 years of field experience, he’s explored in 17 separate petroleum provinces throughout the U.S. and Canada. His technical expertise includes directional horizontal drilling, working with complex carbonate depositional systems, stacked plays and unconventional oil and gas shale.”

And a few more clues and enticements that we can feed to the Thinkolator:

“Guided by its geo-steering maestro, my top pick continues to impress with unexpectedly robust recovery rates in McKenzie Country, the heart of the Bakken-Three Forks.

“Production jumped 80% last year. It was forecast to double this year, but management just announced it’s raising that expectation on the strength of positive recent trends….

“It’s drilled just 17 wells to date, but it’s delivering very impressive production rates (3,550 barrels of oil equivalent per day, or boe/d), suggesting its acreage remains undervalued, perhaps dramatically.

“Its 85,000 Bakken acres harbor an estimated 435 potential drilling locations, enough to keep its rigs busy for the next decade….

“My top recommendation employs a fracking process using much fewer chemicals and sand. Even better, the company has used the process skillfully and actually increased production by a few percentage points.”

Are you getting our free Daily Update
"reveal" emails? If not,
just click here...

So who is it? Well, I threw those few clues into the blender, made a nice slurry, then poured it straight into the hopper of the Mighty, Mighty Thinkolator… and the answer came out pretty quick for us, this is: Emerald Oil (EOX)

Emerald Oil has been growing production very rapidly over the past year, and has been selling off non-core and non-operated assets to focus more on their core production areas (where they’ve also recently added some acreage). The teaser clues are an exact match for what the company was saying a few months ago, following their first quarter of 2014, though the numbers have improved since then (you can see their latest investor presentation, from August, here). From what I can tell, the “maestro” they talk about is Karl Osterbuhr, who has a nice resume — I have no idea whether he’s really a “rig whisperer” or not, but their production has been slightly better than anticipated from their horizontal wells.

Estimates have been rising, which is usually a good sign, but the stock has fallen a good 25% in just the last month or so — don’t know if it’s just because they’ve been investing in new acreage at a time when oil prices are falling, or if there are other skeletons in the closet that I didn’t run across.

Like most oil companies, they are probably getting a bit of a premium price for their proven and anticipated production growth, and perhaps for the fact that they’ve become more focused and have been cutting costs a bit — their proved reserves are valued, using PV-10 (just a discounted estimate of total future cash flows from those reserves) at $289 million, and the market cap is about $450 million. That’s not shocking, a lot of oil companies are priced at a stiff premium to their PV-10, particularly if there’s some visible growth and potential to increase their reserves — which is the goal of most natural resources firms eventually, but not always a driving force every year (if you have more than several years of drilling locations planned out on your reserves, identifying new reserves is not necessarily the highest priority until you need to get more financing).

And, also like most oil companies, I don’t really know what it should be worth. They are growing fast, but they did finance a lot of that growth with an increased share count — so production tripled from 2013 to 2014 so far, but the share count and operating expenses doubled so it doesn’t necessarily show that huge a move on the per-share cash flow or earnings. Analysts are estimating that they will earn about 30 cents per share this year and almost double that next year, so there is some consensus that they are getting the scale and production growth that can finally generate real earnings growth — assuming that oil prices stay reasonable for them and that they stay on track with their production growth.

If those analysts are correct, that means you’re paying about 20X current year earnings and about 10X 2015 earnings, so that sounds relatively appealing but it doesn’t leap off the page as being ridiculously cheap — as I hope I’ve made clear, I’m no expert on the hundreds of similarly-sized oil companies, so I’ll leave it to those of you who delight in analyzing oil stocks to let us know whether you think Emerald is worth buying for their Bakken growth — just chime right in with a comment below. Myron Martin, who has covered natural resources stocks for us in the past, has mentioned Emerald as a stock he owned earlier in the year but I don’t know if he owns it presently.

P.S. There’s a second “Emerald” you might run across, too, if you’re researching this stock — Emerald Oil & Gas, listed in Australia (EMR.AX), is now an entirely different company (a teeny penny stock, at this point) focused on a gas project in Kentucky… but it used to have some U.S. shale oil assets that were teased by Diggers and Drillers several years ago. Emerald Oil (EOX) is the US company being teased here, it was actually partly created by the merger of some of those Emerald Oil & Gas shale assets into a company called Voyager Oil & Gas, which then changed its name and became the currently teased Emerald Oil (EOX) in the Summer of 2012.