“America’s New Oil Haven — 3X Bigger Than Texas”

by Travis Johnson, Stock Gumshoe | June 9, 2010 11:11 am

The latest ad from the Oxford Club[1] has been rolling in on Gumshoe Beach in mighty waves, so let’s jump right on it before our loungers are submerged … it’s all about oil[2], as you might have guessed from the headline, and it’s all about a huge oil field that’s “buried beneath the midwestern prairies.”

Here’s how the pitch opens:

“Buried Beneath The Midwestern Prairies… Sits The Biggest U.S. Discovery In 40 Years… Investors Who Get In Now Are Poised To Make 13,594% Gains…

“‘The biggest oil-field discovery in the U.S. in 40 years.’ — The Wall Street Journal

“It’s not just the new Texas…

“It’s 3-times bigger.

“In short, there’s a spectacular reserve bubbling beneath the midwestern prairies that has the potential to finally end America’s addiction to foreign oil.”

And just to make sure we didn’t get the picture, they even go so far as to write about a few of the North Dakotans who’ve got extraordinarily wealthy over the past few years thanks to the value of the oil under their land — including the retiree who upgraded to an 11,000 square foot mansion that boasts orange shag carpeting.

I’ll leave that without further comment.

So yes, for long-time Stock Gumshoe readers this will all be very clear — but just in case it isn’t, they’re talking about the Bakken[3] formation and about the Williston Basin, a huge shale-trapped oil field that lies deep beneath parts of North Dakota, South Dakota, Montana and the Canadian prairie provinces.

The Williston basin has been big news for investors for a couple years now, with a big boom in 2008 as oil hit new highs and horizontal drilling and “fracking[4]” achieved continually better results, then a huge collapse as many of the little explorers up there felt financial pressures with the credit crunch and the collapse in oil prices over the Winter of 2008/2009 … and since then, the recovery has been strong in pretty much all the Bakken/Williston drillers I know of.

So that’s the broad theme of the investment that the Oxford Club folks are spinning — and, as you might suspect, they have a few specific stocks they think you should buy. They’ll tell you what they are for the favor of a subscription to their newsletter, of course … but that’s why we’re here, to see if we can’t figure them out ourselves from the clues, and maybe even chat about ’em a little bit.

So I’ll leave the big theme arguments behind here — yes, this is the biggest oil field discovery in decades, yes, it’s a huge area, yes, landowners are getting rich, and yes, there may be as much as four billion barrels of oil coming out of this basin in the decades to come. So there will be money made, assuming that we keep burning oil.

But which of the dozens of explorers, producers and drillers should we buy if we want to get some leverage[5] to the Williston boom? The clues, please …

“Williston Basin Riches Play #1

“Aggressive land acquirer sitting on prime oil-rich real estate[6]

“This tiny company is one of the fastest growing gas and oil exploration and production companies in the Midwest.

“Through aggressive acreage acquisition it now controls 80,000 mineral acres in Williston Basin.

“Its production has increased nine consecutive quarters and there’s no sign it’s slowing down.

“It has a staggering 100% drilling success rate in the region… and has only drilled about 14% of it’s land.”

This one must be Northern Oil & Gas (NOG — click here for the free trend analysis on NOG from Marketclub, one of my advertising partners[7]), one of the young and aggressive Williston stocks that really bounced around for the first year or two of the Bakken craze — but they have settled down a bit, they trade at a forward PE of just 13, and they do have that 100% success rate and about 80,000 acres of mineral rights. You can see their basic info in their latest announcement, in which they upgraded their guidance.[8]

I’ve always been a little cautious about NOG, because they came across as hedge fund cowboys a couple years ago when I first started hearing about them (they were part of a good Bloomberg[9] magazine article about the Bakken back in 2008 that’s worth a read for some background), but they’ve certainly been doing well and the shares are now back to near the Summer 2008 peak — they’ve seen both $15 and $2 over the last two years, so hold on tight.

“Williston Basin Riches Play #2

“Technology driven exploration company identifies 800 target-drilling locations!

“This exploration, development and production company uses “3-D seismic imaging” technology to pinpoint precisely where to drill next.

“Since 2005, it has acquired over 300,000 net acres in North Dakota and has identified over 800 target drilling locations.

“This innovator is working diligently to buy every piece of land it can. As it begins to bring the mother lode to market expect this stock to take-off.”

This one must be Brigham Exploration (BEXP — free trend analysis here[10]), one of the more talked-about Bakken names among my readers in recent years. Yes, they really do specialize in using advanced seismic imaging in their exploration, and they do use all the other new advances like ceramic proppants, etc. to maximize production and effectiveness.

And yes, according to their latest corporate presentation they’re now up to 305,400 acres of combined “core development” and “future potential development” acres in the Williston Basin, with a total of 811 potential development wells (both numbers are about half in the core acreage, half “potential”). You can see that corporate presentation here, updated this month for an investment conference [pdf file][11].

BEXP always seems like one of the more advanced and interesting Bakken plays, but that could in some part be because they’re better at explaining how advanced and “de-risked” they are in their drilling plans and investor presentations. They’re also one of the larger companies, with a market cap of $2 billion, and one of the longer-term players in this basin as they’ve been building their acreage since 2005 after years of exploration and production in South Texas and elsewhere. This one is more expensive than some, with a forward PE of 18 (and a trailing PE of almost 200, thanks in part to the tough year with low oil prices in early 2009). I don’t usually get too much into my personal opinions here on the free Stock Gumshoe site, but if I were to buy just one Williston Basin oil company right now it would probably be either the Canadian trust Enerplus (ERF)[12], which has much less exposure to the area, or BEXP (I don’t own any of these stocks, to be clear).

And there’s one more to get to as well, but I haven’t had a chance to read up on it yet — that goes on the pile for tomorrow, if you’ve got any thoughts to share on the Bakken/Williston oil plays, by all means, throw your comments in the ring by using the friendly little comment box below … thanks!

P.S. Brigham Exploration and Northern Oil and Gas were also both part of the “Bakken teaser” that the folks at the $20 Trillion Report[13] sent out aggressively last year, if you want to see some of the comments on that piece you can do so here… and another Williston play that’s been a favorite of some of my readers, Painted Pony Petroleum, was teased by Chuck de Castro[14] almost two years ago, you can see that older article here.

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