Friday, October 4, 2013

Oil & Gas -- The Next Bakken?

On September 24, a friend forwarded an article to me, an article written by John Mauldin, but it was really a promotion for Casey Research.

And here's where some of you roll your eyes and say, "Oh, here we go." 

 Shaddup!  And don't paint with too broad a brush. Casey's Jeff Clark is always a good read, for example. I value his opinion. 

Some of the other Casey guys, well ...

Anyway, this article was titled: "A way to participate in the NEXT Bakken?" And a snippet of it reads ...


 " ... entrepreneurs armed with breakthrough drilling technologies solved the geological puzzle of the Bakken's "tight rock," and in so doing unlocked billions of barrels of oil.
As you can imagine, in the process a lot of folks have made a lot of money. Which brings me to my reason for writing.
The energy team working for my friends at Casey Research firmly believe they have identified a relatively unknown company sitting on top of what could be the "Next Bakken"-a massive oil formation with every bit as much potential as the original."


There's more, but you get the gist.

Since I write about energy and the Bakken, my friend wanted my opinion. 

Here's what I wrote to her ...

I can't know for sure, but dollars will get you chocolate-glazed donuts that Mr. Maudlin is talking about the Illinois Basin. Why? Because it's the only American oil basis without a horizontal oil play (yet). And it sits smack dab over the New Albany Shale. It looks very similar to the Bakken, and it’s almost in the middle of the country.

Here's a nice chart showing the Illinois Basin's extent.


But what company would Mr. Maudlin and the Casey Research Team be talking about, eh? 

If your targets are micro-caps, the obvious choice would be Strata-X (SXE on the TSX-V). It has a market cap of $60 million -- very small, but do-able. And it has 123.9 million shares outstanding. Insiders own 22% of the company (usually the more insider ownership the better for these small companies, because the stock is in "strong hands"). Company chairman Ron Prefontaine has a track record of success -- he sold his last two companies for a combined $4 billion.

The unfortunate thing is that it's already getting some buzz disproportionate to its small size. That makes its chart look like this ...(updated chart)


Holy stock-spike, Batman, look at that chart in the last week! Why, it's almost as if someone been buying the stock in advance of Mr. Mauldin's article. 

Whaaaaaa?

OR, it could be the fact that Strata has 48,000 acres in the Illinois Basin. They paid 1/5 the price that acreage is going for now.
Strata is drilling their first well in Illinois right now.  Speculators expect them to hit paydirt. "And then," the sharp-eyed folks will tell you, confidentially, "this stock could easily double!" Except it already doubled. Damn ... damn, damn, damn.

But wait a minute.  Strata could more than double, if Rex Energy is a guide.

Who?

Rex Energy is the OTHER company working in the Illinois Basin.  It only has 33,000 acres compared to Strata's 48,000. BUT it has a market cap of $1.2 billion, only 52.56 million shares outstanding, and its earnings should climb 80% over the next year.  Oh, and the company just drilled its first horizontal well in the Illinois. That well, owned by Rex Energy has an IP30 (the first 30 days' initial production) of 222 barrels of oil per day. That well produced a peak IP of 367 bpd. The day that news came out, Rexx's stock jumped over $1 a share.


Oh, and Rex is listed on the Nasdaq, so it's much easier to buy.
(updated chart)


Yeah, the trend in Rex is pretty obvious.

Rex is very busy in the Utica shale, and other plays in the Northeast,including "super-rich" Marcellus and Devonian plays. Rex has grown its reserve base to over 100 MMboe and its liquids portfolio makes up 40% of that. Rex is considered a liquids producer, not a gas producer. In Q2, it produced a record production of oil and natural gas liquids (NGLs).

All this helped Rex beat earnings estimates (by a penny) in the most recent quarter. 

There are other Illinois Basin plays. But I'd avoid the OTC stocks that no one should waste their time with. Ha, look at me say that and they will turn out to be winners. 


Personally, I think Rex Energy is the one I would go with.  I also like Gastar (GST). I would buy either one on a pullback.

These are not official recommendations.  I'm not your investment advisor. You are in charge of your own investing destiny.


UPDATE:  Tommy alerts me that the stock Mauldin was talking about was PRD Energy (PRD on the TSX-V), which ... well, you might want to think hard before you buy it at present prices.  I still like REXX.

4 comments:

  1. Mauldin has got every single economic story of the last 5 years wrong. Even Ritholtz seems to have cut him loose now.

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  2. With any wilcat driller it is probably best to wait and buy if the first well is successful than to buy now on spec. I would rather pay more later on results.

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  3. it was a great blog hope one day you will write about prodigy oil and gas

    ReplyDelete
  4. Sir
    It is a great blog with lots of information, I want to know something about Prodigy Oil and Gas company can you write some thing about it because i am really in need of it , i am going to invest on their company and i want to be sure how they are going and and if they have any problem. please write me something or write a article about this company and its CEO Mr,Shawn Bartholomae.
    Thank you

    ReplyDelete