Delta Petroleum (Nasdaq:DPTR) is an oil and gas exploration and production company with a large inventory of acreage. The company has both developmental and exploration potential, and may be a good fit for investors tired of the shale gas story, and who are looking for an atypical energy investment. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)
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Delta Petroleum is also one of the few energy stocks that have not participated in the recent rally in the market, and the stock has been essentially flat since May 2009.

Columbia River Basin
Delta Petroleum has 422,000 net acres under lease in the Columbia River Basin in Washington. This acreage is exploratory, and the company is in a joint venture with Husky Energy (TSE:HSE) here.

This basin is not a very well-known area for exploration and production, even in the industry. However, several companies drilled wells here years ago and Delta Petroleum is encouraged by the results and its own research to explore this area further. Royal Dutch Shell (NYSE:RDS.A) drilled at least two wells here in the 1980s, and EnCana (NYSE:ECA) just completed a three well test program here. The basin is considered a non-core area for Encana, and no further exploration is planned at this time. However, the company did note during its recent quarter that "there remains potential for large natural gas accumulations in the basin."

The company is currently drilling and completing the Gray 31-23 well in the Columbia River Basin and results are expected during the third quarter of 2009.

Delta's Other Projects
Delta Petroleum is also building an acreage position in the Haynesville Shale in North Louisiana and East Texas, where the company has 12,500 acres under lease.

Delta Petroleum's developmental inventory is located mostly in the Piceance Basin in Colorado, where the company believes it has as many as 2500 net locations to drill.

Delta Petroleum has grown production in the Piceance from less than 5 million cubic feet per day in January 2007, to approximately 55 million cubic feet per day in January 2009. Delta Petroleum already has 820 Bcf of proved natural gas reserves and plans to convert 1.6 TCF from the probable to the proved reserves category.

Delta Petroleum has increased efficiency as well in its operated acreage in the Piceance Basin. Over the last four years in the Vega project, it has lowered its time to drill from 21 to 10 days, and its completion costs from $1.7 million to $800,000 per well.

Possible Risks
Investors should be aware that Delta Petroleum has been the target of shareholder activists for the last few years. Tracinda Corporation, the entity run by Kirk Kerkorian, is a major shareholder, and owned 34% of the company as of May 2009. If Tracinda decided to liquidate its position, it would lead to heavy selling pressure on the stock.

Steinberg Asset Management, LLC is also listed as large shareholder, with 43% of the shares outstanding.

Bottom Line
Delta Petroleum seems to be left behind by the market due to a complicated set of reasons. The company doesn't fit the model of the typical exploration and production company that has large repeatable developmental shale acreage, and its shareholder concentration may be a concern to some.

It does, however, have a high impact exploration play where the company is clearly a first mover, something that will benefit shareholders if the company is correct about its potential.

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Tickers in this Article: DPTR, RDS.A, ECA, HSE

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