Bakken Shale Benefits From Natural Gas Fears

By Eric Fox | April 06, 2010 AAA

The Bakken Shale has started to get even more attention from investors as the market displays a pronounced tilt toward companies that are exposed to oil-oriented basins due to the weakness in natural gas prices.

IN PICTURES: 7 Forehead-Slapping Stock Blunders

Going Public
Oasis Petroleum is an exploration and production company with nearly 300,000 net acres under lease in the Williston Basin, and with some prospective for the Three Forks and Bakken formations.

The company is planning an initial public offering (IPO), hoping perhaps to take advantage of investor enthusiasm towards exploration and production companies that have production and reserves weighted more toward oil. Oasis Petroleum hopes to raise as much as $350 million in the offering.

Oasis Petroleum is currently backed by EnCap Investments L.P., a private equity firm with dozens of investments in private oil and gas companies.

Production and Reserves
Oasis Petroleum has proved reserves of 13.3 million barrels of oil equivalent (BOE) as of 12/31/2009. This reserve base is 93% oil, split about evenly among three areas: the Western part of the Williston Basin, the East Neeson Anticline and the Sanish Formation.

Oasis Petroleum currently produces just over 3,000 BOE per day, almost all of it from its Williston Basin properties. Oasis Petroleum has allocated $220 million in capital to develop its acreage in 2010, targeting mostly the Bakken Shale. The company will use $179 million of this to drill 91 gross and 31 net wells during the year.

Although Oasis Petroleum is new to the public markets, the company was founded several years back by an experienced management team at Burlington Resources, a large independent exploration and production company that was purchased by Conoco Phillips (NYSE:COP) in 2006.

Investors that might want a more established company in the Bakken might take a look at Whiting Petroleum (NYSE:WLL), which has more than 88,000 net acres in the Williston Basin.

Continental Resources, Inc. (NYSE: CLR) is a major operator in the Williston Basin and was one of the first exploration and production companies to take the position that the Three Forks and Middle Bakken zones were separate formations.

The company provided additional evidence of this when it released the results of the Bice 2-29H well. This well was drilled and completed to the Middle Bakken formation, about 600 feet above the Bice 1-29H, a Three Forks well drilled in 2008.

Continental Resources, Inc. said that the Middle Bakken well produced at a higher rate than the earlier and lower Bice 1-29H, and had no pressure depletion.

Bottom Line
The Bakken Shale and other "oily" basins are getting more play as investors worry about the falling price of natural gas, and back away from companies that are oriented toward this formerly favored commodity. Investors seeking to take a broad bull position in oil should consider such exchange-traded funds as the United States Oil Fund (NYSE: USO). (For further reading, check out What Determines Oil Prices?)

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