Although the exploration and production industry is gushing over the prospects of the Bakken formation as a large future source of domestic oil production, public companies that are leveraged to this play have not done well over the last few months, as investors fled to safer ground. This sell off was exacerbated by stock specific issues and accelerated by the investor stampede out of equities and into less risky asset classes.
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Another factor that has impacted these Bakken producers is the recent decline in oil prices due in part to recent fears on worldwide economic growth. Prices have declined from a peak near $112 a barrel at the beginning of May, 2011, to the current price of below $94 a barrel.
Northern Oil and Gas (NYSE:NOG) has lost 50% of its market value since March, 2011, after a report critical of the company's accounting methods was released into the media. The authors also questioned the company's management, valuation and auditing firm. Northern Oil and Gas has a different business model than most other public exploration and production companies, as the company does not operate its wells.
Whiting Petroleum (NYSE:WLL) is down nearly 30% from its recent high. The company missed earnings estimates when it reported results for the first quarter of 2011 as costs increased more than expected. In early June, 2011, Whiting Petroleum cut the company's production guidance for the second quarter of 2011 and full year, as severe weather and other issues forced a delay in completion operations in North Dakota.
In May, 2011, Brigham Exploration (Nasdaq:BEXP) reported an unrealized loss from hedging activities in the first quarter of 2011, as the company marked to market its derivatives position. The company later announced an acceleration in drilling activity in the Williston Basin as it moved to develop its Bakken and other properties quicker. Brigham Exploration also reported in early June, 2011, that the company's production for the second quarter of 2011 would be at the low end of its guidance range due to "the worst winter in 100 years", as well as recent rains and flooding. The stock is down 32% since April, 2011.
Kodiak Oil and Gas (NYSE:KOG) was next with the weather-related production disappointment, as it lowered its guidance range for 2011. The company originally forecasted daily production of around 5,500-6,500 BOE/D, but revised the forecast to 4,500-5,000. Kodiak Oil and Gas is off 28% from the peak price reached in March, 2011.
Although Continental Resources (NYSE:CLR) is a major Bakken player that hasn't cut its production guidance due to weather conditions, the stock may already reflect this reality as it is down 20% from the peak reached in early spring.
The Bottom Line
The Bakken formation in the Williston Basin might be ground zero in the search for domestic oil resources, but investors have sold these stocks off due to basin specific issues, the recent decline in oil prices as well as shifts in overall market sentiment. (Find out how the PPI can be used to gauge the overall health of the economy. See Predict Inflation With The Producer Price Index.)
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