Everybody watches, talks about and makes predictions about oil prices. And like the weather, the reality of what actually happens often puzzles if not outright embarrasses the experts and their elaborate models. Whiting Petroleum (NYSE:WLL) offers a relatively simple equation for investors - if investors think oil prices will rise, or at least stay consistently high, this is a good stock to own for its production growth and undeveloped resource base.

TUTORIAL: Commodity Investing 101

A Disappointing First Quarter
Investors may get a chance to buy Whiting shares a little cheaper now after the first quarter, as the Street seems relatively unimpressed with the results. Revenue growth was solid at 23%, but the company's price realizations, production details and exploration costs delivered a below-expectation bottom line result.

Production was mixed in the first quarter, up 10% (on a barrels per day basis) from last year, but down 3% sequentially. Bad weather in North Dakota hurt production, while a higher percentage of natural gas liquids (NGL) impacted the overall price realizations in an unfavorable way. (For more, see Oil And Gas Industry Primer.)

Costs were also higher this time around. Whiting engages in some relatively sophisticated operations with service providers like Baker Hughes (NYSE:BHI) and those technologies don't come for free. Per-barrel cash costs rose about 13%, though depreciation and depletion (DDA) costs were relatively flat on the same basis.

Still in the Right Places
First quarter performance may disappoint the Street, but Whiting is still a leading player in the Bakken Three Forks area. What's more, the company still has meaningful potential from its Lewis & Clark acreage (in the Bakken) and the Delaware Basin in West Texas.

With one of the most active drilling programs in North Dakota (alongside other energy companies like Continental Resources (NYSE:CLR) and Hess (NYSE:HES)), Whiting should be looking at solid production growth for some time to come. What's more, Whiting is producing the "right" kind of petroleum, as over 80% of its output is oil and NGL. While natural gas prices have certainly firmed, oil is still the petroleum that is in highest demand and any plans for a major switch to natural gas in this country will likely take at least a decade. (For more, see Continental Resources And The Bakken.)

Good Luck Finding "Fair" Value
Right now Whiting trades at an EV-resource basis of $30.75 per barrel, and that looks pretty appealing when you consider that the prevailing price of oil is nearly $113 per barrel and a rival like Continental trades at $34.30 per barrel. But then there is Apache (NYSE:APA) trading at a valuation of only $19 per barrel and Anadarko (NYSE:APC) at $21.30.

So what's the right price?

Looking just at the oil in the ground can be misleading. Not only might reserve estimates be wrong (and reserves change up and down with energy prices), but there is a big difference in the cost of recovering those assets - a company like Apache, for instance, operates a lot of offshore platforms and that is a higher-cost/higher-risk proposition.

What's more, the known oil in the ground is only a relatively small part of the value for small growing energy companies like Whiting. Consider a company like Credo Petroleum (Nadsaq:CRED) - it too trades at a valuation of nearly $32 per barrel, and has a relatively low amount of proven reserves. What Credo (and Whiting) does have, though, is acreage and active drilling programs and those will presumably lead to larger reserve bases in the coming years.

Looking at a net asset value calculation for Whiting, more than half of the company's value would seem to be unbooked resources (also called "risked potential"), but there is a great deal of guesswork that goes into that calculation. Thus far, Whiting has rewarded investors' confidence and faith with successful drilling and organic reserve growth and if that continues, investors will continue to pay up for Whiting's future prospects. (For more, see Massive Bakken Push In 2011.)

The Bottom Line
It should considered a given that a successful energy investment is predicated on energy prices staying at a high level (or going higher). Companies like Whiting, Credo and Brigham Exploration (Nasdaq:BEXP) are aggressive plays on resource and reserve growth. Investors looking for less risk in the energy patch should consider a name like Anadarko or Apache where there is less upside in future discoveries, but a much larger amount of future production already "in hand".

Given Whiting's oil-heavy profile, solid growth and relative valuation (trading at less than 7x forward EBITDA), this is a good name to consider for more aggressive energy investors. (For related reading, check out How Much Oil Is In The Bakken?)

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