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In a previous article, we talked about the U.S. oil boom and why it's not lowering prices at the pump for drivers. But some companies are making good money off the oil in the Williston Basin, and it's not too late for investors to get in on the action, either. Here's a quick look at two of the top producers in the Bakken shale, and one smaller company with huge potential.
1. Continental Resources (NYSE: CLR )
When it comes to land leases and oil production in the Williston Basin, Continental Resources is top dog. The company owns about 1 million new acres of land in the Bakken shale and produces more than 100,000 barrels of oil equivalent (BOE) per day. To put this in perspective, the third largest land holder, Whiting Petroleum (NYSE: WLL ) , has 700,000 net acres in the Bakken and produces a little over 80,000 BOE/day. Continental is increasing the amount of wells in the Bakken to 262 in 2013. The company's Q3 production was up 55% year over year and is planning a 35% increase in production in 2013, compared with 2012. The company is decreasing the all-important well costs from about $9.2 million currently, to about $8.2 million by the close of 2013.
Although there's always room for error, analysts expect Continental's earnings to grow about 26% each year for the next few years. In Q3 the company's earnings before EBITDAX were at $492 million -- 46% higher than the same time last year and 12% higher than Q2.
2. Hess (NYSE: HES )
Hess is another large player in the Bakken shale boom. The company holds about 900,000 net acres, produces about 100,000 BOE per day, and has the second largest number of active rigs. The company has one of the highest drilling times, along with QEP Resources (NYSE: QEP ) , which has served Hess well. Hess' oil production skyrocketed by 94% year over year in Q3 in the Bakken. The company is in the midst of switching to more efficient drilling techniques, which will hurt production until mid-2013, but expects the switch to increase oil production in the late 2013. It's also reduced well costs from $13.4 million in Q1 2012 to $9.5 million in Q3. Hess will move into higher-yielding areas of the Bakken play in 2013, with estimated ultimate recovery (EUR) averages for the wells to hit 600,000 to 700,000.
Adjusted earnings from the latest quarter were $495 million, compared with $379 million in the third quarter of 2011. Hess' earnings per share are expected to grow about 4% annually over the next five years, which isn't as good as Continental's growth, but keep in mind Hess' earnings doubled in Q3. The company has some of the best wells in the Williston Basin and is expected to increase production to about 120,000 BOE/day in 2013, so Hess is still poised for growth in the Bakken.
3. Kodiak Oil & Gas (NYSE: KOG )
One of the small but growing players in the Williston Basin is Kodiak Oil & Gas. The company has more than tripled its land holdings since 2010, much of it in the oil-rich Bakken area. The company has expanded sales to about 15,885 barrels of oil equivalent (BOE) a day, which is up over 300% from 2011. Last quarter's revenue spiked 280%, to $112.1 million year over year. Kodiak has significantly decreased its well costs from about $12 million earlier in 2012 to $10.5 million currently. Lower well costs mean the company can make more profits from each well, which adds money to the bottom line. Kodiak increased the number of wells in the Bakken this past year and will increase its oil production in Q4 and into 2013. Kodiak increased oil and gas sales to $112.1 million in Q3, a 280% increase. The company also had an adjusted EBITDA of $89.1 million, compared with $20 million the same time last year.
One area to really watch with Kodiak is to see if it can maintain the cash it needs to continue growing. The Williston Basin is an expensive area to drill in, so Kodiak has decreased the costs of maintaining and operating its leasing property and equipment, and it has cut the amount of drilling days. The company has also recently received a line of credit that will help fund its growth of the next few years. Investors should continue to keep an eye on Kodiak's efforts to increase efficiency, as well as their capital expenditures.
The entire Bakken shale has years, possibly decades, worth of profits flowing from it. So jumping in with any one of these companies doesn't seem to have a downside. I like Continental's position as the biggest land holder and the biggest oil producer in the Bakken. You can easily have one and not the other, so the company is doing something right. But oil prices can be volatile, so all of these companies will need to keep their well expenses under control and improve efficiencies any way they can.