Despite Mother Nature, the Bakken Oil Boom Continues

North Dakota's oil and gas production hit a new all-time high this past May according to recently released data from North Dakota's Industrial Commission. Preliminary estimates indicate that oil production reached 810,129 barrels of oil per day, which is up from the previous record of 793,852 set the prior month. Natural gas production in the state also rose from 861.1 MMcf/d in April to 899.9 MMcfe/d in May. This is great news for the region's producers, which have battled through rough weather all year, but were still able to produce record amounts of oil.

Bakken oil well. Source: Newfield Exploration

This news bodes particularly well for Bakken-focused producers like Continental Resources  (NYSE: CLR  )  and Kodiak Oil & Gas  (NYSE: KOG  ) . Continental has one of the largest positions in the play, with 1.2 million net acres as of the end of last quarter. It's also the largest producer and driller, likely making it one of the driving forces behind May's record results. This means that Continental could produce exceptional quarterly results when it reports earnings on Aug 7.

While not as large as Continental, Kodiak has been growing its presence in the Bakken rather aggressively, which makes it a company to watch. The company just closed a $660-million acquisition of Bakken properties, which, when combined with its organic growth, will enable Kodiak to more than double its daily oil production this year. However, the one rub against Kodiak is that its well costs are high relative to its peers. It has been also working hard to get those well costs down, and it has focused on reducing the average drilling days per well to save money.

One of the biggest problems this year in keeping average drilling days at bay has been the weather. There have been load restrictions in place, as May was one of the wettest on record for North Dakota. Further, April was challenged by heavy snow, which blocked more than 80% of the state's highways. Setting new records in spite of these weather challenges is reason for the industry to celebrate. However, the weather could have had an impact on Kodiak's well costs, which is something to watch when it reports on Aug 1.

Oil and gas producers face many risks, with weather being one that could really impact a company's results if it's focused on just one play. This is where a producer like Newfield Exploration  (NYSE: NFX  ) , for example, can have a leg up on more focused producers. Newfield, which operates in four major U.S. basins, including the Bakken, can move its capital around if it runs into issues with the weather or prices. The plan this year is to spend about 16% of its capex budget on the Bakken, which will produce 25% oil production growth year over year. The flexibility of working in multiple basins has enabled Newfield to work around weather and infrastructure challenges in the Bakken to grow its overall oil and natural gas liquids production by 39% this year.

Looking further afield, the rough weather this spring could still signal problems for others in the industry, particularly oil-field service companies. One company to watch here is Nuverra Environmental Solutions  (NYSE: NES  ) , which had its first quarter report affected by the weather. In fact, "unusually harsh" conditions at its Bakken operations cost the company 13 days of work, or about 15% of the quarter, according to CEO Mark Johnsrud. Overall, weather caused the company to miss revenue estimates by 4.4%, which has weighed on it stock ever since that report. Another weather-related miss could really sink this stock. 

The key takeaway, though, is that oil production in the Bakken continues to rise despite issues with the weather. This should drive top-line results at both Kodiak and Continental, especially when considering oil prices are heading higher, while the region's infrastructure issues have been abating. That means both companies could be setting up to beat Wall Street expectations this quarter.

While the Bakken is booming, weather and pipeline issues have made it a tough area to operate. Energy investors instead might want to look for a more-diversified way to play America's energy boom. The good news here is that The Motley Fool's analysts have uncovered  a leading provider of equipment and components used by drilling and production operations, positioning the company to profit from this energy boom in a big way. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free report, "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 19, 2013, at 4:22 PM, Wcannon3 wrote:

    It is hard to believe that the author -Matt DiLallo is long NES ...most every time he makes comments on NES they are negative...would like to see his position sheet...

    I am long NES

  • Report this Comment On July 21, 2013, at 1:59 PM, TMFmd19 wrote:

    Considering the risks isn't negative. For example, saying "Another weather-related miss could really sink this stock." doesn't mean I'd agree with the stock's price sinking, just pointing out that it could be an issue this coming quarter.

    My trades on the company are public: http://www.fool.com/investing/general/2013/04/10/why-i-bough... (written puts referenced in the article were eventually assigned).

    Best,

    Matt

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