How to Invest in the Bakken Shale Oil Boom in 2014

Source: Kodiak Oil & Gas. 

North Dakota's Bakken Shale is producing an incredible amount of oil. According to the U.S. Energy Information Administration, daily oil production should hit an average of more than 1 million barrels of oil this month. Production is only expected to keep growing from there. That leaves plenty of room for profitable growth for top Bakken Shale producers. Here are two great ways to invest in that boom.

Purely Bakken Shale
For investors looking for a pure play on the Bakken Shale, the best two opportunities are Kodiak Oil & Gas (NYSE: KOG  ) and Oasis Petroleum (NYSE: OAS  ) . Both are entirely focused on growing oil production out of the region.

Kodiak Oil & Gas is the smaller of the two, with 192,000 net acres leased that are prospective for the Bakken Shale and lesser-known Three Forks formation. The company currently produces about 30,000 barrels of oil equivalent per day and is spending about $1 billion per year to grow its position in this top oil play. Kodiak in recent years has grown both its oil production and its proved oil and gas reserves by a triple-digit annual rate. While its growing size and scale will make it tough to keep growing at that rapid pace, investors can still expect very solid growth from Kodiak Oil & Gas in the years to come.

Oasis Petroleum, on the other hand, has a much larger land position at 492,000 net acres, making it a top pure play for the Bakken Shale. The company is expected to produce roughly 46,000 barrels of oil per day this quarter, and like Kodiak Oil & Gas it's spending about $1 billion per year to grow operations in the region. The biggest difference between the two is that Oasis Petroleum can drill its Bakken Shale wells for less money as it has its own well services business that keeps costs down and it doesn't use 100% ceramic proppants.

The Bakken Shale and beyond
The safer way to play the Bakken Shale oil boom in 2014 is to go with a more diversified producer. Two top companies to consider here are Continental Resources (NYSE: CLR  ) and Whiting Petroleum (NYSE: WLL  ) . Both have top positions in the Bakken Shale, but are less risky investments thanks to diversification into other plays.

Continental Resources is the clear king of the Bakken Shale. It is the top lease-holder in the play, with 1.2 million net acres. It's one of the top producers in the play at 94,500 barrels of oil equivalent per day, and is spending twice as much as Kodiak Oil & Gas and Oasis Petroleum to grow in the Bakken Shale and Three Forks. However, it also has an emerging position in the SCOOP oil play of Oklahoma, which is getting 25% of the company's 2014 capital budget. That makes Continental Resources a great investment for both the Bakken Shale and beyond.

The final name investors will want to watch for 2014 is Whiting Petroleum. It's already one of the top producers in the Bakken Shale and has nearly 730,000 net acres to develop. While Whiting Petroleum is working hard to keep growing in the Bakken it is also looking for the next phase of growth, which appears to be Colorado's Niobrara. Whiting Petroleum already announced plans to accelerate development of its Redtail prospect in the Niobrara as it looks to profit from the next stage of America's oil boom.

Investor takeaway
Investors looking for pure Bakken Shale upside have two very good options in Kodiak Oil & Gas or Oasis Petroleum. If, on the other hand, an investor wants the Bakken with less risk, Continental Resources or Whiting Petroleum are solid options. With oil production expected to average more than 1 million barrels per day in the year ahead, with solid growth on top of that, this great American oil field is a great place to invest in 2014.

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Read/Post Comments (5) | Recommend This Article (12)

Comments from our Foolish Readers

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 December 17, 2013, at 2:15 PM, will1946 wrote:

    Good, clear, no nonsense article.

  • Report this Comment On December 19, 2013, at 6:53 PM, oxboro wrote:

    What about NOG it has 187,000 acres .

  • Report this Comment On December 19, 2013, at 9:53 PM, cummingsr wrote:

    It is a well written article, but it leaves untouched the question of suppy/demand for all of the new oil being extracted in these shale plays. Consider natural gas. The early movers there were succussful beyond all expectations, but we were soon overwhelmed with new supply..........more than the market could absorb right away. So the price plummeted below their cost of exploration and production. Only now are those heavy early investors in gas getting back to a break even.

    Could we see a similar experience in shale oil? Especially if our foolish politicians make exports of U.S. oil difficult?? It is a risk.

  • Report this Comment On December 19, 2013, at 11:24 PM, lwbaum wrote:

    The above comment makes a good point. But liquid is easier to transport by sea than gas, thus a glut in the US could be exported. Therefore, oil price depends more on the worldwide supply-demand balance than does the gas price.

    A worldwide oil glut might develop if shale oil booms in many countries. Once the technology is developed in one place (the U.S.), I'd expect it to spread worldwide within a few years. But availability of shale oil deposits and public acceptance of fracking may be limiting factors. An article projecting the worldwide rate of development of shale oil would be interesting.

  • Report this Comment On December 22, 2013, at 9:23 AM, TMFmd19 wrote:

    @oxboro - I covered NOG in a separate article: http://www.fool.com/investing/general/2013/12/15/1-unique-wa...

    @cummingsr - Lower oil prices are certainly a risk. However, we still do import 1/2 of our oil needs and oil-by-rail has really helped with pushing oil to the coasts to offset imports.

    Matt

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