Over the past year billionaire hedge fund manager John Paulson has been quietly accumulating positions in Bakken oil producers. 

As longtime readers know, the Bakken is an oil-rich area in North Dakota. Early estimates show this region could contain 7.4 billion barrels of undiscovered, technically recoverable oil, making it the largest continuous oil accumulation in America.
And the numbers coming out of the region are spectacular. Many of the area's big oil producers just reported blowout earnings from their drilling operations. Yet this could just be the beginning.
So how is Paulson playing the North Dakota oil boom? According to his firm's latest 13F filings, his firm's largest Bakken holding is Kodiak Oil and Gas (NYSE:KOG). Here are two reasons why Paulson might be bullish on the company. 

Great fundamentals
If I had one word to describe Kodiak's operating results it would be "incredible." Thanks to drilling techniques like hydraulic fracturing and horizontal drilling, millions of previously unrecoverable barrels are now being extracted from the Bakken. And over the past five years, the company has grown its production more than 100-fold to 29,200 barrels of oil equivalent per day. 

But this might just be the beginning. According to recent estimates from the United States Geological Survey, the Lower Three Forks could contain some 3.73 billion barrels of undiscovered, technically recoverable crude oil -- slightly larger than the Bakken field that lies above it. 

Industry operators are even more optimistic. "What [the Bakken] looks like in terms of recovery factor and recoverable reserves was about 24 billion barrels of oil," Continental Resources (NYSE:CLR) President and Chief Operating Officer Rick Bott told analysts at Barclays CEO Energy Conference last September. "But if you add the deep benches and depending on what recovery rates you use, those deeper benches could move the amount of oil in play to 32 billion to 45 billion barrels of oil." 

Kodiak is busy de-risking its own Lower Three Forks acreage. As those reserves get booked in upcoming quarters, it could be a hidden catalyst for the stock. 

But while production growth steals all of the headlines, investors are really only concerned about profitability. Fortunately at Kodiak, more of that top-line growth is trickling down to the bottom of the income statement. 

Over the past year, Kodiak's averaged well completion costs have fallen by $2.3 million to $8.7 million per well thanks to the transition to pad drilling as well as the falling cost of hydraulic fracturing services. When you multiply that figure across the 100 net wells the company is expected to drill this year, you get $230 million in annual cost savings. Solid performance on both the top and bottom line might allow the company to achieve cash flow breakeven in the New Year.

An acquisition candidate?
With a market capitalization of only $2.8 billion, Kodiak would also make an easily digestible acquisition for any company looking to beef up its Bakken position. The company owns 192,000 acres in the region, much of which is adjacent to growth-hungry oil majors. 

Statoil (NYSE:STO) would be a likely suitor. Earlier this month the company announced that it was in talks with the Norwegian government to dilute its stake in order to fund more acquisitions. And we know that the company was happy with its purchase of Bakken producer Brigham Exploration two years ago. Another Bakken acquisition would give the oil giant a quick shot of growth.

Of course, Kodiak was on the chopping block last summer and no buyers emerged. But even if the company isn't taken out, Kodiak could still deliver great returns to shareholders thanks to rapid production growth and falling costs. 

Foolish bottom line
Kodiak has spent billions to build out its position as a premier player in the Bakken Shale. Combine this with an endorsement from John Paulson and the possibility that the company could run at cash flow breakeven next year, and this stock could be a breakout performer in 2014. 

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Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Statoil (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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