When John Paulson loads up on shares of a company, smart investors should take note. In 2006, the billionaire hedge fund manager predicted the collapse of the U.S. subprime lending market. And in 2010, he set another hedge fund record by making nearly $5 billion in a single year.
It never hurts to peek over the shoulders of the world's greatest investors. So what is Paulson buying now? According to the latest 13-F filings from the SEC, his hedge fund Paulson & Co. has acquired a 10 million-share position in Whiting Petroleum (WLL). This brings Paulson's total stake in the company to slightly more than $640 million.
Why is Paulson so bullish on Whiting?
Two factors may have attracted his attention. First, the company has posted some truly incredible results out of the North Dakota Bakken. Over the past three years, Whiting has grown its production more than 44% to 92,800 barrels of oil equivalent per day. And during the same time frame, the company has increased its earnings per share 32%.
But this might just be the beginning. According to recent estimates from the United States Geological Survey, the Lower Three Forks could contain some 3.7 billion barrels of undiscovered, technically recoverable crude oil -- slightly larger than the Bakken field that sits above it.
As part of this effort, Whiting drilled all the way through the lowest parts of the Three Forks to determine the prospects of the lower benches. As the company delineates and de-risks these lower benches, it could be a hidden catalyst for the stock.
Second, Whiting may be sitting on America's next big shale play. The company owns about 64,240 net acres the Colorado Niobrara. And while the field has been known to geologists for almost a century, it has only been through the application of new technologies like horizontal drilling and hydraulic fracturing that the energy industry has been able to unlock the Niobrara's bounty.
If there's one thing we know about Niobrara it's that it's oil rich. Per drilling-spacing unit the play has almost 60 million barrels of oil in place -- about twice that of the Bakken. And according to numbers provided by the Colorado Oil and Gas Conservation, the play could hold an estimated 3.6 billion barrels of recoverable oil equivalent.
Drilling economics also compare favorably to the Bakken. According to figures provided by Whiting, the average well in the Niobrara costs in the neighborhood of $7 million to $8 million to complete, and CEO James Volker claims that the company is generating a 400% return on every well it drills in the region.
And Whiting isn't the only company to see the Niobrara's potential. Over the past few years, other smart money operators have quietly accumulated vast amounts of land in this little-known shale play.
Noble Energy (NBL) CEO Charles Davidson describes the Niobrara as a "top-tier oil play," and his company plans to invest $1.7 billion in the formation in 2014. Results have been so good that management has accelerated its development program, aiming to triple production within five years.
Energy giant Anadarko Petroleum (APC), which owns about 350,000 acres in the region with as much as 1.5 billion barrels of recoverable reserves, is also betting big on the play. The company has budgeted $1.5 billion to develop its acreage with plans to drill 150 wells this year. Even for a big company like Anadarko, those are substantial figures.
Foolish bottom line
Whiting has spent billions to build out its position as a premier player in the Bakken and Niobrara. By sitting on two prime shale plays, there're many things that can go right for this company. Combined with an endorsement from John Paulson, this stock could be a breakout performer in 2014.
