The best thing about smaller oil exploration and production companies is that once they hit production, there's no looking back. The rewards reaped are worth the struggles of exploring potential reserves. The Bakken shale play -- now becoming a legend of sorts -- is home to many such small-cap companies. For some of the players operating here, the game has just begun. Northern Oil & Gas (AMEX: NOG) has just started hitting pay dirt with profits yet to materialize fully.

Record growth
With a unique business model in place, the Minnesota-based company is the non-operating partner in 664 wells, an astounding number for a company with a market cap of just $1.22 billion. Of these wells, 659 have been drilled in the Bakken and Three Forks formations. Being a non-operating partner, the company could diversify its holdings across the region as well as minimize risks associated with focusing on a single area. From producing crude oil and natural gas from 179 gross wells at the end of 2009, Northern has come a long way.

At the end of 2011, proved reserves stood at 46.8 million barrels of oil equivalent, with oil comprising a solid 89%. In fact, Northern managed to add reserves that are more than 16 times last year's production. The company has focused on acquiring reserves with a long life. As a long-term investor, that's what I'm looking for. The company has enough reserves to develop and produce for a long time to come. Only 31% of Northern's Bakken and Three Forks prospective acreage has been developed as of the end of last year.

In safe hands?
With the likes of EOG Resources (NYSE: EOG), Continental Resources (NYSE: CLR), and XTO Energy as its operating partners, I'm not too worried about development and production from these reserves. Continental has the largest holdings in North Dakota and has been the most successful operator in the Bakken shale play. In short, this company is a proven player. EOG Resources, on the other hand, has been steadily picking up. The company ramped up liquids production, which resulted in record cash flows last year. The company's fundamentals look strong.

Not surprisingly, production rates have shot up too. With a massive 117% production growth in 2011, things are looking exciting for the future as well. The resulting profits saw return on equity shooting up to 8.7% from 2.5% in 2010. This figure, in all likelihood, should go up further as the company adds to production.

Foolish bottom line
Northern seems to have sound fundamentals. All you need is some patience to stay invested in this company. To receive more news and analysis on Northern Oil & Gas, please add the company to your free watchlist.

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