Two Bold Bakken Picks

 | Oct 02, 2012 | 12:30 PM EDT
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Although I am cautious on the market overall, I still search for good growth plays to play on any decent pullback. One area I continue to like is the small exploration and production names in the Bakken shale region.

Asset sales and acquisitions continue to be robust as the majors seem keen to pick up acreage here. Infrastructure is getting built out and got a boost by the announcement yesterday that Triangle Petroleum (TPLM) will form a joint venture with Caliber Midstream Partners to build pipelines and natural gas-/oil-gathering systems in the region. As this infrastructure comes on line, margins for the exploration and production companies will improve. These companies also continue to move more production to higher-priced oil and liquids.

Finally, natural gas prices seem to have stabilized in the last six months.

Oasis Petroleum (OAS) and Northern Oil & Gas (NOG) are two fast-growing exploration and production outfits that are solid buys for growth investors at current prices.

Oasis Petroleum is an independent exploration and production company with oil and natural gas resources in the Montana and North Dakota regions of the Williston Basin.

Four reasons Oasis is a solid growth play at just under $30 a share:

  1. Revenue is exploding. Sales are set to almost double to $650 million in fiscal 2012 from 2011's $330 million. Analysts currently project approximately $950 million in revenue in 2013. The stock has a small five-year projected PEG as well (0.59).
  2. Oasis is selling at just 13x forward earnings, a steep discount to its historical average (25.4).
  3. The company has quintupled its operating cash flow over the last two years, and the median analyst price target held by the 18 analysts that cover the stock is $39 a share, more than 30% above its current stock price.
  4. Operating costs per barrel of oil equivalent have consistently come down over the past few years, and approximately 90% of its current production is oil and liquids.

Northern Oil & Gas is another independent energy company with crude oil and natural gas properties primarily in the Bakken and Three Forks formations within the Williston Basin in North Dakota and Montana.

Four reasons Northern Oil & Gas is a good growth pick up at just over $16 a share:

  1. The stock is selling for less than 10.5x forward earnings, a huge discount to its five-year average (33.8).
  2. Similar to Oasis, Northern Oil & Gas's revenue is on track to almost double this fiscal year to just over $300 million. Analysts project another 40% rise in sales, to over $420 million in 2013. The stock sports a minuscule five-year projected PEG (0.49).
  3. Analysts believe the stock has substantial upside. The 11 analysts that cover the stock have a median price target of $26 a share on Northern Oil & Gas, more than 50% above the current stock price.
  4. Northern Oil & Gas's production is currently 93% oil, and its reserves have an estimated 38 years of reserve life. Total production was up over 130% year over year at the end of the second quarter. The company has only developed a little over 30% of its net acreage so has years of growth ahead of it.

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