Friday, February 24, 2012

Fillooon's Bakken Update -- 4Q11

First iteration, EOG, CLR, NFX, OAS, WLL,
Second iteration: DNR, SM, QEP, WPX, KOG, LINE

NFX sold its Catwalk Prospect, Williams County, 23,000 net acres; slight production; 8 drilled/uncompleted wells for $275 million (numbers rounded). NFX says its focus is on the Uinta Basin in Utah, and the Bakken, in the Williston Basin. That's a strange comment when not too long ago, NFX had 270,000 net acres in the Bakken, and now has 100,000 net acres (60,000 in North Dakota and 40,000 in Elm Coulee, Montana). All of their leased acreage in Montana (Elm Coulee) is held by production so there is no urgency in drilling there. (It's a bit unclear how much acreage NFX still has in the Bakken, but the 60-40 split is how the CEO described it in the 4Q11 transcript. I don't know enough about the Uinta Basin to comment but three things strike me about NFX: a) it's a natural gas company trying to switch to oil; b) it got into a cash flow problem and had to sell some very, very good Bakken property; and, c) its share price is about half its 52-week high.

EOG has done a great job switching from natural gas to oil in the past year. For the year (2011), EOG's liquids production increased 52% while its gas production decreased 7%. Earnings estimates continue to be raised by analysts. With much of its acreage now held by production, Filloon feels that the Bakken will take the "back seat" to the Eagle Ford for EOG. Most exciting: EOG is downspacing to 320 acres. I remember someone writing me telling me that producers wanted the largest spacing units possible. Hmmmm.

OAS, according to Filloon, had a number of infrastructure-related problems, but derivative losses drove earnings per share down significantly. Analysts expected EPS of 30 cents; actual was a loss of 15 cents due to increased expenses across the board and the aforementioned derivative losses. Investors seemed not concerned; shares rose significantly after the announcement.

WLL had a very good quarter according to Filloon. Whiting says its well costs are down $6 million/well in the Sanish field; if accurate, that's incredible. Remember, these are long horizontals. This is less than or certainly comparable with cost of wells when the boom was just starting. Filloon says EOG wells are costing them even less, $5.5 million (compare to NFX's hand-wringing about wells costing them >$10 million). Outside the Sanish, Whiting wells cost upwards of $8 million.

DNR had a good report according to Filloon if I read him correctly. But this nugget is huge. Back in 1H11, DNR said they had 5 rigs in the Bakken and would increase to 7 rigs by January, 2012. Filloon says, now, DNR will let contract expire on one of those 5 wells and go to 4 wells in the Bakken. DNR took their Almond prospect in Ward County off the books, and thus one less rig is needed. At one time, DNR had nearly 300,000 acres in the Bakken; now down to their best 200,000 acres.

WPX has 5 rigs and will add a 6th this year. It is still gas heavy, but it will devote more of its CAPEX to the Bakken than to any other play. For investors, Filloon says to be wary since this company is still too gas heavy; I tend to disagree. WPX has great acreage in the reservation; it is focused on oil; a recent spin-off, eager to prove itself.

LINE pays 7.5% and continues to grow.

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