the u.s. shale oil boom, page-32

No SSN news here,just some interesting comments.




E&Ps with Margins for Error


The Energy Report | Feb 01, 2011




TER: Your two top picks on the oil side for 2011 are Whiting Petroleum (NYSE:WLL), with a Buy rating and a price target of $142, and GeoResources Inc. (NASDAQ:GEOI), which also has a Buy rating and a price target of $30. Could you tell us about those two names?

AC: When I rank my companies, Im looking at the cash margins, the EBITDA (earnings before interest, taxes, depreciation and amortization) margins and debt-adjusted production growth to get a sense of things. Effectively, do these companies have the balance sheets and the margins to justify drilling for more than the current year?

The main reason why Whiting and Geo are my favorite picks is that the Bakken oil shale is white-hot in terms of sex appeal and intensity because of the quality of the wells being drilled there. Companies with exposure to that play have really outperformed recently. Secondly, the oil shale business model is relatively new. I think you can make the argument that the Bakken has some of the flavor that the Barnett Shale had a couple of years ago. While investors are starting to look for new oil shales like the Niobrara, Utica, Eagle Ford or Tuscaloosa Marine, we dont know if all of those will be as prospective for oil as is the Bakken. Its far easier to step out on the Bakken and develop more acreage than it is to find a whole new play. Recent M&A in the Niobrara has signaled that play may be ready for prime-time too.

Whiting and Geo also have strong cash margins, very low debt, low proved undeveloped (PUD) reserves in their reserve make-up and good acreage positions. Whiting has over 900,000 gross acres and about 580,000 net acres, of which 470,000 are undeveloped. That puts the company in a top-five Bakken acreage position. Geo has 46,000 acres; and given its small-cap size, is also relatively well positioned.

On a comparison basis, Geo trades at about 70% of the multiple of an Oasis Petroleum Inc. (NYSE:OAS) or a Brigham Exploration Co. (NASDAQ:BEXP) and yet, six months ago, Geo and Oasis were about the same size in terms of production. As investors look for the next set of names with the capital and the management wherewithal to develop and accelerate activity in the play, Whiting and Geo are two names that can benefit by putting more capital to work there.

FULL ARTICLE HERE