Friday, February 15th, 2013
By Mitchell Clark, B.Comm. for Profit Confidential
The one thing that we know about resource investing is that oil stocks won?t move unless the spot price is moving. That being said, I?ve got two companies to highlight for you?both companies are junior oil and gas producers with great forecasts. They are part of the next generation of growing oil and gas companies that are drilling and finding lots of oil in North Dakota and Montana.
One company with a strong financial forecast is Kodiak Oil & Gas Corp. (NYSE/KOG), based out of Denver. The company has oil and gas reserves concentrated in two Rocky Mountain basins, known as the Williston Basin of North Dakota and Montana and the Green River Basin of Wyoming and Colorado.
According to the company, in its third quarter (ended September 30, 2012), total oil and gas sales grew to $112 million, for a gain of 280% over the comparable quarter. With about 95% of total production in crude, the company?s average sales volume during the third quarter grew 301% to 15,855 barrels of oil equivalent per day (boepd). During the last two weeks of November 2012, the company?s net oil and gas sales averaged approximately 22,000 boepd. Fourth-quarter numbers should be announced on February 28.
Among the new generation of growing oil stocks, Kodiak is fairly expensive. The other growing producer is Northern Oil and Gas Inc. (NYSE/NOG), which is a Minnesota company with oil and gas reserves also in North Dakota and Montana. (See ?U.S. Oil Gushing, Oil Stocks Getting Ready to Move.?)
Northern announced that 2012 fourth-quarter production should average 10,800 boepd, up 55% over the comparable quarter, but down four percent sequentially due to weather. Northern also reports its fourth-quarter numbers at the end of February, when management will have new guidance for the Street, as well.
Oil stocks aren?t moving right now because West Texas Intermediate (WTI) oil is stuck below $100.00 a barrel. You can argue, however, that oil prices are actually holding up quite well, considering the new production coming to market. Big oil stocks are doing great right now, and so are big oil services companies. Junior oil stocks, like Kodiak and Northern, need the spot price to advance in order to get their share prices really moving.
On the whole, the U.S. is still producing a lot less oil than it used to. But the recent growth in production is undeniable, and it?s a real boom for a lot of smaller communities and the industrial economy. North Dakota, in particular, is experiencing a significant economic resurgence in oil-related employment.
Just like any production boom, oil stocks are cyclical in nature and they won?t move significantly without similar action in the spot price. Most forecasts for oil prices this year are flat, around the current spot price of oil, with a slight increase expected in global demand.
Most large-cap oil stocks are trading at or near their all-time highs, which is pretty impressive with oil under $100.00 a barrel and the glut in natural gas. U.S. oil production is a growth industry for the rest of this decade and a good sector career wise.
Junior oil stocks like Kodiak and Northern are getting increasing attention from investors. All these oil stocks need is a favorable spot price environment, and they will move on the stock market.
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