Submitted by Abby Joseph as part of our
Financial metrics are improving significantly for
stocks, and the commodity's prices are a combination of speculative
fervor mixed with geopolitical events. At $110.00 a barrel for West
Texas Intermediate (
) crude, drill bit profitability has improved significantly.
I've always been an advocate of having one large, integrated oil
and gas company (or limited partnership) in a long-term equity
market portfolio. There are good
to be had and solid prospects for long-term capital
But the marketplace is dealing with declining production among
the biggest companies, and this is why smaller, domestic producers
are now doing much better on the stock market. As is always the
case, oil production growth must be combined with spot price
growth. When the two are moving commensurately, there's good money
to be made.
As I've mentioned a number of times in this column, Kodiak Oil
& Gas Corp. (
) is a popular Bakken oil play that's highly liquid and is an
institutional favorite. This company boasts excellent potential
going forward. However, Kodiak is a stock with a lot of high
expectations priced into its share price. (See "My Two Favorite
Picks in the Speculative Oil & Gas Sector.")
One company that I think speculative resource investors should
now be putting on their radar is Northern Oil and Gas, Inc. (
), which is another junior oil and
producer that operates in Montana and North Dakota.
Northern has been going down steadily on the stock market, as
the company has had difficulty growing its production due to
infrastructure issues. Specifically, company management cited
adverse weather and extended road restrictions as hampering well
completions in the second quarter.
Every energy company experiences infrastructure issues, and with
this stock trending steadily lower, a very attractive entry point
should soon present itself. Like I say, resource stocks trade on
production growth and rising spot prices. If Northern can work
through its current delays in well completions (which management
says it will), then the stock could offer real value for a Bakken
Recently, Northern lowered its 2013 full-year expectations to 36
net well completions with 4.3 million total barrels of oil
equivalent (boe) production.
Total oil production in the second quarter of 2013 grew only one
percent to 895,000 barrels, but natural gas and other liquids rose
significantly to 579,346 cubic feet for a gain of 51%.
The company's total revenues for the second quarter of 2013 fell
to $96.2 million, down from $119.2 million. Earnings were $25.0
million, compared to $43.6 million in the second quarter of 2012.
Diluted earnings per common share were $0.39 compared to $0.70.
But like any business, a quarter or two of stumbling can create
an opportune time for investors to consider new positions. I think
Northern Oil is worth putting on your watch list right now.
However, I'd wait until third-quarter financial and production
results are announced?or, more specifically, for what management
says regarding well completions?before taking any action.
The oil and gas business is alive and well, particularly among
smaller companies. It is a good time to be in this industry.