Oil Stock Investing: Who’s The Next Bakken Buyout?

| October 20, 2011 | 0 Comments

I’ve been harping about the enormous potential of US onshore oil explorers for quite some time.  And a recent buyout deal proves just how big of an investment opportunity this industry offers.  I’ll give you more of those juicy details in a minute.

But first, let me quickly recap what’s cooking in this industry.

Consistently high oil prices and advancements in drilling technology are allowing explorers to bring oil to the surface that was once thought unrecoverable.

The Williston Basin of North Dakota is one such area…

A 2008 US Geologic Survey’s (USGS) report claimed 4.3 billion barrels were technically recoverable in the Williston Basin area.  But now, industry experts think they can pull as much as 24 billion barrels of oil from beneath North Dakota’s gusty plains.

That’s a huge jump in technically recoverable reserve estimates…

If those lofty estimates prove accurate, this area (aka ‘the Bakken’) will become the largest oil find on US soil in the last 40 years.  This bountiful resource will no doubt help reduce US dependence on foreign oil for years to come.

But here’s what’s really exciting…

There’s a handful of small- and mid-cap oil companies perfectly positioned to capitalize on the huge opportunity in the Bakken.  These nimble oil companies are buying up acreage in the Williston Basin at a dizzying pace.  And they’re making big leaps towards profitability as their production rates surge and reserve bases grow.

It won’t be long before investors start seeing some very hefty returns.

Brigham Exploration (BEXP) proves this point…

Norway’s oil giant, Statoil (STO), just announced they’re buying BEXP for $4.4 billion.  As you may know, BEXP is a premier Bakken oil producer I’ve written about many times in the past.  The all cash deal represents a buyout price of $36.50 for BEXP shareholders… a 20% premium to Friday’s closing price of $30.36. 

If you had you’re eye on BEXP back in the depths of the 2008 financial crisis, you could’ve picked it up for a measly $2.00 per share.  Do the math and you’ll realize there are a few astute investors who made 17x their original investment on STO’s recent buyout offer.

Now, clearly, hindsight is 20/20…

I’m not trying to suggest this was an easy investment to make.  Most investors were scared out of their wits back in 2008.

The last thing on most people’s minds was loading up on a highly speculative small-cap US oil company.  What’s more, there was no way to know BEXP would even make it out of the 2008 downturn in one piece.

All I’m trying to show you is the profit potential in this industry.

And here’s the best part… I guarantee you BEXP won’t be the last oil company in the Bakken to get bought out.

The 2008 situation is similar to what’s happening right now…

This summer’s market plunge once again pushed prime small cap shale producers to bargain basement levels.  These high profit potential companies are positioned squarely in a few of the hottest shale areas in the country… the Bakken, Marcellus, and Eagle Ford.

The best way to profit is by finding good companies with accelerating production and growing reserves.  There are a handful of them out there and they could be acquisition targets for bigger players.

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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