Continental Resources BUY

CLR : NYSE : US$72.88
BUY 
Target: US$92.00

COMPANY DESCRIPTION:
Continental Resources is a U.S. exploration and
production company with operations in the Williston
Basin (ND & MT) and the SCOOP play (OK). CLR is
headquartered in Oklahoma City, OK.
Energy — Oil and Gas, Exploration and Production
A LARGE SERVING OF THE WB WITH A “SCOOP” ON TOP; INITIATE WITH BUY
Investment recommendation
CLR is the largest leaseholder in the Williston Basin (WB) with 1.2 million
net acres and is also an industry leader in downspace and enhanced
completions testing in the play. Successful downspacing can add
meaningful value for shareholders, as could increased EURs from
improved completion techniques. Additional upside could come from the
development of the SCOOP in Oklahoma, where the company is the
largest leaseholder and producer in the play. CLR’s upcoming analyst day
could provide meaningful catalysts on all fronts. We initiate coverage with
a BUY rating and $92 price target.
Investment highlights
 Continued success in WB downspacing can add further upside to
NAV. CLR will conduct three more 660 foot (160-acres) density tests
this year, the results of which could serve as major catalysts when
released, likely by year’s end. Its first such test in McKenzie County
posted strong IP rates in the Bakken and the Three Forks (TF)
benches. These next three pads will target other areas of the WB.
 We feel enhanced completions techniques, including the use of
slickwater fracs and increased proppant volumes, should have a
positive impact on EURs going forward. CLR’s latest wells employing
these techniques have solidly outperformed offset wells. It plans more
enhanced completions at its next high-density pads.
 We believe the SCOOP will continue to grow at very robust rates
(~50% Y/Y in 2015E) and thereby bolster CLR’s oil/condensate
volumes in the coming years. The testing of extended and stacked
laterals are positive steps, in our view, towards adding further upside
to its already solid position in that play.
 The company is on very solid ground with regard to liquidity, in our
view. Combined with internal cash flow generation, CLR should have
more than ample capital to fund WB and SCOOP development.
Valuation
Our $92 price target is based on a 10% discount to a ~$103 NAV

Emerald Oil Raising Target Price to $12

EOX : NYSE : US$7.90
BUY 
Target: US$12.00 

COMPANY DESCRIPTION:
Emerald Oil Inc. is an independent exploration and production
company primarily focused on acquiring acreage and developing
wells in the Bakken and Three Forks shale oil formations of the
Williston Basin in North Dakota and Montana. The company also
has acreage in the Sandwash Basin in Colorado and Wyoming,
and the Heath Shale oil formation in central Montana.
All amounts in US$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production
ANALYST DAY RECAP; RAISING PRICE TARGET TO $12
Investment recommendation
EOX has successfully transitioned to an operated drilling program in the
Williston Basin (WB). EOX has ~85K net acres (75% operated), a very
meaningful position for a company its size. With plenty of liquidity at its
disposal, EOX is poised to rapidly grow production in 2014 and beyond.
Investment highlights
 After attending EOX’s sell-side Analyst meeting, we are more
confident than ever that this management team knows what it is
doing and the company is in great position to continue drilling very
good Bakken/Three Forks wells in the WB. EOX has spent a great
deal of time using advanced technologies to study the geology,
surrounding activity, frac design, etc.in the WB and it shows.
 EOX has reported 15 operated well results to date with solid
average 24 hr/30 day IP rates of 1,643/764 Boe/d. Wells with long
enough histories had 60 and 90 day rates of 658 Boe/d (9 wells) and
602 Boe/d (7 wells). We are very pleased with these results and look
forward to what EOX does with the drillbit in 2014. The company’s
first Three Forks (TF) well had 24 hour/30 day IP rates of 1,113
Boe/d/573 Boe/d. This well confirms the viability of the TF on EOX’s
acreage. We are raising our 2014 estimates to account for the
company’s recently-announced acquisition of ~20,800 net WB acres,
most of which is being acquired from Kodiak Oil & Gas, scheduled to
close on February 13.
Valuation
Our $12 price target, up from $11, is NAV-driven and based on a ~15%
discount to a $14.15 NAV, up from $13.06.

Northern Oil and Gas

NOG : NYSE MKT : US$17.11
BUY 
Target: US$19.00

COMPANY DESCRIPTION:
Northern Oil and Gas engages in acquisition, exploration, exploitation, and development of oil and natural gas properties in the US Rocky Mountains. Its core focus is the Middle Bakken formation in the Williston Basin of Montana and North Dakota. Its secondary focus is Red River and Mission Canyon formations in Montana

Energy — Oil and Gas, Exploration and Production
RAISING ESTIMATES AND PRICE TARGET FOLLOWING Q3 PRODUCTION BEAT
Investment recommendation
NOG is a Williston Basin (WB) Bakken/Three Forks pure-play with a non-operated model. The company is one of the largest non-operating participants in the play and a natural clearinghouse for non-operated working interests. We see good value in the stock and believe a resumption of production growth, which is now happening, should be the recipe for a higher share price.
Investment highlights
 NOG announced that Q3/13 production is expected to average ~13MBoe/d, a 19% Q/Q increase. This soundly beat our 12.2 MBoe/d and consensus of 12.3 MBoe/d. During the quarter, the company added 147 gross (12.1 net) wells to production with an additional 260 gross (18.8 net) wells that were drilling or awaiting completion at the end of the quarter. NOG had a producing well count at the end of the quarter of 1,585 gross (133.5 net).
 NOG expects Q3 realized price per Boe, including the effect of settled derivatives, to be in a range of $82.00 – $83.00, and its LOE to be in a range of $9.50 – $9.75/Boe.

Halcon Resources

Rectangular joints in siltstone and black shale within the Utica Shale (Ordovician) near Fort Plain, New York. (Photo credit: Wikipedia)

HK : NYSE : US$5.34
BUY 
Target: US$8.50

COMPANY DESCRIPTION:
Halcon Resources is an independent energy company engaged in the acquisition, production, exploration and development of onshore oil and natural gas properties in the United States. The company has oil and natural gas reserves located in several key areas including the Bakken,  Woodbine/Eagle Ford, Utica, Midway/Navarro, Wilcox, Mississippi Lime and Tuscaloosa Marine.

PREFERRED OFFERING REMOVES FUNDING OVERHANG
Investment recommendation
HK has built positions in some of the most exciting liquids-rich resource plays in the US, including the Utica Shale and Williston Basin (WB). A new Eagle Ford (EF) play called El Halcon was also recently unveiled, and the Wilcox has been moved to the forefront. We believe HK is well positioned to rapidly grow production and cash flow, which we believe in turn should be a catalyst for a higher stock price.
Investment highlights
 HK announced Thursday it priced a $300M public offering of 5.75% Series A Cumulative Perpetual Convertible Preferred Stock. The conversion price is ~$6.16, resulting in an additional ~48.7M diluted shares. The underwriters have an over-allotment option for an additional $45M. The company expects to use the estimated net proceeds of $291M to pay down a portion of its revolver, which had $591M drawn on its $850M borrowing base as of June 7.
 We are lowering our 2013 and 2014 EPS/CFPS estimates due to an increased share count and the addition of preferred dividends. Our 2013E numbers to go $0.31/$1.39 from $0.35/$1.47 and 2014E goes to $0.63/$2.30 from $0.72/$2.52.
Valuation
Our new $8.50 price target represents a ~20% discount to a $10.55 NAV (down from a $9 price target and $11.25 NAV with the same discount

Triangle Petroleum Corp.

Location map of the Williston Basin, US and Canada (Photo credit: Wikipedia)

TPLM : NYSE MKT : US$6.67
BUY 
Target: US$9.00

COMPANY DESCRIPTION:
Triangle Petroleum is an E&P company with operations in the Bakken and Three Forks shales of North Dakota and Montana. The company has diversified into the services business, mainly pressure pumping, and midstream

RAMP-UP COMING QUICKER THAN EXPECTED; REITERATE BUY, $9 PT
Investment recommendation
TPLM has ~86K net Williston Basin (WB) acres and is successfully transitioning its strategy toward an emphasis on operated drilling in the
Bakken/Three Forks (TF) in McKenzie/Williams Counties, ND. Significant production growth is continuing and vertical integration is progressing nicely, key drivers in our view to a higher stock price.
Investment highlights
 TPLM reported FQ1/14 EPS/CFPS of $0.10/$0.26 vs. our $0.05/$0.25 and consensus of $0.07/$0.26. The sound beat was predominantly driven by higher sales volumes and revenues from the company’s RockPile (RPES) pressure pumping business. RPES contributed $13.1M of revenue vs. our estimate of $7.8M for the quarter, continuing to illustrate how meaningful vertical integration can prove to be to the top line.
 Sales volumes for the quarter were at 2,684 Boe/d, nicely above our 2,562 Boe/d forecast. Current production is running at ~4,330 Boe/d based on a 21-day average. With first gas sales set to begin on June 14 and TPLM having moved to a three full-time/one parttime rig program from just two full-time rigs during FQ1/14, we expect a significant sales volumes acceleration in FQ2/14. We are modeling a 38% Q/Q increase to 3,617  oe/d.
 Given the observed strength in FQ1/14 and the company seeming to be ahead of schedule, we are taking up our F2014 EPS/CFPS estimates to $0.57/$1.63 from $0.54/$1.62 as TPLM’s production  and service businesses continue to accelerate.

Related articles

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Emerald Oil

List of North Dakota numbered highways (Photo credit: Wikipedia)

EOX : NYSE : US$6.21
BUY 
Target: US$11.00

COMPANY DESCRIPTION:
Emerald Oil Inc. is an independent exploration and production company primarily focused on acquiring acreage and developing wells in the Bakken and Three Forks shale oil formations of the Williston Basin in North Dakota and Montana. The company also has acreage in the Sandwash Basin in Colorado and Wyoming, and the Heath Shale oil formation in central Montana.

SIGNIFICANT WILLISTON BASIN EXPOSURE AT A COMPELLING VALUATION
Investment recommendation
EOX is successfully transitioning to an emphasis on operated drilling in the Williston Basin (WB) Bakken/Three Forks (TF) plays, with initial
drilling in McKenzie County, North Dakota. We believe this transition will result in significant production growth and a higher stock price.
Investment highlights
 The company has completed a successful common stock offering and is now ready to accelerate development of its 54K net acre WB position, with a second rig due to start drilling shortly.
 EOX’s first operated Bakken well had a solid first 30 day average rate of 1,025 Boe/d. We expect two more results in late June and two more when the company releases Q2/13 results in early August, helping to drive rapid production growth beginning in H2/13. Based on the early results, we believe the company’s production guidance of 1,800 Boe/d for 2013 is conservative.
 Well costs are coming in at ~$10M, down from the original expectation of $11M, and we believe there is room for further declines.
 Trading at an adjusted EV/acre of only ~$2,500, EOX is the cheapest among its WB peers on this metric, with a group average of ~$8,000

Related articles

• Report bumps oil estimate for Williston Basin (rapidcityjournal.com)
• Williston Basin oilmen have horse in the Derby (rapidcityjournal.com)
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