Questions about the Bakken's longevity are not hard to find. Shale oil wells usually decline 10% faster than shale gas wells, making a shale oil driller's income relatively volatile. There is a great deal of opportunity to be found by riding a boom on the way up and selling on the way down. The Bakken is still in boom mode, but by 2017 the amount of acreage available for new wells will have fallen substantially.
The boom-bust cycle
The oil market has always been prone to boom-bust cycles, and the Bakken is no different. A reservoir has a finite amount of resources. As time goes by there is simply less oil available for extraction.
US Crude Oil Production data by YCharts
Conservative investments in the Bakken
When investing in the Bakken you must ask yourself what sort of investment strategies you are willing to take. If you want a simple strategy where you collect a consistent dividend, then a large and diversified producer like Statoil ASA(ADR) (NYSE:STO)
is a good fit.
Statoil has been expanding its U.S. operations. In the second quarter it produced an average of 42 thousand barrels of oil equivalent per day (mboed) of liquids in the Bakken region along with 3.1 mboed of natural gas. The advantage of investing in the Bakken through Statoil is it gives you access to other growth plays like the Marcellus and Eagle Ford. Also, it recently discovered a field holding 300 million to 600 million barrels of oil off the coast of Canada.
Volatile Bakken plays
If you are looking to buy the boom, sell the bust, and follow quarterly production data very closely, then small producers would be a better fit.
Kodiak Oil & Gas Corp (USA) (NYSE:KOG)
is a small player with strong growth and substantial debt. While it produced an average of 1.3 mboed in 2010, it expects to produce an average of 30 mboed to 34 mboed in 2013. In order to help fuel this growth the company has brought its current total debt-to-equity ratio up to 1.31 and increased its diluted weighted share count from 104 million in 2009 to 268 million in 2012. Kodiak is a great way to play the Bakken boom given its focus on the formation, and its balance sheet makes it a good way to play the bust.
Continental Resources, Inc. (NYSE:CLR)
is another Bakken player with a high total debt-to-equity ratio of 1.12, but it is already starting to develop alternative plays. In Oklahoma it recently increased its net acreage to 277,000 acres in the SCOOP formation. While the formation's production of 17.6 net mboed is significantly less than the 88 mboed it produced in the Bakken in Q2 2013, it bodes well for the company that management is already moving capex outside the Bakken.