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Searching for Deals in the 'Little Bakken' (SSN, EOG, CHK, NBL)

Ian Wyatt

Finding oil out in the Bakken shale in North Dakota is a hot topic for many energy exploration companies.


The Bakken formation is known as a dependable supplier of crude oil and natural gas, but there's another lesser known region that promises to become the next big thing in the U.S. for oil and gas explorers.


This place is being called "the little Bakken," or "NeoBakken" because of its potential. Companies are snapping up acreage, doing deals and moving rigs into position as I type this.


This region is the Niobrara shale formation in Colorado, Wyoming, Nebraska and Kansas, in the region where the four states meet. This shale is in the Denver-Julesburg Basin, usually referred to as the DJ Basin.


To invest in this play in the Niobrara investors can purchase shares of a small Australian company that is focusing its attention solely on the oil potential of this region. It has a U.S. listed stock that still appears undervalued despite a substantial run-up in 2010.


Samson Oil and Gas Ltd. (AMEX:SSN - News) is headquartered in Perth, but its U.S. operations are based in Colorado. The company's shares have pulled back as oil prices have dipped, and are currently trading below the 50-day moving average. A retracement to the 200-day moving average, around $2.00 per share, would be an excellent place to load up on shares - although $2.50 will probably be a significant support area where an initial position would also be attractive. Shares of this 31-year-old company are also traded on the Australian Stock Exchange for investors that wish to diversify out of U.S. dollars.  

***For the most part, the Niobrara region is still in the early exploration phase, with indications that it can generate 10 to 20 million barrels of oil per square mile. That's about half as much as the Bakken wells are producing, but still well worth the effort especially, if the spot price for crude hovers above $100 a barrel.


Samson Oil and Gas, which has a market cap of $240 million, entered the U.S. in late 2004, and became enamored with the Niobrara. In 2006 the company acquired a half-interest in 100,000 acres in Wyoming's Goshen County.


The Niobrara region is creating quite a stir among explorers, so Samson Oil isn't alone in trying to pull oil out of Niobrara's rocks. The big players in the Niobrara include EOG Resources (NYSE:EOG - News), which has accumulated some 300,000 acres in Colorado and Wyoming; Noble Energy (NYSE:NBL - News) with 830,000 acres; and Chesapeake Energy (NYSE:CHK - News), with 535,000 acres.


By comparison, Samson's holdings are small, but it's looking to acquire other leases as it moves forward not only in the Niobrara, but also with other projects in North Dakota, New Mexico and the Texas Gulf Coast where it expects to begin test drilling on one promising site by June.


In September 2010, Samson reduced its holdings when it sold 24,000 acres to Chesapeake for $73.7 million. But Samson kept an adjacent 17,000 acres for its Hawk Springs project. Chesapeake placed the expected ultimate recovery (EUR) estimate at 500,000 barrels, which buoyed Samson's optimism about Hawk Springs' potential. It also piqued the interest of Halliburton Energy Services, which formed a joint venture with Samson for a piece of the Hawk Springs site.


After getting its finances in order, Samson is predicting that it'll be debt-free by May. In the fiscal year that ended in June 2010, earnings were flat after four years of losses, and indications are that the company should show a profit in fiscal year 2011. At the midpoint of its fiscal year, Samson posted a profit of $0.03 per share.


Samson's shares shot up in early January after energy consulting group EnerCom labeled the stock undervalued at $2 per share. Shares then reached $4.75 in early March before beginning to lose momentum.


I suspect that this stock will find support soon, and investors that that are already aware of the stock will be able to pick up shares at very attractive prices. Disclosure: None