Like the Bakken? Then You'll Love This Stock

Business is rockin' in the Bakken! In May, the United State Geological Survey doubled the size of its reserve estimate in the Williston Basin. Then in September, the state's top energy regulator predicted that oil production would double to 1.6 million bpd by 2017. No matter how much partisan bickering we get out of Congress over the debt ceiling, that oil isn't going anywhere.

What's more is that the Bakken has attracted the attentation of some of the smartest investors in the energy patch. Mark Papa, Chairman of EOG Resources and probably one of the top oilmen in the country, told analysts last year, "there are only two meaningful oil plays in the United States: the Bakken and the Eagle Ford." In the past few years, his company has emerged as one of the largest operators in both plays.

Of course, EOG's operations are spread out across several continents. So Bakken bulls looking for more of a pure-play may want to consider the company's lesser known rival - Oasis Petroleum . Here are two reasons to consider adding this stock to your portfolio.

Great financial results
Oasis is posting some incredible numbers. Last quarter the company grew production 48% year over year to 30,200 barrels of oil equivalent per day. Total proved reserves have increased 50% since the start of the year. Most importantly, over 90% of the company's production is oil. That's the highest of its peers and exactly what you want to see in a era of low natural gas prices.

But in addition to organic growth, the company is also expanding its presence in the Williston Basin through a series of smart acquisitions. In September, Oasis purchased 161,000 net acres in the Bakken and Three Forks play for $1.5 billion. The transaction will add approximately 9,300 boepd.

And while those top-line figures are impressive, more of that revenue is trickling down to the bottom line. In the past year, Oasis has reduced its average well completion costs by 20% to $8.2 million per well due to the transition to pad drilling, the falling cost of hydraulic fracturing services, and other operational efficiencies. Management expects to shave another $600,000 off of that figure by the end of 2014.

All of this translates into big cost savings for Oasis. When you multiply $600,000 in cost savings by the 106 net wells the company is expected to complete this year, Oasis will pocket an additional $64 million in 2014. That's a pretty substantial figure given that the company generated only $392 million in cash flow from operations last year. It's still a long way from closing the company's funding gap, but cost savings will have a big impact on the firm's free cash flow.

Lots of catalysts
Yet the Bakken might be small potatoes compared to the bounty that lies underneath it. According to the latest USGS, the Three Forks could contain an estimated 3.7 billion barrels of undiscovered, technically recoverable oil. That's slightly larger than the Bakken.

Drilling results out of the Bakken have been positive. Last quarter, Kodiak Oil and Gas completed six pilot wells with initial production rates between 1,200 and 3,500 boepd. Those figures suggest the Three Forks is definitely viable, though management warned that more testing is needed.

Continental Resources is also delineating its Three Forks acreage. Pilot wells in the play's second and third benches averaged initial production rates of 1,200 and 910 boepd respectively.

As Oasis and other operators continue to explore and de-risk the Three Forks formation, it could be a big boost to recoverable reserves. That could be a hidden catalyst for the stock .

Oasis would also be an easily digestible acquisition for any major moving into the Bakken. Over the past two years ExxonMobil, Statoil, and Apache have all been bulking up on their Bakken acreage in their hunt for growth. With only a $5.2 billion market capitalization, Oasis would be an attractive target.

Foolish bottom line
Of course, buying any stock on takeover speculation is risky. Investors should only buy names with solid fundamentals that they're comfortable owning if no acquisition emerges. But with rapid growth, a healthy balance sheet, and falling costs, Oasis definitely fits the bill.

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The article Like the Bakken? Then You'll Love This Stock originally appeared on Fool.com.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of EOG Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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