Credo Petroleum (CRED)

[OilStockReport]

Bakken looks good for CRED.

Credo Petroleum (CRED) has 7,260 gross or 5,734 net acres in North Dakota. Its acreages are in Dunn, McKenzie, Mercer, and Mountrail Counties. Credo controls more then 150,000 gross acres in Kansas and 75,000 gross acres in Northwest Oklahoma. Credo has drilled five wells to date in the Bakken. Three are excellent producers. Two smaller interest wells are awaiting completion. Credo will drill 9 wells in 2011. By Credo estimates, 200 gross wells have been drilled in the Fort Berthold Reservation. Well spacing is four per 1280 acres. Average well cost is $6.5 million. Reserves per well are 350 MBO and 300 MMCF. Net reserves are 4.2 Million Bbls and 3.6 BCF. Credo's PV10% is $84 million, using $85/barrel pricing. Credo believes well spacing is estimated too high, and may add more locations to current estimate. An example of a current Credo well is Petro-Hunt 3A. Credo has a working interest of 18.75%. Its IP rate was 1,367 BOEP/D. Credo's current per acres valuation may be higher then previously estimated. November of last year, Williams (WMB) spent $925 million on 86000 acres. This purchase was $11,000 per acre. It was significantly higher then the $5,300 Hess paid in the same area. One variable to watch is derivative losses. Credo's 2010 derivative losses were (705,000) versus a loss of (14,000) for the final three months of 2009. Credo had a year over year increase of 19% oil production and 13% increase in comparable earnings. Oil accounts for 69% of production. Lastly, watch this company's success rate. There have been some recent dry holes in Kansas. Although these are inexpensive wells, it could place a downward pressure in earnings.