Oil and Real Estate

Another good day for the stock market. The S&P 500 is
now pushing resistance at 1,070. Is it too much to ask for another up day to
take us through that point?

Before we break out the bull-market bubbly, let’s remember
three things: with the exception of the weekly new jobless claims report,
there has been virtually no economic data this week. Most recent data has
showed the economic recovery is softening, leading stocks lower.

Second, the stock market was extremely oversold before it
rallied. The S&P 500 had put in 9 down days out of 10 before stocks found
some buying interest on July 6.

Third, earnings season starts on Monday. Analysts have
lowered their estimates for earnings, but we haven’t seen any significant
profit warnings from corporations. I expect some investors have started to
wonder if stock valuations are attractive, even in light of lowered earnings

These factors combined have given stock a window to rally.
But there’s no doubt that earnings must be good if the rally is to continue.
And, more specifically, forward guidance from corporations must be good.
Because not only do investors need to hear that business is expanding, they
also want some indication that employment might pick up.

I’vediscussed the
outstanding prospects for Bakken oil companies to rapidly grow revenues and
earnings as new wells come on line at a rapid pace.

But now, the Bakken and other shale natural gas and oil
areas (Eagle Ford, Marcellus) are becoming a hot real estate play.

Private equity from KKR (NYSE:KFN) is about to plow $400
million into the Eagle Ford natural gas prospect by way of Hilcorp Energy.
That works out to about $10,000 an acre.

It seems likely that KKR intends to flip the property, like
it did with East Resources. Last year, KKR invested $350 million in East
Resources to develop shale gas. But East Resources sold out to Shell for $4.7
billion. KKR quadrupled its money.

Reuters is reporting that Bakken land, which went for
$700-$900 an acre a few years ago, could now fetch upwards of $6,000 an acre.

Now, as you know, I’ve been recommending Bakken oil
producers to my Energy
World Profits
readers to take advantage of the inevitable
rise in oil prices. But the real estate value angle is compelling as well.

My favorite Bakken company has 305,000 acres in the Bakken,
and 164,000 of what it calls “net core” acres. That’s nearly $1 billion in
assets (164,000 x $6,000) just for the real estate. At its current market cap
of $1.8 billion, its oil reserves (27 million barrels of proved reserves) are
only being values at $800,000.

For more on the Bakken oil opportunity, click

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