Buy Bronco Drilling on the Continental Resources Rig Expansion Plans
This is just one company operating in the Bakken Shale, not to mention Haynesville or the Marcellus Shale. Its unclear whether Bronco Drilling (BRNC) will benefit directly from this expansion, but it should benefit from the overall capacity utilization in the sector leading to higher day rates and margins.
BRNC just began benefiting from a contract for 6 more rigs in Mexico working on drilling for PEMEX. Also, with the push in the US for more reliance on natural gas, BRNC seems like one of the best plays left. Most natural gas producers have already surged off the bottom along with the bigger drillers. BRNC still trades at a fraction of its highs.
BRNC has a book value of over $14, making the current stock price of $6 very attractive. They are still losing money and will continue to for a few more quarters at leasr, but the market seems to be improving very quickly at this point.
Buy BRNC off the CLR news, but be careful as BRNC announces Q3 earnings tomorrow. The sector isn't jumping today which is surprising, but for us that provides a buying opportunity. We'd suggest buying a half position expecting the guidance going forward to be upbeat.
Disclosure: Long BRNC