ENERGY

Robert Rapier and Igor Greenwald of The Energy Strategist recommend this fast-growing driller that's building an impressive reputation in the Bakken shale.

Continental Resources (CLR) is the top driller in the Bakken shale formation that's driving the domestic drilling boom, and might one day turn the US into a crude exporter.

Continental is led by legendary wildcatter Harold Hamm, an Oklahoman raised in grinding poverty. He's become a multibillionaire by dint of an uncanny nose for the next big oil play, controlled financial and political aggression, and faith in his own analyses.

Compelling as Hamm's story is, Continental's is even better. The company is the fastest-growing oil producer of its size, and stands to benefit disproportionately from the drilling innovations and infrastructure improvements unlocking the US shale potential.

All energy investors are by definition bullish on the industry, and Continental offers unmatched upside tied to the development of the industry's most promising new find.

Production grew 58% in fiscal 2012, and is projected by the company to rise another 35% to 40% this year, en route to a promised tripling by 2017. Proven reserves rose 54% last year, and Continental predicts they will roughly double over the next five years.

This hasn't been profitless growth either. Net income has tripled in two years, while earnings per share are slated to jump 46% in 2013, based on the analysts' consensus.

Moreover, Continental isn't just a play on high oil prices or the continuing build out of the transportation infrastructure to and from the Bakken. It's also a bet on Continental's world-class shale drilling expertise, which will eventually allow it to drill much deeper into the rock and more densely pack its wells atop the best deposits on its acreage.

Bakken crude is unusually light and sulfur-free, promising more profit to the refiners able to access it. So as transportation options improve, it's likely to outperform the inferior West Texas Intermediate, perhaps considerably.

The stock currently fetches 18 times projected fiscal 2013 earnings-steep for an energy stock, but not for one consistently delivering the best growth in the industry. In fact, it would be awfully hard to be bullish on energy overall and not be especially bullish about Continental's prospects.

Fortunately, there's no need. Drilling costs should decline as Continental rationalized its acreage, propping up the already excellent cash margins. Cash flow is likely to keep pace with the heady production gains.

A global recession would pressure this growth story in a hurry, so the risks are higher than they would be for a less aggressive company. But the upside exposure to higher oil prices and further development of the Bakken shale is truly extraordinary.

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Tickers Mentioned: CLR

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