Every U.S. state boasts its own unique claim to fame.

Louisiana has Mardi Gras and Cajun food. Florida has sugar-white beaches and Disney World. And Alaska has millions of acres of beautiful, untamed wilderness.

Of course, Alaska also has something else deep underground: Crude oil — lots of it. Every day, the Trans-Alaska Pipeline carries about 670,000 barrels of oil from North Slope production grounds south to Valdez, where it’s loaded into waiting tankers. That represents about 15% of the nation’s total oil output.

[ad#Google Adsense]Thanks to the riches of Prudhoe Bay, every man, woman and child living in the state receives an annual royalty dividend distribution — last year’s check was $1,281. But if the Department of Energy (DOE) is right, then Alaska could soon relinquish its title as America’s largest oil producer – so I’ve already set my sights on its successor.

The latest projections from the DOE have Alaska’s daily production rates slipping to 450,000 barrels within the next seven years. Meanwhile, output from the oil-rich Bakken Shale of North Dakota could potentially climb to 700,000 barrels a day by 2015 — more aggressive estimates top 1 million.

That means North Dakota could soon be famous for much more than its rugged winters.

The Bakken Shale sits in the sweet spot of the larger Williston Basin, which extends through parts of several adjacent states and Canada. Production rates in this fertile zone have already pierced through the 300,000 barrel a day mark. But that number could easily double.

Two years ago, the U.S. Geological Survey (USGS) conducted an extensive assessment of the region’s resource potential. I’ll spare you the technical details and get right to the heart: Bakken contains 3.65 billion barrels of recoverable crude oil and 1.85 trillion cubic feet of natural gas.

If anything, that estimate is low. Earlier this month, North Dakota’s Director of Mineral Resources said there were “indications” that the Bakken could deliver 11 billion barrels of oil. Some industry insiders say 20 billion.

In any case, two miles beneath the surface of North Dakota lies the biggest oil discovery made this side of Juneau in more than 40 years. And the rush is on to bring that oil to the surface.

Geologists have known about the oil-soaked Bakken since 1951, but lacked the tools and techniques to economically extract it from the dense rock formations. But the combination of horizontal drilling and “fracing” (injecting liquids at high pressure to crack open the rocks and release trapped oil or gas) has been a game-changer.

Now, even at $7 million or so per well, recovery rates are high enough for companies to turn a profit with oil at $40 a barrel — at $90, they are swimming in cash, with internal rates of return (IRR) over 100%.

That’s why there are currently 166 rigs deployed in the Bakken region (the most anywhere outside the Gulf Coast states of Louisiana and Texas) drilling for light, sweet crude.

Meanwhile, midstream energy companies are investing heavily on critical infrastructure. Enbridge Energy Partners (NYSE: EEP) recently unveiled plans for a pipeline with the capacity to carry 145,000 barrels a day. Others are building storage terminals and processing facilities.

And they will be busy. About 2,000 wells have been drilled in the Bakken Shale during the past few years, with success rates close to 100% for many players. Those wells produced 80 million barrels of oil in 2009 and more than 110 million barrels last year. And with companies of all sizes ramping up spending to expand their footprint in the region, that total is headed straight to 200 million.

[ad#ChinaBlankCheck]Should oil retake the $100 a barrel mark as I expect, Bakken will soon be gushing profits. Far-sighted producers in the region could recoup their investments several times over — and the same might be true for shareholders.

Action to Take–> As you might imagine, the Bakken Shale has become crowded, with more than two dozen firms staking a claim in the region. The list includes EOG Resources (NYSE: EOG), Continental Resources (NYSE: CLR), Whiting Petroleum (NYSE: WLL), and Hess Corp. (NYSE: HES), just to name a few.

And that doesn’t include the oil service/equipment companies, which will have their hands full keeping up with demand. I don’t have the space here today to pick favorites; we’ll save that for another article.

But if you’re looking to optimize your exposure, then you might prefer a pure-play such as Brigham Exploration (Nasdaq: BEXP). With 282,000 acres in the Williston Basin, the small company reported a powerful 125% surge in daily production last quarter and boosted its reserves 141% from the beginning of the year.

The stock has already doubled in the past 12 months. But considering the firm has barely scratched the surface of its acreage, it could be even more rewarding during the next couple years.

— Nathan Slaughter

[Daily Trade Alert note: Jack Barnes, another analyst we follow, is also recommending Brigham Exploration. In case you missed it, here was the alert: This Stock is Up +114% in the Past Year and is Still Flashing a “Buy” Signal Today.]

[ad#jack p.s.]

Source:  StreetAuthority