Is Bakken oil play a winner?

The shares of a small Minnesota company with big interests in the North Dakota oil patch have returned to earth after soaring from $12 a year ago to almost $33 in March.

Wayzata-based Northern Oil & Gas has 150,000-plus acres under lease in the huge Bakken fields of western North Dakota and eastern Montana. The stock peaked in early March, about the time CEO Michael Reger sold more than $20 million worth of stock.

Short-sellers, who profit when a stock goes down, have trashed "NOG" on two popular blogs, including powerful "Streetsweeper.com." Northern shares closed Friday at $20.39, up 3 percent, ending a recent dry spell.

The oil patch has always been known for its boom-and-bust gyrations, speculative securities and controversy.

Promoters of the Bakken fields have dubbed North Dakota the "next Texas."

Doubters, however, have helped Northern lose nearly $1 billion in market value since March, when Reger sold 20 percent of his 4 million founders shares in the five-year-old company. They doubt Northern's business model can deliver the oil production the company claims.

Reger, 35, said in an interview that he sold some shares to diversify his holdings. Reger, a native of Billings, Mont., said his family has leased local mineral rights for two generations.

"We are the lowest-cost producer and have the highest quality acreage potential, pound for pound, because we were there first [in 2006]," Reger said. "The well that kicked off the Bakken was in Mountrail County, N.D. We've got partnership interest in about 10 percent of the Bakken 'play' and we're more heavily exposed to Mountrail, the most productive county in the Bakken."

Northern reports first-quarter earnings on Tuesday. A consensus of analysts project it will increase earnings this year by nearly four times to $4.11 per share from $1.09 in 2010 on revenue that should triple to $190 million.

Supportive analysts at shops such as Northland Capital Markets and Robinson Humphrey say "NOG" has been beaten down to a lower valuation than its Bakken peers, such as Brigham Exploration, Kodiak Oil & Gas and Oasis Petroleum. They project that Northern's stock price will top $35 per share this year as production expands for $100 per barrel oil during the good weather months. Oil production in the area is more difficult in the cold winter months.

"I'm still bullish," said Marty Beskow, an analyst at Northland Securities, which has helped Northern raise capital. Short-sellers have questioned the company's accounting and its oil production forecasts.

"The accusations ... do not hold water," Beskow said. "I believe [they] will be proved wrong by the passage of time as Northern performs ... and resources continue to move into the Williston Basin."

Northern, which has no debt, is kind of a mutual-fund play on the Bakken.

Michael Reger's grandfather, a lawyer, started a North Dakota mineral-leasing brokerage in the Williston Basin area that is still in the family. Michael Reger worked for the family company, Reger Oil and Gas, until 2006, when he started Northern, which went public through the acquisition of a dormant or "shell" public company in 2007.

Northern is not a oil field operator. Rather, it has acquired 150,000 acres, which amounts to minority interest in larger sections of land that have been or are expected to be leased by production companies that actually do the drilling.

Minority partner

Under North Dakota law, a minority leaseholder on a 640-acre section of land such as Northern, gets "force pooled" into a partnership with the majority operator. The minority leaseholder is billed for its proportionate share of the drilling investment. Northern expects to invest a quarter-billion this year in drilling operations.

Northern has attracted some deep-pocket investors. The two largest shareholders ahead of Reger are mutual fund giants T. Rowe Price and Fidelity Investments.

But not everybody likes Northern.

"The Bakken is a great discovery, but not all wells are the same," said John Hempton, the force behind Bronte Capital, a blogger and anti-Northern hedge fund manager. "These wells all wind up dead. It's just a matter of how long. Wall Street doesn't see the difference very clearly. Every well has a high initial-flow rate. That's nirvana for stock promoters."

There's also a 2010 suit in federal court by a Northern shareholder alleging conflicts over land deals that benefitted Reger's uncles, who sold some land to Northern, and Voyageur, another mineral-leasing company run by Reger's brother, James.

Northern has filed for dismissal. Reger says all the dealings have been disclosed and there are no conflicts.

Northern President Ryan Gilbertson, 35, a graduate of Gustavus Adolphus College, has also made several million on recent stock sales. He was a money manager at Piper Jaffray & Co. and Reger friend. Together, they founded Northern.

Reger typically wears jeans, an open-collar dress shirt, snappy sportcoat and a belt with a big silver buckle with the initial R. Employees also get a belt buckle engraved with their initials.

"It's the Northern uniform," Reger said.