Here’s our Pick of the Month – October 2011

BELLATRIX EXPLORATION $4.29 (Toronto symbol BXE; TSINetwork Rating: Speculative) (403-266-8670; www.bellatrixexploration.com; Shares outstanding: 114.2 million; Market cap: $448.9 million; No dividends paid) produces oil and natural gas in Alberta, B.C. and Saskatchewan. Gas makes up about 62% of its output; the remaining 38% is oil.

In the three months ended June 30, 2011, Bellatrix’s production rose 51.8%, to 11,643 barrels of oil equivalent per day (including natural gas) from 7,671 barrels. The company’s drilling success continues to add to its production: in the first half of 2011, it drilled 23 wells with a 100% success rate.

Cash flow per share doubled in the latest quarter, to $0.22 from $0.11. The increased production and higher oil prices were the main reasons for the gains. The company’s long-term debt is $93.0 million, or a low 20.7% of its market cap.

In 2012, Bellatrix plans to increase its capital spending by 5.9%, to $180 million from the $170 million it’s likely to spend in 2011. The higher spending will help push up its average forecast daily production to 17,000 barrels of oil equivalent in 2012, from an estimated 12,000 barrels in 2011.

The company has identified 700 drilling targets on its land, including areas in Alberta’s fast-growing Duverney shale gas region. Producers must use specialized fracturing techniques to release shale gas, including cracking the rock with high water pressure and sand. However, shale gas deposits are often long-lived and very profitable.

The shares trade at 4.2 times Bellatrix’s forecast 2011 cash flow of $1.03 a share, and just 2.9 times its estimated 2012 cash flow of $1.48 a share.

Bellatrix Exploration is a buy.