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Robinbrookon Jan 12, 2010 9:28am
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Putting Alberta Back into the Oil Game
Putting Alberta Back into the Oil GameThe Cardium Oil Formation
https://www.energyandcapital.com/articles/the-cardium-oil-formation/1050 The Cardium Oil Formation
Putting Alberta Back into the Oil Game
By Keith Kohl
Monday, January 11th, 2010
Whenit comes to the Canadian oil and gas industry, I'll be the first toadmit that my attention has been shifting away from Alberta.
Let'sface it... if you've trying to stay ahead of the game, I'll bet thatyou've done the same thing. After all, we've seen a lot of Albertacompanies jumping the fence to the greener pastures of Saskatchewan.
Overthe last two years, the Bakken formation has become one the mostprofitable oil plays in Canada. I can't remember the last time I'veseen better.
British Columbia, Alberta's western neighbor,has also been stealing the spotlight with its natural gas boom in theHorn River basin. If you remember the last time I talked about Canada'stroubles with peak natural gas, you might recall that much of thetrouble was taking place in Alberta.
Even the latest interestfrom China wasn't enough for me to get excited. China is looking tospend approximately $1.7 billion for a 60%% stake in two Alberta oilsands projects. Although I still believe the oil sands are going toplay a much bigger role in the future, I'll save that discussion foranother time.
Alberta, however, is holding an ace up its sleeve... one that could be even more profitable than your Saskatchewan players.
Believe me, dear reader. You're going to be hearing a lot more about this oil play once the herd catches wind of it.
It's called the Cardium oil formation.
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The Cardium Oil Formation
BeforeI go any further, it's important to understand why this oil play is soimportant for Alberta — and why it may prove to be less risky than yourinvestments in Alberta's neighboring provinces.
As you know, Alberta is the powerhouse of Canada's energy industry due to its vast oil reserves.
Muchof the Western Sedimentary Basin (WCSB) stretches across Alberta, whichholds one of the largest oil and natural gas reserves in the world.
Butas you know, the WCSB is a mature area and production has beendeclining for years. Production of light-medium crude was projected todecline by nearly 40% between 2006 and 2016.
Alberta's oil industry isn't out for the count, though. Not yet.
Overthe next few years, we're going to see a resurgence of activity, andI'm not just talking about the oil sands. This time, I'm referring tothe growing interest in the Cardium oil formation, which holds somesimilarity to the now-famous Bakken formation.
My readers ofthe $20 Trillion Report already have a stake in both the Bakken andCardium oil play. In fact, those readers have been on a hot streak,pulling in 24 winning trades since last February. One of their latestBakken plays is up 50% in a matter of weeks. To learn more about thesegains, simply click on this free report.
And if there's onelesson we've learned from the Bakken's success, it's that it's nevertoo late. Remember, oil companies have known about the Bakken for fivedecades but have only recently begun to tap into its potential.
Unlikethe Bakken, companies have had a lot of success producing oil from theCardium formation in the past. Out of the initial 2.7 billion barrelsof oil of recoverable reserves thought to be contained in the Cardiumformation, more than 70% has been produced as of 2008.
Like I said, this isn't a new play.
Whatis new, however, is that companies are utilizing the same drillingtechnologies on Cardium wells that have been used in the Bakken. Inother words, companies are taking advantage of new horizontal drillingand hydraulic fracturing techniques.—
This renewed interest has made the Cardium oil formation Canada's second-hottest oil play.
Investing in the Cardium Formation
Oneof the advantages of the Cardium formation is that there is less risk,meaning that the geologists know there's oil in the ground. The WCSB isa mature area for exploration.
Unfortunately, it's not aseasy as blindly throwing a dart at a list of companies. While that mayhave worked back in March 2009, when nearly everyone hit rock bottom...those days are behind us.
For me, the first red flag on mychecklist is experience. We're not talking about simply drilling avertical well to a specific depth and expecting a Spindletop-likegusher. Those days are long gone. These wells can cost between $3-6million each.
That's also one reason to be on the lookout for more Bakken drillers to get involved.
Foran example, look no further than Petrobakken (TSX: PBN). A week ago,the company made a move into the Cardium oil play after buying Berens,a junior oil and gas producer. Petrobakken — a play my readers knowwell — is a combination of TriStar Oil and Gas and Petrobank's CanadianBusiness Unit.
Although the additional 3,650 boepd gained ismostly natural gas, the $271 million deal also provides Petrobakkenover 100 drilling locations in the Cardium play.
Of course,there's another roadblock that has made investors cautious... and whyit may not make a difference for your Cardium plays.
The Royalty Roadblock
Restructuringtheir oil and gas royalties is one thing that has Alberta companieslooking for more profitable opportunities in neighboring provinces.It's also one of the reasons why Alberta's energy industry is askingthe government to rethink some changes.
Even with thebillions of royalty breaks doled out to companies in the oil and gassector, it isn't enough if Alberta expects to stay competitive.
Laterthis month, a study will be released to help revamp the province'sroyalty structure. For now, I'll reserve judgment and keep you updatedon any news that comes out.
Here's the catch: Alberta'sroyalty roadblock won't stop companies from grabbing more Cardiumassets. With oil prices well above $70 per barrel, the Cardiumformation will remain profitable — without any royalty breaks.
Until next time,
keith kohl
Keith Kohl