In the first part of this three part series, an overview was given of companies that stand to benefit from the newly announced JV between Primary Petroleum (PETEF.PK)and a major industry player. This JV shows something larger and moreimportant to the oil and gas industry and the individual investor. Muchof the best acres are gone, and a significant investment would be neededto purchase these acres. Because of this, there is a focus to theoutermost portion of these plays.
An example is Samson's (SSN)investment in up to 90000 net acres in Montana's Williston BasinBakken. All of the large quality acres in the Williston Basin are goneso companies like Samson purchase to the outermost sections of the play.This is done knowing there will be diminished returns but also at amuch decreased cost. The individual investor can benefit from smallcompanies with large acreage in the fringe areas of these plays. Lynden Energy Corp. (LVLEF.PK) is in the same situation with its new JV.
Allof these deals can be mind numbing, as it is difficult to keepeverything straight. That said, the Alberta Basin could be the next hotplay. The first part of this article focused on the Alberta players inthe United States. This article covers the Canadian players, plusadditional companies in the U.S. not previously listed. The firstcompany to highlight has the largest acreage in the Basin. Crescent Point Energy (CSCTF.PK)has over 1 million gross acres in the south Alberta Basin. It seemsthis company saw something special in the Alberta, and cited light oilfrom multiple pay zones as reasoning for its acquisition. Estimates forthis area's production is difficult to assess, but with drill depthsshallow and multiple pay zones, this could be a lucrative area. I wouldguess IP rates will be around 600 Boe/d, but a recent Rosetta well (7-33N-6W) recorded an IP rate of 1174 bbls.This is much higher than Crescent's IP of 210 bbl/d in its SaskatchewanBakken. I want to be clear, if average IP rates remain above 1000Boe/d, acreage valuations could reach $5000/acre as it did in the DJBasin of the Niobara.
This area was interesting enough for large companies like Royal Dutch Shell (RDS) to purchase acres. Murphy Oil (MUR) also purchased 150000 net acres in the southern Alberta Basin last year. Murphy has nine wells completed. Nexen (NXY)is another big name, but most of its focus has been in northern Albertawhere it has oil sands interests. Over $227 million has been spent heresince April of 2010. Over this time frame the price/acre has increasedfrom $50/acre to a high of $3280/acre. Seventy wells have been recentlylicensed or drilled in the southern Alberta, with 41 being in Canada and29 in the United States. Of the 41 in Canada, 29 are rig released (22horizontal) but all wells are still confidential. Here is a currentwell count per operator of both Canadian and U.S. south Alberta Basinoperators:
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Newfield (NFX) 13 wells
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Rosetta (ROSE) 12 wells
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Murphy Oil (MUR) 9 wells
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Royal Dutch Shell (RDS) 7 wells
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Crescent Point (CSCTF.PK) 6 wells
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Deethree Exploration (DTHRF.PK) 4 wells
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Canadian Coastal Resources (Private) 4 wells
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Nexen (NXY) 3 wells
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Argosy Energy (AYEYF.PK) 3 wells
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Petrospirit (Private) 3 wells
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Anschutz (Private) 3 wells
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Legacy Oil and Gas (LEGPF.PK) 2 wells (shared)
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Bowood Energy (ROAOF.PK) 2 wells (shared)
Icovered Newfield and Rosetta in part one. The important thing toremember about these two companies is they both have very large acreagesin a confirmed overpressured zone. If we are to compare the IP ratesand EUR of wells in the Williston Basin, we also see significantlybetter results with in the overpressured zone. On the Canadian side ofthe Alberta Basin, we see another confirmed overpressured zone. BowoodEnergy's estimates show several companies here:
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Argosy Energy
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Bowood Energy
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Legacy Oil and Gas
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Nexen
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Crescent Point
Argosy has 23301 net acres. It has earned 3200 net acres through its farm in agreement with ExxonMobil (XOM). Argosyhas an option to earn another 5120 acres. Its next well is planned forthe third quarter of this year. An additional 20 potential locationshave been planned from its 3D seismic. It also is working its Pearcelocations through enhanced oil recovery.
Bowood Energy also lookspromising and claims its locations could contain three conventional andthree unconventional targets. In December of 2010, it had a total of116600 net acres in the southern Alberta Basin. Bowood signed a JV withLegacy Oil and Gas. After Legacy completes 16 horizontal wells, Bowoodwould maintain 64218 net acres in the play. Legacy will have 64176 netacres. After completion of its first two wells, Bowood plans to acquiremore acreage and shoot a 3D seismic. In the next 12-24 months it willalso complete three to seven horizontal Bakken wells. It will evaluateother prospective zones. Bowood is spending $5 million of its $6.3million 2011 capital budget on the Alberta Basin Bakken. Bowood hasmodeled it base case well economics. These economics are:
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$4.5 million in costs per horizontal well
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$2.5 million in full cycle development including multi-laterals
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IP of 180 stb/d (stock tank barrels/day)
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Est. recoverable oil of 220 Mstb/well
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Oil price estimate of $81/stb
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Rate of return=75%
Itshould be noted if the IP is increased to $320 stb/d the estimatedrecoverable oil will increase to 400 Mstb. Bowood's JV with Legacyprovided $8 million in capital. Legacy agreed to also drill 16horizontal wells to receive roughly half of Bowood's total Albertaacreage.
Legacy Oil and Gas has some very good upside. Thiscompany is a North Dakota and Saskatchewan Williston Basin Bakkenplayer. Since the overpressured area ends fairly close to the Canadianborder, its 43840 net acres in Bottineau North Dakota are interesting.It has five horizontal wells at this location. It also has an attractivesouthern Alberta Basin acres. Legacy's JV with Bowood provides 50%working interest in eight sections per well. Legacy states it hasadditional prospective light oil targets:
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Second White Specks
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Barons
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Mannville
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Nisku
Insummary, there are several different ways to play the southern AlbertaBakken. There are opportunities in Canada and the United States fromlarger corporations to smaller more speculative ones. Most importantly,this play is virtually unproven with what I would estimate IP rates ofaround 600 Boe/d. I think these numbers will be much higher in theoverpressured zones, and also believe this play has significant upside.
Disclosure: I am long LVLEF.PK, SSN.
Additional disclosure:This is the second part of a three part series on companies withacreage in the southern Alberta Basin Bakken. This is only a list andnot a buy recommendation. Please study any company thoroughly beforemaking an investment, especially speculative names. Source: PrimaryPetroleum (PETEF.PK) Source: Crescent Point (CSCTF.PK) Source: Royal Dutch Shell (RDS) Source: Murphy Oil (MUR) Source: Rosetta Resources (ROSE) Source: Deethree Exploration (DTHRF.PK) Source: Argosy Energy (AYEYF.PK) Source: Legacy Oil and Gas (LEGPF.PK) Source: Bowood (ROAOF.PK). The author has no relationship, nor owns any shares of Primary Petroleum.