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Putting Alberta Back into the Oil Game

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The 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

Whenitcomes to the Canadian oil and gas industry, I'll be the first toadmitthat my attention has been shifting away from Alberta.

Let'sfaceit... if you've trying to stay ahead of the game, I'll bet thatyou'vedone the same thing. After all, we've seen a lot of Albertacompaniesjumping the fence to the greener pastures of Saskatchewan.

Overthelast two years, the Bakken formation has become one the mostprofitableoil plays in Canada. I can't remember the last time I'veseen better.

BritishColumbia, Alberta's western neighbor,has also been stealing thespotlight with its natural gas boom in theHorn River basin. If youremember the last time I talked about Canada'stroubles with peaknatural gas, you might recall that much of thetrouble was taking placein Alberta.

Even the latest interestfrom China wasn't enoughfor me to get excited. China is looking tospend approximately $1.7billion for a 60%% stake in two Alberta oilsands projects. Although Istill believe the oil sands are going toplay a much bigger role in thefuture, 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

BeforeIgo any further, it's important to understand why this oil play issoimportant for Alberta — and why it may prove to be less risky thanyourinvestments in Alberta's neighboring provinces.

As you know, Alberta is the powerhouse of Canada's energy industry due to its vast oil reserves.

Muchofthe Western Sedimentary Basin (WCSB) stretches across Alberta,whichholds one of the largest oil and natural gas reserves in theworld.

Butas you know, the WCSB is a mature area andproduction has beendeclining for years. Production of light-mediumcrude was projected todecline by nearly 40% between 2006 and 2016.

Alberta's oil industry isn't out for the count, though. Not yet.

Overthenext few years, we're going to see a resurgence of activity, andI'm notjust talking about the oil sands. This time, I'm referring tothegrowing interest in the Cardium oil formation, which holdssomesimilarity to the now-famous Bakken formation.

My readersofthe $20 Trillion Report already have a stake in both the BakkenandCardium oil play. In fact, those readers have been on a hotstreak,pulling in 24 winning trades since last February. One of theirlatestBakken plays is up 50% in a matter of weeks. To learn more aboutthesegains, simply click on this free report.

And if there'sonelesson we've learned from the Bakken's success, it's that it'snevertoo late. Remember, oil companies have known about the Bakken forfivedecades but have only recently begun to tap into its potential.

UnliketheBakken, companies have had a lot of success producing oil fromtheCardium formation in the past. Out of the initial 2.7 billionbarrelsof oil of recoverable reserves thought to be contained in theCardiumformation, more than 70% has been produced as of 2008.

Like I said, this isn't a new play.

Whatisnew, however, is that companies are utilizing the samedrillingtechnologies on Cardium wells that have been used in theBakken. Inother words, companies are taking advantage of new horizontaldrillingand hydraulic fracturing techniques.—

This renewed interest has made the Cardium oil formation Canada's second-hottest oil play.

Investing in the Cardium Formation

Oneofthe advantages of the Cardium formation is that there is lessrisk,meaning that the geologists know there's oil in the ground. TheWCSB isa mature area for exploration.

Unfortunately, it's notaseasy as blindly throwing a dart at a list of companies. While thatmayhave worked back in March 2009, when nearly everyone hit rockbottom...those days are behind us.

For me, the first red flagon mychecklist is experience. We're not talking about simply drillingavertical well to a specific depth and expecting aSpindletop-likegusher. Those days are long gone. These wells can costbetween $3-6million each.

That's also one reason to be on the lookout for more Bakken drillers to get involved.

Foranexample, look no further than Petrobakken (TSX: PBN). A week ago,thecompany made a move into the Cardium oil play after buying Berens,ajunior oil and gas producer. Petrobakken — a play my readers knowwell —is a combination of TriStar Oil and Gas and Petrobank'sCanadianBusiness Unit.

Although the additional 3,650 boepdgained ismostly natural gas, the $271 million deal also providesPetrobakkenover 100 drilling locations in the Cardium play.

Ofcourse,there's another roadblock that has made investors cautious...and whyit may not make a difference for your Cardium plays.

The Royalty Roadblock

Restructuringtheiroil and gas royalties is one thing that has Alberta companieslookingfor more profitable opportunities in neighboring provinces.It's alsoone of the reasons why Alberta's energy industry is askingthegovernment to rethink some changes.

Even with thebillions ofroyalty breaks doled out to companies in the oil and gassector, itisn't enough if Alberta expects to stay competitive.

Laterthismonth, a study will be released to help revamp the province'sroyaltystructure. For now, I'll reserve judgment and keep you updatedon anynews that comes out.

Here's the catch: Alberta'sroyaltyroadblock won't stop companies from grabbing more Cardiumassets. Withoil prices well above $70 per barrel, the Cardiumformation will remainprofitable — without any royalty breaks.

Until next time,

keith kohl

Keith Kohl