..............One of the Largest North American Oil Discoveries in Decades
What has the oil and gas industry so excited about the Alberta Bakken– the stealth play of the year?
Some big companies on both sides of the 49th parallel havespent millions buying thousands of acres of land – with almost no welldata. This flurry of activity says the industry is convinced theAlberta Bakken could be North America’s next big play.
“I think what has the industry excited is the potential andsimilarities between the Alberta Bakken and the Williston Basin (inNorth Dakota),” says Mike Marrandino, President of Primary Petroleum,which has 235 net sections in the Alberta Bakken in Montana.
“The (Alberta Bakken) reservoir size is over such a large land area,the potential is huge - if it does prove up.”
The original Bakken covers parts of North Dakota, eastern Montana andsouthern Saskatchewan, and estimates of how much oil it could hold(OOIP-Original Oil in Place) range from 5 billion to 167 billion barrelsof oil, making it one of the largest discoveries in North America indecades. And the industry is always figuring out ways to increaserecoveries; i.e get a greater percentage of that oil out of the ground.
It is the largest onshore discovery in North America in decades, andis really the only shale oil play on earth with a production history.In many of the new shale plays emerging around the globe, the managementteams are saying – “This is a Bakken look alike!”
But are they? How does the Alberta Bakken stand up?
Analysts agree the source rocks from the two plays were built up atthe same geological time, but that eastern Bakken, in NorthDakota/Saskatchewan, was the inside of a giant crater. The western onewas a big west facing beach.
Canadian brokerage firm BMO Nesbitt Burns wrote a report on the twoBakkens in October, and it said the Alberta Bakken meets the criteriafor a big Bakken like discovery (my translation in brackets after eachpoint):
i) pervasive petroleum saturation; (lots of oil all over the place)
ii) abnormal pressure (high); (high pressure=big wells)
iii) a lack of downdip water; (no water below the oil)
iv) updip water saturation; (lots of water above the oil)
v) low-permeability and low-matrix porosity reservoirs ; (it’stypical tight rock)
vi) deliverability is enhanced by fracturing; and (natural cracks inthe rock make it easier for oil to get to the well)
vii) plays that are self-sourcing within a mature source rockfairway. (there is lots of oil in an area surrounded by a bigger areawhere we have already found a lot of oil)
BMO concluded that the Alberta Bakken met its criteria on all counts.
Macquarie Capital, a large, world-wide resource investment bank andbrokerage firm, compared them this way:
“Geological properties....To the west in southernAlberta and BC, the lower Bakken members actually correlate with theExshaw formation, while the upper Bakken member is similar to the basalblack shale unit of the Banff formation....”
TRANSLATION - the lower Bakken formation in North Dakota andSaskatchewan is called the Exshaw in western Montana and southernAlberta, but it’s basically the same thing. And the upper Bakken iscalled the Banff formation in Montana/Alberta.
“....The Exshaw/Bakken is an organic-rich, marine, source rock thatoccurs in the lower part of the Mississippian-Devonian system.”
TRANSLATION - there is oil in the rock at the bottom
“....The formation as a whole represents a petroleum system that canbe tracked from source to trap.”
TRANSLATION - you can see where the oil was formed, and you can alsosee how the oil has moved up until it hits the top of a cone in animpermeable rock and stops—trapped there.
“....The Exshaw, Bakken (lower and upper members), and Lodgepoleformations consist of organic-rich, black, basinal laminites withaverage TOC’s up to 12% in the lower Bakken, 40% in the upper Bakken, 5%in the Lodgepole, and over 20% in the Exshaw. Each formation consistsof Type II organic matter (characteristic of most marine oil sourcerocks)...
TRANSLATION - the Total Organic Content (TOC) of the rock (this meansenough little bugs died in one place millions of years ago) is bigenough that it’s likely a lot of oil is present.
“...Unfortunately, the Lodgepole formation is typically less maturethan the Exshaw/Bakken shales and as such over time has demonstrated themost oil expulsion of the three layers; in fact, it serves as thesource rock for most Mississippian oil pools.”
TRANSLATION – most of the oil is gone and moved up into oil poolscloser to surface
“...Conversely, the Exshaw/Bakken is considered the most conducive(and prospective) for horizontal multi-stage fracturing given that ithas experienced limited migration, and most of the oil remains containedwithin the member.”
TRANSLATION – most of the oil is still there, and it looks like thebest one.
“We have identified over 18 wells that have drilled through theBakken near or on our property,” says Primary’s Marrandino. His teamhas been evaluating old data to better understand the similaritiesbetween their Bakken package to that of the Bakken Williston Basin.They have had to travel to Denver Colorado and Billings Montana tolocate the physical data – old core, or “thin sections” and analyze themunder a microscope to better understand the characteristics of theAlberta Bakken formation and potential oil in place
“It further de-risks the play,” he says.
So it looks like the two plays have very similar geologicalcharacteristics. What about economics.?
BMO, Macquarie and Haywood Securities have all acknowledged that theAlberta Bakken is a deep, overpressured formation. This leads them tobelieve that the deliverability (economics) may be superior to the mainCanadian Bakken play in Viewfield, south-central Saskatchewan, but lowerthan the North Dakota Bakken in the US.
Like most horizontal, multi fracked wells in the Bakken it is assumedthat the initial flow rates of the Alberta Bakken will be high, withhigh decline rates, and a relatively large total amount of oilrecovered.
For the Alberta Bakken play BMO Capital Markets estimates that oilcompanies will recover a total of roughly 250,000 barrels of oil perwell (this is called the “Estimated Ultimate Recovery” or EUR) and athree-month average IP of 348 bopd. They say this yields a Before TaxNet Present Value @ 10% of ~$4.5 million for a Horizontal Oil Case, anInternal Rate of Return (IRR) of 75.9–108.8% and a Breakeven Supply Cost(BESC) of $41.25–42.20/ bbl.
These economics are just below that of the Saskatchewan Bakken, BMOadds. It’s as big an “NPV 10” (the present value of how much money theproducer might get after the well pays back its cost) as theSaskatchewan Bakken – which has the highest valuation per barrel of anybasin/play in the country.
Keep in mind that there is only one well on which to base thesefigures, and that was a vertical well which hit a natural fracture—notexactly a typical well that investors expect to see over the life of theplay.
Concludes BMO Nesbitt Burns: “Ultimately, when comparing the AlbertaBakken type well to the Saskatchewan Bakken type wells, the AlbertaBakken—due to the overall thickness of the reservoir, and theoverpressured, Deep Basin setting—has the potential for a highlyeconomic well.”
There are a basket of juniors in Canada that now have some veryintriguing capital gains potential, if they get lucky with theirgeology.