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Introduction

Although North Dakota remains the focal point for many Williston Basin players, the Montana Bakken play is evolving and Montana Bakken activity is accelerating gradually. Montana's production has improved since the initial #1-4H Piranha (630 boepd) discovery by Slawson Exploration in 2008 but it is still a laggard in comparison to North Dakota's production. However most projects in Montana are still at the very early stages of their development so the oil production might rise in the future. I have already written three articles about that highly prospective area trying to incorporate a lot of details about all the players there. It remains to be seen whether this area proves to be as oily as North Dakota.

The companies

Emerald Oil (EOX) is likely the most Montana-weighted, publicly-traded producer in North America as approximately 65% of its total acreage is located in Montana. I wish the company was North Dakota-weighted instead. Emerald has 43,600 core net acres targeting the Bakken/Three Forks shale oil formations in North Dakota and Montana (primarily in Richland County) and this is the focal area (pdf) for the corporate development program during 2013.

A lot of upcoming success in Williston Basin has already been priced into Emerald's rich valuation of $125,000/boepd (93% oil). The drilling program will last 15 months and we will see whether the company hits the target of 2,000 boepd by the end of 2013.

However, the company's acreage in Richland County of the Williston Basin does not seem to be very promising as the reported 24-hours IP rates from Schnitzler 34-24 (12,5% WI), Abercrombie 1-10 (6,25% WI) and Bouchard 34-21 (2,24% WI) wells are 200 boepd, 630 boepd and 133 boepd respectively. I am curious to see the drilling results from Salsbury 24-35-1H (6,25% WI), Mott 1-16H (3,25% WI), Sherri 2658 43-9H (1,56% WI) and Davies 1-20H (0,94% WI) wells, which are awaiting completion. All of them are in Richland County.

Emerald also holds approximately 33,500 net acres in a joint venture targeting the Heath shale oil formation in Musselshell, Petroleum, Garfield and Fergus Counties of Montana. This play has some early encouraging results as the neighboring operators Cirque Resources and Fidelity (pdf) reported IP of 271 boepd on Rock Happy 33-3H well and IP of 248 boepd on Schmidt 44-27H well respectively but Emerald waits for the play to be further de-risked.

The cost per well for the Heath shale oil formation is $4.5M, which reminds me of the cost per well for the oil rich Beaverhill Lake formation where the Canadian Second Wave Petroleum (OTC:SCSZF) sits. However, the 24-hours IP of the Beaverhill Lake formation is at least 10 times higher than Heath's as it ranges from 2,000 to 5,000 boepd with average IP-30, IP-60 and IP-90 light oil rates per well of 500 bbl/d, 283 bbl/d and 219 bbl/d, respectively. Eventually, the Heath shale oil formation has to become much more oily than it is currently, to attract my interest.

Additionally, Emerald holds 74,700 net acres in a joint venture in and around the Tiger Ridge natural gas field in Blaine, Hill and Chouteau Counties of Montana but it does not have any activity there as of today.

The giant Crescent Point Energy (CSCTF.PK) also has exposure in Montana. The company's Williston Basin acreage is located in Roosevelt and Sheridan Counties.

It also holds acreage targeting the Madison formation in Pondera County close to Rosetta Resources (ROSE) and Primary Petroleum (PETEF.PK). It is worth noting that Crescent Point targets 1,700 boepd production in the Alberta Basin by the end of 2013. It will be very interesting to see whether Crescent hits this production target as Rosetta suspended its operations there recently due to poor drilling results and Primary also reported poor results few days ago.

I believe that Crescent Point will hit this production thanks to its huge Alberta Basin acreage on the Canadian side as its acreage on the U.S. side will most likely be as poor as Rosetta's and Primary's properties.

Bill Barrett (BBG) is one of the companies that I consider to be very undervalued currently. Barrett operates primarily in the Rocky mountains and its transition from natural gas to oil has also been rocky during the last 1.5 years as the stock price has dropped from $50 in late 2011 down to $18 today.

Barrett also holds 97,000 net (pdf) acres in Montana and the company is on "exploration mode" there. It drilled recently its first exploration horizontal well in the Banff-Bakken (pdf) at a depth of 3200 ft with 3800-ft lateral but the company has not released any results yet.

However Bill Barrett does not plan to invest more "exploration money" during 2013 on its Montana acreage according to its latest operating plan and this may be the reason why Kurt Reinecke, VP of Exploration, resigned few days ago.

Abraxas Petroleum (AXAS) holds approximately 10,000 net acres in Sheridan, Roosevelt and Richland Counties of Montana, as part of its Williston Basin properties (23,000 net acres). The company's remaining unproven land in Montana is spread out in seven different (pdf) counties and this obviously weighs negatively on the operating efficiency and the corporate synergies in case there are economical wells in these properties.

For 2013, the company has no immediate plans to start drilling in Montana. Abraxas follows Sanchez Energy (SN) on a "sit and wait" strategy and the primary driver will be the drilling results from the other operators of the area.

Abraxas trades with a huge premium (PBV=3.3) currently. To me, this does not make sense as it is a junior producer with only 53% oil and liquids (pdf) production. It also holds small acreage in the potentially oil rich formations like the Bakken formation in Williston Basin and the Eagle Ford Shale in Texas, where it owns only 23,320 and 7,306 net acres respectively. Not to forget that half of its properties in Williston Basin are in Montana's side. Additionally, Abraxas' proven reserves are just 54% oil and liquids weighted.

If the company does not grow substantially both its oil production and its reserves during 2013, the downside risk from the current levels of $2.30 is significant in my opinion.

Triangle Petroleum Corporation (TPLM) is a pure Williston Basin play. However most of its acreage is in Montana where it owns 54,500 net acres in Roosevelt and Sheridan Counties out of a total of 86,000 net acres in the Williston Basin. Most of its Montana acreage is occupied by the Station Prospect (50,000 net acres, 70% WI). This position is contiguous and lies adjacent to the Elm Coulee field. As an early mover into that undeveloped region, the leasehold terms are favorable and this is why the company does not have any imminent plans to deploy capital to this area over the near term. The company's core area is located in McKenzie and Williams Counties in North Dakota.

What concerns me much with Triangle is the negative funds from operations. In addition, Triangle's acreage in Montana borders with Samson Oil and Gas (SSN) and Continental (CLR) acreage where Samson and Continental drilled some poor wells recently (Gretel, Australia and Abercrombie).

Conclusion

The results from Montana thus far are far from a superior long-term production performance. Does the Middle Bakken, a.k.a. the sweet spot of North Dakota, become bitter when it moves to Montana? It remains to be seen as we will know more drilling results in 2013. In the meantime, I am inclined to hold off on investing in the companies that are heavily dependent on their Montana properties.

Source: For The Montana Bakken Players: Is Montana's Bakken A Dud? (Part IV)