Primary Petroleum's New JV Is Good for All Alberta Bakken Players: Part II

by: Michael Filloon

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 more important to the oil and gas industry and the individual investor. Much of the best acres are gone, and a significant investment would be needed to purchase these acres. Because of this, there is a focus to the outermost portion of these plays.

An example is Samson's (NYSEMKT:SSN) investment in up to 90000 net acres in Montana's Williston Basin Bakken. All of the large quality acres in the Williston Basin are gone so companies like Samson purchase to the outermost sections of the play. This is done knowing there will be diminished returns but also at a much decreased cost. The individual investor can benefit from small companies with large acreage in the fringe areas of these plays. Lynden Energy Corp. (OTCPK:LVLEF) is in the same situation with its new JV.

All of these deals can be mind numbing, as it is difficult to keep everything straight. That said, the Alberta Basin could be the next hot play. The first part of this article focused on the Alberta players in the United States. This article covers the Canadian players, plus additional companies in the U.S. not previously listed. The first company 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 seems this company saw something special in the Alberta, and cited light oil from multiple pay zones as reasoning for its acquisition. Estimates for this area's production is difficult to assess, but with drill depths shallow and multiple pay zones, this could be a lucrative area. I would guess 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 Saskatchewan Bakken. I want to be clear, if average IP rates remain above 1000 Boe/d, acreage valuations could reach $5000/acre as it did in the DJ Basin of the Niobara.

This area was interesting enough for large companies like Royal Dutch Shell (RDS) to purchase acres. Murphy Oil (NYSE: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 Alberta where it has oil sands interests. Over $227 million has been spent here since April of 2010. Over this time frame the price/acre has increased from $50/acre to a high of $3280/acre. Seventy wells have been recently licensed or drilled in the southern Alberta, with 41 being in Canada and 29 in the United States. Of the 41 in Canada, 29 are rig released (22 horizontal) but all wells are still confidential. Here is a current well count per operator of both Canadian and U.S. south Alberta Basin operators:

  • Newfield (NYSE:NFX) 13 wells

  • Rosetta (NASDAQ:ROSE) 12 wells

  • Murphy Oil (MUR) 9 wells

  • Royal Dutch Shell (RDS) 7 wells

  • Crescent Point (CSCTF.PK) 6 wells

  • Deethree Exploration (DTHRF.PK) 4 wells

  • Canadian Coastal Resources (Private) 4 wells

  • Nexen (NXY) 3 wells

  • Argosy Energy (OTC:AYEYF) 3 wells

  • Petrospirit (Private) 3 wells

  • Anschutz (Private) 3 wells

  • Legacy Oil and Gas (OTCPK:LEGPF) 2 wells (shared)

  • Bowood Energy (OTC:ROAOF) 2 wells (shared)

I covered Newfield and Rosetta in part one. The important thing to remember about these two companies is they both have very large acreages in a confirmed overpressured zone. If we are to compare the IP rates and EUR of wells in the Williston Basin, we also see significantly better results with in the overpressured zone. On the Canadian side of the Alberta Basin, we see another confirmed overpressured zone. Bowood Energy's estimates show several companies here:

  • Argosy Energy

  • Bowood Energy

  • Legacy Oil and Gas

  • Nexen

  • Crescent Point

Argosy has 23301 net acres. It has earned 3200 net acres through its farm in agreement with ExxonMobil (NYSE:XOM). Argosy has an option to earn another 5120 acres. Its next well is planned for the third quarter of this year. An additional 20 potential locations have been planned from its 3D seismic. It also is working its Pearce locations through enhanced oil recovery.

Bowood Energy also looks promising and claims its locations could contain three conventional and three unconventional targets. In December of 2010, it had a total of 116600 net acres in the southern Alberta Basin. Bowood signed a JV with Legacy Oil and Gas. After Legacy completes 16 horizontal wells, Bowood would maintain 64218 net acres in the play. Legacy will have 64176 net acres. After completion of its first two wells, Bowood plans to acquire more acreage and shoot a 3D seismic. In the next 12-24 months it will also complete three to seven horizontal Bakken wells. It will evaluate other prospective zones. Bowood is spending $5 million of its $6.3 million 2011 capital budget on the Alberta Basin Bakken. Bowood has modeled it base case well economics. These economics are:

  • $4.5 million in costs per horizontal well

  • $2.5 million in full cycle development including multi-laterals

  • IP of 180 stb/d (stock tank barrels/day)

  • Est. recoverable oil of 220 Mstb/well

  • Oil price estimate of $81/stb

  • Rate of return=75%

It should be noted if the IP is increased to $320 stb/d the estimated recoverable oil will increase to 400 Mstb. Bowood's JV with Legacy provided $8 million in capital. Legacy agreed to also drill 16 horizontal wells to receive roughly half of Bowood's total Alberta acreage.

Legacy Oil and Gas has some very good upside. This company is a North Dakota and Saskatchewan Williston Basin Bakken player. Since the overpressured area ends fairly close to the Canadian border, its 43840 net acres in Bottineau North Dakota are interesting. It has five horizontal wells at this location. It also has an attractive southern Alberta Basin acres. Legacy's JV with Bowood provides 50% working interest in eight sections per well. Legacy states it has additional prospective light oil targets:

  • Second White Specks

  • Barons

  • Mannville

  • Nisku

In summary, there are several different ways to play the southern Alberta Bakken. There are opportunities in Canada and the United States from larger corporations to smaller more speculative ones. Most importantly, this play is virtually unproven with what I would estimate IP rates of around 600 Boe/d. I think these numbers will be much higher in the overpressured zones, and also believe this play has significant upside.

Disclosure: I am long OTCPK:LVLEF, SSN.

Additional disclosure: This is the second part of a three part series on companies with acreage in the southern Alberta Basin Bakken. This is only a list and not a buy recommendation. Please study any company thoroughly before making an investment, especially speculative names. Source: Primary Petroleum (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 (OTC:AYEYF) Source: Legacy Oil and Gas (OTCPK:LEGPF) Source: Bowood (OTC:ROAOF). The author has no relationship, nor owns any shares of Primary Petroleum.