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

Aug. 3.11 | About: Rosetta Resources (ROSE)

The southern Alberta Basin could be the sleeper play of 2011. A recently unconfirmed Rosetta (NASDAQ:ROSE) well had an IP of 1174 bbls. If this number is true it could prove bullish for all players. The southern Alberta Basin started seeing a significant increase in acres purchased beginning in 2010. Now most of the large, condensed acres have been purchased, which should lead to higher prices. In my opinion, the most significant location is the overpressured area in Montana, which is shared mainly by Rosetta and Newfield (NYSE:NFX). Here are the remaining players not listed in the previous two articles (part I, part II) on southern Alberta Basin Bakken acres.

Deethree Exploration (DTHRF.PK) has 280 sections of southern Alberta prospective land. Its lands are north of a very busy location where several large companies are working. Murphy Oil (NYSE:MUR), Shell (RDS), and Crescent Point (CSCTF.PK) all have wells to the south. Deethree plans to drill a total of seven wells here in 2011, and has completed two. Exit production for 2011 is estimated to be 60% liquids. This is an increase from 30% from the beginning of this year. This company is well positioned in the basin and is aggressively working its acreage.

Vecta Energy (OTC:VCTEF) is a tiny oil and gas company with 120000 gross acres in the southern Alberta Basin. These acres are shared with United States partner Vecta Oil and Gas. It is a pure Alberta Basin Bakken play. Vecta identifies activity near its leasehold by these companies:

  • Bowood Energy (OTC:ROAOF) was expected to drill two horizontal wells in the first quarter of 2011

  • Crescent Point Energy (CSCTF.PK) has 14 net developed and exploration wells planned this year

  • Deethree Exploration (DTHRF.PK) seven locations planned for 2011

  • Mountainview Energy (OTCPK:MNVWF) two vertical wells planned

  • Newfield Exploration (NFX) drilled five vertical and one horizontal well last year

  • Primary Petroleum (PETEF.PK) plans to drill six to ten wells this year

  • Rosetta Resources (ROSE) six vertical wells drilled so far with five vertical wells planned to be finished at the end of the first quarter of this year

Vecta believes there are four primary resource plays:

  1. Exshaw/Bakken

  2. Banff

  3. Lodgepole

  4. Three Forks

Vecta's secondary resource plays are:

  1. Nisku

  2. Duperow (CO2)

Conventional targets are:

  1. Bow Island

  2. Sunburst

  3. Cutbank

  4. Swift

  5. Sawtooth

  6. Mission Canyon

Vecta states its acreage holds 6.5 to 10 million barrels of oil equivalent per section. This is less than Rosetta's estimated 16 million barrels/section. Rosetta's acres in the southern Alberta are what I believe to be the best in the play. It estimates it has prospective recoverable resource of 390000 to 1000000 barrels/section. Vertical test wells will cost approximately $550000/each. One completion is estimated to cost $700000. Horizontal wells will cost an estimated $3.5 million/well. Vecta has interesting well economics in this basin using BMO Capital Markets information from October of 2010:

  • IP rate of 348 barrels/day

  • Prospective resource of 250000 barrels

  • Payout in one year

  • Well Cost $4.5 million

  • Well depth of 1525 to 2800 m

Vecta's acreage is to the east of Rosetta's and Newfield's acreages, and has little to no well information. That said, it has a 50% working interest in 120000 net acres, which is quite large given the company's market cap.

Guardian Exploration (OTC:GUEXF) announced on July 7th, that it added 1276 acres to its south Alberta Basin acreage. Guardian now has a total of just over 10000 acres in Montana. There are several new wells being drilled close to its acreage including Newfield's Sheriff 1-11H which is seven miles northwest of Guardian's land. My guess is Guardian will continue to watch the play as it develops its Pekisko oil play in the Jenner area of the southern Alberta. It will allow competitors to de-risk its acreage.

In summary, the southern Alberta Basin Bakken could have more resources than it has been given credit for. It was not long ago that a small Australian oil and gas company saw its market cap appreciate significantly in the DJ Basin of the Niobrara: The Niobrara for the most part is a good oil producer. Samson Oil and Gas (NYSEMKT:SSN) was sitting on a sweet spot, and Chesapeake (NYSE:CHK) was more than willing to pay top dollar. If a company like Primary Petroleum, with 300000 net acres, has a very good Bakken producer with multi-zone production on a portion of its land, we could see another Samson in the making.

Disclosure: I am long SSN.

Additional disclosure: This is the third part of a series of lists on companies with exposure to the southern Alberta Basin Bakken. This should not be confused with the Williston Basin Bakken in North Dakota, Saskatchewan, and eastern Montana. This article is not a buy recommendation. Source: Deethree Exploration (DTHRF.PK) Source: Vecta Energy (OTC:VCTEF) Source: Bowood Energy (OTC:ROAOF) Source: Primary Petroleum (PETEF.PK) Source: Rosetta Resources (ROSE) Source: Newfield (NFX) Source: Guardian (OTC:GUEXF)