The Alberta Bakken: The Smaller Sibling Offers Compelling Prospects

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 |  Includes: AKVA, BHP, KEEKF, KWK, MNVWF, NFX, ROSE, SGY
by: Goombarh

Once in a while you come across a compelling investment thesis, and you pull your hair out by the roots to try and accommodate yourself to take advantage of it. Who am I in trying to persuade you; accordingly here are some previous thoughts that have worked out well:

1. Great Basin Gold Breaks Out - August 13, 2010 2. Why I Bought ImmunoGen After the Plunge - August 29, 2010 3. Silver Signals Sizzle in GSR Break - September 13, 2010 4. A Leverage Strategy for Goldcorp as Bull Run Seems Likely - February 28, 2011 5. XIV: Invest in a Return to Normal - March 18, 2011.

To be fair, here are some other thoughts, that did not quite pan out: 1. Great Basin Gold: Ready for Big Moves in 2011 - January 18, 2011 2. Why I bought Victoria Gold After the Drop - November 29, 2010.

Now, as an investor I am always looking for interesting situations. I am aware of world oil prices and the trend toward fracking of shale for oil and gas. Also, I am aware of the "peak oil" theory and of the need for North American petroleum resources. All of this background information points toward an oil and gas type of investment on North American soil. This is the type of situation that may be potentially rewarding because of all these major driving trends.

Bakken Boom - the Senior

The Bakken is the layer of shale type rocks that underlies the 200,000 square miles Willinston Basin in Montana and North Dakota in the U.S. and Alberta, Saskatchewan and Manitoba in Canada. The Bakken has prime potential to host oil and gas resources. A primer on the Bakken formation is here at Wikipedia. Here is the article from 2008, at the beginning of the boom, written by Steven Ward and posted on Seeking Alpha.

A very good introduction to the Bakken oil exploration written by Atticvs Research also was posted on Seeking Alpha. Following is a overall view map of the Bakken.

http://www.beatingtheindex.com/wordpress/wp-content/uploads/2011/02/Alberta-Basin-Bakken1.png

Source.

Here is a recent commentary about the Bakken boom and the projected impact on North American oil supply. Michael Filloon has written a four part series about the Bakken posted on Seeking Alpha. The advent of shale oil and new technologies in fracking that allowed the extraction of the petroleum resources have caused a boom in the North Dakota, Northeast Montana and Saskatchewan parts of the geologic basin.

Also, as symbolic for the frenzy in the Bakken Boom, on July 14, 2011, BHP Billiton (NYSE:BHP) bought out Petrohawk Energy for $15 billion. A very good analysis of the the purchase by David White is posted on Seeking Alpha.

Alberta Bakken - the Smaller Sibling

The Alberta Bakken is the western portion of the Williston Basin aligned with the Rocky Mountain foothills in Southern Alberta and Northwestern Montana and is an area of recent interest. A very good introduction to the Alberta Bakken is here.

Status of Alberta Bakken

The Alberta Bakken has been probed for over two years since 2008 and the situation is reaching a critical mass. Three main players have scooped up major positions in the mineral rights of this area in Northwestern Montana, Rosetta Resources (NASDAQ:ROSE), Newfield Exploration (NYSE:NFX) and Auschutz (private) all have drilled. Other companies such as Quicksilver Resources (NYSE:KWK), Primary Petroleum (PETEF).PK, Stone Energy (NYSE:SGY) and Arkanova Energy (OTCQB:AKVA) are in the area as well and are described in Michael Filloon's series about the Alberta Bakken on Seeking Alpha. Here is a good map of the U.S. portion of the Alberta Bakken and the main players there:

Click to enlarge

Click to enlarge

Source.

Newfield is working in this area, and reported in its first quarter 2011 report that:

"To date, Newfield has drilled seven vertical wells, completed and placed on production two horizontal wells, and is preparing to drill an eighth verical well. All of the wells to date have encountered oil."

The one year stock price chart for Newfield is below:

Click to enlarge

NFX Aug 3 2011.pngClick to enlarge

  • Rosetta Resources also is working in this area and reported that:
  • Drilled eight vertical delineation wells - Williston Basin analog
  • Two wells on strike 28 miles apart - Riverbend 12-13 and Gunsight 31-16
  • One well eight miles downdip - Riverbend W 7-4
  • Drilled a northeast extension and encountered thickening Banff and Bakken intervals - Big Rock 29-13
  • Drilled two middle of area wells which established continuity - Little Rock Coulee 27-16 and Fee Gauge 19-1
  • Confirmed significant oil hydrocarbons in place and over-pressured reservoirs
  • 13-15 MMBOE per square mile (640 acres) of resource in place

The one year stock price chart for Rosetta is below:

Click to enlarge

ROSE Aug 3 2011.pngClick to enlarge

Note that there is speculation about the testing results of Rosetta's Gunsight 31-16 well, as the official news has not been released yet.

The development of the Alberta Bakken appears to be following in the path of the main Bakken, both in the quick progress and in price appreciation for the equities involved.

Compelling Conditions

The old story is still true, "The early bird gets the worm." In the investing world, the universal truth of the early investor usually ends up with the best gains, is still workable. If the investor realizes the importance of the Alberta Bakken situation, then there may be gains ahead.

The economic laws of supply and demand should still work, that is if no further leases for the Alberta Bakken are available, then the prices for the existing acreage should rise. The ability of the oil exploration industry to search and find value should still work, as visionary and competent management position their companies to profit from their views. It is usually up to the smaller players to move quickly and position themselves as attractive partners for the larger companies to come in later in the story; this is still working as witness the recent larger company's JV's with Mountainview (OTCPK:MNVWF) and Primary Petroleum, which both hold good acreage in the Alberta Bakken. In resource investing, you are always confronted with geologic risk, the ability to envision what the ground holds. The persuasive feature of the Bakken explortion is that statistically, the drilling that hits resources successfully is high, in the top quartile. The critical mass referred to previously should mean as news of oil specifics are released, the equities that are positioned well and investors that are positioned well should benefit.

Investment Thesis

As a result of the foregoing analysis and speculation, the author is positioned in the following junior oil equities:

  • Mountainview Energy (OTCPK:MNVWF)
  • Primary Petroleum (PETEF)

and other juniors listed here.

Disclaimer: The information and opinions contained within this document reflect the personal views of the author. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

Disclosure: I am long MNVWF.PK, PETEF.PK. I am also long junior oil equities active in the Alberta Bakken.