The Bakken Oil Field: Does Alaska Hold The Next Bakken?

Includes: BP, CVX, E, HAL, MRO, RDS.A, XOM
by: Matt King

The Bakken Oil Field Discovery in Western North Dakota and Eastern Montana will go down in history as one of the largest discoveries of recoverable oil in history. Even to this day, the full amount of recoverable oil thought to be in the Bakken/Three Forks formations continues to be raised by the USGS and more recently, the oil industry itself.

North Dakota has had legacy vertical oil production since the 1950's so the existence of a source rock is a given. However, the oil saturation and permeability of that source rock is what determines if it can produce economical oil with the new developments in horizontal drilling and hydraulic fracturing. Based on the presence of source rocks underlying every major vertical oil field, we can see the potential for shale plays at those locations. Locations such as the LA Basin in California (Monterey Shale), DJ Basin in Colorado (Niobrara Shale), Ohio (Utica Shale) and several others.

When you think of legacy oil production, no doubt Alaska oil in Prudhoe Bay comes to mind. According to BP, Prudhoe Bay is the largest field in North America with 25 billion barrels of oil in place with a recoverable estimate of 13 billion barrels. Keep in mind, this estimate focuses on "conventional" technology including CO2 and water flooding. The question is, with the advances in source rock extraction technology, what oil is ultimately recoverable at this point in time?

The USGS recently answered this question with a press release. The USGS stated that Alaska's North Slope Shale holds up to 2 billion recoverable barrels of oil and 80 trillion cubic feet of natural gas. This estimate puts Alaska's potential shale reserves right behind The Bakken and ahead of The Eagle Ford Shale in Texas.

The large scale development of this shale, if it proves to be economical, will probably not occur for another 3-5 years. In the mean time, companies will be gearing up to help serve the region. What most people don't know is that most of the support infrastructure, such as temporary housing, rigs, and other service related hardware, has made its way to ND to support the Bakken development. Because the Bakken continues to develop at a steady pace, most likely new infrastructure will need to be built to build up Alaska for the rush.

The first tier players in this play are Great Bear Petroleum LLC and Halliburton (NYSE:HAL). Great Bear is a private LLC teaming up with Halliburton for a parallel proof of concept. This relationship could be similar to Halliburton's stake in Central Montana Resources which is exploring the Heath Formation in central Montana. Although we do not know the details of the partnership, a new E&P teaming up with the leading frack company in the world is surely a wise move for exploration in an unproven area.

To get a rough estimate of what Great Bear's acreage could be worth, we can apply Bakken/Eagle Ford economics to get an idea. 500,000 acres figuring 1280 acre spacing units yields 390 initial well locations. Additionally, if we estimate a EUR of 400,000 barrels of oil per well, total initial EUR of the acreage would be approximately 156 million barrels. To fully develop the 1280 acre spacing units, at least 4 total wells would be needed at an additional EUR of 400,000 barrels each bringing our total EUR to 624 million barrels. At $100 oil, the acreage over the life of the field could be worth more than $62 billion. I want to stress that this is an estimate based on similar economics of shale oil fields and the industry still has a lot to learn about the north slope shale. Nonetheless, it is a shame that Great Bear Resources LLC is not a public company, but Halliburton may prove to be a great investment if the field shows similar results to The Bakken. Also, as Halliburton diversifies into exploration farm-outs like Great Bear and Central Montana Resources, it has the opportunity to exploit both the service and production side of the industry.

Other companies with major lease holdings in this region include Conoco Phillips (NYSE:COP), British Petroleum (NYSE:BP), Exxon Mobil/XTO (NYSE:XOM), Chevron (NYSE:CVX), Eni Petroleum (NYSE:E), Marathon Oil Corporation (NYSE:MRO) and Shell (NYSE:RDS.A).

The import thing to remember is that when the Bakken Formation was first assessed by the USGS for recoverable reserves, it was a fraction of what the USGS and industry believe is recoverable today. Alaska's shale oil potential is exciting and it will be interesting to see what happens. However, as the Niobrara and Alberta Bakken have shown us, not all shale deposits are economical. Yet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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