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  • Continued Fracking Concerns Following EPA Report on Ground Water Contamination
    On December 8, 2011, the United States Environmental Protection Agency released a groundbreaking draft report of a three year long investigation of ground water contamination near Pavillion, Wyoming.  Specifically, the study concluded chemicals utilized to hydraulically fracture rocks in drilling for natural gas was the likely cause of contaminated local water supplies.  Because fracking has become a highly politicized issue in the United States, this report could have significant impact onEnCana (NYSE: ECA) and other E&P companies with significant exposure in the Rocky Mountain basins.

    Pavillion Field

    The EPA study was prompted by complaints from local residents about the smell and taste of their water after drilling activity was significantly increased to 169 wells in 2008.  However there are some unique factors of the Pavillion field which differentiate it from traditional fracking operations.  First, the drilling depth at the site was extremely shallow, at less than 1,200 feet, which means the drilling fluid is physically closer to potential groundwater supplies.  Second, the unique sandstone structure in the area means there is no natural barrier from the chemicals migrating in the wells.  Finally, drilling has been occurring on the Pavillion field for over 60 years and the improper storage for drilling waste over the years could have caused the contamination, as opposed to the actual drilling operations.

    According to the study, the suite of chemicals found at two of the test wells drilled at the site could not be explained by natural causes.  The EPA's analysis of samples taken from deep monitoring wells in the field indicated the presence of synthetic chemicals, like glycols and alcohols consistent with gas production and hydraulic fracturing fluids, benzene concentrations well above the standards in the Federal Safe Drinking Water Act, and high methane levels.  In addition, the study concluded that enhanced migration of gas has within ground water at depths utilized for domestic water supply.

    The EPA study is currently classified as draft form and will be subject to scientific peer review and public comment over the next few months before being classified as final.  However, investors in the E&P space should monitor this study for its potential impact on the natural gas industry and fracking operations.
    Tags: ECA, Oil Gas
    Dec 11 8:01 PM | Link | Comment!
  • Strong Production Growth of Bakken Shale Plays
    Over the last two decades, oil production growth in the Bakken shale basin in North Dakota and Montana has been phenomenal.  Like the Barnett basin in Texas, drilling activity built up gradually and eventually led to rapid growth, particularly from 2006 to 2011.  Key drivers of this production growth include increased use of horizontal drilling, advances in hydraulic fracturing techniques, and continued elevated prices for crude oil and other natural gas liquids.

    Here is a map of the significant production areas in the Bakken Shale:


    According to the US EIA, North Dakota is now the United States' fourth largest oil-producing state - trailing only Alaska, California, and Texas - due mainly to production gains in the Bakken.  Total North Dakota oil production averaged 445k barrels per day (bbl/d) in August 2011, up from an average of 344 thousand bbl/d at the end of 2010 according to the North Dakota Department of Mineral Resources.

    For investors looking to gain exposure to the Bakken play, some companies to consider include:

    1) Kodiak Oil & Gas Corp (NYSE:  KOG) - ($2.3bn market cap, 37.0x FY11 P/E, 6.3mm average volume)  Kodiak is Oil & Gas is an independent energy company that focuses on the exploration, exploitation, acquisition, and production of crude oil and natural gas in the Bakken and Green River basins.

    2)  Brigham Exploration Co.  (NASDAQ:  BEXP) - ($4.3bn market cap, 27.3x FY11 P/E, 1.1mm average volume)  Brigham Exploration Company is an independent exploration and production company that applies 3-D seismic imaging and other technologies to explore and develop domestic onshore crude oil and natural gas resources.  Brigham's exploration activities are concentrated primarily in the Anadarko, Bakken, and West Texas basins in the United States

    3) Whiting Petroleum Corp. (NYSE:  WLL) - ($5.8bn market cap, 13.2x FY11 P/E, 1.8mm average volume)  Whiting Petroleum Corporation is involved in crude oil and natural gas exploitation, acquisition, and exploration activities.  The Company focuses on lower risk, long-lived oil and natural gas properties located primarily in the Gulf Coast, Bakken, and Rocky Mountain regions of the United States.


    Tags: KOG, STO, WLL, Oil Gas
    Dec 06 9:34 PM | Link | Comment!
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