For The Montana Bakken Players: Is Montana's Bakken A Dud? (Part II)

Includes: APA, EOG, MNVWF, SGY, SM
by: Value Digger


In my previous article, I started a coverage of all the Bakken players in Montana, which is experiencing an exploration boom lately similar to the recent exploration frenzy in the Williston Basin of North Dakota. Although the drilling results from Montana are way lower than the ones from North Dakota, we are still at the early stages of the exploration for the majority of the companies. There are also the watchers, the companies that prefer staying at the sidelines and waiting for the others to de-risk the area.

The companies

Starting from the "David" -- a.k.a. the small players -- in Montana, Mountainview Energy (OTCPK:MNVWF) has currently 70,000 net acres in Pondera County in Montana, and 30,000 net acres in North Dakota, after the latest acquisition. This obscure company has already been captured in one of my articles because I believe it will be a junior that will benefit much if its acreage proves to be economical to drill. Its Montana acreage is spread out in three different counties and most of it is located in Pondera County (Williams Gas Field). Mountainview's land in Montana produces 190 boepd (80% oil and liquids) as of today.

Mountainview also completed a few weeks ago a non-core asset sale in Glacier and Toole Counties, Montana. The company has sold its WI in 4,373.82 net acres for $1,000,000 cash while retaining an overriding royalty interest in the leasehold.

Regarding Montana, the company will focus on drilling in 2013 its acreage position in the Stateline Project (13,500 net acres) in Sheridan County where the Anderson 11-2-1H well (82% WI) has been permitted. The key operators in the area are Samson Resources, Southwestern Energy (NYSE:SWN), Apache (NYSE:APA), Marathon (NYSE:MRO), Oasis (NYSE:OAS), Halcon (NYSE:HK) and Whiting Petroleum (NYSE:WLL).

Samson Resources' results from Mountainview's second project in Sheridan County (Medicine Lake project) were disappointing as Samson Resources' wells (Zuma 15-22-35-58H and Riva Ridge 6-7-33-56H) had IP-30 at 70 boepd and 165 boepd respectively.

It must also be noted that the insider ownership for Mountainview is as high as 62%.

SM Energy (NYSE:SM) is trying to increase the oil and liquids portion of its 103,000 boepd production (45% oil and liquids) by targeting primarily the rich gas window of the Eagle Ford shale in southwest Texas. In terms of its small Montana acreage right on the border with North Dakota, there is not much activity there although the operations for the company's Rocky Mountain region are managed from its office in Billings, MT. SM Energy targets the North Dakota portion of the Williston Basin, where it has approximately 87,000 net acres in Divide and McKenzie Counties.

It had some good results from that acreage like the Wolter 13-23H well located in Section 14-T163N-R100W, Divide County, North Dakota, which flowed an IP of 1,157 boepd (90% oil and liquids). It is worth noting that SM Energy's acreage in Williams County of North Dakota is adjacent to the game changer well (Charlotte 3-22H) of Continental Resources (NYSE:CLR).

Apache Corporation has operations in five continents from the highly risky Argentina where the nationalization fear still exists to the promising Kenya, which tries to find commercially viable oil reserves lately. Apache holds also significant acreage in Daniels County in Montana, right on the Canadian border and north from Roosevelt and Richland Counties. Apache is an early mover in that area and acquired leases at a low entry cost. In early 2012, Apache acquired 300,000 net acres in a leasehold deal with Shale Exploration LLC, based out of Fort Worth, Texas, and the company has 1,900 drilling locations there along with an estimated recovery of 1 billion barrels of oil.

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Apache's acreage is adjacent to the London-listed, Oklahoma-based Magnolia Petroleum, which also acquired 6,700 net acres in Daniels County recently.

The company plans to drill "up to five wells" this year, beginning in July 2012. "That program will run through the end of the year, and assuming success, we'll continue on into 2013," John Bedingfield, said June 15, at Apache's 2012 Investor Day. "Some will trickle in, but the big leasing is done and we're surrounded by some of the traditional Bakken players you should recognize," he said, likely referring to well-known Bakken and Three Forks players such as Continental Resources , XTO Energy, Whiting Petroleum and others drilling in nearby Counties. Steve Farris, Apache's CEO said: "Interestingly, our biggest competitor up there on the west side is Exxon Mobil (NYSE:XOM)."

Apache stated that it is pleased with the results so far so I will be watching closely to see how this play evolves and I'll post any news in my future articles about Montana. Daniels County in Montana has produced conventional oil from the Ratcliff, Madison, Mission Canyon and McGowan formations in the past and is considered to have potential for producing from the Bakken formation, and the underlying Three Forks and Nisku members. From an economics perspective, the lower well costs are an advantage for this area as the Bakken is at a shallower depth here. The estimated well costs range from $7M up to $8M compared with $10M in North Dakota.

Will Montana help EOG Resources (NYSE:EOG) shift from natural gas toward oil in 2013? This is the plan for EOG Resources' CEO Mark Papa who sees depressed natural gas prices for the next three or four years according to a recent interview.

The oil growth machine for EOG is the outstanding well results in Gonzales County in Texas. For instance, the company drilled the Baker-DeForest Unit #1H, #2H, #3H and #12H wells at initial rates ranging from 3,346 to 4,216 Bopd with 457 to 537 Bpd of NGLs and 2.7 to 3.2 MMcfd of natural gas. Additionally, the Reilly Unit #1H had an initial oil production rate of 3,579 Bopd with 483 Bpd of NGLs and 2.9 MMcfd of natural gas, the Boysen Unit #1H and Baird Heirs Unit #4H were completed at 2,540 and 2,242 Bopd with 268 and 181 Bpd of NGLs and 1.6 and 1.1 MMcfd of natural gas, respectively.

However EOG's acreage in Montana does not seem to be as oily as Texas. In 2011, EOG saw great results only from two of its Montana wells, the #1-2423H and #10-1211H Stateline wells. Both wells are close to the Elm Coulee field in Roosevelt County where EOG holds most of its Montana acreage. The #1-2423H Stateline produced 5,979 boepd from the Middle Bakken in 15 days and the #10-1211H Stateline produced 3,750 boepd in 10 days.

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The EOG-operated #5-1003H Stateline in Roosevelt County also had a decent 24-hour IP rate at 409 boepd. In 2012, EOG drilled four horizontal Bakken wells on its leases in Sections 13, 15, 24 and 26 in Roosevelt County. EOG completed the Stateline 08-3328H, with an initial production rate of 1,260 Bopd with 687 Mcfd of natural gas but EOG has only 39% WI in the well.

The Stateline 03-1522H (80% WI) and the Diamond 02-3625H (93%) wells flowed at 994 and 1,097 Bopd along with 400 and 700 Mcfd of rich natural gas, respectively. These results are better than the ones of Rosetta Resources (NASDAQ:ROSE) but they are not impressive.

The company also holds acreage in Richland County but it hasn't drilled there yet. I would prefer if EOG's acreage was more contiguous in Richland County. The Richland acreage looks disjointed and scattered impacting EOG's ability to maximize well design, infrastructure efficiency and logistics.

Stone Energy (NYSE:SGY) holds 35,000 net acres in Glacier County, Montana, although its core areas are the Gulf of Mexico and Appalachia. Newfield Exploration (NYSE:NFX) is the operator because Stone Energy has 35% WI in Newfield's land. The recent mediocre results of Newfield from Montana didn't have any impact on Stone's stock performance. It is worth noting that Stone bought that acreage in 2005 for $85M. Hopefully, the value of that acreage will appreciate in 2013. If not, then Stone will most likely record a write-down on its Montana properties.


With all the oil and natural gas potential in the Williston Basin, competition for acreage in Montana is as high as in North Dakota. More acres entail more odds for drilling access. However the goat pastures are also part of the game and this is why any prudent investor had better leave the speculation aside before he dips his buying toes into a company.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SGY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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