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Bakken Update - Third Quarter Of 2011
The Bakken play maintained its position during the third quarter of 2011 as one of the nation's fastest growing unconventional resource plays, with the industry continuing the rapid development of this oil bearing formation.
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North Dakota
Although the Bakken underlies a large area in the western United States, as well as Canada, most development is taking place in North Dakota. The North Dakota Industrial Commission reported that production from the state reached an average of approximately 445,000 barrels per day in August 2011, up from 179,000 barrels per day in the same month in August 2008.
There are approximately 2,500 horizontal Bakken wells producing, and about 85% of the oil production in North Dakota is from the Bakken formation.
While there is still considerable debate in the industry about the level of peak oil production from the Bakken, the North Dakota Industrial Commission estimates that another 5,000 wells will be drilled into this formation in the next three years.
It should also be noted that the midstream industry has plans to increase pipeline capacity to approximately 750,000 barrels of oil per day by 2013. Since this capacity is not being added quickly enough to accommodate the growth in production, capacity to transport oil by railroad is also being built. This will increase total 2013 transport capacity to over 1.2 million barrels per day. (For related reading on oil, see Oil: A Big Investment With Big Tax Breaks.)
Tale of Two Cities
Investors know that drilling an oil well is not a sure thing, and this was amply demonstrated in the third quarter of 2011. Whiting Petroleum (NYSE:WLL) reported the most productive Bakken well ever, using the initial production rate as the metric.
Whiting Petroleum's well produced 7,009 barrels of oil equivalent (BOE) during a 24-hour period, with approximately 68% of this production composed of oil.
Northern Oil and Gas (AMEX:NOG) is involved with this well on a non operated basis, and has a 17.4% working interest and a 14% net revenue interest in the well.
GMX Resources (NYSE:GMXR) is at an early stage of developing the Williston Basin, and recently started drilling the company's third operated well into the Bakken and Three Forks formations. The company just completed its first well and reported a 24-hour initial production rate of 450 BOE.
Although the company may still earn a decent return on this well, the market was disappointed in this result and sold the stock down by more than 20%.
Buyout Mania
One measure of the attractiveness of the Bakken is the efforts by larger international oil companies to establish exposure to this play. During the third quarter of 2011, Statoil (NYSE:STO) announced the purchase of Brigham Exploration Company (Nasdaq:BEXP) in an all cash deal valued at $4.7 billion.
Although Brigham Exploration only produces 21,000 BOE per day, the company has a position of 375,000 acres exposed to the Bakken and other formations, and has spent the last few years proving up parts of its leasehold.
The Bottom Line
The larger international oil companies were initially dismissive of the Bakken and other onshore areas in the United States, and pursued larger projects in the international space. This attitude has completely reversed as smaller independent exploration and production companies have demonstrated the productivity of these plays. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
North Dakota
Although the Bakken underlies a large area in the western United States, as well as Canada, most development is taking place in North Dakota. The North Dakota Industrial Commission reported that production from the state reached an average of approximately 445,000 barrels per day in August 2011, up from 179,000 barrels per day in the same month in August 2008.
There are approximately 2,500 horizontal Bakken wells producing, and about 85% of the oil production in North Dakota is from the Bakken formation.
While there is still considerable debate in the industry about the level of peak oil production from the Bakken, the North Dakota Industrial Commission estimates that another 5,000 wells will be drilled into this formation in the next three years.
It should also be noted that the midstream industry has plans to increase pipeline capacity to approximately 750,000 barrels of oil per day by 2013. Since this capacity is not being added quickly enough to accommodate the growth in production, capacity to transport oil by railroad is also being built. This will increase total 2013 transport capacity to over 1.2 million barrels per day. (For related reading on oil, see Oil: A Big Investment With Big Tax Breaks.)
Tale of Two Cities
Investors know that drilling an oil well is not a sure thing, and this was amply demonstrated in the third quarter of 2011. Whiting Petroleum (NYSE:WLL) reported the most productive Bakken well ever, using the initial production rate as the metric.
Whiting Petroleum's well produced 7,009 barrels of oil equivalent (BOE) during a 24-hour period, with approximately 68% of this production composed of oil.
GMX Resources (NYSE:GMXR) is at an early stage of developing the Williston Basin, and recently started drilling the company's third operated well into the Bakken and Three Forks formations. The company just completed its first well and reported a 24-hour initial production rate of 450 BOE.
Although the company may still earn a decent return on this well, the market was disappointed in this result and sold the stock down by more than 20%.
Buyout Mania
One measure of the attractiveness of the Bakken is the efforts by larger international oil companies to establish exposure to this play. During the third quarter of 2011, Statoil (NYSE:STO) announced the purchase of Brigham Exploration Company (Nasdaq:BEXP) in an all cash deal valued at $4.7 billion.
Although Brigham Exploration only produces 21,000 BOE per day, the company has a position of 375,000 acres exposed to the Bakken and other formations, and has spent the last few years proving up parts of its leasehold.
The Bottom Line
The larger international oil companies were initially dismissive of the Bakken and other onshore areas in the United States, and pursued larger projects in the international space. This attitude has completely reversed as smaller independent exploration and production companies have demonstrated the productivity of these plays. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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