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Rock’n in the Bakken While I dislike using bumper sticker slogans for any piece I write, this one is so appropriate I simply cannot help myself. The Bakken Shale formation of the Williston Basin, which stretches from North Dakota into Saskatchewan, is quickly gaining recognition as the largest and most economically robust shale play in North America. Unlike nearly all other shale plays which produce natural gas, the Bakken is predominantly an oil play. (The other exception is the small area of the Barnett Shale in the Ft. Worth Basin, which produces both oil and natural gas). According to a study released in April 2008 by the US Geological Survey (USGS), US Investing in companies highly leveraged to the Bakken, whether in Canada or the US, offers investors an amazing opportunity as commodity prices move higher. The Bakken Formation was formally named by geologist J.W. Nordquist in 1953. His samples came from the Amerada Petroleum - H.O. Bakken #1 well on the Nesson Anticline in Williams County, North Dakota. Henry Bakken was the surface owner where the well was drilled (Source: EIA). Bakken production occurred in the mid-1950’s along the Nesson Anticline in the Antelope field located in Dunn and McKenzie Counties (Source: Bakken Shale Play Book, Oil and Gas Investor December 2008). However, Bakken production was only an afterthought in areas outside of the Antelope field and was produced in wells where other zones were not productive. The big breakthrough for Bakken production came with the use of horizontal wells in the late 1980’s. Some 30 million barrels of oil were produced from the shaley upper member of the Bakken formation along the Billings Anticline. Below is a very good diagram of the three layers of the Bakken as well as other productive zones:
Due to the fall off in crude prices during the early 1990’s, interest in the Bakken subsided and production began to drift downward. However, earlier this decade, the discovery of the Elm Coulee field in Richland County, Montana set off the most recent wave of Bakken development. The discovery well for the Elm Coulee field was drilled by Lyco Energy Corp of Dallas. Each horizontal well in the Elm Coulee field is expected to recover approximately 450,000 barrels of oil over its expected life. To date, the field has produced more than 75 million barrels of oil from approximately 650 horizontal wells. However, it appears the Elm Coulee field is just getting started. While Bakken development in the Williston Basin got its start in Montana, more recent developments indicate the middle Bakken and the Three Forks/Sanish formation in North Dakota will be the focus of future development. The Nesson Anticline in western North Dakota, which had a long history of oil production from vertical wells, was the initial testing ground for the horizontal technology that worked so well in the Elm Coulee. However, early efforts at dual-leg lateral wells that worked brilliantly in the Elm Coulee field did not achieve nearly the same level of success in North Dakota. This was due to the fracture stimulations that were traveling into the Lodgepole formation, which sits directly above the Bakken. It was not long before operators in North Dakota discovered that long length horizontal wells, which in some cases are 1,280 acres long, combined with multi-stage fracture stimulations were the key to success in North Dakota. As operators climbed the learning curve, the results have been spectacular. With the ability to fracture a horizontal well nearly 20 times, initial production rates have been up to 3,600 barrels of oil per day (bopd) in the Parshall Field in North Dakota. According to one of the largest operators in the Bakken, a 15,000 ft. horizontal well in the Parshall Field which can be drilled and completed for approximately $6 million can be expected to recover 900,000 barrels of the over 9 million barrels of oil in place per 640 acre section. Technology similar to that which made the North Dakota Bakken successful has been employed north of the border. The Bakken formation in southeastern Saskatchewan has emerged over the last several years as Canada’s hottest and most economically robust oil play. While there are many similarities to the successful Middle Bakken play on the US side of the border, there are also many differences. For example, the Bakken is not a resource play in Canada like it is in the US. In other words, geological studies have shown that the oil trapped in the Bakken migrated south from Canada and has left oil trapped in large reservoirs in Canada rather than in blanket-like deposits similar to those found in the US. In Canada, the Bakken occurs at a much shallower depth -- 2,200 to 7,000 feet deep compared to 7,500 to 10,000 feet in the US. Also, the cost of the wells, the initial production rates and the expected ultimate recovery per well is lower in Canada. The typical Bakken well in Canada will cost approximately $1.7C million to drill and complete, is expected to have an initial production rate of as high as 300 bopd and recover 150,000 barrels of oil over its lifetime using a recovery factor of 15%. While only one-third of the Bakken formation lies on the Canadian side of the border, David Hume of Canadian Discovery Ltd. estimates that by using primary and secondary recovery techniques, 1.1 billion barrels of oil will be harvested from the Canadian Bakken. Similar to the US, technology was the driving force behind the conversion of the Bakken in Canada from a very prospective area to its hottest play. No man is more responsible for unlocking the Canadian Bakken than Dan Themig, founder and CEO of Packers Plus Ltd. Mr. Themig was the genius behind the development of a well fracturing system that allows operators to efficiently stage fracture long length horizontal wells to allow each well bore to drain a much larger area. Prior to Themig’s invention, each perforation along a horizontal well had to be fracture stimulated individually. This process consumed nearly an entire day and added significantly to well completion costs when multiple stimulations were done on one horizontal well. However, using Packers Plus, up to two dozen fracture stimulations can be done in one day. Tremig’s process involves dropping a series of various-sized ceramic balls (similar to billiards balls) down a well bore as high-pressure fluid is being injected to crack the rock open. The balls fly down to the end of the well, where each of the frac points has a release that can only be opened by the correctly sized ball. When that ball arrives, it closes off the toe (the rest of the well), and opens up a slot in the casing that the fluid passes through to fracture the rock (Source: Canadian Business, September 15, 2008). The balls are retrieved after the completion of the fracture stimulation along with the frac fluid.
As expected, the first companies to implement Packers Plus technology had a very large advantage in acquiring acreage in the Canadian Bakken. Several of these firms have been aggressive in their land acquisition efforts (two of which I cover in my newsletter and are members of my Model Portfolio). Given the significant consolidation of Canadian Bakken players over the last two years, such firms are an excellent way to profit from the development of the Canadian Bakken. Additionally, there are several companies in the US that are highly leveraged to the Bakken. I cover two US companies in my Model portfolio that are extremely well position to benefit from the significant progress being made in the US Bakken. Because of the Bakken’s unique geological formation and technology driven production successes over time, firms both large and small have been able to take advantage of this resource – giving investors a range of quality options to do the same.
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Bill Powers | Editor | Powers Energy Investor |
portion of the Bakken contains recoverable resources of 3.65 billion barrels of oil, 1.85 trillion cubic feet (tcf) of natural gas and 148 million barrels of natural gas liquids. The USGS has identified the Bakken as the largest onshore field in the lower-48 and is the largest “continuous” oil accumulation the agency has ever assessed. The USGS defines “continuous” as the oil being dispersed throughout the formation rather than existing as discrete localized occurrences (Source: 
Operators found the Middle member of the Bakken to be extremely productive. Horizontal drilling technology alone would not be enough to unlock the potential of the prolific Middle member. Operators began drilling horizontal wells using Gamma ray measurements (each formation has a unique Gamma ray signature) while drilling to keep the drill bit in the Middle Bakken member. Unfortunately, the traditional Gamma ray tool alerted the drilling engineer only when he was out of the target zone and offered no guidance on how to remedy an encountered problem. This led to incorrect remedies being applied more than 50% of the time. The introduction of predictive steering technology and the implementation of boundary mapping while drilling made a significant difference and allowed operators to remain in the target zone up to 96% of the time. This improvement greatly enhanced initial production rates and reduced the number of abandoned wells caused by drilling out of the zone.
