Companies operating in the Bakken profiting from high crude oil prices

The Bakken Shale play in North Dakota, Montana, and neighboring Canadian provinces is primarily an oil play. With crude oil commanding prices near $100 a barrel, this means business is good for producers and everyone associated with oil drilling, production, and shipping.

USGS estimates of Bakken oil reserves are as high as 3.5 to 4.3 billion barrels, which would make it the largest oil find in US history outside the rich oil fields of Alaska. In North America, only Alaska and the Canadian oil sands contain more oil. The USGS also estimates about 1.85 tcf of associated/dissolved natural gas and 148 million barrels of natural gas liquids in the Bakken.

With estimates this high, it came as a bit of a surprise when the North Dakota Department of Mineral Resources reported earlier this year that the state's oil fields may contain twice the amount of oil previously estimated. The agency reported that oil production from the Bakken has more than doubled in the past three years.

The drilling and completion technology to recover Bakken oil involves vertical drilling followed by horizontal drilling, formation fracturing, and the use of proppants.

IHS conducted an interesting study this year that compared well performance of private versus public companies operating in the Bakken and the associated Sanish-Three Forks shale plays and found a surprising result – smaller, private companies have some of the best acreage and wells in the region, even when compared to larger, publicly-traded entities.

The IHS Herold 2011 Special Study on Company Performance in the Bakken/Three Forks Play analyzed approximately 1,450 horizontal wells completed in the Middle Bakken or Three Forks formations in Mountrail, McKenzie, and Dunn counties in North Dakota since 2006. The study compared the median wells' average production in its first, second, and third months online.

"A number of private companies ranked very well with public companies, delivering median first-month production that was similar to that of highly regarded publicly traded E&P (exploration and production) companies, albeit having much smaller well counts," said Sven Del Pozzo, study author and senior principal energy equity analyst at IHS. "Based on well performance alone, we think most of the private entities mentioned in this report are nearly certain to attract interest from potential suitors."

According to the report, merger and acquisition values for undeveloped acreage in the play continue to set new highs. Well performance, the report noted, is generally strong, but varies considerably, which, with buyers "paying up" for acreage, Del Pozzo said, which "leaves little margin for error in drilling" to fulfill pre-acquisition expectations.

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"We believe the trend of acquisitions of private properties will continue," Del Pozzo added, "since most of the prospective acreage is already leased and few alternatives exist to establish or meaningfully expand a company's presence in the Bakken/Three Forks play. Size is the primary driver of an acquisition, since a small lease holding can't move the needle for a big, publicly traded company."

A list of the top producers in the Bakken Shale includes several of the majors, plus large and mid-sized independents, both American and Canadian. Houston-based EOG Resources and Oklahoma City-based Continental Resources were both early players in the formation and still rank at the top of any list of producers. Other large producers include: Enerplus Resources, ExxonMobil, Hess Corp., Marathon, Chevron, Brigham Exploration, Whiting Oil & Gas, Newfield Exploration, SM Energy, Kodiak Oil & Gas, MDU Resources, Magnum Hunter Resources, Triangle Petroleum, Guardian Exploration, Reliable Energy, JayHawk Energy, and American Standard Energy – to name a few.

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