The Bakken Shale: An Investor’s Guide

(April 19th, 2012) Exclusive to GEOnomic Investing.

The Bakken Shale is an oil-bearing strata that covers parts of Montana, North Dakota, and Saskatchewan.  Oil was first discovered in the Bakken Shale in the 1950’s and production started from a few vertical wells in the 1980’s; however,  it was not until 2008 that technological advancements, namely, the application of horizontal wells combined with hydraulic fracturing allowed production to take off. By the end of 2010 oil production rates had reached 458,000 barrels per day, outstripping the capacity to ship oil out of the Bakken.

Various other estimates place the Bakken Shale’s  total reserves, recoverable and non-recoverable with today’s technology, at up to 24 billion barrels. The most recent estimate places the figure at 18 billion barrels. It went from a mere 3,000 barrels a day in 2005 to 225,000 in 2010, according to the government’s Energy Information Administration.  The EIA thinks  the Bakken Shale will produce 350,000 barrels a day by 2035.  The state Industrial Commission said crude production on the Bakken Shale in September 2011 totaled 464,122 barrels a day, or nearly 123,000 more barrels than September 2010.  According to Ron Ness, president of the North Dakota Petroleum Council,  the state should end 2011 with about 150 million barrels of oil production

 

Potential Challenges for Oil Companies Operating Along Bakken Shale

 As an investor, here are some potential pit-falls that may face companies at work on the Bakken Shale that you should be aware of; the main issues are transport, fracking concerns, and recovery rate.

Transport

 Historically, one of the biggest challenges facing operators on the Bakken Shale has been moving the oil out, however, this problem is about to be mitigated. The Seaway pipeline, which will be up and running mid-May, will carry crude oil from Cushing, Oklahoma to the vast refinery complex along the Gulf Coast near Houston, Texas.  In reversed service, the line is expected to have an initial capacity of 150,000 barrels per day and within two years that capacity will grow to 450,000 barrels.

Fracking Concerns

Another challenge: convincing the public the fracking technology is safe. Extracting oil from  shale, including the Bakken Shale,  uses the same process as extracting gas from shale, injecting massive amounts of water, sand and chemicals deep underground at high pressure to crack the rock and let the oil or gas flow, creating concerns among the public that oil, gas or fracking chemicals could migrate up to the water supply.

 Recovery Rates

Precisely calculating the recovery rates is another challenge for oil companies operating on the Bakken Shale.  Recovery rates at different areas along the Bakken Shale vary, In the good areas of the Bakken, with higher porosity and lots of fracture permeability, the recovery rate is over 5% and up to 15%, other areas have much lower recovery rates, as the reservoir quality deteriorates due to lower porosity, lower permeability, and fewer fractures, and/or thinner beds of reservoir rock the recovery rate dips below 5% and in some areas may even be less than 1%.

Current State of Bakken Stocks

Taking advantage of the latest technology,  Bakken production is trending upward and should continue for some time, and now investors have a handful of companies to choose from to gain exposure to the area.  Currently, stocks with exposure to the Bakken have witnessed a pull back after a run-up at the end of 2011, due to uncertainties about the state of exploration and production in oil in North America. Pressure on oil prices due to global economic concerns has also weighed on stocks.  Analysts are bullish over the opportunity for stocks with exposure to the Bakken to rally, and claim the recent retreat is nothing but a buying opportunity.

Companies Operating/Exploring on the Bakken Shale

Kodiak Oil and Gas (NYSE: KOG)

Oasis Petroleum  (NYSE:OAS)

Northern Oil and Gas (NYSEAMEX:NOG)

Triangle Petroleum (NYSEAMEX:TPLM)

Continental Resources (NYSE:CLR)

GeoResources Inc. (NASDAQ:GEOI)

 Hess Corp. (NYSE: HES)

 Whiting Petroleum Corporation (NYSE:WLL)

 Enerplus Corp. (NYSE: ERF)

 

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