"This thing is absolutely huge!"

That's what I was told after asking about the Bakken formation. And trust me, the oil boom in North Dakota is far from over.

On April 10, 2008, the United States Geological Survey (USGS) released their field report about the Bakken. The formation stretches across North Dakota, Montana and Saskatchewan. The report estimates that 3.65 billion barrels of oil can be recovered from the Bakken formation.

According to the USGS, "This is the largest oil accumulation in the lower 48 states. It is also the largest continuous type of oil accumulation ever assessed by the USGS."

Put it this way: The last time the USGS released an assessment was in 1995 and announced that only 151 million barrels of oil can be recovered.

In other words, the latest assessment is 25 times greater than previous estimates!

Let's break down the April 10^th report for a second.

Based on the report, the Bakken holds between 3 billion and 4.3 billion barrels of "undiscovered, technically recoverable" oil. To put that into perspective, that's less than half of the amount of recoverable oil in the Arctic National Wildlife Reserves (ANWR) in Alaska. Naturally, the Bakken is in a much better location. Drilling is only one obstacle. Just imagine the amount of infrastructure (pipelines, etc) needed to exploit the ANWR oil reserves.

Remember, the USGS was only counting on "undiscovered, technically recoverable" reserves. That doesn't include the oil reserves already found by companies. That's also assuming that oil companies don't improve their drilling technology. Once producers begin drilling, they'll continually improve their extraction techniques. After all, technological advancements like horizontal drilling are one of the reasons this resource is accessible.

The USGS report also failed to factor in the record oil prices. Ever since oil broke the $100 a barrel mark, we've repeatedly seen it hit new highs. Recently, prices came just eight cents from breaking $120 a barrel.

So why should we care about how high oil goes this summer?

For starters, the more expensive oil is, the more money producers can invest. It was only a few years ago that oil cost about $20 a barrel. And if things keep going the way they have been, we could be seeing $140 a barrel in 2008.

Okay, perhaps it's difficult to imagine $140 a barrel peaking this summer, but don't forget where oil prices were a year ago. When oil cost a mere $63 a barrel, how skeptical were you that prices would reach $100 a barrel?

Be honest.

Personally, I can't even picture oil under $100 a barrel, especially after its price jump this past winter.

Investing in the Bakken Formation

Let's get back to the Bakken.

It doesn't matter if oil prices experience a slight pullback, however unlikely. But if the North Dakota and USGS reports proved anything, it's that we can expect a huge amount of investment. 

Believe me, this play isn't going to fade out. Lynn Helms, the director of North Dakota's department of mineral resources, put it best, "It's going to be slow, sustained oil production that can last a century or more."

In other words, the Bakken play is just beginning.

Even though the U.S. hasn't seen a new oil refinery in 25 years, that's about to change. Right now, North Dakota has just one oil refinery. The plant 58,000 barrels per day, which still comes 12,000 barrels per day short of the state's fuel demand. I wouldn't be surprised to see plans for a new refinery come out in the next year or so.

Pipelines will also play a critical role in the Bakken's future, and more production means that more pipelines will be needed. Also, if a new refinery is in North Dakota's future, you can bet the refined products will need a way to get to market. 

Until next time,

Keith Kohl

www.energyandcapital.com

P.S. Investors have a once-in-a-lifetime opportunity to play this massive oil discovery. You see, I know most of my regular Energy and Capital readers have already made their first round profits from their Bakken players. If you're interested in joining their success, you can learn more in this breaking Bakken report.

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As a business person and resident of Alberta, Canada, I keep reading about how many Americans feel that it is their right to come to our Country and extract our natural resouces for free or next to free.....especially after they have foolishly squandered all of theirs. Canadians have been solid stewards of the land and water and other natural resources in our Country.
The sooner these "Americans" from Boston and elsewhere [especially the Neocons with dual Passports], would really take the time to pass grade four and learn that we are a sovereign Nation and that they simply cannot, and will not, be allowed to come here to rape and pillage, the better.
You cry and moan that the Gov't of Alberta nominally raised its royalties for the first time in more that nearly three decades. You should research Norway, other Baltic nations, and even your own State of Alaska.....then you will really see what royalties should be......rather than being shills and talking heads for the major Oil Companies. The Asper Newspapers were and are still crying about the modest increases....but most O&G Insiders were very pleased with the outcome.....many people wanted the Royalties to equal those of Alaska and Norway.
Of course, if Exxon and Shell and BP and other Companies do not like it, then they can go home or deal [Steal?] from Iraq [your Gov't already destroyed that poor Nation] ot other little places......already, they are being estopped from the theft in Venezuala, Russia, and other places. Mr. Chavez and Mr. Putin are correct in keeping their Natural resources for themselves.....and only sell excess production to the World.
And, finally, for your information, the Premier Ed Stelmach Government in Albetra was recently given the largest mandate vote in the +150 year history of this Country.

Anyone who follows the daily fluctuations of the price of crude learns that speculators are moving the price of oil on a daily basis, and these speculators can be responsible for as much as ten dollars of the daily price. Now it is perfectly fine for me that they can drive the price of crude down as they do, because that drives down the stocks that I buy on a continuing basis, the large crude producers like Apache for example with its massive production offshore Northwest Australia to supply the new mines onshore. Now Petrobas has a massive discovery offshore. I love to see the price of crude be driven down so that alternative fuels cannot compete. I laugh myself silly. The market drives down the prices of the deep water drillers like Transocean and the rig builders like NOV. The Alberta politicians make me laugh myself silly. ha ha ha ho ho ho

SInce I have began reading your commentary Keith I feel much more informed and impowered regarding my clientele and my own investments in the energy sector of which we have been very bullish for many years (2003) and have invested heavily in the actual commodity directly as general partners as well as limited partners adopting a Tax Strategy to Enahance the invested dollars by insisting on allowing the funds created by the energy investments to become of a much larger "Passive Investment Strategy", based on the U.S. Tax Codes definition and manage the stragtegy from the beginning tot he end. It is safe to say the first year on investing generally we are talking about an approximate return of 30% plus from the tax benefits as a general partner. From there it gets a little more complicatd it has a lot to do with your investors ability to continue the strategy from the outset because as the new funds come in ( generally 7 months after initial investment, if you went in as a general partner the income now is considered ordinary, yet it is coming in at generally a 12% or better clip in most programs with some programs even giving the investor preforential treatment to the revenue before the Operating General Partners take part in the "profit".
As a Limited Partner however under the U.S. Tax code you remain in a "Passive Investor Status", by tax code definition and the income then can be offset by depreciaton from various Passive activities such as real estate or Equipment investment.
Hence, once you create this River of Sheltered cash flow that represents a 30% hedge before actual return on original investment from the sheltering of new Passive income via the Depreciation opportunity. These funds are then free to do where ever your investors will. It is a that point that you need to make them realize that this is their war chest money going forward in a very real race for excellence in the Energy Sector that needs all the funds they can create to truly take advantage of the opportunity you so apply have informed us your readers of. Thanks for that. Obviously this is a general overview of a very complex stratetgy that needs to be discussed with tax council and investment advisor mutually to concur on the strategy and its application. However, it is a great opportunity and our Government is encouraging us all to assist in this profitable yet patriotic approach to our investing. God Bless America God Bless Canada, God Bless the Free World and Capitolism.
Michael A. Darany, CFP, EA