Canada's Bakken Shale
A Better Way to Invest in Saskatchewan's Oil Boom
**Editor's Note: For more updated information, be sure to read Energy and Capital's resource page on the Bakken oil field.
I'll be the first to admit that whenever a reader and I used talk about Canadian energy, my first thought was about Alberta. More specifically, the Canadian oil sands.
After seeing the operations firsthand, it was too easy to get excited over the three oil sands deposits in Alberta.
Yet if we were to strike up a conversation within the last few months, I'd bet the first thing to come up wouldn't be Alberta. In fact, the last time I mentioned the oil boom in Saskatchewan, our President was in the middle of pleading with the Saudis to raise oil output.
Back then, I also pointed out that the key to lowering our dependence on Saudi oil imports isn't begging them for more. The Saudis aren't even the largest source for U.S. oil imports. That honor goes to Canada. According to Energy Information Administration, the U.S. imported over 2.4 million barrels of oil and products per day in 2007.
So how exactly have things been going for oil, lately?
After retreating from a high of $147.90 per barrel on July 11, 2008, crude prices have slipped about 20%. The latest dip is being attributed to a tropical storm that hit land without any disruptions to oil rigs or refineries, as well as a slowdown in U.S. and European economies. Furthermore, European retail sales have reached a 13-year low.
But I've told my readers many times before, don't hold your breath waiting for cheap oil.
Saskatchewan's Share in the Bakken Shale
I'd wager that the majority of my readers have become familiar with the Bakken formation. Many of those people were able to take advantage of the oil boom and make a tidy profit from several plays in the area.
On the U.S. side of the Bakken play, the real surge took place when the USGS reported the geological formation hods up to 4.3 billion barrels of recoverable oil. Remember, the USGS assessment was referring only to "undiscovered, technically recoverable" oil, which gives us a good idea of the size of this oil pool.
Over on the Canadian side of the Bakken, things are heating up just as quickly as producers rush to grab as much land as possible. Many producers have been moving operations from Alberta.
Production from the Canadian Bakken in 2007 was about 56,000 barrels per day. With the drilling frenzy happening now, I wouldn't be surprised to see that number swell within the next two years.
Interestingly, the question I've been getting from readers hasn't been whether or not to focus on one province or the other, but rather which part of the Saskatchewan oil boom to look at.
Like you, I've been inundated with emails about how the Saskatchewan oil sands are the hottest part of the Saskatchewan boom.
Canadian Oil Investing: Bakken Shale or Oil Sands?
I won't immediately dismiss the oil sands deposits in northwestern Saskatchewan, but there are certainly better opportunities. Production from Canadian oil sands stands at a little more than a million barrels per day (which is still a four-fold increase compared to a decade ago).
Some producers, like Oil Sands Quest, Inc. (AMEX: BQI) are dipping their hands in both oil sands and shale oil in Saskatchewan. Along with energy companies across the board, shares have taken a beating as energy prices slide lower.
One thing that makes the Bakken more attractive to producers is the quality of oil. Unlike the thick bitumen, crude oil from the Bakken is a higher quality than Saudi oil.
If you're looking to play the Saskatchewan side of the Bakken formation, you can't go wrong with Crescent Point energy Trust (TSX: CPG.UN). Despite the latest volatility in oil prices, Crescent Point is still up approximately 34% this year. The Trust is expecting its production to average 36,250 boe/day and generate a record cash flow during 2008. If Crescent can deliver on its forecasts, picking up shares at a discount now could turn a tidy profit.
The last time we talked about the Saskatchewan side of the Bakken formation, I mentioned two other prospective plays. TriStar Oil and Gas (TSE: TOG) and Petrostar Petroleum Corp. (CVE: PEP). Although energy companies have had a rough time lately, TriStar has managed to stay afloat. Petrostar, however, is a different story. Since the beginning of June, shares of Petrostar Petroleum have nearly doubled. The smaller company began drilling in early June. If Petrostar can come out with some positive drill results, I would expect this producer to break higher in the next few months.
On the Road to Saskatchewan
Even though the sun was setting as I raced across Saskatchewan on my whirlwind trip to Alberta, I could still make out the individual drilling rigs dotting the landscape. I can't help feeling a twinge of regret from not spending more time exploring Saskatchewan.
I can feel the same restlessness building. This time, however, I won't make the same mistake twice.
Until next time,
P.S. Trust me, finding the right companies when everyone seems to be dropping like flies is extremely difficult. Although the energy correction may not be over just yet, this is a perfect opportunity for investors to pick up some quality stocks at a discount. If you're interested in turning a profit despite the market volatility, I suggest checking out The $20 Trillion Report.