Montana Oil Profits
Is Montana's Revenge at Hand?
Cramer's late to the party — again.
That thought immediately crossed my mind after listening to his plan to take advantage of the U.S. shale plays.
We've outlined potential shale profits time and again here on the pages of Energy and Capital. Watching several of Cramer's suggestions for companies with Eagle Ford assets was like looking at a mirror.
We're already on to the next wave of shale profits. And they may not necessarily come from North Dakota, or even Southern Texas...
USGS: Full Steam Ahead
It's been more than three years since the USGS turned the spotlight on the now-famous Bakken formation.
The 2008 report estimated 4.3 billion barrels of technically recoverable oil was held in the formation. That estimate was nearly 25 times higher than the 1995 estimate.
And it's not the heavy, sour crude that plagues much of OPEC's spare capacity; we're talking about the light, sweet oil that makes Texas oilmen weep tears of joy.
At the time, investors were more than happy with the news. After the USGS assessment was released, Bakken drillers like Continental Resources (NYSE: CLR) took investors on a whirlwind ride, with shares moving more than 150% in less than four months.
Well, get ready for history to repeat itself...
The USGS recently announced it is planning to revise the 2008 estimate of undiscovered, technically recoverable oil and natural gas in the formation.
Think about that for a minute.
When the 2008 assessment was released, people had hardly heard of the Bakken. North Dakota was pumping out 151,000 barrels of oil every day. In 2007, only 48 rigs were operating in the state. By March 2011, production was a hair below 360,000 barrels per day — with 5,200 wells producing and nearly 170 rigs drilling into the formation.
Companies like Brigham are continuously raising the bar. Back in April, the company's Sorenson 29-32 2H well produced 5,330 boe during its 24-hour peak flow back period.
In other words, things could get even better for these drillers. Can you imagine how much attention they'll get when the USGS releases an update to their 2008 assessment?
The North Dakota Industrial Commission suggested the amount of recoverable reserves in the Bakken-Three Forks reservoirs is closer to 11 billion barrels — and that's just in North Dakota!
Needless to say, the Bakken has come quite a long way since it was discovered in the early 1950s. Of course, back then it was only drilled as a company's last-ditch effort to recoup its losses.
Living in North Dakota's Shadow
When we talk about North Dakota's good fortunes due to the Bakken, there's always a small amount of sympathy for its western neighbor.
For years, Montana has had to sit still and watch the Bakken provide North Dakota with an immunity toward the recession. During 2008 and 2009, when the most of the country was struggling, North Dakota had a $1 billion surplus.
Unemployment blues? Not a problem... North Dakota's April jobless rate was 3.2%, the lowest in the nation. The state is even looking across state boarders to help fill the gap.
Lost amidst the Bakken boom, however, was Montana. While the last three years have seen North Dakota oil production grow significantly — more than 160% — Montana's oil production plummeted from 90,000 barrels per day 64,000 barrels per day in the beginning of 2011, a 29% decline.
But don't worry too much about Montana's future oil prospects. Onshore drilling fever is still alive and well in the United States.
The latest Baker Hughes rig count tacked on an additional seven rigs to the total. There are now 1854 oil and gas rigs running in the U.S., with 52% of them drilling specifically for oil.
Cashing In on Shale Fame
Montana could be gearing up for its own oil boom...
Found in Central Montana underneath Garfield, Musselshell, and Petroleum counties, the Heath formation is has been the source rock for most of the oil produced in the area.
Much like the Bakken — before companies began taking advantage of horizontal drilling and fracturing techniques — production from the Heath formation has come by conventional means using vertical wells.
Not until recently have companies began testing the waters in this potentially new play.
And although it pales in size comparison with the Bakken-Three Forks play, it's certainly beginning to attract more attention from the bigger players.
Until next time,
Editor, Energy and Capital
P.S. No matter how bullish we are on U.S. shale, production will never come close to reaching our 1970 peak. Looking for future production, however, is much more profitable... This Canadian company expects to be producing more oil in a day than the entire state of North Dakota! After their recent news, it's impossible for investors to ignore these profits much longer...
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