Oil Plays in the Canadian Bakken

Keith Kohl

Written By Keith Kohl

Posted May 9, 2008

Editor’s Note: For more updated information, be sure to visit our resource page on the Bakken oil field.

Let’s face facts, it’s hard not to talk about oil prices.

Earlier this morning, I couldn’t help but pause my work and watch as the price of crude pushed passed $126 a barrel earlier.

But I understand, it’s Friday, and I’m sure many of you are watching the clock tick slowly.

So today, we’ll keep it short and sweet.

When we talked about investing in Bakken oil stocks last Tuesday, our focus was on how to invest in the emerging Bakken play. strictly on the U.S. side of the Bakken formation. As one of you put it in an email, “I see the Bakken as a great, long-term investment, especially as drilling technology improves and increases the recoverability rate.”

I couldn’t agree more.

Perhaps the only thing that could cool off the Bakken is if oil prices tumbled. Yet think about that for a second. Even if crude oil plummeted 20%, we’d still be looking at $100 a barrel. And to be honest, I don’t see that happening. Especially during the summer months.

But I also told you there were two ways to play Bakken oil.

Tapping into the Canadian Bakken

I’m sure you can guess the direction I’m headed. After all, the U.S. portion of the Bakken oil formation is only one side of the story. Remember, the Bakken formation also extends into Southeastern Saskatchewan.

This might not be the first time we’ve talked about the light oil pools in Saskatchewan, and it certainly won’t be the last. If you need further proof that Saskatchewan oil plays are heating up, just remember the record land sales happening this year. April’s land sale auction drew in a record $265 million in revenue for Saskatchewan. And yes, dear reader, that was a record.

Let’s look at April’s land sale a different way. The revenue generated last month was more than all of the land sales in 2007. I’m not sure you need much more to convince me there’s a oil boom going on in Saskatchewan. And I know what you’re thinking, “That sale was for the entire province, not just the Bakken.”

Well, that’s true. However, the Weyburn-Estevan area pulled about $207 million in bonus bids, which we can attribute to interest in the Bakken.

Okay, so the oil’s there. But in the words of one of my colleagues, “Don’t just worry about how much oil is underground, also focus on production.”

Invest in Bakken Oil Stocks

With that in mind, I see two ways for investors looking to get a piece of the Canadian side of the Bakken.

The first is to look carefully at the smaller producers. Granted, they may not be spending the most or even have the most money in the bank, but they’re also not trading for $100 a share. In other words, they can give you the most bang for your buck. They are also, however, a lot more riskier than some of the major players.

Earlier this month, I told my readers to look Canadian oil stocks like TriStar Oil and Gas (TSX: TOG). The company has grown an impressive 17% since. The good part is that TriStar seems to be gaining steam. The company had its most active drilling quarter to date in the first quarter of 2008.

The second option available for us are oil companies in Alberta expanding their operations into Saskatchewan. You know my stance on the Alberta oil sands. I believe the future of oil sands isn’t in the gigantic shovels and house-sized trucks.

The reason?

Simply put, 80% of the bitumen is too deep to be mined. That means companies now have to use in-situ methods (in other words, the bitumen in the ground has to be heated up before being pumped it out).

Ever since Alberta has changed their royalty rates, companies are starting to see the grass is greener on the other side of the fence. Over the last few months, some of my favorite oil sands companies have been staking a claim in southeast Saskatchewan.

But no matter how you go about with your personal investments, the most important advice I can offer is that you should always do you own due diligence. Above all else, make sure you comfortable with the company before dishing out your cash.

Until next time,

keith kohl

Keith Kohl

Energy and Capital

P.S. Looking to get your Bakken investments started? I would suggest joining your fellow Energy and Capital readers. I know they’ve had tremendous success so far in the Bakken. Six out of their last eight Bakken plays have already gone into double-digit gains. If you’re interested in finding out how they’ve managed it so far, I’d suggest checking out the $20 Trillion Report.

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