Bakken steals Alberta’s thunder

January 16, 2008

It might be mid-winter on the Prairies, but Saskatchewan is hot.

Especially for energy players active in the Bakken light oil play tucked into the southeast corner of the province.

Bakken is the new oilsands.

While not containing trillions of barrels of oil in place, it flies in the face of the pronouncements that there were no significant, conventional light oil pools left to be found in the Western Canadian Sedimentary Basin.

To put in context, this is being hailed as the most significant find since the Pembina Cardium play discovered in Alberta in 1957.

Yes, it’s that good.

For those in need of a history lesson, Pembina’s reserves were estimated to contain 7.8 billion barrels of oil, of which 1.6 billion were recoverable. To date, more than 1.2 billion barrels have been produced and it’s still going strong.

Big oil, say the engineering types, gets bigger.

What they mean is simply that when companies start to develop these big pools of reserves, they tend to find more.

By extension, then, the current estimate of the Bakken play containing three billion barrels is likely on the low side because the limits of the formation have yet to be determined.

“It’s present in a very large area and continues to expand as the play develops. We don’t know how big it will be,” said Bob Johnson, vice-president of engineering with Sproule Associates Ltd.

Pembina covers an area of between 20 and 30 townships (each township is 93 square kilometres) and Johnson says Bakken could be as big.

The nature of the Bakken resource is analogous to the tight gas reserves being developed by companies such as EnCana in northeast B.C.

The oil and natural gas contained in the respective reservoirs are a bit tricky to drill, begin producing at high rates, decline during the first year of production and then level off to a steady rate for years to come.

Johnson says once they reach the sustainable production rate, the reservoirs last for anywhere from 25 to 50 years.

Just as compelling are the returns on this light oil.

Crescent Point Energy Trust – which earlier this week announced a $370-million deal to increase its stake in the play by buying privately held Landex Petroleum – said its netbacks were $62.71 per barrel on the Bakken oil it produced in the third quarter.

It goes without saying that those kinds of returns are tough to get in Alberta these days.

No wonder there has been what’s tantamount to a mad scramble taking place in the region for the better part of two years.

In addition to Crescent Point – which made two acquisitions in 2007 to expand its asset base – Petrobank Resources and TriStar Oil and Gas have also been busy shoring up positions in the area through a series of deals. Petrobank bought Peerless Energy in late 2007 for its Bakken assets and TriStar bought Bulldog Resources for the same reason.

It’s worth noting that the chairman of TriStar, Paul Colborne, is also on the board of Crescent Point and has long been keen on the potential of this play. TriStar was formed as a result of the merger between two trusts: StarPoint Energy Trust and Acclaim. Colborne was president and CEO of StarPoint; it bought a company called Upton Resources in 2003, a move that many analysts point to as Colborne’s first exposure to the potential of the Bakken resource.

While the formation was discovered in North Dakota in 1953, and Canadian Hunter tried (unsuccessfully) to figure out how to exploit it in the early 1990s, the single
biggest factor that has turned the Bakken into a viable resource is technology.

Unlike the Pembina formation, which has been developed using standard vertical wells, the Bakken play requires the use of horizontal wells.

These tend to cost about twice as much as a conventional well — but at $100 US per barrel oil and very attractive royalty rates — the numbers work quite nicely.

In the past 12 months, a Calgary-based company called Packers Plus has cracked the nut on how to get at these more challenging formations using horizontal drilling

More specifically, it used to be that the exploitation of these tight reservoirs — whether gas or oil — were dependent on where the natural fracturing in the reservoir occurred. Packers Plus has developed a technology that allows for companies to control where the fracturing takes place, avoid water and access multiple zones through the well bore.

“The technology has increased recovery rates by 50 per cent,” said Tristone
Capital’s Chris Theal.

In a broader sense, the success of the Bakken formation illustrates the key role technology will continue to play as the energy sector around the world looks to unlock more fields that have been inaccessible because of the technical challenges.

Even better, it’s more than a wee bit exciting that some of this is happening in Western Canada, a part of the world that had effectively been written off as not having any more big light oil pools to be found or developed.

© (c) CanWest MediaWorks Publications Inc.