Rundown on Potash: Exploratory Well Should Spud in Next Couple of Weeks (North Dakota, USA)

NEWS

October 21, 2012: quiet, but not quite dead; Sirius Minerals writes down investment in North Dakota; no plans to drill in the near future
 
August 13, 2011: Based on e-mail correspondence from a state representative, it is estimated that it will be at least another 3 - 5 years before potash development begins in North Dakota. 

April 17, 2011: North Dakota state potash lease sale scheduled for April 26, 2011.

January 11, 2011: Dakota Salts unlikely to be mining for three to five years. 

December 9, 2010: The well should be completed sometime next week.

November 22, 2010: Sirius has announced that it has acquired a further 1,220 net mineral acres of lease areas adjacent to its existing properties in North Dakota. No update on the well they are currently drilling. 

November 9, 2010: drilling has commenced.

Cut to the chase:

• This story has international interest. Since posting this story early Sunday morning (October 24, 2010), I have had an unprecedented number of "hits" from England and Scotland.

England Swings, Roger Miller

• The drive for potash, as a fertilizer, is being driven by the Chinese.
• A small portion of North Dakota sits on 33% of all the known potash reserves in the world.
• It is the same basin that allows Saskatchewan to produce 90% of all potash produced in North America.
• Dakota Salts LLC, a subsidiary of Sirius Minerals, London, England, got the first permit in decades to drill for potash in North Dakota.
• Sirius Minerals shares are considered a "penny stock." Shares have tripled in price in the past few weeks (see comments below).
• The funding is being provided by a Chinese company.
• Schlumberger will drill the well. Spudding is expected to commence during the first week in November, 2010.
• The rig is being brought up from Mexico. There are a record number of rigs in North Dakota but they are all contracted to drill Bakken oil.
• The potash well will be a deep well (3000 meters) near Lignite, ND; to see aerial imagery, click here. (When you get to the link, draw a square around Burke County, upper left county in North Dakota. If you do it right, the town of Lignite will jump right out at you. To see aerial imagery, click on the "show layers" tab sitting at the very center on the far right; otherwise, everything should make sense; there is a tutorial if needed. You won't see the well, yet, but you're going to see how close the railroad is!)
• Once brought to the surface, best way to ship potash: railroad. Warren Buffett's railroad, the Burlington Northern Santa Fe, runs right through the middle of Lignite.
• Drilling for potash will use the same technology as drilling for Bakken oil (except no fracturing).
• Links for everything noted above will be found in the original blog below.

Most incredible dots:

• Schlumberger will do the drilling; and,
• Warren Buffett's railroad is right in the middle of this story.

ORIGINAL BLOG

The "potash well" you've been reading about in local newspapers should be spudded within the next couple of weeks. 

If you are at all interested in another potentially huge story for the Williston Basin, take a look at these sites:

• Potash in North Dakota (a PDF file)
  
• CBS News, October 20, 2010: Potash Drilling in Northwest ND
• Washington Post, October 20, 2010: Same story
• Marketwire, August 16, 2010: Dakota Salts: Exploration Permit Granted
• Bloomberg Businessweek, August 16, 2010: ND Issues First Potash Permit in Decades
• Similar stories in the Fresnobee (Fresno, CA); The Street; The (London) Telegraph; San Francisco Chronicle, and others. This story obviously has international interest. 
• Local -- Kenmare Website, May 4, 2010, ND: Dakota Salts With 6,000 Acres; Goal: 30,000 Acres
• Wikipedia entry for Lignite, North Dakota (economy) has been updated (by me)

Remember my post regarding the Warren Buffett connection with the potash story? I posted that back in August. Pretty neat story.

Click here for a "source document" titled Potash in North Dakota by C. G. Carlson and S. B. Anderson, North Dakota Geologic Survey, 1966.

• At the time of this report, the US led the world in potash production with 90 percent of domestic production coming from Carlsbad, New Mexico
• The authors predicted that as the potash production declined in New Mexico, interest would move to Saskatchewan if potash industry did not develop in North Dakota (this prediction back in 1966 turned out to be right on target)
• Canada is now the world's number 1 producer of potash, producing 90% of North American production (another source)
• Canadian potash deposits are the highest grade known potash deposits in the world
• In North Dakota, the thinnest seams of potash are most shallow; the thickest seams are deeper
• Shallowest seams of potash are found in northeastern Renville and western Bottineau counties (5,800 to 6,200 feet)
• A thicker potash seam is deeper in Burke County; the seam will be thicker but cost of drilling will be greater
• The Divide County seam of potash is probably similar to that in Burke County
• Burke, Renville, and Bottineau counties border Saskatchewan, and run west-to-east (Burke is westernmost, directly north of Mountrail County (home of the prolific Sanish and Parshall oil fields). Renville and Bottineau counties may be familiar to you -- this is where EOG is drilling into the Spearfish formation for oil.

From the Kenmare link:

• North Dakota may hold up to 33 percent of world's reserve of potash
• North Dakota may hold 50 billion tons of potash

Dakota Salts LLC first exploratory well will be in Burke County, near Lignite, North Dakota.  According to the press release, the first well will target a seam 34 feet thick at 8980 feet. The funding will be provided by the Chinese (whatever that means).  Other than that link, I can't find additional background to the Chinese connection, and that link will not download this morning.

Dakota Salts, LLC, is interested in drilling in Renville, Bottineau and Burke counties. From their website:

• North Dakota salt beds are estimated to contain 50 billion tons of potash
• The Prairie Evaporate Formation in the Williston Basin yields over 33% of the world's potash supply
• Depth to potash: 3,000 feet at Saskatoon; 4,800 feet near Regina; and 9,000 feet in North Dakota
• Potash drilling is greatly benefited by the oil industry -- how closely related these two industries are is very, very interesting
• Following extraction of potash, Dakota Salts LLC is exploring the possibility of creating caverns for the storage of natural gas and other hydrocarbons or the storage of compressed air for electricity generation

Some opine that potash may be may profitable than oil for mineral rights owners in North Dakota. The price for potash spiked to $1,000/ton in 2008; has since fallen back significantly; world demand being driven by Chinese market for fertilizer.

Dakota Salts LLC is busy buying up potash mineral rights in North Dakota. When this story first broke, DS said it had 6,000 net acres; now it has 7,425 acres. 

More trivia: for the past few days, I have had a number of stories involving Schlumberger. Well, here's another dot to connect. Dakota Salts LLC will drill their first exploratory potash well in North Dakota with Saskatchewan-based North Rim Exploration Ltd. (NREL) and Schlumberger Water Services USA. I have accumulated shares in SLB for three decades, and remains one of my favorite holdings. Yes, I do fall in love with some of the companies in which I invest, breaking a cardinal rule in investing. Smile.

From the Sirius Minerals website press release, October 19, 2010:

• Schlumberger will act as the contractor responsible for the execution and completion of the well drilling.
• NREL will serve as the overall project manager: site preparation, interface with SLB, and provide well-site geologist.
• It is expected the drilling rig will arrive on site during the week beginning November 1, 2010; drilling and core logging is expected to take two months to complete.
• The core will be sent to NREL's lab in Saskatoon for analysis.
• Dakota Salts holds in excess of 7,425 net mineral acres in the Williston Basin in North Dakota

From other sources:

A rig is being moved from Mexico to drill the potash well. According to the AP, "spare rigs are scare in North Dakota, where a record 153 rigs were drilling on Wednesday."

For investors:

• Sirius Minerals, a penny stock headquartered in London; share price has more than tripled in the past few weeks (see comments below). I don't invest in speculative or penny stocks.
• SLB: the first well is being drilled by Schlumberger; if successful, SLB has inside track to develop Dakota Salts LLC acreage in North Dakota. You think?

It is amazing how inter-related the oil industry and the potash industry are. They both use the same geologic information and North Dakota is unique in having one of the best, if not THE best, geologic information library in the world regarding its mineral resource. In addition, look at how they plan to produce the potash:

"They plan to drill horizontal wells into the potash formation, use waste oil-field water, dissolve the potash, bring it to the surface, take it out of the water, put it in rail cars and ship it to the West Coast,"  according to Lynn Helms, director, state Department of Mineral Resources. 

There is no mention of fracturing. Wouldn't this be a hoot if the EPA stepped in to regulate fracturing, putting the oil industry on hold for two years: all those oil rigs would be used to drill for potash.



Addendum  
Disclaimer: The information in this addendum has not been verified, and I have not done the research to sort it out. I say that because a very reliable source (see comments below) has questioned some of the information in this addendum. I will update the addendum as more information comes in. I have removed some of the original information that was sent in, trying to minimize unknowns.

The original addendum: I was sent a very nice note about how the potash industry is different than the oil industry. Here's a summary of that note.

There will be two (2) holes drilled per every 12-20 townships (basically a whole county). One hole will be used to pump salt water in, the other hole will be used to collect the “brine.”

The brine will then be filtered/refined to extrapolate only the potash. The location that the brine will come up at will be a very large location (20+ acres with full filtering capabilities, etc.) whereas each OIL well site is typically only four (4) acres. Royalties are generally two percent of the final product. It is not clear to me exactly who is due the royalties: surface owners, mineral rights owners, etc.

Thus, my statement about "all those rigs" was hyperbole. There will be far fewer potash rigs; perhaps a handful or so, if the above is accurate.

"Exact" location: near the seven mile corner of Highway 52 (near Lignite). The site is one mile east on the north side of the road. Seven mile corner is the junction of State Highway 52 and 84th Avenue NW; location is just prior to 83rd Avenue NW on north side of Highway 52.

Project status: Burke County Tribune: project status, November 4, 2010.