Mike Filloon With A Bakken Update, September 9, 2014

Before we get started, a quick read on the economic boom in Williston and the Bakken, being reported by KXNews:

Business in the Bakken is strong as ever.

That's according to investors and land developers at the Williston Economic Development Summit.

Commercial Real Estate Investor Steve Michel says that the competition bar has been raised and new construction is being built to higher quality.

He says he anticipates Williston needing 24,000 housing units by 2020.

He says the cost of construction is up and the need for hotels has plateaued, but more could be needed down the road.

(Steve Michel, Michel Commercial Real Estate) "The Bakken is happening and this train ain't stopping. Whatever you were a success at somewhere else, if you bring that same skill set here and get to know the territory, you'll likely have success here too."

Stropiq principal Terry Olin says retail is an obstacle Williston will need to over come to ensure a solid future.

When Stropiq arrived in Williston in 2013 to invest in retail, Olin says the investments didn't exist.

That's why he has introduced Williston Crossing --- a 200 acre shopping complex built north of Williston in conjunction with NorthStar Center.

These folks did their homework. At one time there was talk of "New Williston" on Indian Hill, south of the river, but it's obvious the developers looked at driving patterns and realized the better spot was north of Williston, between Minot and Boom City. 

It's possible that before it's over, we will see a huge development of McMansions overlooking the Missouri from Indian Hill, but right now the commercial action is north of Williston. The "Million Dollar Way" is clearly the "Billion Dollar Way."

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In less than two (2) hours the big Apple event. I slept in late this morning, getting off to a slow start. I will leave the house about 11:30 a.m. CDT to go to Starbucks to watch the Apple presentation streaming live. Should be a great day.

I see Mike Filloon has a "Bakken update" on a Permian IPO. Remember: my site is not an investment site. My "welcome" page explains why I pay attention to the investment side of things, however. Do not make any investment decisions based on what you read here or what you think you may have read here.

I like the fact that Mike continues to call it a "Bakken update," though it is very possible he will call it something else sooner than later. Whatever.

Today, Mike Filloon's article is on Parsley:

• Parsley starts off with an excellent Q2, beating EPS by 56% and Revenues by over 6%.
• Parsley's core northern Upton acreage is one of the better areas in the Midland Basin.
• Its Reagan County acquisition has very thick Wolfcamp intervals providing possible upside to the number of wells/section.
• The Midland Basin has 3000 to 4000 feet from 12 prospective intervals, which may be the best horizontal play in the U.S.
• Parsley May Grow Faster Than All Of The Pure Play Midland Basin Small Caps. 

This on the Bakken:

The Bakken has seen more traffic than any other horizontal play in the U.S. and we still don't know how all of the intervals produce and downspace. Continental has been the most aggressive, drilling 32 wells per section. This means 8 wells in four intervals. Although this went well, it is very possible it will be able to downspace further. Newer completion designs frac heavy, close to the well bore. This means more fractures are created near the horizontal, which produce better than the older designs that fracced deep into the shale. This is important, as it allows wells to be placed closer, allowing for more wells per section. Geology also changes significantly from one section to the next, and these changes could mean significantly thicker shale. It could also mean a decreased thickness, which would be negative for the operator. Knowing the geology is very important, as acreage values move more on possible resource than almost any other variable.

And then this in the Midland area:

The Midland operators have a much higher valuation than those in the first table. This is significant, and consistent in the fact the market will pay more for Permian names. So why does the market pay more? Looking at well results, there are some very good wells in central Midland County. These wells are not as good as those targeting the middle Bakken in Parshall Field. Nor are they as good as the Eagle Ford wells in Gonzales County. Well costs are fairly low, but as low as in the Niobara. I am not saying that the Wolfcamp well results are not good, as we believe the economics are sound. We believe the answer has more to do with geology.

Well spacing and the total number of economic intervals are still not known in the Midland Basin. We do know that there are a large number of intervals, with exceptional thickness. If compared to the Bakken, we see it has four total intervals. This includes the middle Bakken and 3 Three Forks' benches. At its thickest point along the Nesson Anticline, the Bakken/Three Forks is roughly 375 feet thick. The 375 feet does include a fourth Three Forks bench, but there has been little to no development. To put this into perspective, there are 12 potential horizontal targets in the Midland Basin. Those potential targets have a total thickness of 3,000 to 4,000 feet. This is the reason that northern Midland Basin EV/EBITDA ratios are higher than the Bakken, Eagle Ford or Niobrara. It comes down prospective resource.