- 2007: when Parshall oil field "discovered"; following the Elm Coulee field in Montana some years earlier
- 2008: one year of experience in the Bakken; and a huge drop in the market at the end of the year
- 2009: when the market dropped again in early 2009
Regardless, I think we are being offered a fourth opportunity.
- It looks like oil is going to trend higher, and when it pulls back, it will stay appreciably higher than in the past
- Outside analysts are finally recognizing the Bakken
But this $100 oil not a minor issue. EOG said a couple years ago that "we" are "robust" in the Bakken when oil hits $60. I can only imagine the words the EOG executives use to describe the Bakken when the price of oil hits $100. We've been at $100 oil for quite some time now, and we haven't gotten to summer driving season yet.
But what really has excited me is the outside interest in the Bakken "all of a sudden." It's been my impression that the "believers" in the Bakken tend to be those closely associated with the Bakken. Either they work there, live there, or grew up there, ("there" being the Williston Oil Basin) and have been following the story closely. But there have been relatively few -- in the big scheme of things -- investment stories in the mainstream media featuring the Bakken.
Now all of a sudden Jim Cramer (CNBC's "Mad Money") has had not less than three segments on the Bakken including interviews with the governor of the state and the CEO of Whiting. [Has Harold Hamm been on Cramer's show? If not, that's about the only place I have not see Mr Hamm recently.]
Now the highly respective oil consultant Ryder Scott has a huge story / analysis of the Bakken. To go direct to the PDF, click here. The opening paragraphs:
The world is watching the Bakken oil shale play. Net importers of oil—including China, France and Poland—are studying the Bakken as a model for their own countries, which contain geologically similar deposits, they say.Eight pages of information. And this note:
Companies from countries as far away as Australia have Bakken interests.
The unconventional play has become a proving ground for advanced drilling-and-completions (D&C) technology, including multistage hydraulic fracturing. The Bakken is to the future of UC oil production as the 20-year-old Barnett shale play has proved to be for UC gas, industry observers say.
Bakken operators are downspacing to 320 acres by drilling four wells on 1,280 acres. Increased well densities are boosting PUD locations while dragging down EURs per well.The degree to which EURs are being "dragged down" is still being discussed.
But I digress. Articles like these and television segments like Jim Cramer can only have a beneficial effect for Bakken investors.
it will be interesting to see how the bakken stocks do in the long run. yes ,no dry holes but some with very low i.p.s which hurts when with 25 or more fracs the well may be in the $ 6-7 million range .jj
ReplyDeleteI agree. In addition, the recent acknowledgment that increasing the number of wells/spacing unit is "dragging down" EURs is worrisome.
ReplyDeleteHowever, these are some interesting thoughts:
a) In the "old days," as many as fourteen of fifteen wells were dry. They say there are more than 130 dry Lodgepole wells in the Dickinson area. But the companies kept drilling.
b) A producing well holds the lease "for eternity."
c) Many of the early wells were fracked with very low number of stages (most of the early wells had a single stage frac); they will go back in and re-frac all these wells
d) Plenty of examples of low-IP-wells that have done very well
e) Bakken wells held by production -- they will eventually go back in and drill into other formations
f) "Bakken was robust" at $40 (EOG) and now we are solidly at $80, and recently at $100
g) When I see XOM talk about the Bakken to the extent they are talking about it, suggests they are seeing something that maybe I'm not even seeing.
h) Remember, the average daily production of ALL wells in North Dakota has historically been about 50 bbls/day; we're creeping up and it's about 60 bbls/day now. If 60 bbls/day is the average and those wells are kept open, a Bakken well that declines to 300 bbls/day is not all that bad.
i) Even the worse Bakken wells are paid off in 6 years and Bakken wells might be producing for 30 years. The $7 million initial cost has been sunk on an particular well; after six years, it's pretty much all free flow
j) And the thing that we always seem to forget: in business, it's not always the obvious but rather the "business of the business" -- how well the companies manage their cash flow, their investments, etc., etc.
But I agree with your basic assumption. To some extent, some of us are becoming used to 1,000-barrel IPs and are disappointed when anything less comes in.
Oh, back to your "25 or more fracs" expense -- BEXP certainly seems to have challenged this. Based on my observations, BEXP is paying off their wells (at the wellhead) faster than the others.
I do not mean to say these cos. will not make money ,but with many in the p/e area of 100 or more I would be a little cautious of investing in some of them . jj
ReplyDeleteAbsolutely.
ReplyDeleteYou are correct.
One of the advantages you and I have (and others, of course), is that we have followed the Bakken for quite some time, and have a good idea of who is doing what.
In addition, it is unlikely that folks will get rich overnight investing in these companies (to some extent the "easy" money has been made), but as part of a diversified portfolio, some of these will be nice long-term holdings.