Balmy Day in Boston; I'd Rather Be In The Bakken

It's a beautiful day in Boston; it's 28 degrees, no wind. I thought it was close to 35 or even 40, it felt so warm without the wind. Clear skies.

They continue to tear up the street outside the house; the city or someone is replacing natural gas pipes that were put in place in 1925. It is interesting. It is more difficult to get around this neighborhood due to street/under-street repairs than it was in Williston, the heart of the Bakken. There were a couple of miserable left-hand turns in Williston, but one quickly learned to avoid them.

I see the price of oil is down this morning; struggling to stay above $98.

Talking heads last week on CNBC said there would be a pullback in the near term, actually some difficulty for oil, and then back to the upward trend. But, of course, one can hear almost anything from talking heads regarding the price of oil.

The one constant: the price of oil will trend up over the long term.

There really isn't much news to talk about in the Bakken. I have appreciated all the positive comments after "turning on" the comments section again. I was surprised how many wrote to say "thanks." There must have been a dozen such very nice comments.

Not one negative comment, until mid-day yesterday, maybe earlier. I forget. I don't post the comments that have any hint of obscenity or blasphemy, i.e.,  negativity about the great state of North Dakota. Lots of jealousy out there.

I posted for a few minutes a story the FT.com ran yesterday concerning unemployment and compared it to the experience a Minnesota manufacturing icon has had. I posted it for a few minutes to get it in the queue but then took it down temporarily. I try to keep Bakken stories at the top, especially for newbies. That story will be re-posted later today after I post some Bakken stories.

Okay, since I'm rambling, what do I have for newbies?

First, this. Someone took issue with a spokesman (not me) who said Minot's population could double from 50,000 to 100,000 over the next four to five years. I find it hard to believe that Minot could reach 100,000 ever, but if the local communities, and the state and federal governments remain supportive of the oil industry in the Williston Basin, there is a good chance Minot will become much bigger.

Regarding Minot: activity in the Spearfish formation does not even appear to be in the first inning yet; it's almost as if they are in training camp, waiting for the season to begin. There's no hurry. As oil trends higher, it makes the Spearfish that much more exciting.

Also, I have alluded to a story I have heard more than once: there are at least two streams of the Bakken running east of Minot. It's all speculative, but the amount of oil services support activity in Minot suggests something big is going on that oil companies are keeping very close hold. It's hard to believe that all that activity there is to support the Spearfish, and it's certainly not there to support the operations around Dickinson.

Second, a recap of the "sweet" spots in the Williston Basin Bakken:

• Parshall oil field: "owned" by EOG; big excitement back in 2007 - 2008; has waned; 640-acre
• Sanish oil field: "owned" by Whiting; turns out to be one of the most exciting stories in the Bakken; it will be interesting to see how long it takes Whiting to complete all drilling in this oil field; that will give us an idea what might happen in the rest of the Bakken; 1,280-acre
• Williams County, northwest, north, and northeast of Williston: surprisingly good; a big thanks to BEXP to de-risking this area; Oasis following fast and furiously
• McKenzie County: Indian Hill to Alexander to Watford City -- the bull's eye of the Bakken; this is where the activity is headed in 2012; pro-growth folks there; this is going to be very, very exciting to watch
• Dunn County, reservation: steady production, but less exciting only because we've seen so much of it; the melting pot of companies working the region is most interesting; every once in awhile I get nervous about the pro-faux-environmental stance of the native Americans there, and then remember the MHA; not to worry
• Southern ops: Whiting and Chesapeake will duke it out for bragging rights in the southwestern part of the state. Whiting has the unquestionable lead; we're all waiting for some great news from Chesapeake in North Dakota

Third, a recap of the formations:

• The Bakken Pool: without question, this is where the action is; nothing else comes close. Again, "no" dry wells in the Bakken; operators trying to control costs, so we will see a change in fracking; perhaps the same number of stages (24 - 36), but mostly sand, less ceramics; near-term sand vs ceramics doesn't make a difference in production; long term the jury is still out the most economical way to go
• The Bakken Pool, cont'd: there are so many pay zones in the Bakken pool, it is becoming difficult to manage: three sub-formations in the Bakken formation (upper, middle, lower; but it is the middle Bakken sub-formation that is the target); the Three Forks with several deeper "benches" -- maybe as many as four; CLR has targeted the upper bench which sits under the Three Forks; the Pronghorn (Sand[s]) sub-formation atop the Three Forks which may/may not be the same as the Sanish elsewhere. I think the Sanish is the Three Forks in a different geographic area, but may be wrong; perhaps the Sanish is a specific upper layer of the Three Forks, like the Pronghorn elsewhere; in both cases (Sanish and Pronghorn), they "belong" to Whiting; and, of course, there is the Lodgepose, of which, see below.
• The Madison: if these wells don't need to be fracked, my hunch is that "we" have a backup plan if permitting is slowed in the Bakken
• The Lodgepole: I haven't seen anyone talk about it, but it's probably there somewhere in the NDIC geology sites, this: I think there are two Lodgepoles: the huge pools that are very, very hard to find in the Dickinson area, and then the new Lodgepole wells north of Williston. No one is talking about these wells yet publicly -- at least I haven't seen anything, but if three new Lodgepole wells north of Williston are even mediocre wells, this formation could be a game changer
• The Red River: I believe Whiting devotes one rig to targeting the Red River in their southwest operations; minor in the whole scheme of things, but noteworthy

Fourth: a recap of the operators:

• Continental Resources' Harold Hamm remains the face of the Bakken; his wells are everywhere; I think someone once noted he operates or participates in 1 out of every 6 wells in the Williston Basin; I'm glad Harold Hamm had a face-to-face meeting with President Obama to learn firsthand the president's thoughts on oil
• Whiting: this is the company that excites me (as an operator; not from an investment point of view; this is not an investment site; see disclaimer); a well-defined strategy; seems to be hitting on all cylinders -- four cylinders in the north; four cylinders in the south
• KOG: Oasis or KOG could have been in the third spot; hard to say which is more exciting; KOG moved to a new level this past year; I think they started the year without 50,000 net acres; now they have 155,000 net acres, and their most recent acquisition was incredible. They added a significant amount of acreage to their contiguous plays and it puts them right in the bull's eye of the Bakken; I wasn't too impressed with the acreage north of Williston, but it may prove to be better than I realize in the hands of the right operator; if things have not changed, they have only one dedicated frack team; they will have 12 rigs by the end of 2012; they need more dedicated frack teams
• Oasis: great, great company; building new operations building west of Williston; they also seem to know how to complete a well

Fifth: DNR -- the sleeper. I don't follow it closely; but it has a unique business strategy and a unique tool in its toolbox; for investors, I keep seeing DNR on the list of Bakken stocks to own, but I don't consider it a "Bakken" player as such; it is huge elsewhere. I don't own any shares of DNR but based on what I read, I am missing a great opportunity.

Sixth: Others --

• XTO hitting some good wells; a subsidiary of XOM, and of course anything XTO does in the Bakken will be a line item, if that, in XOM's annual report
• Slawson: not in the news so much any more; history of great wells; privately held; great coup if a public-owned company could buy their Bakken assets
• Dakota-3: a subsidiary of Williams Cos; all, or most, of their operations in the reservations; again, won't move the needle for Williams
• GMXR: a very small piece of the action in the Bakken, but I mention them because they are much more active than I thought they would be
• I wonder if it won't be a year of buyouts and mergers in the Bakken in 2012; lots of pressure to do so

More later.