Friday, December 30, 2011

Motley Fool Year-End Review of the Bakken --

Update

Part 2.

Original Post
I find the Motley Fool articles always a bit superficial, but they raise questions for further exploration. Based on this first segment, it seems newbies would have a tough time finding another better review. We'll see. 

Part I.
The Bakken shale play has been the subject of much hype for the better part of 2011. Touted as the single largest oil find in U.S. history, this region witnessed several companies lining up to exploit its reserves. Companies that couldn't invest in acreage simply bought into companies with established bases there -- the most prominent being Statoil taking over Brigham Exploration.

The question that needs to be answered

Several companies are currently developing their properties, with some even commencing production. The question that really needs to be answered is this: Are the wells in Bakken living up to the hype in terms of output and touted reserves? The turn of the year is the best time to answer this question. What really matters to the investor is whether these wells are capable of giving returns that are worth the investment.
I am very curious to see what the Motley Fools have to say. 

My guess:
a) the touted reserves will live up to the hype; perhaps exceed it -- over the long term
b) the formation, though continuous, is not equally "good" in all areas; in fact, I think there will be a fair amount of disappointment for some mineral owners in the Bakken
c) IPs will start to average down as companies work to control costs; the jury is still out on whether that affects EURs; with re-fracks and EOR, I don't think so; I think it's all about the economics of each well; IPs and EURs are useful for marketing
d) analysts are focused on the here and now (the Bakken and how fast the returns are); the companies are in this for the long haul (other formations and long-term growth)
In Part I, the Fools highlight three companies: KOG (comes first), EOG, and Triangle Petroleum.

That's a nice start:
  • EOG: big cap, $26 billion; oil and gas; Bakken just part of its overall portfolio
  • KOG: midcap at $2 billion; the Bakken is its portfolio
  • TPLM: small cap at $260 million; one well in the Bakken can move the needle
*********************
I am impressed that the Fools are starting to drill down a bit into the Bakken. They, too, have noticed that location, location, location, matters in the Bakken. 

 This is one of the paragraphs in the story regarding KOG:
McKenzie County also ensured some fantastic production for Kodiak. The four Koala wells that were completed this year have a 60-day average daily output of 1,116 BOE -- again phenomenal. Three more Koala wells are due for completion in the fourth quarter this year. Eighteen additional wells are due for completion in 2012.
That's a pretty nifty observation by the Fools: McKenzie County being the next center of activity for KOG. And look at those 60-day averages -- at 1,000 bbls, the 60-day averages are putting to shame some 24-hour flowbacks being reported by others.

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