Bakken Growth Refuses to Stop
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Daily oil production in the Bakken grew from 344,000 barrels per day in 2010 to 445,000 barrels per day in mid 2011 and now daily production has reached an estimated 510,000 barrels, pushing North Dakota to become the fourth largest oil producing state (trailing Alaska, California and Texas). $100 crude has encouraged a wealth of investment and economically viable exploration and production activity to come to market in this oil-rich formation. Increased activity has also resulted in a hiring boom, with North Dakota maintaining a 3.4% unemployment rate, significantly under the national average of 8.5%.
The Bakken’s high liquid content and massive 200,000 square mile size has pushed the formation into one of the most profitable and the largest unconventional resource plays in the U.S. Enough oil is being pumped that North Dakota’s production may actually displace imports from the Middle East or Latin America. With ongoing turmoil in Iran and the growing tension at the Strait of Hormuz, America may finally achieve its goal of energy independence.
Energy companies have been flocking into the Bakken, including Canadian oil producers such as Enerplus (NYSE: ERF), Crescent Point and Baytex Energy (NYSE: BTE), who have been able to purchase U.S. Bakken acreage for cheaper than available Saskatchewan prices. Enerplus notes that it holds an estimated 60 million BOE of contingent resources in North Dakota with 90 future drilling locations. A $350 million Bakken/Tight oil expansion program is intended to boost Enerplus production from 17,000 BOE/d to 22,000 BOE/d in 2012.
Baytex also holds a relatively small position in North Dakota with approximately 138 million BOE in contingent resources, based on third-party best estimates. Despite the small position, the company intends to complete a 95 net well program in the region between 2012 and 2017. The Bakken/Three Forks formation has been very attractive to Canadian players due to the high recovery rates expected, which are difficult to come by in the Alberta and Saskatchewan oil fields.
Smaller American Players
Major international oil companies such as HESS, EOG resources and ExxonMobil are quickly expanding in North Dakota and Montana. However, since these companies have extremely diverse operations, the small-cap players are more focused companies for investors seeking to play the field. Oasis Petroleum (NYSE: OAS) is nearly a pure-play on the Bakken and is trading at a low Enterprise to 2012e EBITDA ratio of approximately 0.9. In the company’s latest release, year-over-year production grew by 110% as daily production reached over 11,500 BOE/d. Oasis has seven gross operated drilling wells and 21 additional gross wells awaiting completion.
Kodiak Oil and Gas (NYSE: KOG) has increased its acreage in the Bakken to approximately 155,000 net acres and has an interest in 74 gross wells. With a high focus on tight oil, Kodiak’s capital expenditure program will be targeting expansion within the Bakken. The company recently announced that it has successfully completed a land acquisition for 50,000 additional net acres for $638.4 million in cash and common stock.
As with any hot oil play, smaller players are constantly rumored to be taken over by the conglomerates. With $11.3 billion on its balance sheet, ExxonMobil has been rumored to be a potential candidate to put in a bid for Oasis Petroleum. According to Bloomberg estimates, Oasis holds one of the largest quantities of Bakken acreage versus its takeover value, thus making it an ideal target.
Regardless of what happens in the near future, the massive oil discovery in the Bakken will have an enormous ongoing impact on America’s energy policy.
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