What You Need To Know About The Alberta Bakken

Introduction

Everyone has heard of the Bakken. The Bakken is the reason why North Dakota has emerged as the second largest oil producing state in the U.S., jumping from just 310,000 barrels per day in 2010 to nearly 1.1 million barrels per day in 2014.

Upstream oil and gas companies have flocked to the Bakken, gobbling up acreage and drilling at a torrid pace in order to cash in on the basin. Drilling has certainly slowed down as oil prices have collapsed, but the Bakken still has long-term potential. Companies are putting much of their plans on hold, but will almost certainly spring back to life when oil prices rise.

The Alberta Bakken

However, there is a basin to the west of the Bakken that garners a lot less media attention, even though there is also a tremendous amount of potential. The Alberta Basin, which stretches across the border between northern Montana and southern Alberta, shares a lot of similarities to the North Dakota Bakken, located in the Williston Basin. Due to these similar features, the Alberta Basin has been dubbed the "Alberta Bakken."

The Alberta Bakken could hold 2 to 3 billion barrels of light to medium, recoverable oil. It has good porosity and permeability, and is thought to be "less tight" than other tight oils.

The Alberta Bakken has been on the radar of some companies, but has been quiet in recent years as North Dakota has taken all the attention. Newfield Exploration (NYSE: NFX) was one of the earliest and largest players in the Alberta Bakken. As of 2011, it drilled seven vertical wells and two horizontal wells. Newfield has been relatively quiet about the results but has said that all of its wells have encountered oil, as have other drillers in the area.

In fact, there have been several companies that have spudded wells but have been cagey about the results. Information is hard to come by, fueling speculation. Perhaps the drilling was a bust, or maybe the companies are just moving slowly and not wanting to reveal information.

Crescent Point Energy (TSE: CPG) is upping the ante on its investments in the Alberta Bakken. At the end of June it acquired Legacy Oil & Gas Inc., a junior player in southern Alberta. The acquisition adds 20,000 boe/d of production to Crescent's portfolio, 82 percent of which is liquids. It also took hold of 110,000 net acres over 220 gross sections. Crescent Point has other assets in North Dakota's Bakken, plus the Uinta Basin in Utah, as well as other Alberta plays. The Alberta Bakken, by comparison, represents a smaller share of its portfolio, even though the company is one of the larger players in the region.

Granite Oil (TSE: GXO) is more of a pure play on the Alberta Bakken. Formerly part of DeeThree Exploration Ltd., Granite is conducting enhanced oil recovery on some of its acreage in southern Alberta. One of the issues with the Alberta Bakken is lower reservoir pressure, so gas injection is used to increase pressure and ultimately boost recovery. That has allowed the company to significantly boost production at maturing wells.

Granite is coming across oil with API of 30-32, along with natural gas liquids. The company had explored and delineated its acreage between 2011 and 2014, and now is injecting natural gas to recover oil. In April, the company reported initial flow rates from its gas reinjection horizontal well of about 1,000 barrels per day, as well as 500 thousand cubic feet of natural gas.

Granite also owns some infrastructure that allows it to move product. It has gas and oil gathering lines at 100 percent working interest. The company boasts 17 million barrels of oil equivalent of proved plus probable reserves, along with an additional 479 million barrels of discovered oil in place.

Yet another small company looking to build up its portfolio in the Alberta Bakken is Black Stallion Oil and Gas Inc. (OTCMKTS: BLKG). The company confirmed on July 30 that it will be moving forward with an exploration program in the Alberta Bakken. The Woodrow Prospect, comprising more than 12,000 acres, is located in northwest Montana. The company still has to cobble together some drilling targets, but a 2014 report that the company produced demonstrates multiple drilling options and opportunities at shallow depths. Around 80 percent of the oil production in the Alberta Bakken comes from several fields located in close proximity to Black Stallion's acreage, somewhat adding value and derisking the company's holdings.

Black Stallion will be putting together a drilling program in the coming months. It has held off until now due to low oil prices, but company executives feel now is the time to move forward. To be sure, there likely are no catalysts for this company in the near future as drilling is still a ways off, but with the rights to such an enormous parcel in the Alberta Bakken for such a small company, the upside is there.

There are a few much larger oil companies in the Alberta Bakken. Royal Dutch Shell's (NYSE: RDS.A) Canada division has held tens of thousands of acres, and has only had a modest drilling program. ExxonMobil (NYSE: XOM), Murphy Oil (NYSE: MUR), Encana (NYSE: ECA), and Nexen Energy (NYSE: NXY) have all taken a look at the Alberta Bakken and acquired quite a bit of acreage as well. However, these companies are so large and their exposure to the Alberta Bakken so small compared to their other international holdings, it probably isn't worth investor's time to look too deeply into their operations. Even if some of these companies successfully bring some oil and gas wells online, they wouldn't move the needle on their share prices. If investors are looking for exposure in southern Alberta and northern Montana, it would be better to roll the dice on a junior player.

Challenges

Low oil prices have stunted the region's development over the past year. As a relatively "young" oil and gas play, the Alberta Bakken presents early stage risk - the geology is less known than North Dakota, the infrastructure isn't as developed, and companies have yet to scale up their drilling presence. All of these things take investment, and many oil and gas companies have little appetite to blow cash on frontier plays these days. Instead, they are battening down the hatches and trying to wait out the period of low oil prices.

Another major challenge is the fact that a lot of attractive acreage in the Alberta Bakken is located on Native American reservations, making acquisition trickier. At times, Native American tribes could outright oppose an industry presence, making it difficult for drillers to gain access to the resources in place. The legal complexity throws additional investment uncertainty into the region.

Conclusion

The Alberta Bakken probably won't rival its more famous neighbor to the East anytime soon, but a list of companies are acquiring acreage and slowly moving forward on drilling programs.

With similar characteristics to the North Dakota Bakken, and proven oil and gas reserves, this basin could eventually make a name for itself. However, as with most exciting but unproven plays in the oil and gas industry, success will likely require higher oil prices. That day will come around sooner or later.