The Bakken gets bigger - likely a LOT bigger
Friday, June 13, 2014
Crescent Point’s Torquay Discovery Reignites Southeast Saskatchewan
Just when you thought The Bakken couldn’t get any better—it does.
Oil producers are now “cracking the code” on the Torquay, or Three Forks formation below the Bakken, and coming up with incredible economics—these wells are paying back in only seven months.
This news has completely re-invigorated the Canadian side of the Bakken. And on the US side, the Three Forks is causing industry to leap-frog estimates of the amount of recoverable oil available–by about 57%!
It’s hard to imagine that the #1 oil play in all of North America could have such a huge increase in size—usually this happens in increments. This map from the Province of Manitoba shows how much potential theTorquay/Three Forks has—it ranges from 1.5 – 7 x as thick as the Bakken!
Results from Crescent Point Energy (CPG-TSX/NYSE) in Canada and Continental Resources (CLR-NYSE) onthe US side of the border are showing this could be an incredible discovery. The Torquay/Three Forks could prove to be another multi-billion barrel catch for the North American oilpatch.
Now when I say discovery; what I really mean is the industry has discovered how to produce from it profitably. Theindustry has known it’s potential for several years now. But the Bakken source rock itself has been so prolific, there wasn’t much incentive to drill deeper and go through a new learning curve at the Three Forks.
On April 14 Crescent Point Energy (CPG-TSX) announced a Torquay discovery in its core Flat Lake area in southeast Saskatchewan, right along the US border. In just 12 months, the company grew production from 0 to over 5,000 boe/d by drilling 36 wells. These are low-decline, high-rate-of-return wells that payout in less than 7 months.
(A 7 month payback is incredible. It’s the simplest measurement for retail investors to know how good a play is. I like to see 12-15 month payouts, and don’t like to invest in plays that have more than 18 month payouts.)
CPG says each well costs $3.5 million all-in on a 1–mile horizontal. These well economics are fantastic:
1. More than $73/boe in operating netbacks (netback=profit per barrel)
2. A recycle ratio greater than 6–that’s profit divided by costs. That’s 6 times your money! 2 is good; 6 is great!
3 Generates an IRR > 300%. I like to invest in anything over 70% IRR.
CPG believes the Flat Lake Torquay discovery has the potential to match its core, Viewfield Bakken play in southeast Saskatchewan. The oil field is estimated to hold 4.6 billion bbls OOIP.
This eye catching news triggered an acquisition spree; Crescent Point was the first mover with the acquisition of privately held CanEra Energy with 10,000 boe/d and a large Torquay land position only 10 days after its discovery announcement.
Crescent Point’s acquisition locked in more than 880 net sections of Torquay potential land with more than 280 net sections in its delineated core area. The largest Bakken producer in Canada is positioning itself to becomethe number one Torquay player.
Legacy oil and gas (LEG-TSX) and Vermillion Energy (VET-TSX) have also made acquisitions of their own buying up privately held companies with land in the emerging play at Flat Lake—all at high metrics of over $100,000 per flowing barrel.
Production out of the Torquay/Three Forks has a lot more history on the US side of the border.
This article is for information and discussion purposes only and does not form a recommendation
to invest or otherwise. The value of an investment may fall. The investments referred to in this
article may not be suitable for all investors, and if in doubt, an investor should seek advice from
a qualified investment adviser. More