Every U.S. state boasts its own unique claim to fame.
Louisiana has Mardi Gras and Cajun food. Florida has sugar-white
beaches and Disney World. And Alaska has millions of acres of
beautiful, untamed wilderness.
Of course, Alaska also has something else deep underground: Crude
oil -- lots of it. Every day, the Trans-Alaska Pipeline carries
about 670,000 barrels of oil from North Slope production grounds
south to Valdez, where it's loaded into waiting tankers. That
represents about 15% of the nation's total oil output.
Thanks to the riches of Prudhoe Bay, every man, woman and child
living in the state receives an annual royaltydividend distribution
-- last year's check was $1,281. But if the Department of Energy
(DOE) is right, then Alaska could soon relinquish its title as
America's largest oil producer - so I've already set my sights on
The latest projections from the DOE have Alaska's daily production
rates slipping to 450,000 barrels within the next seven years.
Meanwhile, output from the oil-rich Bakken Shale of North Dakota
could potentially climb to 700,000 barrels a day by 2015 -- more
aggressive estimates top 1 million.
That means North Dakota could soon be famous for much more than its
The Bakken Shale sits in the sweet
of the larger Williston Basin, which extends through parts of
several adjacent states and Canada. Production rates in this
fertile zone have already pierced through the 300,000 barrel a day
mark. But that number could easily double.
Two years ago, the U.S. Geological Survey (USGS) conducted an
extensive assessment of the region's resource potential. I'll spare
you the technical details and get right to the heart: Bakken
contains 3.65 billion barrels of recoverable crude oil and 1.85
trillion cubic feet of natural gas.
If anything, that estimate is low. Earlier this month, North
Dakota's Director of Mineral Resources said there were
"indications" that the Bakken could deliver 11 billion barrels of
oil. Some industry insiders say 20 billion.
In any case, two miles beneath the surface of North Dakota lies the
biggest oil discovery made this side of Juneau in more than 40
years. And the rush is on to bring that oil to the surface.
Geologists have known about the oil-soaked Bakken since 1951, but
lacked the tools and techniques to economically extract it from the
dense rock formations. But the combination of horizontal drilling
and "fracing" (injecting liquids at high pressure to crack open the
rocks and release trapped oil or gas) has been a game-changer.
Now, even at $7 million or so per well, recovery rates are high
enough for companies to turn a
with oil at $40 a barrel -- at $90, they are swimming in cash, with
internal rates of return (IRR ) over 100%.
That's why there are currently 166 rigs deployed in the Bakken
region (the most anywhere outside the Gulf Coast states of
Louisiana and Texas) drilling for light,sweet crude .
Meanwhile, midstream energy companies are investing heavily on
Enbridge Energy Partners (
recently unveiled plans for a pipeline with the capacity to carry
145,000 barrels a day. Others are building storage terminals and
And they will be busy. About 2,000 wells have been drilled in the
Bakken Shale during the past few years, with success rates close to
100% for many players. Those wells produced 80 million barrels of
oil in 2009 and more than 110 million barrels last year. And with
companies of all sizes ramping up spending to expand their
footprint in the region, that total is headed straight to 200
Should oil retake the $100 a barrel mark as I expect, Bakken will
soon be gushing profits. Far-sighted producers in the region could
recoup their investments several times over -- and the same might
be true for shareholders.
Action to Take-->
As you might imagine, the Bakken Shale has become crowded, with
more than two dozen firms staking a claim in the region. The list
EOG Resources (
Continental Resources (
Whiting Petroleum (
Hess Corp. (
, just to name a few.
And that doesn't include the oil service/equipment companies, which
will have their hands full keeping up with demand. I don't have the
space here today to pick favorites; we'll save that for another
But if you're looking to optimize your exposure, then you might
prefer a pure-play such as
Brigham Exploration (Nasdaq: BEXP)
. With 282,000 acres in the Williston Basin, the small company
reported a powerful 125% surge in daily production last quarter and
boosted its reserves 141% from the beginning of the year.
The stock has already doubled in the past 12 months. But
considering the firm has barely scratched the surface of its
acreage, it could be even more rewarding during the next couple
-- Nathan Slaughter
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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