bMo cAPiTAl MArkeTs oil & gAs · A new, UnconvenTionAl TighT oil resoUrce PlAy ocTober 2010 bMo...

The AlberTA bAkken: A new, UnconvenTionAl TighT oil resoUrce PlAyocTober 2010

bMo cAPiTAl MArkeTsoil & gAs

Brian Zaitlin, Ph.D., P.Geol.Director and Chief GeologistInvestment and Corporate BankingA&D Advisory Group(403) [email protected]

Steven Kehoe, M.E.Sc, P.Eng. AssociateInvestment and Corporate BankingA&D Advisory Group(403) [email protected]

Joyce Kennedy, B.Sc. Vice PresidentInvestment and Corporate BankingA&D Advisory Group(403) [email protected]

Summary

• TheAlbertaBakkenisanexampleofanearlyentryDeepBasin,tightoilresourceplay.

• CrescentPointEnergy,MurphyOilandBowoodEnergyhaveestablishedadominantlandpositioninthethermallymaturesourcerockfairwayinsouthwesternAlberta.

• RosettaResources,NewfieldExplorationandAnshultzExplorationarethedominantlandholdersontheBlackfeetIndianReservationinMontanajustsouthoftheAlberta–Montanaborder.

• TheAlbertaBakken typewellwith2horizontal legs,anEURof250Mbbland three-monthIPof348bbl/d (basedonaverticalproducer)haseconomicsthatarecomparabletotypicalBakkenwellsinSoutheastSaskatchewan,NorthDakota,orMontana.

BMO Capital Markets is a leading, full-service North American financial services provider, with over 2,000 em-ployees operating in 14 North American offices and 26 worldwide, offering corporate, institutional and government clients access to a complete range of investment and corporate banking products and services. BMO Capital Markets is a member of BMO Financial Group (NYSE, TSX: BMO), one of the largest diversified financial services providers in North America with US$386 billion total assets and 38,000 employees as at July 31, 2010.

AboUT bMo cAPiTAl MArkeTs

invesTMenT And corPorATe bAnking A&d Advisory groUP

The Canadian Acquisition & Divestiture Advisory team’s primary mandate is to successfully facilitate acquisition, divestiture and joint venture activity; to support BMO Capital Markets and our clients in the technical and financial evaluation of conventional and unconventional reservoirs in order to quantify existing potential; and present upside of established and emerging plays.

Ian van Staalduinen, B.A.Sc., P.Eng.Managing DirectorBMO Nesbitt Burns Inc. (Canada)BMO Capital MarketsInvestment and Corporate BankingA&D Advisory Group(403) [email protected]

Engineering

Wendy Smith Low, B.Sc.Director(403) [email protected]

Ryan Twa, M.Sc., P.Eng.Vice President(403) [email protected]

Steven Kehoe, M.E.Sc, P.Eng.Associate (403) [email protected]

Geology

Brian Zaitlin, Ph.D., P.Geol.Director/Chief Geologist(403) [email protected]

Joyce Kennedy, B.Sc.Vice President(403) [email protected]

Kathleen Dixon, B.Sc., M.B.A., P. Geol. Associate (403) 515-3670 [email protected]

Commercial

Andrew Taylor, M.Sc.Analyst(403) [email protected]

Mandy Edwards, B.A.Coordinator(403) [email protected]

Table of Contents

ExecutiveSummary....................................................................................................................................................... 2

Introduction................................................................................................................................................................... 5

RecentDrilling,Acquisition,Farm-inandLandSaleActivity...................................................................................... 6

GeologicalSetting........................................................................................................................................................ 10

TypeCurveDevelopment............................................................................................................................................ 16

EconomicParameters.................................................................................................................................................. 18

EconomicSummary..................................................................................................................................................... 19

SummaryandConclusions.......................................................................................................................................... 21

The Alberta Bakken

Executive Summary

TheAlbertaBakken,composedoftheBanff–Exshaw–BigValleyFormations(Figure1),isanexampleofanearlyentryDeepBasintightoilresourceplay.Whiletheplayisstillspeculativeduetothelownumberofproducingwells,DSTs,coreorcompletionattempts,theplayisconsideredgeologicallyproven,withproductionandDSToilrecoveriesfromtheBigValley(ThreeForksequivalent),andDSTrecoveriesfromtheExshaw(Bakkenequivalent).ThemainAlbertaBakkenplayfairwayiscoincidentwiththethermallymatureExshawsourcerockfairway(Figure2).

Theadventofhorizontaldrillingandmulti-stagecompletiontechnologynowallowsfortheexploitationofAlbertaBakkenunconventionaltightoilreservoirs.Recognitionofpotential lowresistivity,overpressuredbypassedpay iscritical inthe identificationofpotentialreservoirinaDeepBasinsetting.

SignificantactivityispresentlyexpandingthelimitsoftheAlbertaBakkenPlay(Figure2):

• Approximately112,887ha(~436sections)havebeenpurchasedviacrownlandsalefortheAlbertaBakken.Theaveragepriceatcrownlandsalesin2010was$890/ha,withamaximumpriceescalatingto$4,668/ha.ThetotalbonusforAlbertaBakkenlandsin2010was~$100million.

• InsouthwesternAlberta,CrescentPointEnergy(throughtheacquisitionofDarianExplorationfor$96million)andMurphyOilandBowoodEnergy(throughfarm-insontheBloodIndianReserve)haveestablisheddominantlandpositionstotalling~1,862sectionsinthethermallymatureExshawsourcerockfairway.

• InAlberta,onehorizontalwellhasbeendrilledandcompletedtargetingtheAlbertaBakken(drilledunderbroker:AntelopeLandServices14-7-1-21W4:TD–Wabamum;results confidential).A secondhorizontalwell ispresentlydrilling (AntelopeLandServices16-24-2-25W4,licensedtotheExshaw,spuddedAugust17,2010),andathirdhorizontalwelllicensedbyAntelopeLandServiceslocatedat3-8-1-18W4hasalsobeendrilledandrigreleasedonOctober3,2010,totheExshaw.ItisbelievedthatCrescentPointEnergyistheoperatorofthesethreewells.

• In theMontanaportionof theplay,RosettaResources andNewfieldExplorationhave farmed into 512,000 net acres (800 sections), and, alongwithAnshultzExploration(undisclosedland),arethedominantlandholdersontheBlackfeetIndianReservation.

• Rosetta,NewfieldandAnshultzhavedrilledsixverticalandonehorizontalwellswithninewellslicensedofanannounced18-wellprograminnorthwesternMontana.Thehorizontalwell(TribalGunsight31-16H)isspeculatedtohavetestedsignificantoiloncompletion,but,ratesareunknown.

The Alberta Bakken Page 3

Figure 1: Stratigraphic Chart Comparing the Bakken Petroleum System in Alberta With Saskatchewan, Montana and North Dakota (Williston Basin)

Source: Modified from Corelabs

TheAlbertaBakkentypewellismodeledafteroneverticalwell.Theverticaloilwellat10-30-8-23W4hasproduced243MbblfromtheStettlerformation,hadathree-monthIPof297bbl/d,andwillhaveanEURgreaterthan250Mbbl.TheAlbertaBakkenhori-zontaltypewellusesathree-monthIPof348bbl/dwithanEURof250MbblandhasadeclinesimilartothetypewellsfoundincorporatepresentationsfortheBakkeninNorthDakota,MontanaandSaskatchewan.Sinceourtypewellassumestwohorizontallaterallegsaredrilled,withacombinedthree-monthIPof348bbl/d(174bbl/dperleg)andanEURof250Mbbl(125Mbblperleg),itisaconservativeestimateconsideringthattheverticalanalogywillexceed250Mbbl.

Also,sincemuchoftheAlbertaBakkenissituatedinaDeepBasin,overpressuredsettingwiththickpay,itisreasonabletoassumethatitwillhavehigherdeliverabilityandreservesthantheSoutheastSaskatchewanBakken.However,theAlbertabasinwillrequiremuchhigherdrillingandcompletioncoststhanSaskatchewan,sothetotalcostburdenof$4.5millionfortheAlbertatypewellissignificantlyhigherthanforaSaskatchewanwell.

BearinginmindthattheAlbertatypewellhasaconservativeestimateforIPandEUR,aswellasahighestimateforcapital,itstillgenerateseconomicresultsthatarecompa-rabletotheotherBakkencasesthatwereanalyzed.Arelativelyminorimprovementtodeliverabilityorreserves,orareductionincapitalcostswouldsignificantlyimprovetheeconomics.

The Alberta Bakken

Figure 2: Alberta Bakken Fairway Map (inset) highlighted in green and outlined in green lines on the main map. Recent land sale activity and resultant land base are highlighted. Exact locations of the farm-in lands on the Blood Indian Reserve by Bowood and Murphy Oil are not public at this time. Stars and triangles represent recent drilling or licensing activity. The circle represents the 10-30-8-23W4 well, having ~243,000 bbl of production from the Steller/Big Valley. The diamond is the location of 2-16-3-21W4, having a straddle Drill Stem Test of 298 bbl of clean oil over the Exshaw/Bakken middle member.

Source: BMO Capital Markets; Rocky Mountain Thrust Belt and Bow Island – Sweetgrass Arch – Geoedges; Vulcan Low – Zaitlin et al., 2002


Introduction

TheAlbertaBakkenPetroleumSystem,consistingofDevonianandMississippianBigValley–Exshaw–Banffformations(Figure1),innorthwesternMontanaandsouthwesternAlbertaisthelatestplayareabeingevaluatedinthequesttocaptureearlyentry,contin-gentlightoilresources.OtherexamplesoflightoilresourceplaysbeingtargetedincludetheNordegg,LowerShaunavon,VikingandCardiumFormations(Figure3),andtheBakken-ThreeForksoftheWillistonBasin(Figure4).

Figure 3: Analogue Parameters for Emerging Tight Oil Resource Plays

Source: AJM Nordegg Research Study for Anglo Canadian Oil Corp.

Source: BMO Capital Markets; Sonnenberg and Pramudito, 2009; Prospect Saskatchewan, 2005; Davidson and Gomph, 2006

Figure 4: Analogue Parameters for Emerging Tight Oil Resource Plays (See Figure 12 for Locations)

The Alberta Bakken

Horizontaldrillingandmulti-stagecompletiontechnologyhasrecentlybeenappliedtoallowfortheexploitationofunconventionaltightoilreservoirs.Variationsinfaciesandreservoirparametersmayalsorequirefurtherspecializedtechnology(fracfluids,propants,etc.)tounlocktheresource.However,toidentifyprospectivenewtightoilplaysdevelopedwithinadeepbasinsetting,oneneedstoidentifyareasthatexhibit:

i) pervasivepetroleumsaturation;

ii) abnormalpressure(high);

iii) alackofdowndipwater;

iv) updipwatersaturation;

v) low-permeabilityandlow-matrixporosityreservoirs;

vi) deliverabilityisenhancedbyfracturing;and

vii) playsthatareself-sourcingwithinamaturesourcerockfairway.

TheAlbertaBakkenisconsideredaprovengeologicalplaywithproductionfromtheStettler/ThreeForksandhydrocarbonrecoveriesfromDSTsintheBakken/Exshaw(seeFigure9).Evaluationoftheavailablegeological,production,drillstemtest(DST)andcoredataappearstoindicatethattheAlbertaBakkenisdevelopedinaDeepBasinset-ting,asitischaracterizedbythesevenkeyattributeslistedabove.However,thequestionremains:istheAlbertaBakkendevelopingintothenextsignificantunconventionaltightoilplaytobetestedintheWesternCanadaSedimentaryBasin?

Recentlarge-scalelandacquisitionanddrillingactivityintheAlbertaBakkenhasfocusedonitsDeepBasintightoilpotential(Figure2).Thisactivityinitiallyoccurredinnorth-ernMontanabyRosettaResources,NewfieldExplorationandAnshutzExploration.Noproductionresultsarepublicallyavailableatthistimeand,assuch,thisplayisatthespeculativestageofdevelopment.However,theincreasingleveloffarm-in,acquisi-tionanddrillingactivityoccurringontheAlbertasideoftheborder(seeFigure2),inconjunctionwithsomeofthepubliccorporateannouncementsfocusingontheAlbertaBakken,indicatesthereiscommonconsensusthattheAlbertaBakkenhasthepotentialtobeasuccessfulDeepBasinunconventionaltightoilresourceplay.

Recent Drilling, Acquisition, Farm-in and Land Sale Activity

IntheMontanaportionoftheAlbertaBakkenplay,RosettaResources(~291,000netacresor~455sections),NewfieldExploration(~221,000netacresor345sections)andAnshultzExploration(undisclosedlandtotal)havefarmedintolands,predominantlyontheBlackfeetIndianReservation.RosettaResourceshasdrilledtwoverticalwellsandonehorizontalwell,whichhavebeenannouncedtobetargetingtheAlbertaBakkentodate(Figure2).Thehorizontalwell(TribalGunsight31-16H)isspeculatedtohavetestedsignificantoiloncompletion,butratesareunknown.Rosettahaslicensedtwoadditionalwellsoutofanannounced10-well2010program.NewfieldExplorationhasdrilledthreewellstodatewithnoannouncementsoftheirresults.Newfielddidannounceplanstodrill


anadditionaleightwellsin2010,withsevenlocationslicensed.AnshutzExplorationistestingthe“Bakken-ThreeForks”attheWhiteCalf 1-4.Collectively,Rosetta,NewfieldandAnshultzhavedrilledsixverticalwellsandonehorizontalwell,withanadditionalninewellslicensedofanannouncedprogramof18wellsfor2010.AvarietyofotherU.S.-basedcompanies(e.g.,PrimaryPetroleum,QuicksilverResources,ProvidentEnergyAssociates)arealsoconsideringactivityintheplay.

InsouthernAlberta,aseriesof landsales,acquisitions, farm-insanddrillinghasoc-curredinthelast12months,appearingtofocusontheSouthernAlbertaPlay(Figure5).Specifically,threemajorfarm-ins/acquisitionshaveoccurred:

• Crescent Point, through the acquisition of a private company calledDarianExplorationfor~$96million,hasestablishedalandpositionof~1millionacres(1,565sections)andaninitialproductionbaseof900boe/d.InitspressreleaseitindicatedthatthelandsareprospectivefortheBakken/ThreeForks.CPGhasprovidedguidanceincreasingits2010capitalbudgettofocusontheAlbertaBakkenopportunitytodrill~19(net)exploratorywellsbytheendof2011.

• MurphyOil,throughafarm-inontheBloodIndianReserve,hasestablishedalandpositionof129,280acres(202sections),withacommitmentof16wellsandabonuspaymentof$36million.Theexactlocationofthelandsonthereservehasnotbeenreleasedatthistime.

• BowoodEnergyhasestablished,viafarm-inonBloodEnergyReserve,alandpositionof60,640acres(95sections)andcommitmentofeightwellsforabonuspaymentof$14.1million.Theexactlocationofthelandsonthereservehasnotbeenreleasedatthistime.

• AdditionalcompanieswithexposuretothisplayontheAlbertasideincludeDeeThreeExplorationandWildstreamExploration.OntheU.S.side,Mountainview,PrimaryandQuicksilverhaveallacquiredsignificantlandpositions.

AnanalysisoflandsaleactivityispresentedinFigures5and6.Since2004,195,682ha(~756sections)havebeenboughtatAlbertacrownlandsales.Approximately57%,or112,887ha(~436sections),hasbeenpurchasedforanaveragepriceof$890/hain2010,withamaximumpriceof$4,668/ha.TheinsetchartonFigure5displayslandsaleactivitybyquarterfor2010.Theincreasesintotalhectaressold(2,575–68,449ha),average$/ha($206–1,040)andmaximum$/ha($500–4,668)indicateincreasedcompetitivenessoverthelastthreequarters.Betweenlandsaleactivity,farm-inactivityandcorporateacquisition,themajorityofprospectivelandsfortheAlbertaBakkencanbeconsideredtohavebeencaptured.TheOctober13,2010,landsalesawtwoparcelssellfor$3.5million,orabout$1500/ha,eclipsingtheaverageQ3priceof$1,040/ha.

AntelopeLandServices(believedtobeCrescentPointEnergy)hasdrilledandcompletedthehorizontal14-7-1-21W4(TD-Wabamum;resultsconfidential).Asecondhorizontalat16-24-2-25W4wellhasalsobeenlicensedtotheExshaw,andwasspuddedAugust17,2010.Athirdwelllocatedat3-8-1-18W4hasalsobeenlicensedtotheExshaw(Figure2).If thesewellsareinfactCrescentPointwells,itconfirmsthatitdidpurchasetheselandsatthesale.

The Alberta Bakken

Figure 5: Land Sale Map in the Alberta Bakken Core Area in Southwestern Alberta for 2010

Source: BMO Capital Markets; GeoScout


Figure 6: Land Sale Statistics for the Alberta Bakken for 2004–2010. Inset Map for 2010 by Quarter.

Source: BMO Capital Markets; GeoScout

The Alberta Bakken

Geological Setting

TheDevonian-MississippianAlbertaBakkenSystemcomprisesa0–50mthickmixedcarbonate-clastic intervalof theBanff-Exshaw-BigValley/Stettler/PalliserFormations(Figures1and7).TheAlbertaBakkenisapproximatelytimeequivalenttotheBakkenPetroleumSystem(Lodgepole-UpperBakkenshale-MiddleBakken-LowerBakkenShale-Sanish/ThreeForks)oftheWillistonBasin.

Figure 7: Photograph of the Alberta Bakken Stratigraphic Succession Between the Palliser Formation (Equivalent to the Big Valley, Stettler and/or Three Forks in the subsurface) and Banff Formations at Goat Creek, Alberta. Note “Sandwiching” of the Exshaw Between Two Organicly Rich Source Rocks.

Source: Reidiger et al., 2004

Paleogeographic reconstructionsof theLateDevonian andEarlyMississippian arepresentedinFigure8.Darkerbluesrepresentdeeperwaters;lighterbluesrepresentshal-lowerwaters.InsoutheasternAlberta,theAlbertaplatform(lightblue)passedwestwardintodeeperwatersoftheProphetTrough/AntlerForelandBasin;andeastwardacrosstheAlbertaPlatformintothedeeperwatersoftheWillistonBasin,formedasanintra-cratonicsag.Thoughapproximatelytimeequivalent,theAlbertaBakkenandWillistonBasinBakkendeveloped in twoverydifferentdepositional settings: a semi-restrictedintracratonicbasin(WillistonBasin)versusawestward-facingforelandtrough(AlbertaBakken;Figure8).


DuringLateDevoniantime,theSouthernAlbertaBakkenisinterpretedtohavedevelopedatornearthepaleoequator(Figure8).Asshowninthepaleogeographicreconstruction,thereisnomajorsourceofdetrital input;hencetheBanff-Exshaw-BigValley/StettlerFormationsaredominatedbycarbonatedeposition.However,theWillistonBasinhasmajordetritalinputfromthenorthandeast,therebyresultinginMiddleBakkenbeingdominatedbydolomiticsandstonesandsiltstonesinthenorthandeastportionsofthebasin,andsiltycarbonatedepositioninthesouthwest.

Figure9exhibitsthemaingeologicalelementsofsouthwesternAlbertaandNorthernMontanaduringAlbertaBakkentime.ThewesternboundaryoftheAlbertaBakkenplayisdefinedbytheRockyMountainThrustBelt.TheThrustBeltisdivisibleintoaninnerFoothillsfairwaycharacterizedbylargescaleNW-SEtrendinganticlinalstructures,andanouterorforefoothillsfairwaywithsmallerscalestructures.AlbertaBakkenreservoirsareinfluencedbystructuring,enhancinginherentlowpermeabilitybynaturallyfracturingdolostonestosiltydolostones.

Figure 8: Paleogeographic Reconstructions for North America for the Late Devonian and Early Mississippian Highlighting the Position of the Williston Basin (red circle) and Antler Foreland Trough (red rectangle). Small Red Box Is Approximate Map Area Highlighted in Figure 12.

Williston Basin

Alberta Bakken

Williston Basin

Alberta Bakken

Source: http//personal.umich.edu/~sperrin/geology/northamerica.pdf

The Alberta Bakken

Theeasternboundaryof theAlbertaBakken isdefinedby theSweetgrassArch/BowIslandArchandKevinSunburstdome.Thenorthern limitof theAlbertaBakken isdefinedbytheVulcanAeromagneticLow.TheboldedsubseacontoursontheMissis-sippianRundleFormationexhibitwidelyspacedcontourstotheeastandmorecloselyspacedcontourstothewest,indicatingahingeandchangeofslopealignednorth-souththroughthestudyarea.

BoththeExshawandBakkenshalesrepresentimportantpetroleumsourcerocksintheWesternCanadianSedimentaryBasin(AllanandCreaney,1991).Thetotalorganiccarboncontent(TOC)fortheExshawShalesrangesfrom1%to21wt%,andhydrogenindicesrangefrom100mgto1,100mgHC/gTOC(CaplanandBustin,1996).

WithintheWillistonBasin,MiddleBakkenreservoirsaresandwichedbetweentwoworld-classshalesourcerocks(UpperandLowerBakkenShales).IthasalsobeenrecognizedbyvariousworkersthattheBakkenPetroleumsystemintheWillistonBasinisdivisibleinto:

• anoverpressured(basin-centredoil)sub-systeminMontanaandNorthDakota(e.g.,ElmCouleeandParshallareas);

• anormaltounderpressuredtransitional (withinmaturesourcerocks)sub-system(e.g.,northernNeesonAnticlinearea);and

• asub-systemcharacterizedbytheupdipmigrationwhereoiloverwateristrappedbyconventionalstructuresand/orstratigraphictrapsinsoutheasternSaskatchewanandsouthwesternManitoba(e.g.,ViewfieldandSinclair/Dalyareas).

Figure9displaysthecontoursofvitrinitereflectance(Ro)valuesastakenfromGSCReportfortheAlbertaBakkenarea.OilgenerationfrommostorganicallyrichshaleunitsisconsideredtocommenceatRo~0.65,withpeakoilgenerationoccurringatRo~1.00andtheendofoilgenerationoccurringwhenRo>~1.3(Waples,1980).AsisshowninFigure9,RovaluesassociatedwiththeAlbertaBakkenrangefrom~0.6intheeastto>1.00 toward thewest and south.This indicates that theAlbertaBakkenPetroleumsystemisanactivehydrocarbonsystem,havingtheconditionsofTOCandmaturitytolocallygenerateoil.Importantpointsinsupportofthisobservationofalocallysourcingareaofmaturityare:

1. areviewofDSTrecoveriesfromtheBanff–StettlerintervalonFigure9indicatesthatallliveoilorgasrecoveriesoccuratorwestoftheRo=0.80line;

2. areviewofproductionfromtheBanff–StettlerintervalonFigure9indicatesthatnoprovenproductionoccurseastoftheRo=0.80line;

3. theAntelopeLandServiceshorizontalwells at 14-7-1-21W4, 16-24-2-25W4and3-8-1-18W4arealllocatedintheRo=1.00orgreaterareaalongtheAlberta-Montanaborder;and

4. theRosettaResources,NewfieldExplorationandAnshutzExplorationwellsarealllocatedintheRo=1.00orgreaterareainMontana.


Figure 9: Alberta Bakken Geology Map in Relation to Production and DST Recoveries. Highlighted Are Source Rock Maturity, Mississippian (Rundle) Subsea Structure (with dark line representing shelf break), Recent Drilling and Well Licenses and Main Structural Elements. Pressure Line is From Canadian Discovery.

Source: BMO Capital Markets; Geoedges; Zaitlin et al., 2002; Geological Survey of Canada Report 4341; Various corporate presentations, GeoScout

The Alberta Bakken

TheregionalpaleogeographicsettingindicatedthattheAlbertaBakkeninsoutheasternAlbertapassedwestwardintodeeperwatersoftheProphetTrough/AntlerForelandBasin,i.e.,theAlbertaBakkenthickenstothewest.Atwo-wellcross-section(Figure10)from10-30-8-23W4to2-16-3-21W4showsthethinningoftheStettler/BigValley-UpperBak-kensuccessioneastwardontothePlatform.The10-30welldisplaysafullAlbertaBakkensuccession.ThesiltydolostoneoftheBigValleyhasapproximately15mofpayat12%averageporosity,andhasproduced~243Mbblofoilwithnowater.The10-30wellhasapressuregradientcalculatedatPGrad=0.65,orapproximately50%overpressure.Usingadolomitebaselineof0%andinterpretingtheMiddleBakken/Exshawasasiltydolostone,itispossibletocalculate12mofpotentialpaywithanRt~15(totalpayof27m).

ThewellsdisplayasignificantthinningoftheStettlertoUpperBakkenShalesuccession.TheBigValleyisinterpretedasatightlimestoneandformsanupdipfaciestrapfortheBigValley.TheMiddleBakken/Exshawdisplaysapproximately2mof>6%pay,andfromastraddleDSTrecovered~300ftofliveoilwithanRt~35.ThelowRtvaluesmaybeindicativeoflowresistivitypayduetothemineralogical(pyrite,dolomite,phosphate,etc.).BowoodwentbackinJune5,2010torecompletethiszoneandresultsareconfidentialatthistime.CanadianDiscoveryhascompletedahydrodynamicstudyoftheAlbertaBak-kenwhichshowsapotentialchangefromnormalpressurein2-16welltooverpressurein10-30well(purplelineonFigure9).

Summarizingtheobservationspresentedabove,theAlbertaBakkenappearstobechar-acterizedby:

• pervasivehydrocarbonsaturation(staining,DSTandproduction);

• isabnormaloverpressured(CanadianDiscovery,10-30well);

• noapparentdown-dipwater(DSTandproduction);

• apparentup-dipwater(DSTandproduction);

• low-permeabilityandlow-matrixporosityreservoirs(logs,coreandcuttings);

• localfracture,whichmayenhancedeliverability;and

• aself-sourcinghydrocarbonsystemwithmaturesourcerocksandTOCs.


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The Alberta Bakken

Type Curve Development

Eachofthetypecurves(Figure11)wasselectedfromtherespectivecompanycorporatepresentations.Theywererecreatedusingtheirinitialrates,productioncurveshapesandEURs,andthenenteredintoValueNavigatorsothateconomicvariablescouldbemodi-fiedtodeterminesensitivities.Wherepossible,foreachregionalareaandcompanythatwasanalyzed,thetypecurveswerepresentedwitharange,sothateachcompany(withtheexceptionofCrescentPoint)hastwocurvesrepresentinghighandlowexpectations.ThelocationsofthetypecurvesfromtheWillistonbasinareshowninFigure12.

ThetypecurvefortheSouthernAlbertaBakkenwasbuiltusingthegeneralshapeofthesecurves,i.e.,asharpdeclineinthefirstyearfollowedbyshallow,harmonicdecline.SincetheSouthernAlbertaBakkenisdeeperandoverpressured,itisexpectedtoprovidebetterdeliverabilitythantheWillistonBasininViewfieldSaskatchewan.Forthisreason,theinitialrateisassumedtobehigherthantheViewfieldwells,butlowerthantheNorthDakotawells.Inaddition,theoneanalogywellthatisavailableinSouthernAlberta(10-30-8-23W4)showsaninitialrateof337bbl/dandanEURfromdeclineanalysisthatisgreaterthan250Mbbl(allfromaverticalwellbore).AlloftherelevantparametersusedinthetypecurvedevelopmentforeachcaseareshowninFigure13.

Figure 11: Bakken Type Curves From the Respective Corporate Presentations, as well as BMO’s Estimated Type Curve for Southern Alberta Bakken. Also Shown Are the Associated Times to Payout.

Source: BMO Capital Markets and various corporate presentations


Source: BMO Capital Markets; Map from Tristar 2009 Corporate Presentation

Figure 12: Relative Location of Type Wells in the Williston Basin Shown in Figure 11

Figure 13: Summary of Type Curve Parameters and Economic Results for Each Case

* The reserve life index (RLI) was calculated using the instantaneous IP rate, i.e., EUR/Inst. IP/365 = RLI (years).Source: BMO Capital Markets and various corporate presentations

The Alberta Bakken

Economic Parameters

Wellcostsweretakenfromcorporatepresentationsandareassumedtoincludedrilling,casingandcompletioncostsonly.OperatingcostsfortheCanadiancompanieswereap-proximately$8.00/bbl,buttheAmericancompaniesdidnotdisclosetheirspecificoperatingcostsfortheseplays.Tosimplifytheanalysisandensureequalcomparisonbetweentypewells,itwasassumedthatoperatingcostsforeachcasewas$8.00/bbl.

ThewellsforCrescentPoint,Enerplus,BrighamandWhitingareallassumedtohaveonehorizontalleg.Togeneratetheirhighandlowcases,Enerplus,BrighamandWhitingvaryinthelengthsoftheirhorizontallegs,whereasthetwocasesforPetrobakken’sViewfieldwellsvary,withthelowcaseasonelaterallegandthehighcaseastwolaterallegs.ThecostsassociatedwitheachofthesecasesarelistedinFigure13.TheAlbertaBakkencaseisassumedtohavetwo1,500mhorizontallegs(onetargetingtheBakken/ExshawandonetargetingtheStettler)withtotaldrillingcostsof$2.5millionandcompletioncostsof$2.0million.AnalogywellsinalloftheareasshowGORs(gas-oilratios)thatareap-proximately700scf/bbl.Thisvaluewasusedforeachtypewellandeconomiccase.

ForthecasesinNorthDakota(Enerplus,BrighamandWhiting),theroyaltyrateisas-sumedtobe16.6%,withnodrillingorroyaltyincentiveprograms.ThecasesinViewfield(CrescentPointandPetrobakken)areassumedtoqualifyfortheSaskatchewan“Horizon-talDeepOilWell”Royaltyincentive,wherebytheownerpaysamaximumrateof2.5%onthefirst16,000m3(or100Mstb).

InAlberta, the typewell canoccuron either crownor freehold land. In the caseofcrownland,thewellisassumedtoqualifyfortheHorizontalOilDrillingCredit.Sincethemeasureddepthofthewellwillbe5.150m(2.150mTVD+2*1.500m),thecreditisamaximumrateof5%onthefirst100Mboeor48monthsofproduction(whichevercomesfirst).ForwellsdrilledoncrownlandbeforeApril1,2011,theAlbertagovernmentalsohastheDrillingRoyaltyCreditthatcanrunconcurrentlywiththeHorizontalOilDrillingCredit.ThiscasewasalsoevaluatedontheAlbertatypewell.

ItisalsolikelythattheAlbertatypewellcouldbedrilledonfreeholdland.Inthiscaseitisassumedthatthefreeholdroyaltyrateis10%.TheAlbertagovernmentalsocollectsaFreeholdMineralTaxontopofthefreeholdroyaltythatdecreaseseachyearfromaninitialrateof6.2%.Itwasassumedthatthelesseepaysallofthemineraltax.Therearenoroyaltyincentivesordrillingcreditsavailableonfreeholdlands.


Economic Summary

AllofthecaseswererunontheBMOResearchPriceDeckasofSeptember2,2010(Figure13).ThetypecurvesshowninFigure11showthetimetopayoutforeachcase.AllofthecasesinNorthDakota(Whiting,EnerplusandBrigham)havepayouttimesthatvaryfrom0.4yearsto2.2years.Thecases inViewfield,Saskatchewan(CrescentPointandPetrobakken)varyfrom0.6yearsto1.1years.Asexpected,whentheinitialratesarehighpayoutoccursquickly.

AlloftheresultingeconomicparametersareshowninFigure13.Figure15showstheBeforeTaxNetpresentValueata10%discountrate(NPV)andFigure16showstheIn-ternalRateofReturn(IRR)foreachcase.ItisclearthattheAlbertaBakkencasesshowNPVandIRRvaluesthatarecomparabletotheSaskatchewanViewfieldBakkenwells.

AsimilartrendcanbeseenwhenreviewingtheBreakevenSupplyCost(BESC)inFigure17,witheachoftheAlbertaBakkencasescomparingfavourablytothePetrobakken,singlelegorSaskatchewanViewfieldBakkenwells.However,thePetrobakkenbilateralwellandtheCrescentPointBakkenViewfieldwellsdooutperformtheAlbertaBakkenwellsonaBESCbasis.

Consideringthatthedeliverability,reservesandcapitalcostsfortheAlbertatypewellareallconservative,theseresultssuggestthatrelativelyminorimprovementstothetypewellinputparameterswillsignificantlyimprovetheeconomics.

Ultimately,whencomparingtheAlbertaBakkentypewelltotheSaskatchewanBakkentypewells,theAlbertaBakken—duetotheoverallthicknessofthereservoir,andtheoverpressured,DeepBasinsetting—hasthepotentialforahighlyeconomicwell.

Figure 14: Price deck Utilized in the Economic Analysis

Source: BMO Capital Markets

The Alberta Bakken

Figure 15: Before Tax Net Present Value @ 10% Discount Rate for Each Case

Figure 16: Internal Rate of Return for Each Case




Summary and Conclusions

TheAlbertaBakkenisanexampleofanearly-entryDeepBasintightoilresourceplay.ThemainAlbertaBakkenplayfairwayiscoincidentwiththethermallymatureExshawsource rock fairway.Thoughapproximately timeequivalent, theAlbertaBakkenandWillistonBasinBakkendeveloped in twoverydifferentdepositional settings:asemi-restrictedintracratonicbasin(WillistonBasin)versusawestward-facingforelandtrough(AlbertaBakken).

SignificantactivityispresentlytestingtheAlbertaBakkenPlay,withapproximately112,887ha(~436sections)purchasedviacrownlandsalewithamaximumpriceescalatingto$4,668/hainthemostrecentlandsale,foratotalbonus~$100million.InAlberta,CrescentPointEnergy,throughtheacquisitionofDarianExploration,andMurphyOil/BowoodEnergy,throughfarm-insontheBloodIndianReserve,haveestablishedadominantlandpositionof~1,862sectionsinthethermallymatureExshawsourcerockfairway.

InAlberta,webelievethatthreehorizontalwellshavebeendrilled/licensedbyCrescentPointEnergyintheplay.InMontana,RosettaResourcesandNewfieldExplorationarethedominantlandholdersontheBlackfeetIndianReservation.FortheAlbertaBakken,weestimateanEUR/wellof250Mbblandthree-monthaverageIPof348bbl/d.ThisyieldsaBeforeTaxNetPresentValue@10%of~$4.5millionforaHorizontalOilCase,anInternalRateofReturn(IRR)of75.9–108.8%andaBreakevenSupplyCost(BESC)of$41.25–42.20/bbl.WhiletheseeconomicsarenotquiteasrobustastheparametersintheSaskatchewanWillistonBasinBakken,theydocomparefavourably.SincetheAlbertaBakkentypewellparametersarefairlyconservative,thereispotentialfortheSouthernAlbertaBakkentohaveimprovedeconomicswithonlyslightimprovementstothetypewell.

While theplay is still emerging, theAlbertaBakkenappears tobedeveloping intoapotentialnewunconventionaltightoilresourceplay.

Figure 17: Breakeven Supply Cost for Each Case


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