In the same fashion that prospectors headed for California in the 1800’s in pursuit of gold rush riches, oil and gas companies both big and small have descended on a large swath of territory called the Bakken Shale. In case you’re unfamiliar with the area, the Bakken Shale is composed of approximately 200,000 oil and gas-rich square miles of land in North Dakota, Montana, Alberta and Saskatchewan.
Much has been said and written about the massive volume of underground energy resources buried in the Bakken. Last year, energy and geopolitics expert Michael Economides, editor-in-chief of Energy Tribune and a professor at the University of Houston, predicted a robust future for oil and natural gas production in the area: “The last time I looked, we were producing 150,000 barrels per day in the Bakken. Today it’s nearing 600,000 barrels,” said Economides. “I don’t think there’s a story like this in the history of U.S. oil and gas.”
In the past it had been virtually impossible to tap into the oil and gas deposits located thousands of feet below ground in the shale formations of Bakken and elsewhere. Now, thanks to rapid advances in horizontal drilling technology, which involves a process commonly known as “fracking,” these resources are much more accessible—with energy companies wrestling to bring the associated drilling costs down, and protect the environment at the same time.
There are already many players, both big and small, currently exploiting Bakken’s resource-rich geology, but clearly there’s room for more. Today I want to bring your attention to one of the newest entrants in the Bakken Derby—Norstra Energy (NORX). At the beginning of April, Norstra announced that it had entered into a farm-out agreement with Summit West Oil, LLC for the South Sun River Bakken Prospect, a 10,000 acre tract, with most leases extending for 10 years.
Under the agreement, Norstra will provide $200,000 for short term working capital with the goal of completing a first well into the Bakken Oil Formation by December 31, 2013. Then the company will finish a minimum of two more wells by the end of 2014. If Norstra completes the first three wells on target, it will retain a 100% working interest in the entire farm-out acreage. If the company doesn’t complete all three wells by the end of 2014, it will only retain interests in the completed wells.
Glen Landry, Norstra’s CEO, is a third generation geologist who has spent 30 years exploring for oil and gas in Montana and North Dakota. “This is a fantastic opportunity for Norstra and its shareholders,” Landry said. “I believe that this area of Montana could become the next Williston basin in time and we’re well positioned to be a player in the area.”
One of the biggest challenges for development stage oil and gas companies like Norstra is making sure, to the greatest extent possible, that their well locations are likely to be producers. At a cost of between $5 – $10 million per completed well, one or two “dry wells” can put a small company out of business. A potential ace-in-the-hole for Norstra is that the South Sun River area is in shouting distance of where successful wells have already been drilled by Shell, ARCO, SUNCOR, Sun Exploration, Occidental Petroleum, Phillips Petroleum, and Montana Power.
Notably, Norstra’s first drill location is in the immediate vicinity of a producing Shell well. That’s meaningful not only in that it’s more likely to result in a successful spudding; it also should help reduce drilling costs. “A typical new well today in the Williston Basin costs $7,100,000 to produce on average, and requires a depth of 8,000 or more to reach the Bakken,” the company stated in a presentation about the Sun River project. “Near the Shell Krone well, the first drill location will hit Bakken at only 8,000-8,500.” Norstra believes it can complete the fracking process for $5 million, using state-of-the-art fracking techniques—significantly under the regional average.
Although NORX shares debuted in the marketplace less than two months ago, market participants already seem to be warming to the company’s potential. NORX debuted on the OTC Bulletin Board on March 5 at $0.35 per share, topping out on April 2 at $0.57, each in the wake of the company’s release of its South Sun River Project prospectus one day earlier. Trading volume that day set a record for the young company, with about 1.2 million shares changing hands.
Over the subsequent 10 trading sessions, shares stair-stepped their way back down to $0.45, re-took the technically significant $0.50 level, fell back again to $0.45, then once again elevated above $0.50, closing Friday at $0.53. For a virtually unknown issue, trading volume has been brisk, weighing in at between 300,000 – 800,000 shares traded over the past several sessions. News released on April 8 that Norstra had engaged Summit West Oil to operate the three prospective wells was another positive, as Summit already has a history of successful well completion in Montana.
Although Norstra is in its infancy, management has a long and solid reputation in the field, and the company is prospecting in a productive area with proven reserves only a short distance from where it will drill its first well. Even as the price of crude declined significantly over the past several sessions, NORX defied the tape and continued to challenge its earlier top of $0.57. If the company can execute its drilling program as planned, and continue to tap into more riches of the Bakken Shale, NORX’s current share price could put investors in a sweet spot of their own in the months ahead.
Good luck with this and all of your trades!
Warren Gates, Senior Analyst, Oakshire Financial
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