The Triassic Lower Amaranth formation (known as the Spearfish in North Dakota) is an unconventional light oil resource play with more than 2 billion barrels of original oil in place (OOIP). Just like the Viking in Saskatchewan or the Cardium in Alberta, the formation has been drilled through vertically numerous times since oil was first discovered in the 1950’s. The play is situated in the north eastern portion of the Williston basin where a fairway of oil charged formation sands runs from Southwestern Manitoba (Waskada and Pierson fields) into North-central North Dakota (Bouttineau county).
The Lower Amaranth is a pure development play because the industry is simply applying new technology (horizontal drilling and multi-stage fracturing) in order to increase oil recovery factors (RF) from known hydrocarbon reservoirs. The formation has a low RF at less than 3% which translates into millions of barrels in recoverable oil left for grabs. Horizontal drilling and multi-stage fracturing will increase the RF up to 10%. Furthermore, the reservoirs are excellent candidates for waterflood which adds another 5% to the recovery.
The play covers a small geographical area which makes land tight and limits the number of players involved. The Lower Amaranth resides at sub 1,000m depth and contains 9 to 15 million barrels of 36°-37° API oil per section. It is a highly economic play as each barrel of light oil fetches Edmonton Par pricing earning producers more than $50 in profit for each barrel sold at $95 CAD. Each well on average costs around $1.5M and recovers from 70,000 to 100,000 barrels of oil. Initial production (IP) rates vary between 150-350 bopd with IP30 rates in excess of 100 bopd.
While senior producers dominate this play and junior producers are quasi non-existent, the following 2 intermediate light oil weighted producers offer maximum exposure to this light oil resource play with a lot of upside:
Legacy Oil & Gas leg.to $N/A [+0]
Landbase: 78,000 net acres
Legacy is a light oil weighted intermediate producer with a forecasted exit rate exceeding 17,900 boe/d for 2012 weighted 85% to oil and liquids. The company enjoys more than 1,200 net development locations including 440 net locations prospective for Lower Amaranth oil. Herein lies the upside as the company is counting 440 net locations based on 8 wells/section but the industry (Penn West and EOG Resources) is currently drilling 24 wells/section. LEG’s Lower Amaranth inventory may easily double from current levels if not potentially triple by following the industry’s down spacing approach. Legacy is a solid company with a diversified light oil focused asset base in the Williston Basin.
Surge Energy sgy.to $2.20 [+0.07]
Landbase: 98,000 net acres
Surge Energy assembled a drilling inventory of over 435 net locations with around 50% (212 net locations) of these locations booked on only 13,000 acres of its land base in the Lower Amaranth play. The company has 85,000 net acres under technical review in North Dakota which may result in a substantial increase in potential net drilling locations. SGY is on track to exit 2012 with production in excess of 11,000 boe/d weighted 77% to oil and liquids.
The Lower Amaranth unconventional oil play has contributed to putting Manitoba on the map when it comes to Canadian oil production. The province is on track to exceed 40,000 bopd in 2012 with Lower Amaranth oil contributing at least 30% of the volumes. While these 2 companies are not a pure play on Manitoba, they provide a huge exposure to a tight oil play with robust economics and a lot of upside.
Disclaimer: the information presented above is only for informative purposes; it’s meant to serve as a starting point to carry your own due diligence. It is in no way an encouragement to buy or sell the aforementioned securities. If you find any errors in the data please do not hesitate to contact us.