TransCanada and Enbridge in Bakken battle
Shale oil to overtake oil sands as investment target; 83% surge in US Bakken reserves
TRANSCANADA and Enbridge, Canada’s heavyweight pipeline companies, are engaged in their latest jousting contest as they try to secure a dominant role in carrying oil from the Bakken shale formation to markets in the US.
Once content to leave each other alone and stick to their shipping specialties – natural gas for TransCanada and crude oil for Enbridge – the two companies, which glare at each other from their head office towers in Calgary, are engaged in an open battle for producer backing.
The prize is control over oil flows from a formation that has attracted a swarm of explorers, many of them little known outside their own households. The Bakken straddles the US-Canada border, between Saskatchewan and North Dakota/Montana.
Revising the best-before date
Although ignored in Saskatchewan by Canada’s top producers and largely bypassed in North Dakota, except by Williams and Marathon Oil, the Bakken play is further proof that technology can squeeze more out of rocks in a region thought to have passed its best-before date.
Williams has just paid $0.925bn to acquire 86,000 acres of Bakken land and expects to spend $360m on drilling and development by the end of 2011, adding to its 185m boe of net reserve potential. Meanwhile, Marathon is targeting an 8,000 barrels of oil equivalent a day (boe/d) increase in its net output, to 22,000 boe/d, over the next three years.
In Saskatchewan, Crescent Point Energy, Enerplus Resources and PetroBakken remain the front-runners, although Cenovus Energy is poised to make some moves on its 90,000 acres.
Foreign companies are also establishing their presence. Taqa North, a unit of Abu Dhabi National Energy, is chasing a spot among the top-14 Canadian producers by adding the Bakken play to its varied portfolio. And Australia’s Molopo Energy has used the Bakken as one of the springboards to building proved-plus-probable crude reserves of 9.3m barrels.
The use of new drilling and completion techniques, through horizontal wells and multiple-stage fracturing stimulations, has turned the historically uneconomic Bakken formation into a hot resource play and allowed many junior companies to attract investors and capital.
Ray Kwan, an analyst with Macquarie Equities Research, says the “shale-oil revolution” is showing up on investors’ radar screens as the industry continues its drive towards oil-related exploration from such rocks. “Canadian shale oil is likely to emerge as a significant trend over the next five to 10 years, as producers move into the tightest, yet largest oil-in-place rocks available,” he says.
Mike Tims, co-chairman of investment dealer Peters & Co, expects the unconventional-oil plays in Alberta and Saskatchewan will displace the oil sands in 2011 among companies seeking development financing.
For now, the numbers tell the tale. The US Energy Information Administration reported earlier this month that North Dakota’s shale-oil formation has posted an 83% surge in its proved crude reserves over the past year to 481m barrels. The increase demonstrates the possibility of an expanding role for domestic crude in “meeting both current and projected US energy demands”, the agency says.
The Bakken in North Dakota and Montana is the fastest growing US crude play, with output expected to reach 200,000 barrels a day (b/d) by 2015 and top 0.5m b/d by 2020.
The Bakken in Saskatchewan, with a small cousin emerging in its western neighbour Alberta, is closing in on 70,000 b/d, beyond which the forecasting is fuzzy, but the hopes seem almost limitless based on C$5bn spent on property swaps, farm-ins and asset transactions over the past two years.
If any were needed, affirmation of the basin’s potential has come from TransCanada and Enbridge, still carrying the scars of their continuing tussles over rights to ship Arctic gas to southern Canadian and US markets; and to deliver crude bitumen from Alberta’s oil sands to US Gulf Coast refineries (a contest which has seen TransCanada barge Enbridge aside, for now).
TransCanada is holding an open season to test the response among producers in the US Bakken to a proposed 100,000 b/d, $140m connection to the Cushing trading hub in Oklahoma and possibly the Gulf Coast, if the US government approves an expansion of the Keystone pipeline.
But TransCanada is immersed in a fierce battle over Keystone, with a coalition of environmental groups spending $0.5m to urge President Barack Obama to reject additional shipments of oil-sands crude to the US. TransCanada has countered through a study by the not-for-profit Energy Policy Research Foundation, which estimates the transportation and processing of oil-sands production could inject up to $0.6bn a year into the US economy.
Enbridge, waging into its own public-relations campaign after a series of pipeline spills in the US, has held an open season to test support for a C$0.54bn project to pump an extra 145,000 b/d into its existing 170,000 b/d Bakken pipeline system through Saskatchewan. It has also recently raised capacity on its North Dakota system to Clearbrook, Minnesota, by 51,000 b/d, to 161,000 b/d.
Enbridge proposes to open up transport options for producers, including firm access from the North Dakota fields to its mainline system from Alberta to the US Midwest and eastern Canada.