Is This Saskatchewan Oil Field the Next Bakken?

Massive new shale discovery in Saskatchewan.

| More on:
The Motley Fool

Over the past few month, a handful of major oil and gas explorers have been quietly accumulating vast tracks on land in a little known area of Southern Saskatchewan.

Early estimates show that this oil-rich layer of rock could contain billions of barrels of recoverable crude oil and rank as one of the largest shale fields in the country.

And their bet is starting to pay off. Drilling in the area is so lucrative, operators are generating returns up to 300% on each well. And many of the area’s big operators are posting massive production gains. Yet this might only be the beginning.

Is the oil field the next Bakken?

Oil prospectors are hunting for North America’s next big shale play in a layer of rock dubbed the Torquay in Canada, also known at the Three Forks in the United States.

The formation is located about two kilometres beneath the surface and is a part of the vast 250,000-square-kilometre Williston Basin that underlies Saskatchewan and North Dakota and well as parts of Montana and South Dakota. Over the past few weeks oil producers like Crescent Point Energy (TSX: CPG)(NYSE: CPG), Vermilion Energy (TSX: VET)(NYSE: VET), and Legacy Oil Plus Gas (TSX: LEG) have been buying up acreage in the Torquay like crazy.

Earlier this month, Bakken veteran Crescent Point purchased privately held CanEra Energy for $1.1 billion. The acquisition includes 680 square kilometres of Torquay drilling rights and boosts the company’s disclosed drilling locations in the play to 480 well sites.

“We’re very excited about the results we’ve seen in the Torquay so far,” Crescent Point Energy President and Chief Executive Officer Scott Saxberg wrote in a April press release, “To put it in context, this play has the potential to be the equivalent size of our Viewfield Bakken play.”

Given how lucrative drilling in the Torquay has been, it’s no surprise Crescent Point is so optimistic. A typical well in the emerging field costs only $3.35 million to complete, covers its capital costs within seven months, and generates an annual rate of return north of 300%.

Now the company is betting big on the play. In 2014, Crescent Point expects to spend $200 million of its $1.7 million capital budget developing its Torquay acreage. Specifically, the firm is looking to drill approximately 48 net wells by the end of the year.

Other producers are rushing into the Torquay as well. In April, Vermilion Energy paid $427 million to break into the emerging shale field with a takeover of privately held Elkhorn Resources and its extensive undeveloped acreage.

A few weeks later, Legacy Oil and Gas paid $588 million in a combination of shares, cash, and debt to buy privately owned Highrock Energy. In announcing the deal, Legacy vowed to drill more than 100 locations in Saskatchewan later this year, including multiple sites in the Torquay and the Bakken.

All three of the companies I have mentioned in this post are going ‘all-in’ on the Torquay, spending hundreds of millions of dollars to expand their operations in the area. While it’s still too early to tell how this play will turn out, the Torquay certainly has the potential to be one of North America’s big new shale finds. Investors should keep a close eye on drilling results from these operators in upcoming quarters.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no positions in any of the stocks mentioned in the article. 

More on Investing

Target. Stand out from the crowd

Finning International: A Reasonable Buy Here

Finning International is a cyclical dividend stock that offers decent long-term returns potential of north of 10%.

Read more »

Dollar symbol and Canadian flag on keyboard
Stocks for Beginners

TFSA: 4 Canadian Stocks to Buy and Hold Forever

Here are four stocks that you can buy and hold for decades in your TFSA.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, April 23

Important economic data from the United States could keep TSX stocks volatile this morning as falling metal prices pressure the…

Read more »

Dividend Stocks

Buy 3,000 Shares of This Super Dividend Stock For $3,300/Year in Passive Income

Are you looking for a super dividend stock to buy now and generate a whopping passive-income stream? Here's an option…

Read more »

Question marks in a pile
Dividend Stocks

Where Will Brookfield Infrastructure Partners Stock Be in 5 Years?

BIP (TSX:BIP) stock fell dramatically after year-end earnings, but there could be momentum in the future with more acquisitions on…

Read more »

Utility, wind power
Dividend Stocks

So You Own Algonquin Stock: Is It Still a Good Investment?

Should you buy Algonquin for its big dividend? Looking forward, the utility is making a lot of changes.

Read more »

Big Bitcoin logo.

2 Cheap Stocks to Add to Your TFSA Before They Get Expensive

If you want to buy the dip and sell the rally, these two TSX stocks are a bargain you don’t…

Read more »

Young adult woman walking up the stairs with sun sport background
Stocks for Beginners

New to Investing? This Step-by-Step Guide Will Get You Started

New to investing? Then follow this guide to help you get started, by paying off your debts and saving towards…

Read more »