North Dakota Oil

Isabella Lucy Bird (1831-1904) was an amazing traveler and a pretty good writer. I have a soft spot for adventurers. Especially for those who can write well. In her time, she traveled all over the world. She traveled throughout Asia. She lived for a time among the Ainu people in northern Japan. Bird also made it to Hawaii, where she climbed the Mauna Loa volcano. She also wandered in Australia and rode horses in Persia. This is just a snippet of her life’s itinerary. She got around.

In 1873, Bird set off for the Rocky Mountains. Back then, the Rocky Mountain region was an untamed wilderness, peopled with a few hardscrabble pioneers. Bird began her journey in San Francisco. She headed west across Nevada and then trudged into the Colorado Territory. Bird set her adventures down in a series of letters to her sister Henrietta. She stitched them together in a book, published in 1879.

Here she records her vivid descriptions of the landscapes of the Rockies. She writes of the “snow-splotched mountains,” the glades and sloping lawns, the elk and the bears. One bear came so close she “heard the grass, crisp with hoar frost, crackle under his feet.” She writes of the profound stillness and “cherry-fringed beds of dry streams.” And the “deep, vast, canyons…[that] lie in purple gloom.”

It’s that vastness and beauty, that sense of exploring, that still gives the Rocky Mountains a romantic aura even to this day. I enjoyed reading Bird’s letters…and they got me in the mood for today’s column. Today, despite all of our sophisticated toys, the Rocky Mountains remain mysterious in ways of oil and gas.

Oilmen and speculators wonder just how much oil and gas might lie in this region. Some of the hottest exploratory regions in America lie in the Rocky Mountain region. In particular, in the so-called Bakken Trend.

Steven Ward is a former employee of Amoco Oil. He now works as an independent oil analyst specializing in Canadian and Western European oil companies. He wrote a neat piece that I stumbled on as I was researching my next recommendation. The title was “The Bakken Trend: Lost Dutchmen Mine of the Oil Patch?”

The Lost Dutchmen Mine is a legendary gold mine somewhere in the Superstition Mountains east of Phoenix. It’s a fascinating story. If you Google “Lost Dutchmen Mine,” you’ll come up with all kinds of interesting commentary. But Ward used the Dutchmen legend as a takeoff to talk about various similar legends about oil riches in oddball places. “Stories abound about great oil riches in faraway places yet undiscovered; the foot of the Himalayas, the Spratly Islands, the Atlantic Rockall volcanic peak,” Ward writes.

He relates how similar legends exist about the continental U.S. and Canada. Specifically, these legends proliferate around a region called the Bakken Trend. It lies in the giant Williston Basin that stretches across parts of the Dakotas, Montana, Manitoba and Saskatchewan.

He writes about geochemist L.C. Price, who worked for the U.S. Geological Survey. Price delivered a stunning report on the Bakken Trend. He concluded that it contained 200-500 billion barrels of oil. He turned in his report to the USGS, which began its review. But Price died in 2002 with the USGS still holding onto the report, refusing to release it.

Here you have similarities to the story of the Lost Dutchmen Mine. In this tale, a German immigrant named Jacob Walz supposedly found gold in the Superstition Mountains. He died before vindicating his claim. Ward writes, “Bakken oil remained elusive…the stuff that makes a good story around bars filled with oilmen.”

Long story short, the Bakken is getting attention again. New work on the area confirms the essence of Price’s research, if not the 200-500 billion barrel estimate. “Finally,” Ward writes, “it now appears that the Bakken Rush is finally on in the U.S. as well as in Canada.”

A number of companies have been buying up unexplored land areas in the Bakken. EOG Resources is one significant producer in the Bakken. Marathon Oil, according to Ward, is the only integrated oil company with an office in North Dakota. Its sole mission: Explore the Bakken.

“Still doubting?” Ward writes. He offers more recent analysis by geologists, from 2006. This work put the estimated barrels in place at 300 billion in North Dakota and Montana alone. Also, geologist Julie LeFever, who worked with L.C. Price on his initial report, published a paper adding that additional barrels lie in various layers of the Bakken. “The rush for the Bakken is finally on,” Ward writes. “Investors should catch it if they can.”

I recently recommended a play on the Bakken Trend to the subscribers of my investment service, Mayer’s Special Situations. The company I recommended holds significant assets in the Bakken. It also has another, potentially bigger asset in a rich basin in Wyoming. This stock has already performed extremely well since I recommended it, but I’m still expecting larger gains.

Meanwhile, I’m continuing to explore for other stocks that are focused on the Bakken Trend. I would encourage all investors to do the same. The investment opportunities in the Bakken are just beginning to emerge.

Regards,
Chris Mayer
May 22, 2008