Wednesday, February 16, 2011

Legacy builds up position in Spearfish; Spearfish is the next Bakken??

The $2-billion Legacy Oil + Gas is purchasing light oil production, reserves and undeveloped land in the Spearfish light oil resource play in Pierson, Manitoba, from Molopo Energy for C$185 million. This is in addition to their three light oil acquisitions in 2010 totaling C$740 million.

Commenting on the sale, Molopo’s Managing Director, Mr. Stephen Mitchell, stated: “We have spent ~A$75m on acquiring, appraising and developing this asset over the last 16 months. The sale proceeds will place Molopo in a strong position to focus its financial, technical and managerial resources on its extensive remaining portfolio of oil assets in North America (Bakken and Wolfcamp) and its gas assets in Australia, 
Quebec and South Africa – all of which offer significant value generation potential for shareholders.

Legacy’s view on light oil plays:

Trent Yanko, president and chief executive of Legacy says about the transaction, "It's a classic case where coming in now with the horizontal well and multi-stage frac technology you take a marginal play and turn it into a highly economic play". Yanko adds, "Part of it is the technology advancement in the completions and part of it is price. We wouldn't be doing this if oil was C$15 a barrel. Our philosophy is we are pursuing light oil resource-style opportunities. We have had success in identifying those and being able to negotiate one-off transactions and being able to properly assess the upside."

Spearfish, is this going to be a sibling of Bakken??
The Spearfish formation is at a shallower depth than the Bakken oil, so it should be cheaper to drill the Spearfish. Also, it is a low permeability poor quality inter-laminated silty-sandstone sitting on top of the Mississippian water bearing formation. The porosity is 15% for the Pierson area. The Spearfish light oil resource play began development in southwest Manitoba in early 2007 and since that time, more than 150 multi-stage fracture stimulated horizontal wells have been drilled in the greater Waskada area.

Lynn Helms, director of the North Dakota Department of Mineral Resources, “The Spearfish play is about where the Bakken was in 2005 with positive indications of recoverable oil, but a lot of work to do to get repeatable economic results".

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