A recent release by analysts at Bank of America confirms what many oil industry researchers have already been touting, that U.S. crude and natural gas liquids production has now shot up to surpass all other countries on the planet, with Q1 production this year roaring at over 11M bbls a day on the strength of the shale boom. Despite these figures, we still import well over 7M bbls/day according to the DOE. Even as Brent crude oil slumps to a 3-week low under $111 amid news of export restarts by Libya out of two ports closed for almost a year now and a general softening of geopolitical supply fears, our incredible shale boom in the U.S. isn’t driving prices down at the pump; instead the boom is merely keeping the lid on otherwise explosive energy price dynamics.
With massive activity out of Texas and North Dakota on everyone’s radar, it is easy to overlook rapidly emerging oil production locales like Wyoming’s Powder River Basin (PRB). Classically known for its enormous reserves of relatively clean-burning coal (around 0.3% sulfur) and mines like the biggest one on the entire planet, the Black Thunder mine (energy equivalent of 1M bbls/day, nearly 4 tons of coal/second and 10% of U.S. coal supply) operated by Arch Coal, Inc. (NYSE:ACI), the PRB has seen a surge of drilling activity in recent years. One play in the southern part of the basin (targets include the Niobrara, Turner, Frontier and Mowry formations), centered in Converse county (also spans Campbell and Johnson), on its own has seen 540 new wells in the last four years according to the Wyoming Oil and Gas Conservation Commission and the play is on pace to see another 500 wells a year put in over the next decade.
The PRB saw the first 99-car, 70k bbl train of crude oil leave Arch Coal’s new Black Thunder Terminal just two weeks ago, headed out via Union Pacific and BNSF railways to a refinery on the East Coast. Still in Phase 1, the new Black Thunder Terminal already has 10k bbls/day transloading capacity (truck-to-train) and is intended to serve the growing army of PRB crude producers with a high-speed loading and transport to market option. Phase 2 construction is set to start later in the year and the overall goal will be to hit a 15-hour window for loading a single unit train, with four 100k-barrel storage tanks, as well as a 15-car rack loading system slated for construction. Even with stronger moves against coal by the Obama administration and the EPA, the world’s appetite for low-sulfur coal will not diminish any time for the foreseeable future, nor will coal recovery activity in the PRB. Thus, the basin enjoys a nice background buzz of activity that will help foster growth among crude recovery operators for years to come.
Development-stage PRB oil and gas players like Innocent, Inc. (OTC: INCT) stand to benefit tremendously from regional advancements like the Black Thunder Terminal and increased drilling activity overall. The ongoing JV exploration agreement between INCT and partner Evergreen Petroleum out of Dallas (who is the project’s GM) becomes increasingly attractive as the developing regional logistics improve the underlying economies of scale. With the operator and lease acquisition entities both being local firms out of Gillette (L & J Operating and Pacer Energy respectively), INCT is on able footing in the PRB before they even get drilling, with a plan of action that focuses on direct offsets to former production (or good shows) in the basin’s numerous, relatively shallow targets in the sub-2.5k foot range.
Localized/regional geological studies underway, INCT also happens to be eyeballing potential prospects in Wyoming and South Dakota, but their current emphasis on the PRB shallow targets is partly due to partner Evergreen’s proficiency with specialized secondary recovery techniques that apply nicely in the PRB, as well as Evergreen’s experience in the basin itself. Low-maintenance, self-sustaining gas lift systems with a robust surface assembly, like those being developed by Evergreen, are not only highly cost effective in terms of secondary recovery applications, they offer environmental sensitivity benefits when it comes to long-term production, while also presenting producers with a way for abandoned or shut-in wells to be re-tapped. Innocent will employ innovative secondary recovery techniques via Evergreen to squeeze every last drop out of their eventual leases, in conjunction with low-cost radial horizontal drilling, a re-completion marvel that shoots smaller diameter laterals out from the primary wellbore and which has seen amazing performance recently in even low permeability carbonate formations.
More info on Innocent, Inc. is available at at: www.innocentinc.com
Let us hear your thoughts: Innocent, Inc. Message Board
