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Does This Mature Texas Oil Field Hold the Next Bakken?

The development of the Bakken oil play in North Dakota has been a game changer for oil production in the U.S. The play is already producing incredible numbers and might only be 10% developed. It has created great wealth for early investors in the play, such as Kodiak Oil & Gas  (UNKNOWN: KOG.DL  ) , which has been growing its production by triple digits and still has plenty of room to run.

Most investors already know about the Bakken and are ready to turn their attention to the next play exhibiting Bakken-like potential. Some think that could be the Monterey Shale in California. With estimated technically recoverable resources of more than 15 billion barrels of oil, the play could be substantial. That is if producers can get past the anti-fracking mind-set that besets the state, as well as overcome substantial technical challenges in developing the play.

That's why others believe that the next Bakken could lie within the mature oil fields of the Permian Basin in Texas. Particularly, the best prospective candidate is the Cline Shale, which could hold an estimated 30 billion barrels of recoverable oil. Only time will tell if that's even remotely true.

One company to watch here is Devon Energy (NYSE: DVN  ) . The company has 389,000 net acres in the play and plans to drill 30 wells this year. To help mitigate some of its risk in exploring the play, Devon signed a $1.4 billion joint venture deal with Sumitomo. That deal covered both the Cline and Wolfcamp shales by giving Sumitomo a 30% stake in these two prospective Permian Basin plays. If the play turns out to be even remotely close to early estimates then Devon could have something special on its hands.

Source: Devon Energy Investor Presentation

Another company to keep an eye on here is Apache Energy (NYSE: APA  ) . The company has 520,000 net prospective acres in the Cline Shale. It estimates that it has 642 million barrels of oil equivalent of resource potential from 2,300 identified drilling locations. Apache is actively drilling: It added 11 horizontal wells in the first quarter and expects to drill 28 more wells this year.

Even if the Cline Shale doesn't live up to its lofty estimates, the Permian Basin has plenty of potential for investors. The play is really the gift that keeps on giving for oil producers. Take ConocoPhillips' (NYSE: COP  ) position in the play. The company has about a million net acres and is investing about $3 billion over its five-year capital plan to add about 40,000 barrels of oil equivalent production per day by 2017. After offsetting natural decline, that's a 7% annual production growth rate. In addition to that, the company is actively exploring emerging growth opportunities in the play including the Wolfcamp and Bone Spring.

Even producers focusing on legacy oil and gas production are finding the Permian Basin to be important for production growth. LINN Energy (NASDAQOTH: LINEQ  ) , for example, has built a significant position in the play over the past few years. It's deal for Berry Petroleum, which is soon to be closed, will double the company's drilling inventory in the Wolfberry Trend portion of the play. The company made its strategic entry into the Permian in 2009 when LINN thought it was simply accumulating long-life, low-risk, oil properties which could be added to over time. Luckily, the company has gotten that and more from the play and will have about 725 future drilling locations once it closes the Berry deal. 

The Cline Shale might become the next big oil play since the Bakken, and if it does it could really help Devon in its drive to boost its liquids production. However, even if estimates for the Cline Shale prove to be too rosy, the Permian Basin itself should continue to deliver oily profits to producers and investors alike for years to come. 

The important question you need to ask yourself is whether or not you even need to think about the next Bakken-like play when the Bakken itself is still delivering. The North Dakota oil play has turned Kodiak Oil & Gas into a dynamic growth story. To find out more about Kodiak and its future, you're invited to check out The Motley Fool's premium research report on the company, which comes with a full year of updates and analysis as key news breaks. To get started simply click here now.

Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 05, 2013, at 7:34 PM, corny118 wrote:

    KOG has rapid growth in production but the stock is stuck in neutral.. The company never seems to make any money.. Drilling expenses are sky high.

    There are a huge number of shares outstanding. The debt is overbearing and management always overstates the earnings per share forecast. Other than that, things are fine. They have just taken on more acreage at a premium price and have shown in the past an inability to digest and exploit new assets without problems and delays.

  • Report this Comment On June 05, 2013, at 7:44 PM, corny118 wrote:

    The sleeper in the Permian is the little company that discovered the Cline. Laredo Petroleum Inc.

    LPI is on its way to a multi analyst estimated 1.6 billion barrels of reserves. It has a ten year risk free inventory of pad drill sites.

    LPI just sold its Anadarko assets for enough to provide a years worth of capex in the Permian Cline with no more shares issued and no additional net debt after closing later in the year.

    Savvy management with one apparent goal. Sell the company for as much as possible in the intermediate term to "big oil" or a Chinaman.

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