RSEG

RSEG ALBERTA BAKKEN Alert

FRIDAY, SEPTEMBER 17, 2010

AUTHORS James L. Jarrell, P .Eng. President 403.294.6487 jjarrell@rseg.com David J. Howard, P .Eng. Vice-President, Engineering 403.213.6551 dhoward@rseg.com Gibson Scott, CFA Vice-President, Finance 403.294.6891 gscott@rseg.com

ALBERTA BAKKEN ACTIVITY EMIGRATES TO CANADA

FOCUS What do Murphy Oils (MUR) recent land deal, Antelope Land Services mystery Exshaw well and Rosetta Resources (ROSE) activity in the Alberta Bakken play indicate about its prospectivity? METHODOLOGY Pulled available public production and permitting data. Reviewed technical papers and consulted industry experts. Traveled to southern Alberta and Montana to scout wells. KEY POINTS The pumpjack has remained on ROSEs Tribal Gunsight 31-16H wellsite since February, and the company has installed what appears to be a single-well oil battery (treater and tanks). These are encouraging signs. ROSE originally discussed drilling 10 verticals into the play in 2010, however, we found only two licenses. NFX has drilled three wells in 2010 and plans on drilling up to eight this year. In support of this we found seven NFX licenses, which is also encouraging. Despite early optimism it appears operators are taking cautious approach to the play, drilling mainly science wells. NFX reported that its sees the Alberta Basin Bakken becoming commercial in 2011 or 2012 but will not discuss results for some time. Antelope Land Services (operating as an agent for an E&P company) 14-7-1-21W4 well has undergone fracture stimulation and is waiting on testing. Tankage on the lease suggests it received only a modest sized multi-staged fracture stimulation. At this time it is unknown who owns the well operated under Antelopes name. The size of the frac points to an operator influenced by experience in completing wells in the Bakken Formation in southeast Saskatchewan.

COMPANIES MENTIONED IN THIS REPORT: Public Ticker Bowood Energy (CVE: BWD) Murphy Oil (NYSE: MUR) Newfield Exploration (NYSE: NFX) Primary Petroleum (CVE: PIE) Quicksilver Resources (NYSE: KWK) Rosetta Resources (NASDAQ: ROSE) Wild Stream Exploration (CVE: WSX) Private Anschutz Exploration Antelope Land Services Provident Energy Associates

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MUR AND BWD: THERE WILL BE BLOOD The Blood Tribe First Nation of southern Alberta recently offered up 190,000 acres in two separate deals for a combined total of $50 million from Murphy Oil (MUR) and Bowood Energy (BWD), according to company and media reports.
Geology

The Blood Indian Reserve is on trend with the Alberta Bakken play that Rosetta Resources (ROSE), Newfield Exploration (NFX), Primary Petroleum (PIE), Quicksilver Resources (KWK) and Wild Stream Exploration (WSX). The key to the Alberta Bakken is depth and the Blood Reserve is right on trend for a thermally mature Exshaw Formation in the oil-generating window. Using Geological Survey of Canada (GSC) data, RSEG estimates the Exshaw at depths of 5,000-9,900 feet true vertical depth (TVD) is within the oil window (Figure 1). The Exshaw on the Blood Indian Reserve is found between 6,000-9,000 feet TVD (Figure 2) and located to the east of the Rocky Mountain deformation front.

FIGURE 1: EXSHAW SHALE MATURITY

0 -1000 -2000 -3000 -4000 -5000 -6000 -7000 Depth (ft) -8000 -9000 -10000 -11000 -12000 -13000 -14000 -15000 -16000 -17000 -18000 0 0.5 Early Oil Peak Oil 1 Gas 1.5 Thermal Maturity (%Vro) 2 2.5 3 y = -5834ln(x) - 8623.7 R = 0.80393

Source: Geological Survey of Canada, RSEG

The western limit of the play is the deformation front, after which the geology becomes significantly more complex and increased depth would have converted hydrocarbon to gas, not oil. In addition, the land is on trend with Alberta land sales that occurred earlier in the year. For more details on land activity, please see our Keeping You Posted report of April 21 and a Sept. 3 article on our website called Heating Up The Bakken: Albertas Sept 1 Sale.

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Log analysis from the area suggests that there could be a 30-foot-thick tight Middle Bakken-equivalent formation and a 15-foot-thick tight Three Forksequivalent formation on the land (Figure 3). The porosity ranges from 4-6% and log markings indicate that the zone is dolomite. The resisitivity is low but consistent with well logs in the Williston Basin Bakken.
Deal Terms MUR

FIGURE 2: BLOOD FIRST NATION ESTIMATED OPERATOR LEASEHOLD

R28
00.0 105
0.0 00 11

R27
9000.0
9500.0
0. 1000 0

R26
8500.0

R25
8000.0

R24
7000.0
6500.0

R23
.0 6000

R22
550 0.0

R21
5000.0

R20

R19W4 T9 T8 T7 T6

T9 T8 T7 T6 T5 T4 T3 T2

00 .0

7500

.0

50 0.0
.0 00

BWD

PIIKANI RESERVE NO. 147

00 0.0

Size: 129,280 acres (202 sections). Bonus: ~$36 million or $278/acre (estimated). Commitment: 16 wells publicly disclosed. We estimate, based on BWE agreement, two wells annually for the first two years, followed by four wells per annum for years three through five. Blood option: To elect prior to spud into a 20% working interest or go penalty and back into a 20% working interest at 200% payout of the well cost. Royalty: 2X Crown royalty for first year (10%) and Crown royalty thereafter.
Deal terms BWD

MUR
6000.0
7000.0

7500.0

0.0 1150

11000.0

5500

T5 T4

.0 9500

10500.0

.0 9000

0.0 850

10000.0

6500.0

8000 .0

50

.0

.0 00

12000.0

elt dB me for De

T3 T2
5500.0

12500.0

BLOOD 148

T1

130 00.

0 0
IMI

Kilometres 10 20 10 Miles R28 R27 R26

30

20
9500.0
.0 8500

First Nations Reservations

.0

T1

7000.0

.0 6000

50 00

7500.0

.0 6500

9000.0

.0 8000

R25

R24

R23

R22

R21

R20

R19W4

Source: GeoScout, Bowood Energy, Calgary Herald, RSEG

FIGURE 3: REGIONAL ALBERTA BAKKEN WELL LOG

Cumulative Oil Prod: 243140.8 Bbl Cumulative Gas Prod: 73362.0 Mcf Cumulative Wtr Prod: 45.9 Bbl
7150

NEED TO KNOW The log shows (Figure 3) a section from Banff to Stettler. The well produced from the Stettler 40 feet below the lower Exshaw source bed. Pressure data indicate the Stettler is overpressured at 0.65 psi/ft. The well produced 250 Mbbl of oil and negligible water over 30 years.

Source: GeoScout, RSEG

7450

7400

7350

Dstettler

7300

Size: 60,640 acres (~95 sections). Bonus: ~$14.1 million or $232/acre (announced) Commitment: Eight wells publicly disclosed. One well per year required in first two years and two wells annually for years three to five. Blood option: To elect prior to spud into a 20% working interest or go penalty and back into a 20% working interest at 200% payout of the well cost. Royalty: 2X Crown royalty for first year (10%) and Crown royalty thereafter.

100/10-30-008-23W4/00

On Prod Date: 1979/06 Pool Name: WABAMUN A Porg: 4834psi@7351'KB

Dbig_val

7250

Mexshaw

7200

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ANTELOPE LAND SERVICES: HUNTING ANTELOPE IN SOUTHERN ALBERTA A near tripling of per-acre bids for Crown land in the last four months reveals heightened interest in the Alberta extension of the Alberta Bakken (Exshaw) oil play (Figure 4). The high bid on Sept. 1 for 12 leases near the Alberta-Montana border averaged ~$1,515/acre, compared to ~$515 at the April 21 sale. The dozen leases shown below, ranging in size from ~640-5,060 acres, were located in township 1 in ranges 19-22 west of the fourth meridian bordering Montana. The land sale keyed off Antelope Land Services 14-7-1-21W4 well, a new field wildcat horizontal oil well located between the two main land sale blocks, on Crown land purchased in April. The well was drilled to a measured depth of 11,150 feet (3,400 meters) and rig released Aug. 25. The use of Antelope, normally a land broker, as well operator is unusual but reflects a desire by the real well operator to obscure knowledge of its identity. We think the tripling of prices reflects positive results from the well, which remain on confidential status. For an earlier report on the Alberta potential for the Alberta Basin Bakken play, see our March 16 Alert called Alberta Bakken For Sale In Alberta. As this well was located just off of the main highway, RSEG traveled to Del Bonita, Alberta, to discern what it could about the prospectivity of the play in this part of the province (Figure 5). A service rig was present on the lease along with 16 storage tanks, a generator, a test separator and two shrouded flare stacks.
NEED TO KNOW Shrouded flare stacks offer a highly efficient waste gas combustion alternative to conventional flaring. The elimination of smoke, odor and flame is commonly used for one of three purposes: environmental sensitivity, proximity to a residence or confidentiality.

FIGURE 4: SEPT. 1 SOUTHERN ALBERTA LAND SALE

$266.27/ac 1353.21/ac $266.27/ac

$387 .80/ac $427 .80/ac $387 .80/ac $634.834/ac $1075.91/ac

$820.06/ac

$876.78/ac

$1515.99/ac

$1075.99/ac

Antelope HZ Delbon 14-7-1-21 April 7 & 14 Land sale Sept. 1 Land sale
Source: GeoScout, RSEG

FIGURE 5: ANTELOPE HZ DELBON 14-7-1-21-W5

Source: RSEG

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ROSETTA RESOURCES: THE BAKKEN BY ANY OTHER NAME? ROSEs recent update to its corporate presentation is surprisingly void of information on the emerging Alberta Bakken play in Montana. A call to the companys IR department confirmed that its Company Update Presentation referred specifically to the Eagleford and that analysts should rely on prior material for Alberta Bakken and other corporate information. Analysts may have been disappointed by the lack of recent drilling results during ROSEs 2Q10 conference call. The company, in its press release of quarterly earnings, claimed vertical wells confirmed the presence of oil in the petroleum system. ROSE said it continued to add to leases in 2Q10, culminating in ~291,000 net acres acquired at an average price below $50/acre. Fourteen horizontal permits are currently outstanding in Glacier County, Montana. Excluding seven wells at total depth (ATD) and two wells currently drilling, only five permits currently exist for future drilling. Two are allocated to private company Anschutz Exploration, two to ROSE and the remainder to NFX (Figure 6).

FIGURE 6: GLACIER COUNTY HORIZONTAL WELLS AND PERMITS BY OPERATOR

Blood Indian Reserve

AB (Canada)
MT (USA)

Toole Glacier

ATD, ANSCHUTZ ATD, NFX ATD, ROSE PERM, ANSCHUTZ PERM, NFX PERM, ROSE NFX Provident
0 5 10 Miles 20

Flathead Pondera

Source: HPDI, RSEG

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Two horizontal rigs are currently running in the play, one by NFX and one by Provident Energy Associates, a private E&P based out of Great Falls, Montana. During 2Q10 ROSE moved a workover rig to its northern acreage in the play, where it plans to continue testing vertical wells through the remainder of the year. The company has perforated and fractured stimulated several intervals in two vertical wells, including the Nisku, Three Forks and Bakken. RSEG recently visited the vicinity of these well sites to compare activity to our previous trip in February. At the Tribal Gunsight 31-16H well, two new storage tanks, a propane tank and a small vertical oil treater have been installed, along with the same pumpjack previously identified. A new sign indicated the possible presence of H2S. The large, above-ground bladder had been removed from the location. For more information, please see our previous report, Alberta Bakken - What RSEG Really Has to Say. Six storage tanks and a well head with dual master valves had been installed at the Tribal Riverbend 12-13H wellsite. Under its agreement with the Blackfeet Indian tribe, ROSE is committed to drilling at least two wells per year. The company plans to run one rig to drill an eight-well vertical program and test productivity over its entire 750-square-mile leasehold. While ROSE will continue to drill wells through the winter, fracing is challenged by cold weather and extends the duration of this program to 9-12 months, according to the company. ROSEs capital budget is clearly focused on its Eagleford assets. While the company continues to test vertical wells in the Alberta Bakken play, its permitting and drilling activities do not suggest it has cracked the code to commercial development. We remain encouraged by data points from the play, including its characterization as oil saturated and overpressured. While recent activity by other public entities, notably NFX, may accelerate information flow about the play, it may be some time before ROSE tests the Alberta Bakken horizontally and we get a sense of its true potential.

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