By Darryl L. Flowers
On June 20, Norstra Energy’s Glen Landry sat down with the Sun Times to answer questions about the company’s South Sun River Prospect, a speculative oil play south of Augusta.
In the midst of putting together the story, the Securities and Exchange Commission put a 10 day suspension on the trade of Norstra shares. A press release issued by the SEC reads, in part, “The Commission temporarily suspended trading in Norstra because of questions regarding the adequacy and accuracy of information about Norstra, including, among other things, its business operations. Norstra’s ticker symbol is NORX.
The Commission cautions brokers, dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by Norstra.”
Contacted by the Sun Times as a follow-up to these developments, Glen Landry said he was aware of the SEC action and was in touch with his attorney on the matter. “My first reaction was to call the SEC and try to get more details, but the attorney advised against that.”
After the SEC action, the Sun Times received an e-mail from Yolanda Holtzee, a semi-retired Seattle “mining industry type” who invests in large cap mining stocks. Holtzee expressed concerns about Norstra’s claims. Asked if she would be willing to speak on the record, Holtzee called the Sun Times.
According to Holtzee, the problem can arise when “seed” investors try to orchestrate a “pump and dump” with a stock. An investor will find a penny stock and pick up millions of shares. The seed stockholder will then promote the stock, often making questionable claims about the company. As the stock prices climb on false hopes, these investors dump the stock and walk away with a healthy profit.
“We see this all the time with these penny stocks,” said Holtzee. “Where Norstra may have hurt itself was in not reacting immediately to those false claims and issuing press releases distancing themselves from these promotions.”
Holtzee sent samples of these promotional flyers pushing Norstra stock to the Sun Times.
To the trained eye, these flyers are pure junk mail. But to the casual observer, they might represent easy money. However, in reading the fine print at the bottom of the promotional pieces, it seems that the flyers may not have originated with Glen Landry or Norstra. “I don’t see anything, so far, that would convince me that Mr. Landry was directly responsible for the materials.”
An area oil and gas investor brought a similar flyer by the Sun Times’ offices. The 20 page slick magazine style promotional piece is titled “The Luckiest Place on Earth” and is filled with graphics of cash…. dollars flowing from water faucets and $100 bills rolled up like round hay bales in a field. But the devil is in the details, and buried in the pages is the small print that begins, “DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND IN THIS REPORT.”
Just before wrapping up the story, we received a package in the mail postmarked with a California zip code. The package included a multi-page printout. The source of the information could not be determined. Although the report laid out an interesting history of Norstra, there were no reports of run-ins with regulators, other that the recent SEC action. The origin of the report could not be determined.
Norstra is incorporated in Nevada and has a space in an office complex in Texas. “We have an accountant working in the office, but that’s all for now,” said Landry. Asked why there was no landline phone in the office, he said there was no need at this time to spend the money for a phone, “When I need to speak with the accountant, I just use the cell phone.” Regarding Norstra choosing Nevada as the state of incorporation, Landry explained it was a tax matter. “It makes sense to incorporate in Nevada for tax purposes, just as many corporations choose Delaware, which has no corporate income taxes.”
According to Landry, he recently had another encounter with the SEC. The regulatory agency asked him for the records in his possession related to UnionTown Energy, a Calgary based oil “junior” that was drilling at New Miami Colony.
“I complied with the SEC requests, but I had no stock position with UnionTown, it was a straight-up deal where I was paid to be the operator.” Asked to define operator, Landry explained that he was responsible for the drilling and completion. “Me, my family and my employees… none of us were compensated with any stock by UnionTown.
There are 15 wells currently listed on the Montana Board of Oil and Gas Conservation database operated by Landry’s Longshot Oil, LLC. Of those wells, one is currently in production. The New Miami 21-20 produced 556 barrels in April. Longshot also has a well in Texas, according to Landry.
Longshot Oil was holding mineral leases in Teton County, near Power, the Sun Times discovered last year. Asked if he was still holding those leases, Landry replied that he had sold those, known as the “Muddy Creek” play, to Hillcrest.
The leases in the South Sun River Prospect are a combination of private minerals and state minerals.
When visiting with the Sun Times, Landry addressed the perceived difficulty of drilling on state school land leases. “At Milford Colony, there are several state parcels mixed in with the private minerals. The general opinion is that it is all but impossible to drill on those lands.” Landry continued, “I want to change that perception. The stipulations put on those lands can be addressed and still enable drilling on those lands.” Landry said he had recently met with the state office that administers oil leases on state school lands. “They are eager to work with the oil exploration firms to make these leases profitable for the state as well as the oil companies.”
Landry is also pursuing a “reef” play in North Dakota, near Dickinson. The Longshot 10-23 1, operated by Landry’s Core 54 Oil & Gas, LLC, was approved as a “tight hole” in November 2010. A tight hole designation is common in areas experiencing new exploration. Information on a tight hole is withheld from the public for a period of time, allowing a firm to secure a position in a new play before other companies can review the well data.
While Landry was coy about answering questions about the status of the Stark County well, the Sun Times used mapping software designed for the oil and gas industry to map the location and view a satellite image that showed a pit and what appears to be equipment trailers on the location. Landry did confirm that the well would tap into the Lodgepole Formation. In the same section are wells operated by Denbury Onshore. The Denbury wells are reported to be in production.
Several times the Sun Times has contacted Landry with questions regarding company press releases. One Norstra press release had some questionable numbers that appeared to be typos. In a press release dated June 10, this sentence had an obvious error: “Norstra also has the right to purchase this land position for 10,000,000 million common shares from treasury.” The Sun Times sent an email to Landry and Tyler Troup asking for clarification of the number. Troup, based in Windsor, Ontario, is Managing Director of Circadian Group, which describes itself as an “ultra-full-service boutique Investor Relations, Public Relations, and Capital Formation Firm, specifically focused on two industries: Natural Resources and Clean-Tech.”
Troup and Landry responded with the corrected numbers. However, according to Landry, Norstra should have handled the error differently. “We sent out a corrected release. We should have sent out a new release immediately taking responsibility for the mistake, not just an updated release.” Indeed, the release with the confusing numbers stayed on internet financial sites, such as Yahoo, until the next press release cycle which occurred late in the afternoon. Many who just gave the new press release a cursory look would have not noticed the change.
The location of Norstra’s first proposed well is in an area of interest to geologists. Two wells were drilled close to the proposed site. In 1937, the Durnin & Procktor 1 well was drilled. According to the one page drilling record, the well was drilled to 3,300 feet, into the Two Medicine Formation.
In 1955, the Milford Colony 1 was drilled, reaching the Sun River Dolomite at a depth of 6,788 feet. The well was drilled by Crescent Oil of LaCrosse, Wisconsin. Working the well was respected Great Falls geologist Virgil Chamberlin.
Both wells were recorded as dry holes. But there may be shallow gas deposits in the area. A member of the Milford Colony described a water well drilled on the property. “The driller went to 500 feet and something went wrong, so the well could not be completed. But you can go to the spot where the hole was and drop a match and the gas will ignite.”
Surrounding the Norstra well location are three newer wells that were drilled to map the formations in the area… and all three wells are of keen interest to petroleum geologists.
The Krone 31-32, drilled in 1962 by Shell Oil Company, encountered the Bakken Formation at 6,910 feet. The well continued to 7,240 feet, passing through another formation and ending at the Nisku Formation. It is interesting to note that this well, like many other deep wells drilled during the 70s and 80s, goes beyond the Bakken. At the time, according to an experienced petroleum geologist contacted by the Sun Times, the Bakken was considered useless. Before hydraulic fracturing and horizontal wells, the Bakken was just another layer of tight rock that refused to give up its oil and gas.
In 1984, Atlantic Richfield drilled the Steinbach 1. The Steinbach “readings”: porosity, TOC (total organic content) and vitrinite reflectance are odd, to say the least, for an area that many like to claim has no oil. In fact, if the numbers are correct, the well taps into a spot that is comparable to Williston area wells. But, at the time the Steinbach was drilled, the readings coming out of the test well would have discouraged Atlantic Richfield. With modern oilfield techniques, though, the well may have potential.
The third well, drilled in 1982 by Sun Exploration and Production Company, is the J.B. Long, located near Haystack Butte. Drilled to a depth of 12,100 feet, the well finds the middle member of the Bakken, the Sappington, at 10,894 feet. The J.B. Long was a bugger to drill. Located on a spot that has the classic overthrust profile, the drill bit encountered a fault and had to be withdrawn from over 5,000 feet down back up to a depth of about 2,000 feet. From this point the drillbit was “sidetracked” to avoid the fault.
While the public record of the well records the J.B. Long as a dry hole, at least three samples of crude oil from the well were sent to a lab for analysis. Sun went so far as to order distillation tests on the samples.
The Eastern Slope has a long history of study by geologists sent by Washington to find the region’s potential. One of the most respected geologists… and mapmakers, was Mel Mudge, with the US Geological Survey. In 1978, Mudge developed a report titled “Mineral Resources of the Bob Marshall Wilderness and Study Area, Lewis and Clark, Teton, Pondera, Flathead, Lake, Missoula and Powell Counties, Montana.” The US Bureau of Mines contributed to the detailed report.
In a map contained in the study, Mudge indicated the potential for various minerals in the area of study. According to the map, the Eastern Slope, from the southern tip of Glacier Park south showed an “area of high hydrocarbon potential.” The region to the west was an area of “moderate hydrocarbon potential.” Of particular interest to Mudge was the “Saypo” area, west of Choteau.
Farther to the north, still in the Thrust Belt zone, is another area of interest to scientists.
In June, 2011, the newsletter of the American Association of Petroleum Geologists (AAPG), featured a profile of Doug Strickland. Strickland had died in May at age 58. According to the story, Stickland was working on developing some wells in NW Montana, tapping the Bakken Shale. Even though the Bakken is thinner in this region than in the Williston Basin, the wells would be cheaper to drill because the layer is not as deep.
But, the report reads, the Bakken was not what had Strickland excited. “I’ve been working in this part of Montana for 25 years. One of the largest prospects I believe I’ve ever mapped is in the western portion of the Blackfeet Reservation, ” he said.
He described a trend that started in Canada and extended south into the Glacier mountain front.
“Across the border, there are three major fields within six miles of the United States, ” he said. “There’s a swath in there that looks very prospective.”
Glen Landry is encouraged by what he sees to our north, too. While Anschutz, Rosetta and Newfield seem to have either left the area, or at least scaled down their exploration, the Canadians are punching holes just over the border.
One of the most aggressive drillers is DeeThree. The company appears to have broken the code, getting respectable production out of the Bakken. The secret to DeeThree’s success seems to be a technique just now being adopted in eastern Montana – drilling into the Upper Bakken.
The upper layer of the Bakken, thought by some to be the source rock of Bakken oil, is a soft carbon rich shale. The challenge for drillers was to drill laterally through the layer without the soft rock collapsing onto the bit. One upper Bakken well was recently completed on the edge of the Williston Basin successfully. The well, being on the basin edge, is at a point where the typical target, the Middle Bakken, is “pinched out,” or disappears.
Landry hired Dr. David Lopez, a Petroleum Geologist, to prepare a report on the reserves in the South Sun River Prospect. Lopez received his PhD from the Colorado School of Mines and spent 16 years as a senior research geologist at the Montana Bureau of Mines and Geology. Lopez also spent almost 8 years with the USGS conducting geologic field research in east-central Idaho, southwest Montana and in south central New Mexico.
According to Dr. Lopez, the Steinbach well, used as a reference, showed a reservoir of over 9,000,000 barrels of Original Oil In Place (OOIP) per section. The actual report, available on the SEC website, does contain an obvious error. The column with the number of barrels in reserve has the header “OOIP (MMBO) per Section,” but the numbers in the column appear to be the actual numbers, not in “Millions of Barrels.” MMBO is shorthand for “Millions of Barrels;” MBO would represent “Thousands of Barrels.”
Not revealed in Dr. Lopez’ report is the estimate of how much of the oil is recoverable. That amount depends on many factors, but oilfield geologists have told the Sun Times that a 25 percent recovery would be the norm. Currently there are three methods of recovery used to produce oil. The first is overpressure, where the pressure pushing the oil out of the formation exceeds the static pressure in the atmosphere. Bakken wells in Eastern Montana and North Dakota can have thousands of pounds of pressure pushing the oil to the wellhead.
Installation of the familiar pumpjack is the second method of recovery. The pump draws the oil out of the hole as it seeps from the formation.
The third recovery method is injection, where carbon dioxide (CO2), or water is injected into the formation around a wellbore. The pressure of the injection forces the oil toward the wellbore where it is pumped out.
Research on a fourth method of recovery is reportedly underway in the Elm Coulee field in Eastern Montana.
How much oil?
Getting back to the SEC trading halt on Norstra stock, there have been allegations that Norstra claimed it was sitting on “8.5 billion barrels of oil.” While the Sun Times has not been able to find that claim in company presentations, it was contained in one of the “pump and dump” mailers.
Norstra’s official reports of oil reserves may seem on the high side, but they appearto be in agreement a US Geological Survey Report.
The report, by Dr. Leigh Price, was obtained by the Sun Times in late 2011. The 300 page report was written in 1999/2000 by the USGS geophysicist. After Dr. Price completed the report, he passed away. The USGS claimed that since Dr. Price died before the paper could be peer reviewed, the agency could not make the report public.
But David Bardin, a former attorney with the Federal Energy Regulatory Commission (FERC) provided a copy of the report to the University of North Dakota Energy and Environmental Research Center. Shortly after obtaining the report, the Sun Times spoke to Bardin to confirm the report’s authenticity. Asked why he had make the report available, Bardin told the Sun Times, “The taxpayers paid for this research and have the right to know the extent of the resources available to this nation.”
According to Bardin, Price was sent to North Dakota to find out what was going on with “this Bakken thing.” Price chose North Dakota for his research because the state had a better database of well information than Montana. Price researched the Bakken for four years, even developing a program for a successful Bakken well.
But it was Price’s estimates of Bakken Reserves that stand out. In his paper Price lays out the math behind his calculations. In his example, Price assumes a Bakken thickness of 52 feet. Based on this, and other assumptions that may not apply to our area of Montana, Price estimates there are 1.55 billion barrels of oil per township, or 36 sections. And that is, according to Price, a “conservative” estimate.
Still, in Augusta, you can find men that worked the rigs when the area was a hotbed of oil drilling. Pat Troy, who has done “wildcatting” from oil to Uranium, was a driller on the J.B. Long well. “We pulled a strand of core that was just oozzzin’ greasy crude,” said Troy. Troy, who can tell some good stories from the Eastern Slope oil patch, is hoping to see the rigs return.
At the Buckhorn Bar, local naturalist and wildlife photographer Gus Wolfe holds court with a cold beer in hand. “I use oil, just like everyone else… in plastic, fuel… everyday things, even though I consider myself a low consumer of oil. I want to see our area protected, but these people have a job to do and I respect them for putting their money where their mouth is to find the oil.”
Asked, as a naturalist, his thoughts on environmentalists who try to block oil development, Wolfe replies, “Let me tell you, when they were drilling up here I would go out to where the rigs were drilling to check on the wild birds I was watching. I had a nesting pair near a rig. I would be close to the rig with my binoculars, checking on the pair and the rig’s tool pusher came over and asked what I was looking at.”
Wolfe said he wouldn’t tell the oilman about the birds at first, but as he got to know the tool pusher, Bill Froman, he eventually pointed out the nest.
“After that, every time I would see Froman or his hands, they would tell me what the young eagles were up to… ‘the young bird was stretching its wings’,” Wolfe quoted Froman as saying in one of the reports.
“That’s a real environmentalist,” said Wolfe. “I knew that crew had a job to do, but I went out there and got to know them. I showed them the beauty of the nature surrounding them and made environmentalists out of them. Real environmentalists.”
Plastered on the frosty glass door of the beer cooler across the bar from Wolfe is the decades-old evidence of the Augusta oil boom from the 80’s, stickers from Halliburton, Froman Drilling, Pioneer Drilling, WASCO Rathole Drilling… most of the stickers covering the two glass doors seem to be from oilmen, or from the armed services.
Anne Gannon, of Sun River, told the Sun Times her family supports oil and gas development in the area. “We should support our own industries, taking care of our country. We should end our dependence on others for our energy supplies.” Gannon added, “People who don’t understand the science… they just say ‘no,’ when they should really take the time to become educated and informed about the issues before jumping on the naysayer bandwagon.”
At the wellsite, which is across the road from the Milford Colony, colony resident Peter Wipf, greets us as Landry is explaining the layout of the drilling pad. Wipf asks when Landry will start drilling. “As soon as we get the permits we hope to get the surface casing set.” Landry talks about the well pad construction with Wipf. The pad will be located on a flat piece of ground a stone’s throw from Highway 287. According to Wipf, the colony is fully behind the project and is anxious to get things underway.
Before heading back to Fairfield, I ask Landry what the formations under the site look like. “What’s the lay of the land a few thousand feet below us?”
Using his finger to write in the dust on his black truck, Landry draws a pattern… like an ocean wave with two crests. “Here is the Krone well,” he saws as he makes a vertical mark on the left apex. “And here we are.” He makes a similar mark on the right apex.
“Is that an anticline?”
“We don’t know,” Landry answers. “We can’t see how far this structure goes.”
But Landry is sure that he has found an intact area of the Bakken. “The records show a lot of thrusting in the area, but from the seismic data what we seem to have here is a resource play.”