In a move that may be replicated more if low global crude oil prices persist, Minnesota-based and Bakken-focused Black Ridge Oil & Gas Inc. said Thursday it has agreed to form a $50 million joint venture (JV) unit with Merced Capital, a private equity firm specializing in value-based alternative investments.
The JV unit will acquire and develop Williston Basin non-operated assets, according to Black Ridge CEO Ken DeCubellis. All of Black Ridge's current assets are in the Williston in North Dakota and Montana.
Investments will be subject to Merced approval and will be managed by Black Ridge. Initially, the JV will be funded by Merced with an initial investment target of $50 million, the firms said.
Black Ridge officials outlined the partnership with Merced and highlighted three key strategic advantages to the exploration/production (E&P) company's operations in the current low commodity price environment.
JV assets will be managed by Black Ridge in exchange for a management fee and reimbursement of third-party expenses, and after certain investor hurdles are met, Black Ridge will receive a share of the profits in the venture, according to the agreement. Black Ridge also will have the option of investing up to 25% of acquisitions and capital expenditures alongside the venture. The co-investments would be within Black Ridge.
When JV assets are sold, Black Ridge will have an option to bid for them.
From a strategic standpoint, DeCubellis noted three advantages to the JV for his E&P:
Black Ridge gets the opportunity to participate in high return capital projects without diluting existing shareholders;
The E&P has the chance to get significant equity returns with its share of the JV profits and the option to co-invest; and
It creates a long-term partnership with a private capital provider that is what DeCubellis called scalable and repeatable.
Combined with its acquisition last year of a 8.4% interest in the Teton project in the center of the Bakken/Three Forks shale sweet spot, DeCubellis said the JV is another big milestone in Black Ridge's efforts to expand its footprint.
"The partnership with Merced provides [us] the opportunity to participate in the acquisition and development of additional assets at attractive valuations with the potential to create significant returns for Black Ridge shareholders without dilution."
Both Black Ridge and Merced are headquartered in the Minneapolis suburb of Minnetonka, MN.