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Kodiak Building Bakken/Three Forks Acreage

Kodiak Oil & Gas Corp. has agreed to acquire from an undisclosed private seller Bakken/Three Forks leasehold and producing properties in the Williston Basin for about $85.5 million, the company said Monday.

Denver-based Kodiak has assets in the Williston Basin of North Dakota and Montana and in the Green River Basin of southwest Wyoming and Colorado. Upon completion of the transaction, Kodiak would acquire approximately 25,000 net mineral acres in McKenzie County, ND, adjacent to and near its core Koala, Smokey and Grizzly Project areas. The deal will expand Kodiak's acreage position in the Williston Basin to about 95,000 net acres, the company said.

"Growth through acquisition of contiguous, operated leasehold in the heart of the Bakken play is an important strategy that we have articulated to our shareholders," said Kodiak CEO Lynn Peterson. "Today's transaction, when closed, will add significantly to our leasehold and bolster our core operating area in McKenzie County. The acquired lands, which we believe have been substantially derisked by analog production from other operators, have the advantage of being readily accessible to existing midstream infrastructure, which will help in our development plans."

According to NGI's Shale Daily Unconventional Rig Count for the week ending May 20, drilling activity in the Bakken/Sanish/Three Forks is up 61% from a year ago with 174 rigs active, up from 108 a year ago.

The Kodiak deal includes operated working interest in two producing wells currently producing about 200 net boe/d. Also included are certain surface equipment and pipeline connection facilities that tie into a regional third-party gas gathering system.

Kodiak will have operatorship of a majority of the drilling units on the leasehold to be acquired. Including the acquisition, the company will have more than 400 net, largely derisked, undrilled locations in the Bakken and Three Forks Formations across all of its Williston Basin leasehold.

Kodiak has a contract for a newbuild drilling rig that is scheduled for completion in late 2011. The rig is being built to specifications similar to Kodiak's existing rigs and will include a skid package to facilitate pad drilling. With the addition of this rig Kodiak will be operating five drilling rigs, as well as participating as a nonoperating partner under leasehold in Dunn County where one rig is presently drilling.

"The addition of a fifth operated rig will not only provide us the opportunity to accelerate our drilling program but also continue our efforts to gain field-level operational efficiencies," Peterson said. "We continue to work closely with our pressure pumping services provider and are comfortable that we can achieve a timely completion schedule as we move towards a full-time dedicated frack team."

Kodiak said it will pay for the transaction with 2.5 million newly issued shares and cash. Kodiak will assume the seller's contract for a newbuild drilling rig and will reimburse the seller for its $2.5 million deposit on the rig. The cash portion of the deal is to be funded with cash on hand and borrowings under credit facilities.

With the expected delivery date of the fifth rig in the fourth quarter, Kodiak said it anticipates about $10 million of additional capital expenditures related to the rig, bringing estimated 2011 capital expenditure guidance for drilling, completions and infrastructure to $230 million.

The acquisition is expected to close by July 1, subject to due diligence, closing conditions and adjustments with an effective date of April 1, 2011.

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