Kodiak Oil & Gas Corp. said Wednesday it has agreed to purchase 13,500 net acres in the Bakken Shale play from an undisclosed private oil and gas company for about $235 million in cash. It also agreed to assume the terms of a contract for its sixth drilling rig.
Denver-based Kodiak said the acquired acreage is located in Williams County, ND, just north of the company's Koala Project area. Kodiak said estimated net oil and gas production from the acquired acres was about 3,000 boe/d. The transaction is expected to expand Kodiak's position in the Williston Basin to about 110,000 net acres.
"We continue to execute on our stated goal of acquiring contiguous, operated leasehold in the heart of the Bakken play," said Kodiak CEO Lynn Peterson, adding that the acreage "will add significantly to our leasehold and complements our core operating area in McKenzie County where we have been completing strong producing wells."
The deal is expected to close in late October, subject to due diligence, closing conditions and adjustments with an effective date of Aug. 1, 2011. The latest transaction is the company's second expansion into the Bakken this year after it agreed to acquire 25,000 net acres in McKenzie County from a private seller for $85.5 million in May (see Shale Daily, May 24).
According to NGI's Shale Daily Unconventional Rig Count for the week ending Sept. 23, drilling activity in the Bakken/Sanish/Three Forks is up 35% from a year ago with 193 rigs active, up from 143 a year ago.
Under the terms of the deal, Kodiak would also acquire a working interest in six gross (4.6 net) operated producing wells; three gross (1.5 net) wells that have been drilled and are awaiting completion, two of which are projected to be completed before closing; one gross (0.35 net) well currently being drilled, and four permitted and built locations. Kodiak said that once the four permitted wells are drilled, nearly all of the leasehold to be acquired in the deal will be held by production by early 2012.
Kodiak said based upon an internal evaluation, it projects estimated ultimate recovery per well of 650,000 boe from the Bakken formation. The company added that although there have been no test wells drilled into the Three Forks formation, it believes that formation will be productive based upon early completion results in the Koala Project area to the south and from other activity in the area. Kodiak said if both formations are productive, it believes the acquired acreage could support more than 75 well sites.
The rig involved in the deal is currently drilling the last of four wells under its primary contract, which Kodiak has agreed to assume. The rig owner could consent to provide Kodiak with an option for a 12-well extension. If that happens, and once Kodiak receives delivery of a new-build rig in October, the company would be operating six drilling rigs.
"Increasing our operated rig count to six rigs should allow us to support a full-time dedicated frac crew, which we will work to achieve by year-end," Peterson said. He added that the deal would give the company "a 10-year drilling inventory, based upon our current drilling program."
The company also has a 50% nonoperated working interest under leasehold in Dunn County, ND, where two rigs are currently drilling.
Kodiak added that the addition of a sixth drilling rig from the deal would not change the company's capital expenditure requirements for 2011, which total $230 million. The company said it projected the anticipated cash flow generated from the acquired acreage should exceed the capital costs for drilling and completing wells there.
The Kodiak deal also includes a newly drilled salt water disposal well, water gathering pipelines, surface equipment and gas pipeline connection facilities that tie into a regional third-party gas gathering system.
The acquired acreage is also within a few miles of a crude oil railway terminal and an interstate pipeline interconnect, which is expected to be fully in service during 2012, the company said. Although a spokesman for Kodiak declined to comment Thursday, Musket Corp. is expanding its crude-by-rail facility in Dore, ND (see Shale Daily, Aug. 9). That project is scheduled to be completed during 1Q2012.
Kodiak said it will pay for the transaction through two separate agreements for expanded credit: $225 million from Wells Fargo Bank NA and $75 million from Wells Fargo Capital Inc.