Kodiak Oil & Gas Corp. has agreed to purchase approximately 50,000 net leasehold acres in the Bakken Shale play from an undisclosed private oil and gas company for $540 million in cash and $50 million in stock, and agreed to assume the terms of a drilling rig contract.
The Denver-based company also said it plans to spend $585 million on capital expenditures (capex) in 2012, with $550 million going toward drilling and completing of 73 gross (51 net wells) in the Williston Basin, $25 million for infrastructure and $10 million for miscellaneous acreage acquisitions.
Kodiak said the acreage of its latest acquisition is located in Williams and McKenzie counties, ND and contains wells that are currently producing about 3,500 boe/d, with another four gross (3.1 net) wells awaiting completion. The deal includes 19.7 MMboe in proved reserves (81% crude oil, 28% proved developed), which Kodiak estimates is worth $464 million, and a working interest in 17 gross (13.5 net) operated and producing wells and 10 gross (1.3 net) nonoperated wells. Once completed, the transaction will expand Kodiak's position in the Williston Basin to about 155,000 net acres.
"Upon closing, we will have amassed a significant position in a part of the play with which we are intimately familiar due to our ongoing operations that are yielding excellent well performance," Kodiak CEO Lynn Peterson said. "We expect improved field-level efficiencies in trucking, rig moves, personnel management, access to oilfield services and proximity to midstream infrastructure due to the highly concentrated nature of our McKenzie and Williams County assets."
The deal is expected to close in January, subject to conditions and adjustments, with an effective date of Sept. 1, 2011. Upon closing Kodiak will assume the contract for an additional drilling rig, which it plans to use to continue drilling wells in the acquired acreage. The company's 2012 capex plan includes adding two additional drilling rigs during 2Q2012 and 3Q2012, for a total of eight drilling rigs by mid-2012. The capex plan includes 61 operated wells with an average 76% working interest (or 46 net operated wells), plus nonoperated activities in Dunn County, ND, where Kodiak is expected to participate in 12 gross (4.6 net) wells during 2012.
"Our 2012 drilling program will focus on each of our core operating areas, which we expect to lead to improved operating efficiencies and generate production growth," Peterson said. "In contracting the additional rigs that we expect to add, we intend to phase the rigs in after the winter weather has subsided."
Kodiak said it will pay for the 2012 capex budget through existing working capital, operating cash flow, proceeds from its proposed offering of 37.5 million shares of common stock, uncommitted debt financing, or $650 million in committed senior unsecured bridge facility and revolving credit.
Shares of Kodiak were at $8.02/share in midday trading on the New York Stock Exchange on Tuesday. Although down 2 cents from the opening bell, Kodiak's stock has gained more than 122% from the $3.60/share at which it was trading at on Oct. 4. The stock had tanked on liquidity fears shortly after it announced an agreement to purchase 13,500 net acres, also from an undisclosed private oil and gas company, in the Bakken Shale for about $235 million in cash (see Shale Daily, Oct. 7; Oct. 3). Kodiak said it would finance the transaction from October through two separate agreements for expanded credit: $225 million from Wells Fargo Bank NA and $75 million from Wells Fargo Capital Inc.
Last May the company made another expansion into the Bakken, acquiring 25,000 net acres in McKenzie County from a private seller for $85.5 million (see Shale Daily, May 24).
According to NGI's Shale Daily Unconventional Rig Count for the week ending Nov. 18, drilling activity in the Bakken/Sanish/Three Forks is up 28% from a year ago with 199 rigs active, up from 156 a year ago.