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Continental Resources to Buy Bakken-Focused Wheatland

Continental Resources Inc. on Wednesday made a $340 million pitch to buy Bakken Shale-focused Wheatland Oil Inc., a company controlled by Continental CEO Harold Hamm.

Wheatland's operations are spread across 37,900 net acres of North Dakota and Montana. The Enid, OK-based producer has interests in more than 1,000 gross wells, with net proved reserves of 17 million boe at the end of 2011. At the end of December production was about 2,500 boe/d.

Hamm, who was tapped earlier in March by Republican presidential contender Mitt Romney to lead the candidate's Energy Policy Advisory Group, holds a 75% stake in Wheatland through a trust in which he is the sole trustee and beneficiary. Continental COO Jeff Hume owns the other 25% interest in Wheatland. Hamm also owns more than two-thirds (68%) of Oklahoma City-based Continental, which has a market cap of nearly $16 billion.

To evaluate the transaction Continental plans to set up a "special independent and disinterested committee." The $340 million purchase price would result in Continental issuing between 3.9 million and 4.25 million shares of common stock, based on a 20-day average of the daily sales prices prior to the transaction's closing. The price would be subject to a floor of $80/share and a ceiling of $87.18/share. Continental closed Tuesday at $87.19/share.

Analysts with Tudor, Pickering, Holt & Co. on Wednesday said Continental (CLR) was offering a "good price" for the 37,900 net acres, which "works out to $9,000/acre (or $5,000-6,000/acre backing out production)." The deal would be "2% accretive to 2012 production/earnings but neutral to our $87/share 3P [proved, probable and possible reserves] net asset value as higher cash flows and acreage are offset by equity dilution...The twist is CLR management owns Wheatland, thus the independent review and shareholder approval is needed."

Continental was the leading leaseholder in the Bakken Shale early this year with more than 900,000 net acres, according to reports compiled by NGI's Shale Daily (see Shale Daily, Jan. 3).

The U.S. Geological Survey last year launched a two-year study of the Bakken Shale to determine the undiscovered, technically recoverable oil and gas contained in the U.S. portions of the shale play (see Shale Daily, May 24, 2011). A prior study in 2008 estimated mean undiscovered volumes of 3.65 billion bbl of oil, 1.85 Tcf of natural gas and 148 million bbl of natural gas liquids. The oil figure -- a 25-fold increase over a 1991 assessment of 151 million bbl of oil -- represented the largest amount ever assessed by the federal government and the largest in the Lower 48.

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