Kodiak Oil & Gas Corp. has agreed to purchase 42,000 net acres and associated production in North Dakota's Williston Basin for $660 million in cash from Liberty Resources LLC.
Denver-based Kodiak said approximately 14,000 net acres from the deal are located in southern Williams County, ND, and are adjacent to the company's Polar project area. An additional 25,000 net acres are in McKenzie County, to the west of Kodiak's Koala and Smokey blocks. The transaction is expected to expand Kodiak's position in the Williston Basin to about 196,000 net acres.
"The proposed acquisition's characteristics adhere to our stated strategy of identifying and acquiring reduced-risk, contiguous leasehold in our immediate core operating areas," said Kodiak CEO Lynn Peterson. "On a per-share basis, the transaction is immediately accretive on all measures."
The transaction acreage includes oil and natural gas production, which recorded an average net production rate of about 5,700 boe/d in May. Kodiak said production is expected to increase before the deal closes in July because of ongoing completion operations. The leasehold also includes 35 controlled drilling spacing units, based upon 1,280-acre units, and is 90% held by production (HBP).
The deal is subject to conditions and adjustments, with an effective date of March 1. Upon closing, Kodiak will assume Liberty's contract for one drilling rig, which has 14 months remaining on its term.
"As the acquired lands are largely HBP, we can methodically develop the leasehold on a schedule that best fits our capital expenditures and drilling program," Peterson said. "Upon closing, we will initially operate with seven drilling rigs, with one of the rigs operating on the lands to be acquired. Based on the additional capital expenditures for the acquired properties net of cash flow from those assets, we anticipate investment and projected cash flow to be more or less equal for the remaining periods of 2013."
David Tameron, senior analyst with Wells Fargo Securities LLC, said excluding the value of production, Kodiak was paying about $4,900/acre in the deal with Liberty, which he said was "a fairly attractive figure" that could be attributed to a higher nonoperated percentage. But Tameron said the additional cash flow from production should bring cash flows in line with capital expenditures (capex) by 4Q2013, a scenario he said would be "a very positive milestone" for Kodiak.
"Kodiak has drilled some of its best wells near the acquired acreage and we think the package should be easy to slot into the portfolio and presents low geologic risk," Tameron said Monday. "Kodiak is taking on Liberty’s drilling contract on one rig, but because there are no major drilling commitments associated with the deal (90% HBP) we don't see any risk of a large near-term capex increase.
"All in all, [the] transaction seems to make a lot of sense and the purchase price looks very reasonable, in our view."
Ron Ness, president of the North Dakota Petroleum Council, told NGI's Shale Daily that prices have varied widely in the region. "Most have been extremely high in recent times," Ness said Monday. "We've seen quite a bit of nonoperated assets shifted around, but this is probably the first operated [acreage] we've seen for awhile.
"It's going to be interesting over the next few years. We're likely to see more of these shakeouts and consolidations as companies try and become more efficient. In terms of being able to exploit the Bakken, it will depend on where the rest of a company's leasehold is at, and what it's valued at by different operators."
Kodiak began building its position in the Bakken through three separate deals in 2011. It acquired 25,000 net acres in McKenzie County for $85.5 million in May, followed by 13,500 net acres in Williams County for $235 million in October, and 50,000 net acres for $590 million in November (see Shale Daily, Nov. 23, 2011; Oct. 3, 2011; May 24, 2011).
According to NGI'sShale Daily Unconventional Rig Count for the week ending May 31, drilling activity in the Williston Basin is down 13% from a year ago, from 1,523 to 1,322 rigs.