As it shifts its portfolio toward more oily prospects, natural gas producer Williams Cos. said Monday it will pay $925 million to acquire 85,800 net acres in the Bakken Shale.
The acreage, which is being acquired from private, unnamed sellers, is on the Fort Berthold Indian Reservation in the Williston Basin of North Dakota. According to Williams, the leasehold contains an estimated 185 million boe in total net reserves potential in the Middle Bakken and the Upper Three Forks formations. Twenty-four wells now are producing 3,300 b/d net.
Williams' entry into the Bakken play follows its entry into Pennsylvania's Marcellus Shale, where the company has accumulated almost 100,000 net acres in the past year and a half. By 2013 about one-quarter of Williams' exploration and production (E&P) revenue streams are expected to be generated by oil production, up from 7% this year.
In September both Williams and its partnership reduced earnings forecasts and planned capital spending through 2012 to reflect lower expected gas prices and natural gas liquids margins (see Daily GPI, Sept. 17). Williams posted a $1.26 billion loss in the third quarter, which it blamed partly on significant impairment charges related to its Barnett Shale leasehold (see Daily GPI, Oct. 29).
"This acquisition establishes a significant acreage position in an area which further diversifies, and when combined with our recently acquired Marcellus position, basically transforms our business -- both geographically and in terms of our product mix," said Williams E&P President Ralph Hill. "It enables us to deploy available capital and existing technical expertise to a very attractive new opportunity."
Williams is "now positioned in three of the country's most attractive growth areas: the Piceance [basin], the Marcellus and now the Bakken," said Hill.
In addition to the purchase price, Williams plans to spend $60 million this year and $200-300 million in 2011 for drilling and development costs. Currently three rigs are operating on the Bakken leasehold, and the rig count should double by 2012, said the company. By the end of 2012 Williams is forecasting that it will be producing more than 20,000 b/d from the Bakken Shale.
Chairman Steve Malcolm said the company's experience in developing other horizontal shale plays is readily transferable to the Williston Basin.
"Development of the Bakken will be very similar to the low-risk, repeatable nature of the Barnett and Marcellus shales, as well as the tight sands in the Piceance Basin," Malcolm said. "Technological advancements in just the past few years have allowed the play to shift from exploration to resource development.
"We're excited about what this transaction means to the future of our drilling portfolio, as well as the opportunities before us to build new relationships in North Dakota and with the Three Affiliated Tribes -- the Mandan, Hidatsa and Arikara -- who call the area around these properties home."
The transaction and capital expenditures in 2010 are to be funded with cash on hand. In 2011 funding is to be provided by expected increases in operating cash flows and expected cash on hand. The sale has an effective date of Oct. 1 and is expected to close by year's end, subject to standard closing conditions. Williams plans to update its guidance when it reports year-end 2010 financial results.
Standard & Poor's Ratings Services said the agreement "benefits Williams' business-risk profile by providing additional basin diversity into crude oil production." Cash flow from crude oil by 2013 "would partially offset low cash flows from weak natural gas prices. We do not expect a material change in Williams' consolidated financial ratios as a result of the acquisition, although we have a bearish outlook for natural gas prices."