Brigham Buyout: Who's Next In The Bakken? Part 1

 |  Includes: ERF, KOG, MRO, QEP, STO, WMB
by: Michael Filloon

I woke up Monday to a combination of surprise and disappointment. Brigham (BEXP) was up over 20% in the pre-market as Statoil (NYSE:STO) announced it was purchasing Brigham for $4.4 billion. The deal values Brigham at $11,500/acre, or $6,500/acre excluding existing production.

Enerplus (NYSE:ERF) recently purchased 46,500 net acres for $456 million, or $9,800/acre. Williams (WMB) paid $925 million for 85,800 net acres in the same area as Enerplus, or about $8,000/acre with production of 3,300 Boe/d figured in. Both Enerplus and Williams purchased acreages in northeast Dunn County. Brigham's current Bakken acreage consists of:

  • Austin/Parshall/Sanish/Ross-40,100 net acres
  • Greater Roughrider-16,1600 net acres
  • Eastern Montana-119,100 net acres
  • Mercer-30,100 net acres
  • Other-24,900 net acres

In my opinion, Statoil and Brigham benefited from this transaction. Statoil gets the much-needed growth it has been looking for, while Brigham rewards its shareholders. I have had several emails asking about whether to hold onto Brigham shares, in hopes that other offers will surface. There is a possibility another offer will surface, but this is only a possibility. Although a shareholder would not risk much (other than the deal falling through) by holding on to these shares, there may be other places to put cash to work. There are several Bakken oil producers that could be purchased in the near term. This article will address Kodiak Oil and Gas (NYSE:KOG).

Kodiak has some very good acreage, especially for a company this size. It has 34,000 net acres in Dunn County, not far from the Enerplus and Williams purchases noted earlier. It has 10,000 net acres in its Koala prospect. The Koala is very interesting, given the Three Forks production from this prospect. Koala 9-5-6-12H3 produced an IP of 2,327 Boe/d from the Three Forks. Right next to this well is Koala 9-5-6-5H, which targeted the middle Bakken and had an IP rate of 3,042 Boe/d. Kodiak is interesting from two standpoints: It is just big enough for a large player to start a position in the Bakken, but also a great addition to any of the players in Dunn or Mountrail counties. Companies that have acreage close to Kodiak's in Dunn County are:

  1. Marathon (NYSE:MRO) has a total of 391,000 net acres in the Williston Basin. Management has stated it has interests in increasing this position. Its leasehold is in five North Dakota and three Montana counties. Further synergies could be gained by the addition of Kodiak's northwest Williams County locations. Marathon didn't mind paying top dollar in the Eagle Ford and Niobrara. This company is trying to create a top position in the Bakken, and is motivated to purchase top acreage.
  2. QEP Resources (NYSE:QEP) would be a good fit for Kodiak's acreage. It has 89,000 net acres in the Bakken. What this acreage lacks in quantity it makes up for in quality. It acreage is in the Fort Berthold Indian Reservation, just south of the Sanish and Parshall Fields. It is also to the northwest of Kodiak's Dunn acreage. QEP has had very good results in the Bakken using long laterals.
  3. Enerplus (ERF) recently purchased 46,500 net acres in this area of the Bakken. It has 230,000 net acres in the Bakken, if lesser acreage in Saskatchewan is included. 74,000 net acres are in Fort Berthold. Enerplus is focused on this area and has the cash to obtain acreage. Further synergies could be gained in Kodiak's Grizzly as Enerplus has acreage near by.
  4. Williams (NYSE:WMB) is another option. As did Enerplus, Williams recently made a significant purchase. Williams is currently separating its company into two parts. By separating oil and gas exploration and production from refining, it should unlock value, while removing the refining volatility that can significantly hurt earnings.
  5. Newfield (NYSE:NFX) is the most interesting name on this list. Kodiak's Dunn acreage would not be as interesting as its Koala projects. Newfield has unlocked something special in this area, and has had some very high IP rates (Now has the second highest in the Williston Basin). Newfield has 150,000 net acres in the Williston Basin, and shares several areas of interest with Kodiak.

The emails I have received on this subject have contained several names that could possibly bid for Brigham or other names in the Bakken/Three Forks. Brigham catching another bid would surprise me with companies like Oasis (NYSE:OAS) and Kodiak still open to offers. But if I were to guess, there are two names with the size and motives. The first is Chesapeake (NYSE:CHK), which is a chronic over-spender, but would love to increase its Bakken acreage to almost 700,000 net acres. Marathon is also a possibility, as it has been on a buying spree since it split off its refining business. One last point I feel compelled to make is the number of larger companies spinning off refining assets. This decreases a major cash drain for many of these companies.

Disclosure: I am long BEXP, KOG.

Disclaimer: This is a list of oil producers active in the Williston Basin. It is just a list, and not a buy recommendation.

Continue to Part 2 >>