Brigham's sale was a big surprise. The majority of comments were quite negative, as investors thought Brigham was worth more. I agree and believe that Brigham's one year estimates at several firms warrant a higher selling price. In Part 1, I commented on the likelihood of Kodiak (KOG) being purchased. I never purchase shares of a company based solely on the chance it will be purchased. The most important reason is always based on company out performance. If this success leads to a purchase as it did for Brigham (BEXP), then it is an added benefit. But if not, you still own a quality stock.
On Tuesday morning, Kodiak released some very interesting information with respect to its Dunn acreage. Not long ago, Kodiak had promising numbers from its McKenzie County wells. This wasn't just middle Bakken, but upper Three Forks numbers alluded to Kodiak having acreage on par with Brigham's Roughrider wells. It also increased the chance of pad drilling three middle Bakken and 3 Three Forks wells per pad. The news in Dunn County was of five operated and five non-operated wells. The operated wells all had IP rates above 2900 Boe/d (except one well that was completed in 14 stages with 10 stages completed after the IP rate was taken). The five non-operated wells were completed by its partner XTO Energy. IP rates in the XTO Energy operated wells were all above 1705 Boe/d, which was lower than Kodiak's operated wells. Although I did not mention ExxonMobil's (XOM) possible motivation to add to its Bakken acreage in part 1 of this series, it is very possible that Exxon may want to purchase this acreage. Exxon currently has 450000 net acres in the Williston Basin. This acreage was acquired last year with its XTO Energy merger. Kodiak's acreage may not be a large enough purchase for Exxon to consider purchase, but it has acreage close to Kodiak in multiple prospects.
- Northwest and East of Kodiak's Dunn acreage
- West of Kodiak's Koala acreage
- West of Kodiak's Grizzly acreage
In 2010, Exxon paid more than $36 billion for XTO Energy. If I were to guess what Exxon would be looking for, it would be a company like Whiting (WLL) or Continental (CLR), based on size that could produce significant growth prospects in the short term.
Another acquisition target is Oasis (OAS). It has a little over 303000 net acres in the Williston Basin. This company is easily overlooked as it had been in Brigham's shadow over the past few years. My evaluation of Oasis has more to do with physical assets than results. The reason I say this is Oasis may have better acreage than Brigham, but has been unable to create the type of production. Oasis has been hit by poor weather and increased oil service costs. Oasis has started its own oil service company in response to ease some of the pricing pressures, but more importantly, to decrease delays.
Oasis has divided its acreage into three plays. The first is West Williston. This is its acreage west of the Nesson Anticline. Oasis has 191716 net acres here. A very large portion of this is in the same area of Brigham's Roughrider acreage. Some of this acreage is in Roosevelt and Richland counties of Montana. Its East Nesson acreage runs north from Sanish Field in Mountrail County and up into a very large area of Burke County. Oasis has 102786 net acres in this portion of its holdings. The third and last portion of its Bakken acreage is in the Sanish Field area and holds 8739 net acres.
An oil producer this size would have larger companies looking to buy into the Williston Basin. The acquirer would need a very large company to buy in that generates significant cash flow for to ramp development of the acreage.
- Chesapeake (CHK) seems to be a possible acquirer of Bakken acreage. We have not heard much with respect to its acreage in Stark County, which Chesapeake believes could have some very good upper Three Forks wells. Much of this acreage would probably not be targeting the middle Bakken, as the pinch out area is about 10 feet thick at best. Aubrey would love to announce a large acquisition here, but with shareholders upset about the amount of cash spent to increase liquids exposure, it may not happen anytime soon. If there is a purchase, a partnership with CNOOC (CEO) would be met with negativity in North Dakota.
- XTO Energy is the name Exxon operates under in the Bakken. This company has cash to burn and is looking for any growth it can get its hands on. It has 450000 net acres in the Williston Basin, and has started to get some good results in its operated Dunn County acreage, with Kodiak. Recent results from Kodiak show its operated Dunn County wells significantly outperforming its Exxon operated wells in the same area. Exxon could be interested in several of the names in the Bakken, and has the cash to make a much bigger purchase. Whiting and its 680000 net acres would expand its acreage to over one million.
- ConocoPhillips (COP) is working the Willston Basin as Burlington Resources. It currently has 460000 net acres in the Williston Basin. It has significant acreage in Mountrail, Williams, McKenzie, Dunn, Billings, Richland and Stark counties. Conoco knows the Basin well, and will run a five rig program this year. This is not Conoco's top land play in the United States, but it is looking to acquire growth as there are fewer opportunities in large international plays. As with Exxon, Conoco could buy into any of the larger Bakken names.
- Occidental (OXY) may be the most interested acquirer of acreage. There are several areas that would fit well with this company. It currently has approximately 200000 net acres in the Williston Basin prospective for the middle Bakken and upper Three Forks formations. Its Russian Creek Prospect encompasses 180000 net acres in southern Dunn County. This would be an especially good fit for Kodiak's acreage. Occidental also has 20000 net acres in southeastern Burke.
There is a long list of other companies that have the cash to make a large acquisition. Because of this there are several companies that are targets. Oasis is large enough that it would take some deep pockets to purchase and then ramp production on the acreage. I tried to stay with companies that are already in the Williston Basin and understand the upside to the Bakken/Three Forks. Kodiak is the company I like currently in this space. It has done very well on its recent Dunn and McKenzie County wells (prospective of middle Bakken and upper Three Forks). I do believe that Oasis has very good acreage and also think it will get on track after under performance so far this year. A recent Bloomberg article highlighted the upside to many of the Bakken names.
In summary, both Kodiak and Oasis are possible buyout targets. This is not a good reason to own these names. First and foremost is to purchase stocks that outperform competitors, and have a very good well results, like Kodiak. Others are a value like Oasis. The past three quarters have weighed heavy on this stock, and if there is a turnaround in this name it could move significantly higher.
Additional disclosure: This is a list of companies that may be looking to purchase acreage in the Williston Basin. It is only a list and not a buy recommendation.
