QEP Bakken Acquisition Shows Non-Operators Are Very Undervalued

| About: QEP Resources, (QEP)

QEP Resources (NYSE:QEP) made an aggressive acquisition from multiple sellers in the Bakken offering $1.38 billion for 27,600 net acres and current production of 10,500 Boepd. The acreage is located primarily in Eastern McKenzie County in a fairly contiguous block. QEP claims this is one of the better sweet spots in the Bakken with EURs well above the Williston Basin average. Helis Oil & Gas LLC was the operator of over 90% of the acreage and the primary seller. However, the non-operators were allowed to combine with Helis on the sale and receive the operator premium per acre for all of their acreage. This model of getting non-operators to combine with operators on sales will continue as big acquirers want to get the biggest economy of scale possible.

Black Hills Corp (NYSE:BKH) was able to sell 4,800 net acres and average first half 2012 production of 990 Boepd for $243 million. Sundance Energy (OTCPK:SDCJF) was able to sell 3,900 net acres and 500 Boepd average production for FY2012 for $172.4 million. Finally, Unit Corp. (NYSE:UNT) announced it will receive $268 million for two separate transactions, including the QEP transaction and another in Texas, for an undisclosed acreage position and 1,200 Boepd in total production. The ability to combine with the operator did not impact the price they received for the producing oil and gas, but it did bring a premium for the future drilling locations since QEP will be able to control the pace of the development of the project.

This transaction highlights how the perception that non-operated acreage is not nearly as valuable as operated acreage, even when it is the exact same acreage, can be erroneous. Northern Oil & Gas (NYSEMKT:NOG) controls 180,000 non-operated net acres throughout the Williston Basin and averaged 10,400 Boepd in the second quarter of 2012. Northern has an enterprise value of $1.3 billion. Triangle Petroleum (NYSEMKT:TPLM) is a non-operator transitioning to be an operator, but the majority of its acreage is still non-operated. Triangle has 33,400 net acres in North Dakota and Eastern Montana and averaged 638 Boepd in the second quarter. The company also owns another 50,000 net operated acres in Montana and has its own completion company called RockPile Energy Services. Triangle has an enterprise value of $256 million. Voyager Oil & Gas (VOG) also is transitioning into an operator, but still has mainly non-operator holdings. Voyager has 43,600 net Bakken acres and averaged 938 Boepd in the second quarter. The company also has acreage in the Niobrara and Heath Shale. Voyager has an enterprise value of $141 million. Finally, U.S. Energy (NASDAQ:USEG) has 5,150 net Bakken acres in North Dakota and Montana and averaged 1,301 Boepd in the second quarter. The company also has producing acreage in the Eagle Ford and along the Gulf Coast. U.S. Energy has an enterprise value of $60 million.

The QEP Resources transaction opens up the possibility of revaluing non-operated acreage for not only the companies mentioned, but for many other E&P companies as well. Investors should do their own due diligence and remember that oil and gas stocks can be very volatile with changes in the underlying price of oil and natural gas.

Disclosure: I am long USEG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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