Major movement on the North Dakota side of the MonDak fields as Denver-based Kodiak Oil and Gas made a $235 million dollar purchase on just 13,500 in Williams County (the county where Williston is located). The purchase was made from an undisclosed private company for just 13,500 net acres expected to produce 3,000 barrels of oil equivalent per day.
The acres will be paid for in cash with some expanded credit and an expanded second-term lien loan. In addition to the acreage, the loan includes the assumption of mortgaged properties including a drilling rig as well as some surface equipment and gas pipeline connection facilities that tie into a regional third-party natural gas gathering system. The operated lands are located within a few miles of a crude oil railway terminal and interstate pipeline interconnect that is expected to be fully in service during 2012. Also included in the transaction is a newly drilled salt water disposal well and water gathering pipelines.
The acreage is just north of existing properties known as the Koala Project area. Estimated net oil and gas production included in the acquisition is projected to be approximately 3,000 barrels of oil equivalent per day, (BOE/d) at closing. The transaction will expand Kodiak’s acreage position in the Williston Basin to nearly 110,000 net acres. Kodiak will assume operatorship of 15 drilling units on the contiguous leasehold to be acquired.
The transaction includes a working interest in six gross (4.6 net) operated producing wells. The acquisition also includes three gross (1.5 net) wells that have been drilled and are waiting on completion, two of which are projected to be completed before closing, one gross (0.35 net) well currently drilling, and four permitted and built locations. Once the four permitted wells are drilled, nearly all of the leasehold to be acquired will be held by production by early 2012.
Based upon Kodiak’s internal evaluation of the production profile and history from the wells drilled within the acreage block, the Company projects an average per-well estimated ultimate recovery of 650,000 BOE from the Bakken Formation. No wells have been drilled on these lands testing the Three Forks Formation. However, it is the Company’s belief that this formation should be productive based upon its early completion results on the Koala Project Area to the south, and based upon recent activity from other industry well results. If both formations are productive, the Company believes that the acquired lands could allow for over 75 operated locations.
The acquisition is expected to close in late October 2011 and is subject to the completion of customary due diligence and closing conditions. The effective date for the transaction is August 1, 2011, with any purchase price adjustments to be calculated as of the closing date.
Commenting on the transaction, Kodiak’s Chairman and CEO Lynn Peterson said: “We continue to execute on our stated goal of acquiring contiguous, operated leasehold in the heart of the Bakken play. Today’s transaction, when closed, will add significantly to our leasehold and complements our core operating area in McKenzie County where we have been completing strong producing wells. The acquired operated lands are proximate to the major regional oil service center of Williston, N.D. which should provide some field-level operating efficiencies. Importantly, these cash flowing assets are predominantly held by production allowing us to maintain our current capital expenditure budget and drilling program.”
When the deal closes, Kodiak will have over 100,000 net acre in the Bakken with 10 plus years of drilling inventory.