Comstock Resources Inc. announced the sale of its Bakken assets on Oct. 7 with plans to reinvest the proceeds into the Haynesville Shale.
Northern Oil and Gas Inc. agreed to acquire the Bakken assets from Comstock Resources for $154 million in cash. The transaction, which Northern expects to fund with cash on hand, operating free cash flow and borrowings under its revolving credit facility, is set to close in November.
Comstock’s Bakken assets, described by Northern as a bolt-on acquisition, comprise nonoperated interests across over 400 producing wellbores located primarily in North Dakota’s Williams, McKenzie, Mountrail and Dunn counties. The assets are operated by multiple operators in the Williston Basin and include 65.9 net producing wells. October production on the assets is projected to be greater than 4,500 boe/d (2-stream, about 65% oil).
Northern holds existing ownership positions in 84% of the wellbores to be acquired, according to a release by the company.
“We remain consistent with our strategy,” Northern CEO Nick O’Grady commented in a company release. “The focus continues on being the natural consolidator of working interests and executing with financial discipline, concentrating on cost of entry, return on capital employed and cash flow net to our shareholders.”
Based in Minnetonka, Minn., Northern aims to be the go-to resource for operators that want to offload nonoperated working interests in leasehold. Originally focused in the Williston Basin, the company has began to branch out with acquisitions over the past year in the Marcellus Shale and Permian Basin.
“This is our third major transaction this year in as many basins,” Northern COO Adam Dirlam added in the release. “Our team’s ability to actively pivot has provided for consistent optionality to pursue value enhancing opportunities in the most prolific basins across the U.S.”
Northern on Oct. 5 said it expects a significant increase to its borrowing base from both the acquired and existing assets and will begin the process to expand its elected commitment during its regularly scheduled fall borrowing base redetermination, which it expects to complete in November.
Additionally, given the strong, low risk cash flows from the acquired properties, Northern said its management plans to submit a request to the board of directors for a 33.3% increase to the common stock dividend for the fourth quarter.
“With the planned dividend increase, we will have doubled our shareholder return program in less than five months since inception,” O’Grady said in the release.
Comstock expects to recognize a pre-tax loss of $130 million to $140 million on the divestiture. The company plans to use the sale proceeds in its Haynesville shale development program, including the acceleration of completing 13 (9.4 net) DUC wells which were originally budgeted to be completed in 2022.
Comstock said it may also use a portion of the proceeds to acquire additional leasehold and to fund additional drilling activity in 2022.
The transaction is expected to close in the fourth quarter and will have an effective date of Oct. 1. EnergyNet is acting as exclusive adviser to Comstock on the sale. Kirkland & Ellis LLP is Northern’s legal adviser.
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