Hess Corp. is selling a chunk of its prized Bakken portfolio, bringing value forward on acreage it wasn’t planning on drilling for another five years.
The U.S. independent E&P company said in a release on April 8 it had entered an agreement to sell non-strategic interests in the Bakken in North Dakota to Enerplus Corp. for $312 million in cash. The transaction is Calgary, Alberta-based Enerplus’ second multimillion-dollar cash acquisition in the Bakken so far this year.
“The Bakken is a core asset in our company’s portfolio,” CEO John Hess reaffirmed in a statement on April 8.
The sale, however, which comprises of its Little Knife and Murphy Creek acreage in the Bakken, will bring “material value forward and further strengthens our cash and liquidity position” as Hess noted the company wasn’t planning on drilling before 2026.
Net production from the acreage, consisting of 78,700 net acres in North Dakota’s Dunn County, averaged 4,500 boe/d net to Hess in first-quarter 2021, according to its release. Hess also added that the acreage, located in the southernmost portion of Hess’ Bakken position, is not connected to Hess Midstream infrastructure.
For Enerplus, the deal follows the recent closing of another multimillion-dollar cash acquisition in the Bakken play. In total, Enerplus has spent roughly $777 million in acquisitions bolstering its Bakken position so far in 2021.
Earlier this year, Enerplus agreed to acquire private Williston Basin operator Bruin E&P Partners LLC for $465 million in cash. The transaction, which closed in March, added 151,000 net acres in the Williston Basin all located within North Dakota to Enerplus portfolio.
From Hess, Enerplus is acquiring largely contiguous acreage that the company said in a separate statement on April 8 is strategically adjacent to its core Bakken position. The acreage is largely undeveloped and 100% HBP with an average of two producing wells per drilling spacing unit.
“These assets are a strong strategic and operational fit for Enerplus, further extending our high-return Bakken drilling inventory,” Ian C. Dundas, president and CEO of Enerplus, said in a statement on April 8.
Enerplus said the acquisition also includes 110 net tier one undrilled locations (77% operated), which the company believes will immediately compete for capital with existing locations. The company will pick up another 120 net operated undrilled locations that it said are “economic based on current crude oil prices.”
“The addition of this tier one resource into our development plan is expected to generate strong financial returns and enhance our free cash flow growth,” Dundas added.
“In connection with the acquisition, we have highlighted a five-year outlook with projected cumulative free cash flow of between $1.2 to $1.8 billion between 2021 and 2025, assuming US$50 to $55 per barrel WTI,” he continued.
Enerplus said production from the Hess acquisition includes 6,000 boe/d (76% tight oil, 10% NGL and 14% natural gas) of working interest production, estimated at the time of closing.
As a result of the Hess acquisition, Enerplus is increasing its 2021 production guidance to 111,000 to 115,000 boe/d from 103,500 to 108,500 boe/d.
The company’s 2021 Bakken oil price differential outlook is unchanged at $3.25/bbl below WTI, which assumes the Dakota Access Pipeline (DAPL) continues to operate. In the event DAPL is required to cease operations, Enerplus said it expects sufficient rail egress to be available while also noting that Bakken oil price differentials would be expected to widen reflecting rail economics.
Enerplus plans to fund the Hess acquisition with the company’s existing cash position of approximately $150 million. The remaining portion will be funded through borrowing on its undrawn bank credit facility.
Both companies expect to close the transaction in May. The deal, which is subject to customary closing conditions, will have an effective date of March 1.
Stifel FirstEnergy is financial adviser, to Enerplus on the acquisition and BMO Capital Markets is its strategic adviser. Additionally, Vinson & Elkins LLP acted as U.S. legal adviser and Blake, Cassels & Graydon LLP acted as Canadian legal adviser to Enerplus.
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