In a deal that would alter the Williston Basin’s pecking order, Whiting Petroleum Corp. announced July 13 it will acquire Kodiak Oil & Gas Corp. in an all-stock transaction valued at $6 billion.
The amount is based on the closing price of Whiting stock July 11 and Kodiak’s net debt of $2.2 billion as of March 31. Kodiak’s market capitalization was $3.79 billion on July 7.
The Denver-based companies would become the largest Bakken/Three Forks producer, with more than 107,000 barrels of oil equivalent per day (boe/d) in the first quarter of 2014, as well as 855,000 combined net acres and an inventory of 3,460 net future drilling locations.
Together, the companies unseat Continental Resources Inc. as the Bakken’s largest producer. In first-quarter 2014, CLR’s Bakken production was 97,500 boe/d, up 27% from first-quarter 2013. CLR maintains the largest leaseholder, with more than 1.1 million net acres as of Dec. 31, 2012. It is unclear if the company will still be the largest driller in the play.
North Dakota’s oil production eclipsed 1MMbbl/d for the first time in April, according to data released by the state in June.
David Tameron, a Wells Fargo Securities LLC analyst, said in May that “Kodiak has some of the best acreage in the Bakken,” but it wasn’t clear what the right number of well-per-drilling spacing units should be. The company missed first-quarter 2014 production estimates by 6%, largely due to weather.
Whiting and Kodiak’s oil-weighted platform will drive production, smooth out operations through complementary acreage positions and combine technological expertise, the companies said. The companies, as one powerhouse, could also accelerate drilling through access to more capital.
“We believe this transaction represents a significant opportunity for both Whiting and Kodiak shareholders to benefit from the strength of our combined company,” said James J. Volker, Whiting’s chairman, president and CEO.
“The addition of Kodiak’s complementary acreage position and substantial inventory of high-return drilling locations will provide the opportunity to drive significant value growth for both Whiting and Kodiak shareholders through acceleration in drilling and increase in operational efficiencies.”
The companies will also participate in Whiting’s 175,000 gross (123,000 net) acre, oil-rich Redtail-Niobrara prospect in the Northeast Denver-Julesburg Basin, Volker, said.
“We expect the combined entity to have an initial enterprise value of $17.8 billion, total 2014 production of 152,000 boe/d and proved reserves of 606 million boe, 80% oil, providing a leading platform for future oil-driven growth,” Volker said.
Such mergers have become infrequent. The last transaction of such scale was the $4.9 billion merger of LinnCo LLC and Berry Petroleum Co. That transaction was delayed by an informal inquiry by the Securities and Exchange Commission.
The deal was stalled long enough for Berry’s value to increase by $600 million, resulting in a greater cost to Linn Energy LLC and LinnCo.
Lynn A. Peterson, Kodiak’s chairman, president and CEO, said shareholders have an opportunity to own a company with significant upside potential.
“We expect the combined company to have increased operational and financial flexibility that will allow for accelerated and efficient development of the assets of both companies,” he said. “In particular, we have been very impressed by Whiting’s operating capabilities and technical expertise.”
Peterson said he expects the transaction to be tax free to Kodiak’s U.S. shareholders.
Kodiak and Whiting shareholders must approve the merger. Whiting’s senior management team would lead the combined company. Peterson will join the board of directors of the combined company.
Whiting has secured underwritten financing to increase its borrowing base to $4.5 billion with commitments totaling $3.5 billion.
J.P. Morgan Securities LLC acted as financial adviser to Whiting. Foley & Lardner LLP and Stikeman Elliot LLP acted as legal counsel to Whiting.
Petrie Partners Securities LLC acted as financial adviser to Kodiak, and Credit Suisse Securities LLC delivered a fairness opinion. Dorsey & Whitney LLP and Miller Thomson LLP acted as legal counsel.
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