Plans to buy additional Bakken and Three Forks properties.
Kodiak Oil & Gas Corp. (NYSE: KOG) plans to buy additional Bakken and Three Forks producing properties and undeveloped leasehold acreage in the Williston Basin from Liberty Resources for $660 million in cash.
Net oil and gas production included in the pending acquisition is about 5,700 barrels of oil equivalent (BOE) per day, which was the average net production for May 2013. Production is expected to increase before closing as completion operations are currently under way.
Upon completion of the transaction, Kodiak would acquire approximately 42,000 net acres located in McKenzie and southern Williams counties, N.D. The deal would increase the company’s total holdings in the Williston Basin to about 196,000 net acres. The acquired leasehold includes 35 controlled drilling spacing units, based upon 1,280-acre units, and is 90% held by production.
The southern Williams County lands, approximating 14,000 net acres, are adjacent to Kodiak's core Polar area. An additional 25,000 net acres are located in McKenzie County to the west of the company's Koala and Smokey areas. Kodiak will also assume Liberty's contract for one drilling rig, which has 14 months remaining on its term.
The company expects to fund the acquisition through borrowings under its revolving credit facility due April 2018, which carries a current borrowing base of $650 million prior to any adjustments for the proposed transaction. Kodiak is working with its banking syndicate to complete a redetermination reflecting its year-to-date completion activities and pro forma for this proposed transaction. The combined impact of Kodiak's recent completions and the proposed transaction is expected to result in a significant increase in the borrowing base.
The acquisition is expected to close in July 2013 and is subject to the completion of customary due diligence and closing conditions. The effective date for the transaction is March 1, 2013, with any purchase price adjustments to be calculated as of the closing date.
“The proposed acquisition's characteristics adhere to our stated strategy of identifying and acquiring reduced-risk, contiguous leasehold in our immediate core operating areas,” said Kodiak's chairman and chief executive Lynn Peterson.
"The increase to our inventory of future drilling locations provides the company with a longer runway of sustainable growth. As we continue our down-spacing work in our Koala and Smokey areas, we would expect the number of locations to increase significantly. We also benefit from the addition of the production and its cash flow, as well as proved reserves included in the deal. Our current average daily production, pro forma for this transaction, is approximately 30,000 BOE. As the acquired lands are largely held by production, we can methodically develop the leasehold on a schedule that best fits our capital expenditures and drilling program.”
Analysts generally agreed the price was consistent with previous valuations for the region and represented a significant increase in Global Hunter’s acreage.
The deal represents about a 27% increase in acreage for Kodiak, much of which appears near its current base of operations in the Bakken. Global Hunter Securities LLC said the deal reflects about $115,000 per flowing BOE of production an about $15,700 per acre.
“The company’s growth profile should remain among that of the industry leaders,” GHS said.
GHS called the metrics for the deal “healthy” but said it would wait for further information before changing the rating for the company. Global Hunter Securities rates Kodiak as “Accumulate.” And has a price target of $11 per share, compared with its current price of about $8.78 per share.
Topeka Capital markets agreed the deal metrics boiled down to about $115,000 per flowing BOE of production, but said the raw acreage was valued at only $5,536 per acre.
Kodiak is an upstream independent oil and gas company based in Denver. Liberty Resources is a privately-held oil and gas company based in Denver.