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A Deeper Look at the Latest Bakken Oil Deal

Source: Whiting Petroleum Investor Presentation (link opens a PDF)

On the surface Whiting Petroleum's (NYSE: WLL  ) $260 million acquisition of 17,282 net acres in the Bakken looks like nothing more than a small bolt-on acquisition. However, digging a little deeper, the deal is bigger than the numbers indicate. Let's take a closer look.

Setting the stage
What investors need to first realize is this acquisition really follows on the heels of its recent divestment of the Postle assets. In that deal Whiting sold a mature enhanced oil recovery project to Breitburn Energy Partners (NASDAQOTH: BBEPQ  ) for about $860 million. It was a great deal for BreitBurn as it was able to acquire a perfect MLP type asset because of its well-developed, oil rich production.

These assets fit much better into BreitBurn's portfolio because its business model is to acquire assets that it can milk for income. Whiting's business model, on the other hand, is more focused on production growth. The capital it freed up from that one deal has given the company the fuel it needed to pursue more growth focused projects.

Reallocating capital
Whiting used the money from the deal to pay down its credit facility. However, it used the flexibility from that facility to increase its capital budget by $300 million to bring it up to $2.5 billion. By adding that small amount of capital Whiting will be able to completely replace the production of the Postle assets that it sold. Now it is using more of its flexibility with an eye to the future.

The $260 million acreage acquisition is important for one big reason: Location. Whiting is picking up acreage in two of the most oil rich counties in the Bakken. These two counties, Williams and McKenzie, produced half of the top ten most recent Bakken Wells as measured by initial production rates. So, while 76% of the acreage Whiting acquired is proved undeveloped, it is likely to turn out to be very solid acreage.

McKenzie County in particular has really been brimming with oil. Norway's Statoil (NYSE: STO  ) drilled the top recent well in the Bakken which was located in McKenzie. The well had an initial production rate of more than 3,000 barrels of oil per day. In addition to that, Statoil also drilled the top well in Williams County.

Meanwhile, ConocoPhillips (NYSE: COP  ) has really seen the fruits of its McKenzie County acres. The company drilled four of the best recent wells in the region, with three of those located in McKenzie County. Clearly, its a good spot to be in, which is why Whiting is making the right choice to bulk up on its position in the county.

Final Foolish thoughts
Whiting has been making all the right moves this year. It was able to get a very fair price for a mature asset that really didn't have a lot of growth prospects. From there it was able to pay down debt, add slightly to its capital plan to replace the production it sold, and finally, add prime acreage in some of the most oil-rich counties in America. That has really positioned the company to profit as oil prices stay well over $100 per barrel.

Whiting is really positioning it self to profit from $100 oil. Hopefully, your portfolio is positioned as well as Whiting's to profit from $100 oil. If not, we'd like to help you get rich off of rising oil prices, which is why our top analysts prepared a free report that reveals three stocks that are bound to soar as oil prices climb higher. To discover the identities of these stocks instantly, access your free report by clicking here now.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2013, at 6:52 AM, EllenBrandtPhD wrote:

    You wouldn't know it from the way Crazed Currency Traders are pounding the NOK, but the Norwegian election is just one week away, and Erna Solberg is still expected to win in a landslide, ushering in the most pro-business and pro-STO government in maybe 50 years, if not more.

    The NOK trading is insane, because Solberg's coalition's goal is to strengthen the Krone, not weaken it, and there could be changes at the Norwegian central Bank in short order.

    Solberg should not be seen as an austerity-monger a la Paul Ryan and his ilk. She is, instead, very much in tune with Angela Merkel or Tony Abbott - both expected to win their elections handily in September, too. (Take that, Dollah! Dollah! Dollah! and/or Yen Short of the Ages folks.)

    One thing Solberg will do quickly is rescind the last confiscatory tax increase imposed on STO, which has alone prevented the company from moving into more North Sea development.

    Jim Cramer's analysis last week was dead wrong, as the company immediately refuted it, saying it intends to put its big asset sale windfall into development in Norway offshore - which, if one reads between the lines, presupposes the new Solberg government handing them their tax break.

    Soon, the talk will turn to Solberg's pledge to spin off an additional 25 percent of the Norwegian government's stake in STO at the "highest possible price" - her words.

    Many astute analysts have taken that to mean $30 USD or more, and STO should have the extreme tailwind of the government's own propaganda trying to push the price up as the spinoff scenario evolves.

  • Report this Comment On September 06, 2013, at 7:37 AM, EllenBrandtPhD wrote:

    I shouldn't have to do this at this late date. But in case there are any Ninnies at all among the daytraders who have read the phenomenally stupid and could-not-be-more-wrong post some person/Bot made on the Yahoo STO board this morning:

    Erna Solberg wants to sell an additional 25 percent of the Norwegian government's 2/3 stake in STO at a MINIMUM of $30, at today's NOK/USD translation.

    However, she also wants to strengthen the NOK against both the USD and the EUR in the months ahead. That would mean a price possibly considerably ABOVE $30 in USD terms.

    Some of us do remember that the last time we were in a very similar Market configuration, STO went all the way up past $40. I don't know if that might happen again, but it is worth thinking about.

    Also, again, note that one of Solberg's major platform planks is to slash corporate taxes. She will almost immediately rescind the last confiscatory tax against STO imposed by the Stoltenberg Socialists, which has stopped STO from developing an important offshore Norway field.

    STO has now said in no uncertain terms that the almost $3 billion windfall it just received from a sale of assets - more a sharing of a key field - to an Austrian colleague will go into developing the above field AS SOON AS THE CONFISCATORY TAX IS LIFTED.

    The smart analysts who follow this stock, both in Europe and in the US (there are a few of 'em!) understand the state of affairs very well, which is why they have been raising ratings on STO against its closest peers the past several months - very, very quietly, which is always a good sign.

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