When Kodiak Oil & Gas (NYSE:KOG) spent $660 million in June to bulk up on the Bakken, the deal at first glance looked like a very solid bolt-on acquisition. It was picking up 42,000 net acres in the heart of the play. Not only that, but it also acquired about 6,000 barrels of oil equivalent production per day, which is a nice boost for a company only expected to produce about 34,000 barrels of oil equivalent per day this year. However, a closer look at the deal shows Kodiak was acquiring more than just oil-rich acres.

Take a look at the following slide by CARBO Ceramics (NYSE:CRR) from a recent conference. Take note of the red bubbles on the slide that represent wells drilled by Liberty Resources, which was the seller in the Kodiak deal.

Kodiak Liberty

Source: CARBO Ceramics Investor Presentation

The production of Liberty's wells for the first 90 days was much better than the production of its competitors. By using 100% ceramic proppants, it had found the secret that CARBO and a few others already knew, which is that ceramics are the key to unlocking more oil out of the Bakken. While ceramics cost more up front, the payback is felt both with increased initial production and by boosting the estimated ultimate recoveries of each well.

Kodiak was already well aware of those benefits as it already uses ceramics to frack its wells. That's what makes its deal for Liberty Resources' Bakken assets such a great fit. Kodiak was able to acquire excellent wells that should produce more oil over the long term because the wells were originally fracked with ceramics.

Overall, the data for using ceramics over sand proppants is compelling. The following slide shows a test run by Norway's Statoil (NYSE:STO) that visually portrays the 100% increase in production thanks to ceramics.

Statoil Bakken Ceramics

Source: CARBO Ceramics Investor Presentation

That is compelling data as not one of the wells fracked with sand outperformed a ceramic-fracked well. Not only that, but ceramics also helped to solve an issue with sand proppants flowing back during production instead of staying in place.

Finally, take a look at the long-running test by SM Energy (NYSE:SM). Ceramics are producing at a much higher rate and for a much longer duration.

Sm Energy Bakken Ceramics

Source: CARBO Ceramics Investor Presentation

Here again the data is extremely compelling. Production is clearly higher both initially and in the longer term. It makes the $150,000 incremental investment pay for itself very quickly.

CARBO Ceramics clearly has found a key ingredient to unlocking more oil in the Bakken. That has Kodiak paying up to use ceramics in wells that it drills as well as in the wells it acquires. That bodes well for CARBO's future because as more producers see the value of using ceramics over sand, it will be a big driver of CARBO's stock over the coming years.


Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Statoil (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.