XTO is paying a private firm $1.85 billion in cash and stock for a big slice of Bakken acreage. This is the North Dakota/Montana formation that the U.S. Geological Survey recently pegged as containing 3 billion to 4.3 billion barrels of technically recoverable oil, making the Bakken the largest oil accumulation in the lower 48 states.
At first glance, the purchase doesn't come cheap. Continental Resources (NYSE: CLR ) , which was early into the play, topped up its position in January with a $60 million purchase of producing properties from Chesapeake Energy (NYSE: CHK ) . Continental picked up 4 million barrels of proved reserves at $15 million a pop. XTO just paid close to twice that amount. Still, at $100-a-barrel oil, the firm is only paying a little more than six times projected annual cash flow.
I wouldn't be too worried that XTO is late to the Bakken bash. Think of it more as arriving fashionably late. As with its Appalachian entry, XTO tends to bide its time, gather data, and wait for a fat pitch. Continental may have gotten in cheaper, but Fools shouldn't underestimate the size of XTO's foothold. The company follows a low-risk, manufacturing-type approach to drilling, as opposed to going after fewer, higher-impact wells. XTO thus needs some elbow room to achieve economies of scale.
This entry instantly makes XTO one of the larger players in the Bakken, alongside Marathon Oil (NYSE: MRO ) and the exceptional EOG Resources (NYSE: EOG ) . Unsurprisingly, shares of smaller guys like Brigham Exploration (Nasdaq: BEXP ) are popping today. Speculators appear to be playing a bit of Bakken Bingo. That's actually the name of one of my CNBC Million-Dollar Portfolio Challenge entries -- but I can afford to lose fake money.