Oil companies are lining up to increase their acreage position in the U.S.' shale plays as they have huge deposits of reserves to extract. The latest is Kodiak (NYSE: KOG), which has acquired new acreage in the Bakken shale play to boost sales.
Digging deep
Kodiak is buying new acreages in the Williston Basin in North Dakota from a private oil and gas company for $590 million in cash and stock. The deal, which is expected to close by January 2012, will increase Kodiak's total acreage in the Bakken shale by 50,000 acres to 155,000 acres, with 800 net potential locations for future development. Most of the assets to be acquired are adjacent to the acreages Kodiak bought in October 2011 and near its Koala Project, which is an added advantage since the company is familiar with the operational environment.
The acquisition guarantees Kodiak proven reserves of 19.7 million barrels of oil equivalent. Current output capacity of the reserves stands at about 3,500 barrels of oil equivalent per day. The production is expected to increase by the time the deal is closed as more wells will be operational by then. The icing on the cake is that the acquisition includes gas pipeline facilities connected to an interstate pipeline network to be operational by 2012. The new acreage is also close to a crude oil railway terminal, which is a major source of transport in the Bakken play.
The prospect
Bakken is one of the most lucrative acreages globally. According to Continental Resources (NYSE: CLR) CEO Harold Hamm, one of the pioneers and major operators of the Bakken play, using new drilling technology, the Bakken play may hold as much as 24 billion barrels of recoverable oil. Faced with hefty cost of exploration and production, global oil majors like Exxon (NYSE: XOM) and ConocoPhillips (NYSE: COP) are examining options of entering the Bakken shale where such costs are falling. Recently, Statoil (NYSE: STO) entered the Bakken play with its $4.5 billion acquisition of Brigham (Nasdaq: BEXP).
Activity in Bakken is bound to increase the total production of the area. Pipeline companies have sensed the opportunity and are expanding their infrastructure. Enbridge Energy Partners (NYSE: EEP) is expanding its gathering capacity in the area by 100,000 barrels per day with an investment of $90 million.
Foolish takeaway
With the availability of such huge quantity of oil reserves and development of transport infrastructure, Kodiak's presence in the Bakken stands to reap rich dividends. Moreover, the fact that it's a relatively new field in terms of operation, the play offers ample scope for Kodiak to tap into. I think Kodiak is moving in the right direction by expanding its acreage in the Bakken. The stock is worth watching out for. To stay updated on Kodiak's shale play, click here.
