Whiting Petroleum Buys Kodiak Oil & Gas to Become Biggest Bakken Producer

Whiting Petroleum is merging with Kodiak Oil & Gas to create the largest player in the Bakken shale play.

Travis Hoium
Travis Hoium
Jul 14, 2014 at 3:30PM

The Dow Jones Industrial Average (DJINDICES:^DJI) has charged 0.7% higher late in trading, partly because Citigroup posted better-than-expected earnings. Financial stocks are a big percentage of the Dow's exposure, and the Dow's financial components are following Citi higher today.

But energy is where there was even bigger action: Another merger will consolidate acreage in one of the country's best shale plays.

Energy's latest major merger
Over the weekend, it was revealed that Whiting Petroleum (NYSE:WLL) is merging with Kodiak Oil & Gas (UNKNOWN:KOG.DL) to make the largest Bakken landholder in energy. The deal calls for Kodiak shareholders to get 0.177 shares of Whiting Petroleum stock for each of their shares, and the company will also assume $2.2 billion of net debt.

Production is booming in North Dakota, and that's driving this merger. 

The combined company will produce about 107,000 barrels of oil equivalent per day -- and growing -- and will outdo Continental Resources' output of 97,500 barrel of oil equivalent per day.

Two things are interesting about this deal. First, Kodiak accepted a price that was actually lower than Friday's closing price, which would have equaled $13.90 per share in value from Whiting versus Friday's close of $14.23. Normally, mergers and acquisitions come with a premium, and this may show that Kodiak was just looking to cash out while it could.

Oil drilling and extraction now dots the landscape of a once-barren Williston Basin. Source: Kodiak Oil & Gas.

Secondly, this continues a long history of mergers in oil and gas, but it's the most notable in the Bakken Shale. One of the reasons the deal makes sense for both companies is the ability to combine data from the region to both prioritize drilling locations and acquire new high potential assets in the region. The U.S. Energy Information Administration said this year that based on 2012 data, the Bakken had 1.1 billion more barrels of crude oil and condensate than previously thought and is surpassed only by Eagle Ford in total reserves at 3.2 billion barrels of oil equivalent.  

As the government and companies begin to understand more about how much potential there is in the Bakken, the newly combined company will have the capability, data, and assets to exploit that region better than anyone else. Perhaps Kodiak took a lower price than Friday's close because it sees more value in the combined company.

Remember that investors who hold on and take shares of Whiting Petroleum keep a large amount of exposure to the Bakken play, so selling out now may not be as attractive as it is with many acquisitions.