Two More Bakken Investments -- Bakken, North Dakota, USA

I have to thank "Mike" for alerting me to these two stories. These are big stories. 

For the past several weeks, I have been posting that I expect to see increased consolidation or acreage exchanges in 2011 - 2012. These two stories, besides being incredible in their own right, may be a foreshadowing of more to come. In the first case, this appears to be a very well-capitalized company acquiring acreage from one of the smaller players in the Bakken. 

In the second story, a very large a publicly traded master limited partnership will purchase local/regional crude oil gathering and transportation assets -- again suggesting some consolidation. Of course, this stuff goes on all the time (deal-making) but we're seeing bigger and bigger players come into the area.

First from Bloomberg, November 15, 2010:

Williams Cos, the fourth-largest U.S. pipeline operator by market value, agreed to purchase 85,800 net acres in North Dakota’s Bakken oil play for $925 million in cash as it seeks to expand its exploration and production business. The acreage is in the Fort Berthold Indian Reservation.

The property has potential reserves equivalent to 185 million barrels of oil in the Middle Bakken and the Upper Three Forks formations, Williams said in a statement today. The property has 24 existing wells producing 3,300 barrels of oil a day, the company said.

An analyst calculates that Williams is paying about $8,000 a net acre when production is included, less than Enerplus Resources Fund agreed to pay in September for leases in the same area. See my posting regarding the Enerplus purchase.

I've always thought of WMB as a pipeline company; somewhere along the way, they got involved with oil exploration and production, something I must have missed. Williams will have to update its webpage; the current map of operations includes nothing in the North Dakota Bakken. (Of course, some weeks from now, that will change.)

The seller is private and undisclosed.


Back-of-envelope calculations:

• 185 million barrels * $50/bbl = $9.25 billion (remember, they paid about $1 billion in cash
• 185 million barrels/85,000 net acres = 2200 bbls/acre.
• 2200/acre x 640 acres = 1.4 million barrels/section
• Two wells/section = 700,000/well EUR
• In fact, WLL is getting up to three wells / section in the core Bakken (Sanish)

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In a second story, from Yahoo!Finance, dated November 14, 2010, a company press release:

Plains All American Pipeline, L.P., today announced that it has entered into a definitive agreement with Nexen Holdings U.S.A. Inc. to purchase entities that hold crude oil gathering and transportation assets that primarily service Bakken area producers. Total consideration is estimated at $210 million, including approximately $170 million for the business and physical assets and approximately $40 million for approximately 400,000 barrels of inventory and other working capital adjustments. Subject to regulatory approval, the transaction is scheduled to close by year-end 2010.

The assets are primarily located in Northwestern North Dakota and Northeastern Montana and include: a lease gathering business that currently handles approximately 55,000 barrels per day; the Robinson Lake pipeline, a FERC regulated 20-mile, 8-inch pipeline that currently handles approximately 18,000 barrels per day; 8 truck terminals and various other contractual rights.