Thursday, September 20, 2012

Exxon Mobil Corp Buys Denbury Onshore Acreage In Williston Basin, North Dakota and Montana; Becomes Major Player in the Bakken; $1.6 Billion Deal; Almost 200,000 Bakken Acres


February 4, 2013: in the daily activity report, this date, the 104 wells that were transferred from DNR to XTO in this deal were listed

December 3, 2012: update on the deal; they've closed on Phase I; hope to close on Phase II by end of year; DNR held back 17.5% of assets; XOM held back on $350 million. Kubuki dance.

October 1, 2012: Zeits on the deal (

September 21, 2012: Michael Filloon on the dealRigzone story here. Oil and Gas Journal story here. Stories from all over. Forbes: perhaps the best story. Serendipity or planned all along? A securities firm following DNR, suggests KOG is worth as much as $15 and Whiting $70 based on what XOM paid DNR. The Motley Fool's take on this deal: they stress that this deal keeps DNR focused on its strengths: CO2 EOR in older fields. Motley Fool says drilling the Bakken was not one of DNR's strengths. In fact, DNR reported some great wells this past quarter:
  • 22115, 1,505, Denbury, Lundin 41-14SWH, Siverston, t712; cum 24K 7/12
  • 22151, 1,538, Denbury, Tobacco Garden 41-18SH, Tobacco Garden, t6/12; cum 34K 7/12
  • 21682, 1,454, Denbury, Lund 44-8SH, Siverston, t7/12; cum 6K 6/12;
  • 21950, 712, Denbury, Johnsrud 21-13SEH, Siverston, t4/12; cum 16K 6/12;
  • 21786, 1,494, Denbury Onshore, Rink 12-4ESH, Garden, t4/12; cum 19K 5/12; 
  • 21682, 968, Denbury, Lund 44-8NH, t7/12; cum 21K 7/12;
  • 21706, 2,002, Denbury Onshore, Lundin 11-13SEH, Siverston, t4/12; cum 31K 5/12
  • 21425, 1,105, Denbury Onshore, Johnson 43-27ENG, Murphy Creek, t5/12; cum 6K 5/12
  • 21424, 939, Denbury, Johnson 43-27WNH, Murphy Creek, t5/12; cum 8K 5/12;
These are very good wells.
Original Post

Link here. Also, google Exxon to buy Denbury's Bakken acreage for $1.6 billion
Exxon Mobil Corp. will spend $1.6 billion to boost its holdings in the massive Bakken oil field in North Dakota and Montana by 50 percent.  
Exxon said Thursday it will buy all of the Bakken shale assets held by Denbury Resources Inc. for $1.6 billion in cash. Denbury will also receive Exxon's interest in two fields in Wyoming and Texas. Exxon will acquire 196,000 acres, boosting its holdings in the region to almost 600,000 acres. 
The acreage acquired is expected to produce 15,000 barrels of oil and other hydrocarbons per day in the second half of this year.
Wow, earlier this week, September 15, I posted this (the entire blurb):
Wide Moats

This appears to be a throw-away article by Motley Fool -- mentioning "wide moats" almost in passing, and then moving into marketing/imitation. The "wide moat" references DNR which caught my attention. With the recent chatter regarding XOM and DNR, there's a third observation that could be added, certainly when it comes to the oil and gas industry: the number and kinds of tools in one's toolkits.  
If it is becoming more and more difficult to find large new fields, returning to old fields with enhanced oil recovery expertise is another option. 

Back-of-envelope (on acreage alone). This looks like a steal of a deal for XOM and/or DNR. MDW will have to wait for analysts to sort out how much XOM might have paid/Bakken acre.

$1.6 billlion / 196,000 acres: $8,200/Bakken acre, but there is already a lot of DNR production in North Dakota, and if the total deal is reflected in the press release, DNR also received an unspecified number of acres in Texas and Wyoming.

The acreage in Texas/Wyoming increases the value of the deal for DNR, but  decreases the cost to XOM on a per-acre valuation. Too complicated for me; and too many unknowns at this time.

The big winner: North Dakota oil and gas industry. XOM buying into the Bakken is not a trivial event.

  • It is interesting that "XOM" is listed as the buyer. XOM's operations in the Williston Basin Bakken are managed by XOM's wholly-owned subsidiary, XTO.
  • XOM's market cap: $420 billion; cash-on-hand: $18 billion; operating cash flow: $55 billion
  • DNR's market cap: $7 billion; cash-on-hand: $28 million; operating cash flow: $1.5 billion
Comment: I was sent a nice note by a reader noting my "XOM-DNR-moat-EOR toolkit" blurb on September 15, 2012. This was my minimally unedited reply:
But you know the interesting thing: this is where I am wrong: XOM did not buy the company -- it did not buy DNR for the EOR technology.  
XOM simply bought acreage in North Dakota Bakken -- I think that might be the story. 
Had XOM bought DNR, the whole company, then there might have been discussion why XOM bought DNR: Bakken acreage or EOR technology. 
In this case, unless I'm missing something, XOM simply bought more acreage, which I think is a bigger and more important story for the North Dakota oil and gas industry. XOM prides itself on finding elephant fields; some say there are no more elephant fields to find. If XOM buys into the Bakken, it suggests to me a) there are no more elephant fields to find; and/or, b) the Bakken is viewed by some as an elephant field that still confounds/surprises outsiders.

Non-Dollar Assets DRN Received in the Deal

Acreage assets DNR received in the deal (a "cut and paste" from data Don sent me):

Webster Field - Gulf Coast Region: 
Webster Field was discovered in 1937 by Humble Oil and oil production from the field peaked in the late 1970s at over 67,000 bopd. Denbury is acquiring a nearly 100% working interest and nearly 80% net after royalty interest in the field which is located approximately eight miles northeast of both Denbury's Hastings CO2 flood and the Green Pipeline which transports CO2 from Denbury's source in Mississippi. Net to Denbury's acquired interest, the field is producing approximately 1,000 boepd, approximately 86% of which is oil. Conventional (non-tertiary) proved reserves are estimated at approximately 3 million barrels of oil equivalent, all of which are proved developed producing. 
Webster Field is similar to Denbury's Hastings and Thompson fields, producing oil from the Frio zone at similar depths, and is also believed to be an ideal candidate for a CO2 flood. Denbury estimates the field's original oil in place ("OOIP") at approximately 900 million barrels and the zones initially targeted for CO2 flood are estimated to have approximately 550 million barrels of OOIP. Based upon an estimated recovery factor of between 13% and 17% of the OOIP for the targeted Frio zones, Denbury estimates that a CO2 flood of Webster Field could potentially recover an estimated 60 million to 75 million barrels of oil, net to its interest. 
Hartzog Draw Field - Rocky Mountain Region:
Hartzog Draw Field, located in the Powder River Basin of northeastern Wyoming, was discovered in 1975 and oil production from the field peaked in 1978 at over 35,000 bopd. In the transaction Denbury is receiving an 83% working interest and 71% net after royalty interest in the oil producing Shannon Sandstone zone and a 67% working interest and 53% net after royalty interest in the natural gas producing Big George Coal zone. The field is located approximately 12 miles from Denbury's Greencore Pipeline which is under construction and anticipated to be completed in late 2012, and which will transport CO2 from Denbury's source near Lost Cabin, Wyoming to its Bell Creek Field in Montana. Net to Denbury's acquired interest, the field is producing approximately 2,600 boepd, approximately 52% of which is oil. 
Conventional (non-tertiary) proved reserves are estimated at approximately 7 million barrels of oil equivalent, all of which are proved developed producing and 58% of which is oil. Denbury estimates the Hartzog Draw Field's OOIP at approximately 370 million barrels and, based upon an estimated recovery factor of between 8% and 11% of this amount, that a CO2 flood of the field could potentially recover an estimated 20 million to 30 million barrels of oil, net to its interest.

How much did XOM pay for each DNR Bakken acre?

The question is this: what did XOM pay for a DNR Bakken acre?

A reader who follows the North Dakota oil industry very, very closely comes up with these figures regarding the XOM-DNR deal.

1. He estimates that DNR should be able to clear $15/bbl from oil recovered in the Texas and Wyoming fields (Webster field and Hertzog field). This takes into account the cost of drilling, completing, EOR, pipelines, transportation, etc.

2. Webster field has 60 - 75 million bbls of recoverable oil.

3. Hertzog field has 20 - 30 million bbls of recoverable oil.

4. For argument's sake, let's say a nice round 100 million bbls of recoverable oil.

5. At $15/bbl, $1.5 billion.

6. $1.5 billion in oil from the EOR fields and $1.6 billion in cash --> $3.1 billion 7. $3 billion / 196,000 acres --> $15,000/acre.

Bottom line: using assumptions in lines 1 - 3, one can come up with a figure of about $15,000/Bakken acre that XOM paid for DNR Bakken acreage. 

So, we will see what the analysts come up with.

In addition, it will be interesting to see what readers come up with.

The $15,000/Bakken acre seems about right. Before the QEP-Helis deal, the record amount paid for a Bakken acre was $12,000 in a state lease auction (by my reckoning, it was a record in the public domain; there may have been other deals that I missed that were more, and I don't know about private deals).

DNR has some great acreage in the Williston Basin, including much in the heart of the Bakken, but also some acreage that probably will not amount to much.


  1. The deal makes sense. Denbury's skill is in EOR. In buying Encore they acquired many good EOR assets. However they also picked up thousands of undeveloped Bakken acres. DNR has had success drilling some of that acreage. Yet DNR is not an exploration company. Their Bakken drilling was contrary to everything else the company did. This sale allows Denbury to return their focus to what they know best, reviving production in old fields.

    Meanwhile Exxon/XTO are exploration companies. While Exxon didn't "find" it, they know an "elephant" when it sees one. They have the experience and finances to handle the necessary drilling required to fully develop it. I doubt Exxon will stop with their current 600,000 acres. Today's deal speaks volumes about Exxon's view of the Bakken as a long term asset. Ultimately I think both companies came out ahead on this one.

    1. That was said very, very well. That's why I could only come up with:

      This is a steal of deal for XOM and/or DNR.

      Initially I was going to give the "win" to XOM, but clearly DNR did very, very well with this, for all the reasons you said. I think this was an incredible deal, and because no "company" was bought, I don't think there are any regulatory approval issues.

      Great comment. Thank you for taking time to write.

  2. Before XOM, XTO often bought "bolt on" assets, near existing ones. Just like this. Now XOM continues to do it. Maybe a couple of some size a year. They add up.

    Anon 1

    1. Early on, there was a close relationship between XTO and KOG, at least geographically, if nothing else, though I assume they "shared" pipelines. That seems like a long, long time ago.

      It stands to reason that there is a lot of pressure on KOG to take XOM's offer (if there is one). There are not many companies that could buy out KOG or OAS, which makes it difficult for KOG to play off XOM against another bidder. Certainly no one else has deep pockets like XOM, except perhaps CVX, one of the three US majors (XOM, COP, CVX) that is not in the Bakken, at least as far as I know.