This August 26, 2010, Wall Street Journal article provides a nice summary of the chronology of American Oil and Energy (AEZ) and how the deal finally got done for Hess to acquire AEZ. That deal has not yet closed.
The article states that at the time of the deal, AEZ controlled 85,000 net acres in the North Dakota Bakken (85,000 / 640 = 133 sections = just a bit less than four townships. Most of that acreage is in the four townships on either side of State Highway 85, starting thirteen miles west of Ray and continuing into Ray. [Hess, by the way, controlled about 510,000 acres in North Dakota prior to the AEZ deal.]
What this particular article omits is how AEZ sold all of its Niobrara holdings to become a Bakken pure play as recently as March, 2010. This link, by the way, is one of the best for those who enjoy reading how a company survived a very rough patch. [This was one of the better oil and gas blogs. Unfortunately it seems to be inactive right now; the most recent post is dated March 26, 2010.]
Growing up in Williston, and going to college in southeastern South Dakota, I traveled that road countless number of times. Even before college, going to Minot or Bismarck on a regular basis for shopping or other reasons meant taking that road. I also spent many hours on that stretch hitchhiking, though generally leaving Williston, or outside of Ray, trying to catch that one last ride home. North Dakota is generally thought of as being very flat and nearly treeless and this stretch along highway 85 is particularly flat and treeless, although not as flat as the eastern side of the state and one does start to see some rolling hills. After thirty years in the service and having hitchhiked cross-country three times, I feel I've been everywhere, but my thoughts often return to that stretch of road.
When the most recent oil boom started back in 2006 or so in North Dakota, there was no activity in this part of the Bakken but I always thought it would be just a matter of time before one would start seeing rigs and wells. There was always one or two rigs in the area or far off in the distance, but nothing like what we are seeing now.
One has to wonder what AEZ knew about the geology of the four townships AEZ now "owns" or if it was more luck than anything, considering that this is all part of the Bakken. Probably a lot of both. Almost all of AEZ's wells/permits in the Bakken are "wildcats."
When Hess agreed to acquire AEZ, or when AEZ agreed to be bought out by Hess, Hess agreed to commit $30 million in working capital credit to American Oil & Gas to finance AEZ’s intended exploration and production, as well as other costs related to the acquisition.
And AEZ, it appears, has really put that capital to work. It is amazing to look at the NDIC GIS map server and see all the activity -- all AEZ -- along that stretch west of Ray.
Tonight, there are no less then nine (9) confidential wells stretched out along a west/east line about ten miles long with three rigs on site. AEZ has four active rigs drilling in North Dakota as of today.
From the viewpoint of someone who did not invest in AEZ, it is somewhat sad to see that company absorbed by Hess. It's always exciting to see a small company report a great well; such a well can make such a huge difference to a small company. The same wells for a large company don't result in the same emotional "high."
Back-of-the-envelope calculations:
- 1) EURs in the Bakken / well = 300,000 to 700,000 bbls
- 2) WLL putting in as many as six wells /section in the best Bakken
- 3) Assume AEZ puts in four wells/section
- 4) 4 wells x 133 sections x 500,000 bbls/well = 266,000,000 bbls EUR
- 5) At $60/bbl = $16 billion
- 6) Hess bought AEZ for $465.26 million
- 7) $465 million will buy about 80 wells at current prices
- 8) I usually make simple calculation errors