Tuesday, June 21, 2011

Flashback: The Day XTO Bought Into the Bakken

Link here.  (Note: this is from 2008.)

Flashback: this is a re-look at the announcement in which XTO bought Headington Oil back in 2008. I was interested in some Nesson Anticline information, and ran across this gem. I thought others might enjoy reading about it again.

XTO bought Headington Oil in 2008, and XOM bought XTO in 2010.


Data points:
  • Conference call date announcing the deal, publication date: May 28, 2008
  • Acquisition: XTO buys privately held Headington Oil for $1.85 billion in cash in XTO common share
  • Proved reserves + production + 215,000 net undeveloped unacreage = value of acquisition
  • Deal effective: May 1, 2008
  • Proved reserves (est): 68 million boe
  • Production costs: $3/boe (not a typo --> $3/boe)
  • Production growth (est): 12 - 15% per year going forward
  • 352,000 net acres; 215,000 undeveloped
  • [Note: XOM acquired XTO; XOM has 410,000 net acres in the Bakken]
  • XTO first bought in the Bakken back in 1987; a horizontal well --> a "500,000 boe type well"
  • Acquisition should put XTO into top three producers in the basin
  • Plans to add to this position
Comments:
  • XTO had been looking at the Bakken for past couple of years; Headington put together a ice position
  • Most of acreage in Nesson Anticline
  • Believed there was about 3 billion bbls of oil in place
  • If only 10% recoverable, and get only half, looking at 150 million bbls in this acquisition; believes currently it is about 68 million bbls; thus, XTO sees a "double"
  • Wells are "getting much better"
  • There is a trend of drilling wells into the Sanish in Three Forks (the zone below the Bakken)
  • This is one of the few acquisitions that XTO will get 12 - 15% annual growth with the third of the cash flow (based on current oil prices)
Trends:
  • Back to single laterals (problems with dual and multiple laterals)
  • Single stage fracks (that has changed)
  • Oil is light (43 gravity)
  • Natural gas is rich (1,500 BTUs)
  • EOG has been successful east of the Nesson Anticline
  • XTO may be drilling 320-acre infills in Elm Coulee; belies down spacing will occur over time
  • Expects technology to improve recoveries
  • CLR was looking at CO2, small pilot, CO2 project in Elm Coulee
  • Believes there may be some potential for some additional secondary, tertiary recovery
Question and Answer:
  • We expect a lot of refracking (yes, that's how the publication spelled it)
  • Will drill tighter spacing --> resulting in increased recovery (seen in other shales)
  • CAPEX: $130 - $140 million/year (represents about one-third of the cash flow "on the strip"
  • Hess has been active on the northern part of the anticline
  • CLR: active on the northern and southern end of the anticline
  • BR, MRO: active on the southern end
  • Murex: "another little independent that's been very successful drilling wells on the top of the anticline"

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