Steve Zachritz On The Oasis Big Buy

Updates

September 11, 2013: a reader sent in a comment but I wasn't sure if he wanted it posted, so I did not post it. He noted that the seller was Zenergy. I forgot to add that "little" detail earlier; a lot was happening that day. Sorry. That reader also noted this: "It is interesting that the date of this deal is listed as April 2013. This has to indicate that Oasis is very involved in current plans for these new properties. At the September ND O&G hearings, "Zenergy" has an application for up to 16 wells on a unit in 153-97 in northern McKenzie County. Oasis also directly referred to two newly acquired Three Forks 2nd and 3rd bench wells, the Patsy and the Omlid. Both of these were drilled by Zenergy." Very interesting. Thank you.

There are three "Patsy" wells in North Dakota, but only was is a Zenergy well:

• 20689, 1,202, Zenergy, Patsy 5-8HTF, Siverston, t11/12; cum 67K 7/13;

The Omlid well must be:

• 20761, 1,202, Zenergy, Omlid 18-19HTF, Elidah, t1/13; cum 46K 7/13;    

September 11, 2013: do you remember that poll asking how big the Zenergy deal would be if there was to be a Zenergy deal? Here was that original post/poll. I believe Zenergy's portion of the deal was 135,000 net acres for around a billion dollars. If folks remember, Zenergy said they were looking for a billion-dollar deal.
 

Original Post

At SeekingAlpha:

Oasis picked up 161,000 net acres in four separate transactions for $1.515 billion. The acreage blocks are largely contiguous with current Oasis positions both East and West of the Nesson Anticline as shown in the map below. Associated production is a combined 9,300 BOEpd (almost all Bakken and Three Forks production) and management noted corporate pro forma production was a "recent" 43,000 BOEpd (which you'll note is a quite a step up from simply adding the acquired volumes onto the 2Q13 average production of 30,000 BOEpd … as expected volumes have been ramping-up as the completed well count soared during the third quarter.)

On the surface this is a $9,400 per acre pickup but after adjusting value for production (using $80,000 per flowing BOE) that metric falls to $4,800 per acre which is not pricey for what will be largely operated positions. Management reiterated it's recent commentary about being very close to free-cash-flow-land and noted that the acquired assets are near that status as well. A handy map (new acreage in light blue.

Excellent, excellent analysis. A huge thanks to Steve Zachritz.

Great news for current investors in Oasis:

Look for Oasis to use cash and revolver firepower to fund the deal in the near term and for them to tap the senior debt markets to term out a portion of the revolver in due course. The revolver was just redetermined higher (from $1.25 B to $1.5 B) and that was done without consideration for the newly acquired reserves. We're not looking for equity issuance to fund any part of this deal. It's not needed and with free cash flow right around the corner we look for debt to EBITDA to peak now and retreat modestly in late 2014. Again, the upward redetermination of their borrowing base was the entirely the result of their organic growth program in 2013 and we'd expect them to term out only a portion of the new debt in a senior debt offering.

That's pretty impressive to be able to do this without issuing more shares. We will see.

The specifics of the deal are located here, including a link to the sale and purchase agreement between Oasis, Zenergy, et al.