Whiting To Acquire KOG For $3.8 Billion; $162,000 / BOEPD; $19,000/Acre

Updates

December 4, 2014: Whiting shareholders overwhelmingly approve acquisition of KOG; deal slated to close next week. This is a $6 billion deal ($3.8 billion in stock; assuming $2.2 billion in debt); will make Whiting the largest producer in the Great Plains.

August 5, 2014: deal moves forward; an update. 

Original Post

Whiting to acquire KOG for $3.8 billion. Folks may want to save PDF presentations at the KOG website -- they will be gone by the end of the year. June, 2014, corporate presentation.

KOG, COB Friday:

• Market cap: $3.8 billion. How coincidental.
• Debt: $2.25 billion
• Cash: $16 million
• Enterprise value: $6.02 billion

WLL, COB Friday:

• Market cap: $9.34 billion. 
• Debt: $2.65 billion
• Cash: $406 million
• Enterprise value: $11.59 billion

Valuation (boepd) from Don:

• 1Q14: 34,025 boepd
• 2014e: 39,000 to 42,000 boepd
• using,  37,000 boepd and a $6 billion enterprise value, this works out to $162,000 / boepd

KOG: about 200,000 acres

• $3.8 billion / 200,000 acres = $19,000 / acre
  

KOG is a darling of Wall Street. It will be interesting to see how this plays out. This should be the top story over at Jim Cramer tomorrow. 

Bloomberg is reporting:

Kodiak stockholders will receive 0.177 of share in Whiting for each share they own, which is the equivalent of $13.90 based on the acquirer’s July 11 price, the Denver-based companies said today in a statement. Including $2.2 billion in debt, the total transaction is valued at about $6 billion.

When the deal is complete, Whiting shareholders will own about 71 percent of the combined company, which will be led by Whiting’s senior managers. Together, the two companies produced the equivalent of more than 107,000 barrels of daily oil output from the Bakken formation in the first quarter. That exceeded the region’s current top producer, billionaire Harold Hamm’s Continental Resources Inc., by almost 10 percent.

Yahoo!Finance / AP is reporting:

Whiting Petroleum Corp. said Sunday it is buying Kodiak Oil & Gas Corp. for $6 billion in stock, worth $13.90 per share, in a deal that will make it the largest producer in the booming Bakken region of North Dakota and Montana.

Largest producer, not necessarily largest leaseholder.

Seeking Alpha:

Whiting to acquire Kodiak

• Whiting Petroleum will acquire Kodiak Oil & Gas creating North Dakota's largest Bakken shale producer. During the first quarter, total combined output of the two companies was more than 107k barrels of oil per day from the Bakken/Three Forks formations
• The deal is valued at $6B, including $3.8B in stock and $2.2B in net debt, and is expected to close in Q4. Kodiak shareholders will receive 0.177 share of Whiting stock for each share of Kodiak common stock they own
• "It's going to allow our production at the combined company to grow faster than Whiting standalone did before," says Whiting CEO James Volker. "The combined company will have greater access to capital which will accelerate development of oil production."

Bret Jensen, July 14, 2014, over at Seeking Alpha: who's next in the Bakken to be acquired? Emerald Oil and Oasis. Comment: I had sort of forgotten Oasis as a potential take-over target; I think of Oasis as a a company yet to grow. I'm probably wrong; just a bias. But Emerald -- that has been a big surprise. It has come out of nowhere -- not really -- it's just easy to forget all that has happened in the Bakken in the last five years. For the history of Emerald, go to "Snapshot."

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or anything you think you might have read here. 

Posted at Seeking Alpha, July 14, 2014:

Focus is on Bakken buyout candidates after Kodiak's $6B takeout

• Whiting Petroleum's (WLL +7.4%) $6B buyout of Kodiak Oil & Gas (KOG +5.1%) is renewing investor attention on independent energy firms with operations in the Bakken Shale, especially those significantly owned by hedge funds; Paulson & Co. is the single biggest owner of KOG stock, with just under 10% of shares outstanding as of the last filing date.
• While many of the largest Bakken producers are huge companies or parts of huge companies - Hess, EOG, Statoil, Marathon Oil, XTO Energy - a few small and mid-cap independent players show hedge fund interest, CNBC's Brian Sullivan writes.
• The single biggest holder of Oasis Petroleum  also is John Paulson's hedge fund, which owns 9.9M shares (~9.8% of shares outstanding), Jana Partners owns 16M-plus shares in QEP Resources, and WPX Energy has substantial hedge fund.

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Posted at Seeking Alpha, July 14, 2014, by Richard Zeits: price received disappoints.

The acquisition of Kodiak Oil & Gas  by Whiting Petroleum will probably come as a disappointment to many Kodiak stockholders. One might argue that the announced transaction, which was struck at an implied ~2.3% discount to Kodiak's last closing price, is a value-neutral event because it represents a stock-for-stock exchange with Whiting which has traded at multiples of key financial and valuation metrics comparable to Kodiak's. However, it is obvious that Kodiak's Board has not been able to deliver a cash transaction at a meaningful premium, the big prize that investors most likely have hoped for.
The truth of the matter, Kodiak has been rumored for quite some time to be receptive to overtures from potential acquirers. The announcement indicates that no stronger bids materialized and the merger of equals with Whiting was the best transaction Kodiak could secure.

Note: I said the same thing in an earlier post: KOG probably figured this was going to be as good as it got.

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Posted at Seeking Alpha, July 14, 2014:

Whiting gets an amazing deal for Kodiak - too good to be true?

• Shares of Whiting Petroleum surge to a new all-time high as analysts agree that WLL pulled off a great deal for Kodiak Oil & Gas, paying ~2% less than KOG's Friday close and just 5% above the 60-day average (earlier).
• WLL’s story grows even more compelling with an accretive deal that gives it a premier position in both the Bakken and Niobrara that should boost growth dramatically, likely with improved metrics across the board that already are at compelling levels vs. peers, Wunderlich says in reiterating its Buy rating.
• In raising its price target to $102, Brean Capital says it would not be surprised to see a competing bid for KOG, but assuming the deal closes as currently constituted, its opinion of WLL is only enhanced as the most attractive opportunity in its coverage universe (Briefing.com).
• Meanwhile, KOG’s decision to sell now is “curious,” according to Sterne Agee's Tim Rezvan, with a Q2 earnings miss possibly explaining the move; KOG has not set a date to release Q2 results.

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Posted at Seeking Alpha, July 14, 2014. Whiting-KOG deal could be good deal for both companies -- David White:

• The WLL and KOG combination will have the greatest oil production level in the Bakken, although CLR will be a close second.
• KOG shareholders will get 0.177 shares of WLL for each share of KOG. KOG shareholders will end up owning 29% of the combined company.
• When you compare a number of relevant KOG+WLL statistics with competitor CLR's statistics, you realize the combination company should be a great one. 

Personally I think it's a huge positive for both companies. Some could argue that WLL paid a premium price for KOG, especially if KOG misses earnings in the 2Q14 as it is being rumored. 

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Posted at Seeking Alpha, July 15, 2014.

Shared shareholders should smooth approval of Kodiak-Whiting merger • 12:46 PM

• Whiting Petroleum and Kodiak Oil & Gas don't just share prolific Williston Basin oil fields; they also share many of the same investors - with five of WLL's top 10 shareholders also among KOG's top 10 - which should help them win shareholder approval for their proposed merger despite WLL’s $3.8B bid valuing KOG at a discount to Friday’s closing stock price, SunTrust analysts say.
• Wells Fargo analysts add that KOG CEO Lynn Peterson has much of his net worth in wrapped up in the company, and that Peterson and his team have tried unsuccessfully for years to sell the company.
• KOG is upgraded to Buy with a $17.70 price target at Wunderlich, believing the stock should trade in tandem with WLL, on which the firm has a $100 price target (0.177 * 100 = $17.70 vs the current $14).

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Posted at Seeking Alpha, July 16, 2014: Whiting deal shows how the Bakken is changing.

• Whiting's acquisition of Kodiak isn't about adding value through exploration, it's about adding value through operating scale and more efficient operation.
• Kodiak's downspacing tests have been positive on balance (albeit not perfect), but Whiting should be able to drive better well completion and operating costs.
• If everything works out, Whiting may be acquiring Kodiak for $6/share less than its underlying NAV, but the Kodiak-specific downside seems rather low.

BR, Whiting Each Report A "High-IP" Well -- July 13, 2014; Ten Of Twenty-One Wells Go To DRL Status

Well coming off the confidential list Monday, July 14, 2014:

• 26094, 214, North Plains Energy, Solberg 160-101-10-3-13B-1H, Sioux Trail, t3/14; cum 15K 5/14;
• 26126, drl, XTO, Rita 24X-34E, Tobacco Garden, no production,
• 26343, 34, Corinthian, Corinthian Gravseth 8-36 1H, Northeast Landa, producing, a nice Spearfish/Madison well, t3/14; cum 8K 5/14;
• 26589, 210, Oasis, Dale Van Berkom 5992 14-30 2T, Cottonwood, t4/14; cum 5K 5/14;
• 26900, 566, Oasis, Overal 5892 11-30T, Cottonwood, t1/14; cum 26K 5/14;
• 26985, drl, Hess, EN-Dobrovolny-155-93-2128H-5, Alger, no production data,
• 27075, 481, Slawson, E rennerfeldt 1-13H, Stockyard Creek, t4/14; cum 11K 5/14;
• 27098, drl, Hess, EN-Johnson-155-94-2017H-5, Manitou, no production data,

Well coming off the confidential list Sunday, July 13, 2014:

• 25493, drl, QEP, Johnson 4-9-3-10LL, Grail, no production data,
• 26087, 329, Baytex, Nelson 18-19-161-98H-1BP, Plumer, t3/14; cum 23K 5/14;
• 26466, 2,156, Whiting, Taylor 34-7-2H, Sioux, t1/14; cm 46K 5/14;
• 26518, 1,590, WPX, Independence 2-35HZ, Mandaree, t5/14; cum 8K 5/14;
• 27066, drl, Hess, EN-KMJ Uran-154-93-2734H-6, Robinson Lake, no production data,
• 27080, drl, Arsenal, Allison Ann 10-3H, Stanley, no production data,
• 27128, 98, American Eagle, Haugen 15-12-163-103, Flat Lake East, t4/14; cum 4K 5/14;
• 27299, 1,216, CLR, Jenner 1-21H1, Catwalk, a huge well, 11K in first month; t5/14; cum 11K 5/14;

Well coming off the confidential list Saturday, July 12, 2014:

• 26062, drl, MRO, Two Crow USA 21-15TFH, Moccasin Creek, no production data,
• 26125, drl, XTO, Loomer 24X-34E, Tobacco Garden, no production data,
• 26712, drl, Hess, BW-Arnegard State-151-100-3625H-2, Sandrocks, no production data,
• 26945, 1,978, XTO, Lucy 14X-32A, Siverston, t5/14; cum 5K 5/14;
• 27088, drl, Hess, GN-Wendell-158-96-1819H-1, South Meadow, no production data,
• 27269, 2,324, BR, CCU Red River 24-9MBH, Corral Creek, t6/14; cum --

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Catching Up

Because of minimal blogging during the cross-country trip, from Dallas to Los Angeles, via the Grand Canyon, with our granddaughters, I fell behind. I am gradually catching up.

RBN Energy had a great blog on changing patterns of Gulf Coast crude oil flows. This is another must-read article for those interested in the shale revolution in general, and the Bakken in particular. The article begins:

RBN has covered the flood of domestic crude oil showing up at Gulf Coast refineries in a number of blog posts this year. Market attention has turned to the Gulf Coast region – home to half the nation’s refining capacity as new crude delivery infrastructure in the shape of pipelines as well as rail and barge deliveries have overcome a crude logjam in the Midwest.

Along the way, the price relationship between three crude benchmarks has altered significantly at the Gulf Coast, namely the US domestic light sweet crude benchmark price for West Texas Intermediate (WTI) set at Cushing, OK, the international light crude benchmark, Brent and the Gulf Coast light sweet benchmark Light Louisiana Sweet (LLS).

With the Gulf Coast now awash in domestic light crude production, LLS and WTI prices are set by domestic supply pressures while lower imports of light crude at the Gulf Coast have reduced the influence of Brent since the fall of 2013.

Total imports of crude oil to the Gulf Coast region defined as “PADD3” by the Energy Information Administration (EIA) have declined overall during the past year although the weekly data has been quite volatile. We expect Gulf Coast refiners to increase their consumption of domestic crude versus imports but the equation is complicated by a quality mismatch between lighter crude production from shale and refineries designed to process heavier crude. As refiners adapt to new supply and quality patterns as well as new delivery infrastructure, changes in import patterns can be hard to discern or interpret. In this blog post we discuss changes to indicators based on crude imports traditionally used by traders to anticipate price movements.

For newbies trying to understand why gasoline is as high priced as it is in the states, at least part of the problem has to do with the mismatch between the light oil being produced in the United States right now, the killing of the Keystone XL pipeline which would have delivered a tsunami of heavy oil to the Gulf Coast refiners, and the refineries that were converted to process heavy oil prior to 2008. 

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This Is Unsettling
Warning: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here.

The (London) Telegraph is reporting:

Credit spreads have fallen to to wafer-thin levels. Companies are borrowing heavily to buy back their own shares. The BIS said 40pc of syndicated loans are to sub-investment grade borrowers, a higher ratio than in 2007, with ever fewer protection covenants for creditors.

The disturbing twist in this cycle is that China, Brazil, Turkey and other emerging economies have succumbed to private credit booms of their own, partly as a spill-over from quantitative easing in the West.

Their debt ratios have risen 20 percentage points as well, to 175pc. Average borrowing rates for five-years is 1pc in real terms. This is extemely low, and could reverse suddenly. “We are watching this closely. If we were concerned by excessive leverage in 2007, we cannot be more relaxed today,” he said.

“It may be the case that the debt is better distributed because some highly-indebted countries have deleveraged, like the private sector in the US or Spain, and banks are better capitalized. But there is also now more sensitivity to interest rate movements." 

Wow. Isn't that the truth?

Meanwhile, CNBC reports the Fed is likely to end quantitative easing in October, 2014, which might be earlier than some expected. 

 

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Wi-Fi

A shout-out to ATT U-Verse which we have where we stay when we are in California. It is simply incredible and has extremely competitive pricing compared to Time Warner in the Dallas-Ft Worth area. I love it (ATT U-Verse). Once signed on by a particular mobile device or a laptop, one does not have to sign on ever again. The system automatically connects, automatically works, and I never, never get bumped off the wi-fi connection due to "looking for network."

On the other hand, in Texas where we live and where we have Time Warner Cable, we have to sign on every time we use a mobile device or a laptop, and if the device goes to "sleep" due to inactivity, when we "wake it up," we need to re-connect, using the password again. Approximately every 15 minutes, regardless, I need to turn off wi-fi, turn it back on, and re-connect; the computers regularly and consistently fall off the net, "looking for networks."

I do not want to contact Time Warner Cable to "fix" the problem because it sort of works the way it is right now in Texas. My concern is that it will get completely messed up.  We had originally planned to use ATT in Dallas-Ft Worth area but were not sure U-Verse was available in our apartment complex. I will re-look at that when we get back to Texas.

But for now: I feel I am in wi-fi paradise. ATT U-Verse is incredible (which we also use for cable television).

And now: out to the beach.

The Permian Is Out-Producing Federal Offshore Gulf Of Mexico; The "Bakken" Revolution In The Permian; Utilities Buying Interests In Natural Gas Acreage; For The Archives: Lake Superior "Icebergs" In July, 2014

From Seeking Alpha:

Permian Basin beats anew as heart of Texas oil production

• A new EIA report underscores the remarkable comeback of the Permian Basin, which boomed in an earlier era, faded and now leads the U.S. in oil production. [My hunch is the "Peak Oil" crowd used the Permian as their poster child some years ago.]
• Daily crude oil production in the Permian, which lies under much of west Texas and part of eastern New Mexico, has increased from a low of 850K barrels in 2007 to 1.35M barrels last year.
• The increased production is concentrated in six low-permeability formations: the Spraberry, Wolfcamp, Bone Spring, Glorieta, Yeso, and Delaware.

Rigzone is reporting:

Six formations within the Permian Basin region in Texas and New Mexico have provided the bulk of the basin’s 60 percent increase in oil output since 2007, positioning the Permian as the largest crude oil producing region in the United States, the U.S. Energy Information Administration (EIA) reported Wednesday (July 9, 2014).

Permian Basin oil production has grown from a low point of 850,000 barrels per day (bpd) in 2007 to 1,350,000 bpd last year, EIA reported. The growth has largely resulted in oil production in Permian Basin counties exceeding production from the federal offshore Gulf of Mexico since March 2013.

Last year, the Permian Basin accounted for 18 percent of total U.S. crude production. The recent growth in Permian crude production has come primarily from six low-permeability formations, including the Spraberry, Wolfcamp, Bone Spring, Glorieta, Yeso, and Delaware formations.

The Spraberry, Wolfcamp and Bone Spring formations have played a significant role in boosting Permian production, comprising almost three-quarters of the increase in Permian crude production.

Production from these formations have driven the increase in horizontal oil drilling in the Permian in recent months, EIA reported earlier this year. Collective production from these formations has grown from approximately 140,000 bpd in 2007 to an estimated 600,000 bpd in 2013; as a result, their share of total Permian production has grown from 16 percent to 44 percent.

According to the EIA, initial well production rates from Spraberry, Wolfcamp and Bone Spring wells are comparable to those in the Eagle Ford and Bakken shale formations. 

This is really quite a story on so many levels. I remember someone telling me some time ago that the Permian was a dying oil "field." Most remarkable is how fast the industry took lessons learned from the Bakken and the Eagle Ford and used them in the Permian.

But this is the story line that jumped out at me: oil production in Permian Basin counties exceeding production from the federal offshore Gulf of Mexico since March 2013. Earlier this week, President Obama noted that federal lands really were contributing less to the US energy security than non-federal land. Here again, President Obama has noted it. The EIA is his agency. Quick: name the US Secretary of Energy.

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Utilities Buying Up Natural Gas Acreage

RBN Energy looks at utilities buying up natural gas acreage.

If a company expects to consume large volumes of natural gas for decades to come, why not remove at least some price risk by acquiring a working interest in gas production assets? Florida Power & Light (FPL), which burns more gas than any other US electric utility, recently asked regulators to permit the company to co-develop up to 38 gas production wells in the Woodford Shale with PetroQuest Energy, and to establish rules to let it make other, similar investments in the future.

FPL is not first in its plan to acquire gas interests as a physical hedge; leading fertilizer and steel companies already have taken that plunge, with positive results. Today we examine what could become a trend: Major gas consumers buying a piece of the gas production action.

US shale gas production is at record levels and rising and the forward gas curve (for Henry Hub futures contracts on the CME NYMEX) suggests gas prices will remain moderate and stable for the foreseeable future. Still, there is always a risk of gas-price volatility in the short term (this past winter’s polar vortex-related price spikes being a recent example), and over the long term increasing demand for gas (new petrochemical capacity, more LNG exports etc.) may well put upward pressure on gas prices. 

An understandable desire to mitigate such gas price volatility risk has led FPL—one of the nation’s largest electric utilities and gas consumers—to pursue a plan to invest in natural gas production assets to supply a portion of its expected gas needs. This plan is a physical hedge where the utility (FPL) takes ownership in producing assets to provide a source of physical supply in order to protect itself from increases in the market price for gas relative to the cost of production.  FPL is paying a portion of the the cost of its gas “up front,” effectively fixing the price of gas for the duration of production from those producing assets.  

Under the plan, which must be approved by the Florida Public Service Commission (FPSC), FPL would pay a share of development and operating costs for PetroQuest Energy gas production wells in a dry gas portion of the Woodford Shale play in Pittsburg County in southeastern Oklahoma, and receive in return a portion of PetroQuest’s interest production from those wells for shipment east.

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Global Warming 

On July 6, 2014, it was noted that the Great Lakes (US) were rising and scientists were unable to explain why.

We may have an answer: icebergs.

As water freezes, it expands. All things being equal, icebergs in Lake Superior would cause the lake to rise.

Over on Twitter, a photograph of an "iceberg" on Lake Superior. Memo to self: this photo was taken in July, 2014.

I didn't read the story, but I think Algore just made another speech on the crisis facing us which he calls "Global Warming -- An Inconvenient Truth" and for which he won a Nobel Peace Prize. More correctly, he shared in winning the prize with a panel. It is my understanding (and that of wiki's) that a prize may not be shared among more than three people. This is more than idle chatter because the "rule" that the prize may not be shared among more than three people resulted in at least three women being snubbed (their word, not mine) by not being award a Nobel Prize.

Quick: name the members on the panel that shared the prize with Algore. LOL.

[Note: of course the "stuff" about "icebergs" raising the water level in Lake Superior was "tongue-in-cheek," humor, and not to be taken seriously. However, I feel I need to point that out because at least one reader apparently did take that seriously, telling me that most of the iceberg is "above the water line" and thus would not contribute to the water level rising. I can't make this stuff up. (Memo to self: include a YouTube clip from the movie, The Titanic.) The "stuff" about women being snubbed by the Nobel Committee was noted by The Scientific American, so that must be true.]

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A Note to the Granddaughters

An important concept to consider: cognitive dissonance.