Deep Dive Into NOG's Most Recent Bakken Acquisition -- June 8, 2022

Disclaimer and Comments 

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here.

All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them.

I am overly exuberant about the Bakken. I often misread things; I often make simple arithmetic errors. I intersperse facts with opinions and it's difficult to identify what's "real" and what isn't.

I do this simply for my benefit to help me put this in perspective.

For newbies: I doubt any serious analyst of the Bakken accepts some of my more outrageous data points.

Updates

August 15, 2022:

• closed August 15, 2022, closing announcement here;
• came in at less than originally announced
• original: $170 million
• at closing: $158.0 million in cash which included $17.0 million deposit paid at signing, June, 2022
• original announcement here;

Deep Dive

NOG's bolt-on acquisition announced yesterday. See the details of the acquisition down below "the fold."

3,500 net acres.

First observation:

• drilling units in the Bakken
• the standard drilling unit in the Bakken: 1280 acres.
• overlapping units: 2560 acres
• wells per standard drilling unit:
• clearly, 12
• probably 24
• possibly as many as 48
• wells per standard drilling unit to capture "orphaned" oil along section lines: 2
• number of standard 1280-acre units in 3,500 net acres: three
• number of standard overlapping-2560-acre units in 3,500 net acres: maybe 2
• number of wells: (3 * 12) + 2 = 38 wells, rounding to forty wells
• it's been said that operators won't drill a well in the Bakken if it doesn't have a EUR of one million bbls oil
• 40 wells
• 40 * one million bbls / well = 40 million bbls
• at $100 / bbl = $4 billion
• NOG's current market cap: $2.84 billion
• CLR has opined as many as 48 wells in a Tier 1 two-section drilling unit
  

Second observation:
rule of thumb: prior to this deal, Bakken mineral acreage was selling for $30,000 per boepd
NOG paid $65,000+ per flowing boepd

Third observation:

• in the Bakken, piecemeal, small mineral owners are getting offers of $2,000 to $5,000 / mineral acre
• in the Bakken, announced deals recently: $5,000 / mineral acre
• in the Permian, upwards of $60,000 / mineral acre
• NOG entered the Permian in September 10, 2022, for $30,000 / net acre
  
• the most recent NOG acquisition: $50,000 / mineral acre

Fourth observation: 

• at $120 WTI: the "entire" Bakken becomes Tier 1 acreage, at least in the minds of some

Fifth observation:

• NOG valued at $2.8 billion (market cap) prior to the deal announced yesterday
  
• prior to the deal: approximately 175,000 net acres
• market cap / 175,000 net acres = $16,000 / net acre
• yesterday, most recent acquisition, new acres valued at $50,000  net acre 
• 3,500 / 175,000 = 2.0%
• $170 million / $2.84 billion = 6.0%
  

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Original Post

Link here for press release.

NOG is tracked here.

Bolt-on acquisition:

• $170 million "initial" purchase price from private party
• seller may earn an additional $5 million in contingent payments in 2023 if WTI exceeds $92.50 on December 30, 2022
• average production over next twelve months: 2,500 boepd, 2-stream; ~ 83% oil)
• 17.5 net undeveloped locations
• includes 2.6 net wells in process
• 3,500 net acres
• acquired assets in Dunn, McKenzie, and Williams counties
• assets operated primarily by MRO, CLR, and COP
• back-of-the-envelope:
• flowing price:
• $170  million / 2,500 boepd = 65,000 per flowing boepd
• $170 million / 3,500 net acres = $50,000 / acre
• unhedged cash flow, forward one year; around $75 million
• strong free cash flow with about $25 million annual sustaining capital expenditures to maintain produciton
• $6 million + to drill / complete a Bakken well; with inflation, maybe $8 million