In a deal valued at $2 billion, ExxonMobil and its subsidiary XTO Energy have closed the second and final phase of a purchase and asset exchange with Denbury Resources that gives the mega-major and its Bakken operator an additional 196,000 net acres in North Dakota’s Williston Basin and makes them the sixth largest operator of Bakken oil production in the state.
According to the latest oil production numbers released by the North Dakota Industrial Commission, preliminary October output from the Bakken petroleum system put XTO Energy at No. 10 with 19,944 barrels of oil per day and Denbury, at No. 16, with 12,156 bpd.
Combining the two, the Exxon subsidiary is operating wells that produce approximately 32,100 bpd of oil, bumping Marathon Oil out of the sixth position with 29,313 bpd, and coming in behind Brigham Oil & Gas, a subsidiary of Statoil, which operates North Dakota Bakken wells that produce an average of about 45,597 bpd.
The top four North Dakota Bakken oil producers in October were Continental Resources at approximately 66,155 bpd; Whiting Oil and Gas at 63,126 bpd; Hess at 60,137 bpd; and EOG Resources at 47,847 bpd.
Again, these numbers represent oil produced from wells operated by these companies; the monthly update from NDIC’s Department of Minerals, Oil & Gas Division, does not identify the percentage of Bakken system oil (including Three Forks) that is owned by the operator, nor does it identify the amount of oil that is produced from wells operated by others in which these companies have an interest.
The ranking and output by company from NDIC’s numbers, which are organized by field, is done monthly by Petroleum News Bakken.
What Exxon and Denbury have provided in written and verbal statements was the barrels of oil equivalent involved in the transaction, which would result in a slightly higher number since natural gas, a relatively small part of Bakken output, is included.
When the deal was announced in September the companies said that when it closed at the end of the year it would increase XTO’s output from approximately 32,000 barrels of oil equivalent per day in second quarter to 47,000 boe per day by including Denbury’s anticipated oil and gas year-end output of 15,000 boe per day — a notable difference from NDIC’s preliminary October number of 32,100 bpd of oil when XTO/Exxon and Denbury output was combined.
The difference was likely due to a significant percentage of non-operated oil in Exxon’s estimate.
While the numbers supplied by Bakken producers might or might not include gas, be broken down by month, or even separate out vertical wells that seldom include Bakken petroleum system production, Continental Resources periodically provides a list of the top oil producers in the U.S. Williston Basin, which put five companies at the top of the list for the third quarter. They were ranked as Continental, No. 1; Hess, No. 2; Whiting, No. 3; EOG, No. 4; and Statoil/Brigham, No. 5. The only difference from the preliminary October NDIC figures as interpreted by Petroleum News Bakken was that Hess and Whiting’s positions were reversed.
Growth by acquisition and drill bit
It’s reasonable to assume from what Exxon has said about XTO’s work on the 400,000 net acres they owned prior to the Denbury addition, that Exxon will not only grow Bakken production from acquisitions but also from XTO drilling.
XTO’s production from the Bakken petroleum system more than doubled between mid-2010, when Exxon entered the Williston Basin with its acquisition of the independent, and mid-2012, an Exxon executive said July 26.
“We have moved into a development phase across our roughly 400,000 net acre leasehold. In the first half of 2012, we turned 40 wells to sales, nearly double the pace of 2011. In the second quarter of 2012, our gross operated Bakken production increased by 60 percent over the prior year quarter. Since our entry into the play, we have more than doubled gross operative production to approximately 32,000 oil equivalent barrels per day,” David Rosenthal, Exxon vice president of investor relations, said in a second quarter earnings call.
From an “Exxon Mobil perspective, I can tell you as we move out of these delineation appraisal and valuation of programs into full development, you’ll continue to see the ramp-up … particularly in places like the Bakken,” Rosenthal said, per a presentation transcription provided by www.SeekingAlpha.com.
In a Nov. 1 third quarter earnings call, Rosenthal talked about Exxon’s commitment to increase its liquids production in places such as the Bakken.
He also said the Denbury acreage was “located close to current XTO development areas generating further efficiencies.” (The majority of Denbury’s leases are in northeast McKenzie and northwest Dunn counties per the adjacent Denbury map.)
In the two years it owned Bakken assets, Denbury focused on reducing costs which critics say hurt production. Also, Denbury, like its E&P peers, drilled wells to hold acreage, which will allow XTO to begin pad drilling — i.e. development — in areas that are very prospective for the middle Bakken member and the first two benches of the Three Forks formation.
According to press releases from Exxon and Denbury some of the acreage that changed hands is in Montana, although that is not reflected in Denbury’s Bakken map and neither company said how much was in Montana.
Doing what they do best
The deal with Exxon and XTO allows Denbury to focus on what its President and CEO Phil Rykhoek thinks it “does best” — flooding older oil fields with CO2 to extract the oil left behind.
“We acquired our Bakken assets in the 2010 Encore acquisition. We are pleased with our development activities in the Bakken. … This trade allows us to … leverage our Bakken position to acquire two of the top oil fields in our core operating regions that are candidates for CO2 flooding, while also adding incremental CO2 resources in the Rocky Mountain region,” Rykhoek said Sept. 20, referring to the Webster field in Texas and Hartzog Draw field in Wyoming and the CO2 reserves in Wyoming that Denbury received in the deal.
While Denbury is focused on tertiary oil recovery operations, Exxon subsidiary XTO has a 25-year track record of investing in and understanding how unconventional resource bases can be profitably commercialized — a perfect fit for the productive tight oil reservoirs in the Bakken petroleum system.
While the purchase and asset exchange between Exxon/XTO and Denbury is a win-win for those companies, the deal should also prove beneficial for North Dakota because of Exxon and XTO’s commitment to increasing liquids production and their record of quickly building needed infrastructure, such as natural gas plants and pipelines.
