Growth-minded Kodiak Oil & Gas Corp. would see a significant bump in its Williston Basin acreage and production under a purchase and sales agreement reached with Liberty Resources, a small private E&P company, also based in Denver, Colo.
Kodiak would pay Liberty $660 million in cash for the assets — about 5,700 barrels of oil equivalent production per day and 42,000 net acres in North Dakota’s Bakken-rich Williams and McKenzie counties.
“The proposed acquisition’s characteristics adhere to our stated strategy of identifying and acquiring reduced-risk, contiguous leasehold in our immediate core areas,” said Lynn Peterson, Kodiak’s chairman and chief executive officer.
The acquisition, announced June 3, would push Kodiak’s land position by 27 percent to 196,000 acres from 154,000 acres, and would boost production by 23 percent to about 30,000 boepd from 24,300 boepd.
The acquired leasehold includes 35 controlled drilling spacing units, based on 1,280-acre spacing, and is 90 percent held by production. The southern Williams County lands, about 14,000 net acres, are adjacent to Kodiak’s core Polar area. An additional 25,000 net acres — called “Ursid” — are situated in McKenzie County to the west of the company’s Koala and Smokey areas.
Increased inventory
“The increase in our inventory of future drilling locations provides the company with a longer runway of sustainable growth,” Peterson said.
“As we continue our down-spacing work in our Koala and Smokey areas, we would expect the number of locations to increase significantly.”
Peterson said Kodiak also would benefit from increased cash flow from the additional production, as well as proved reserves included in the deal.
“As the acquired lands are largely held by production, we can methodically develop the leasehold on a schedule that best fits our capital expenditures and drilling program,” he said.
Upon closing, expected in July, Kodiak will operate seven drilling rigs, with one of them operating on lands to be acquired from Liberty, the company said.
Kodiak expects to finance the $660 million acquisition through borrowing under its revolving credit facility due April 2018, which carries a borrowing base of $650 million prior to adjustments for the proposed transaction.
Working with bankers
Kodiak said it’s working with bankers to complete a “re-determination” of the company’s financial status. That’s because the combined impact of Kodiak’s recent completions and the proposed transaction, the company added, is expected “to result in a significant increase in Kodiak’s borrowing base.”
Though Kodiak is reassuring investors that “on a per-share basis, the transaction is immediately accretive on all measures,” at least one industry analyst raised concerns about the deal.
“I do have some issues with respect to timing and leverage as Kodiak continues to add debt and difficulties for management to execute through 2013,” Seeking Alpha columnist Michael Filloon wrote. “Without the deal, Kodiak was well positioned to grow without worries of raising equity. My biggest worry is how it plans to pay for this deal.”
Still, Filloon believes that given Liberty’s infrastructure and daily production, Kodiak received “a reasonable deal.”
“I also like the transaction, as Liberty is a very good operator and is on acreage I believe to be outside the top tier, but still very good,” he said.
