Oasis Petroleum has sparked plenty of buzz on Wall Street in
recent weeks after striking a deal that bulked up its acreage in
the oil-rich Bakken Shale formation in a very big way.
The independent oil producer has acquired roughly 161,000
acres in the Williston Basin, which includes the Bakken
formation, through four separate transactions. The acquisition
lifted Oasis' total acreage 49% to 492,000 acres. That makesOasis
) the seventh largest holder of Bakken acreage, according to
Oasis' prospects in the wake of the deal have revved up
investor enthusiasm. There's also talk on the Street that Oasis
could be a takeover play, given its added muscle. Oasis shares
have surged around 36% since it announced the acquisition on
Oasis paid a total of $1.515 billion for the acquisition,
which closed in separate transactions in recent weeks. Oasis
completed the acquisition of 136,000 acres in and around its
position in North Dakota in its West Williston project area for
nearly $1.48 billion on Oct. 1. It closed on a $65 million
purchase of three assets in East Nesson totaling 25,000 acres on
Oasis focuses on acquiring and developing unconventional oil
and natural gas resources primarily in the Montana and North
Dakota regions of the Williston Basin.
Wizard Of Williston
The company's acreage is one of the largest concentrated
leasehold positions that is prospective in the Bakken and Three
Forks formations. And much of its acreage is in areas of
significant drilling activity by other exploration and production
"Their goal is to be the 'best-in-class operator' for the
play," said Raymond James analyst Andrew Coleman.
"That may entail being the best at production optimization or
a fast-follower in terms of capturing/proving up additional
resources in the Bakken/Three Forks."
The new assets brought to Oasis combined recent production of
about 43,000 barrels of oil equivalent per day (Boepd). About 90%
of that is oil, according to the company. The acreage is in the
heart of the Bakken and Three Forks play, adding plenty of scale
to its already big position in the Williston Basin.
The acquisition added two operating rigs to the 11 Oasis was
already operating. Oasis expects to accelerate development across
its overall combined position next year, increasing to 15 to 16
operated rigs by the end of 2014, said CEO Thomas Nusz in a
statement announcing the acquisition.
"The acquisition boosted their drilling inventory by roughly
25% to 17 years," said Iberia Capital Partners analyst Eli
Kantor. "By accelerating rig activity, the company will be able
to increase the NPV (net present value) of the new assets."
With the rig count set to nearly double in the next year to
16, he says, production volumes should double to 60,000 Boepd by
An M&A Prospect?
Coleman raises the possibility that Oasis could be a takeover
"I see it as a takeover play," he said. "Every company is a
takeover play that has high-quality acreage in the basin and a
good operational track record. It's hard to imagine any of the
big operators in the basin haven't been approached at some point.
The question is what's going to ultimately induce Oasis
management to accept a takeover bid?"
From a takeout standpoint, he says, a 20% premium in a sale is
a "ballpark" starting point.
"But given how well they've been able to execute, it's hard to
say the ultimate price," he adds.
Kantor says Oasis "fits the mold" in terms of having the right
asset base many of its larger peers would like to acquire.
"One of the key characteristics in all M&A activity we've
seen in the past is having a management team that is proactively
looking for a buyer," he said. "It's hard to say what's going on
in the boardroom. But I get the sense because of how big their
opportunity is and how big their drilling inventory is, they're
not really in a rush to sell the company."
Earnings Are Flowing
Meanwhile, Oasis has been enjoying a huge growth spurt on its
own. Profits have risen by at least 63% in each of the past four
quarters. In the most recent second quarter, earnings per share
rose 97% to 65 cents. Revenue climbed 71% to $254.6 million.
Analysts polled by Thomson Reuters see full-year EPS surging
99% to $2.99. They see a 29% rise in 2014 and a 22% increase in
The company increased daily production 48% from a year earlier
to 30,171 Boepd.
Through pad drilling (when multiple wells are drilled from the
same pad) and other operational efficiencies, it drove down
operated well costs completed in the quarter to $8.2 million,
excluding the impact of Oasis Well Services. It "picked up two
additional drilling rigs for a total of 11 rigs operating to
capitalize on the efficiencies of pad development and favorable
weather conditions," Nusz said in statement.
The company's average price per barrel of oil, without
derivatives, during the quarter was $91.15 vs. $82.36 a year
As a part of its growth strategy, on the engineering and
development side, Oasis -- and most other Williston operators --
are all in the process of testing various "spacing densities,"
"Prior to this year, the generally accepted spacing assumption
by the investment community was 320-acre spacing for both the
Middle Bakken (MB) and Three Forks (TFS) reservoirs," he said.
"This equates to four MB and four TFS wells per spacing unit.
Companies are now in the process of testing whether or not there
is potential to drilling more than four wells per unit per
Oasis, he adds, has a 22-well pilot program in place to test
densities as tight as 180 acres per well or seven wells per
section per reservoir.
Meanwhile, the Bakken is gushing with growth prospects. In
April, the U.S. Geological Survey released an updated oil and gas
resource assessment for the Bakken formation and a new assessment
for the Three Forks formation in North Dakota, South Dakota and
Montana. The assessments found that the formations contain an
estimated mean of 7.4 billion barrels of undiscovered,
technically recoverable oil. The updated assessment for the
Bakken represents a twofold increase over what had previously
been thought, said USGS in a press release.
Other top landholders in the Bakken includeContinental
) andWhiting Petroleum (