Continental Resources Inc. (NYSE: CLR) is looking to boost its position in the oil-rich Bakken with the purchase of Enid, Oklahoma-based Wheatland Oil Inc. assets for $340 million.
On March 27, Continental said its previously announced move from Enid to Oklahoma City was complete. Moving headquarters was part of the company's "aggressive growth strategy" in the Bakken Shale and the Williston Basin.
Privately-held Wheatland's principal assets are an ownership of approximately 5% of the interest acquired by Continental Resources in all leases and wells in a defined portion of the Bakken play pursuant to a participation agreement effective January 1, 2002.
The purchase price of $340 million is anticipated to result in the issuance of between 3.90 million and 4.25 million shares of Continental Resources' common stock, about 2.2% of total shares outstanding at the midpoint, according to Stifel Nicolaus analysts in a March 28 note to investors. The number of shares will be determined based on a 20 day average of the daily sale prices prior to closing of the transaction. The average daily price determination will be subject to a floor of $80.00 per share and a ceiling of $87.18 per share.
Wheatland's assets include 37,900 net acres in the North Dakota and Montana Bakken play and interests in more than 1,000 gross wells, with net proved reserves of 17 MMBoe (million barrels of oil equivalent) as of year-end 2011 and production of 2.5 Mboepd (thousand barrels of oil equivalent per day) in December 2011 and net proved reserves of 17 MMboe, as of YE11.
Stifel Nicolaus calculations put the implied transaction value at roughly $9,200 per acre or $136,000 per flowing barrel. “On a per acre basis, the transaction is slightly above comparable transactions over 10,000 acres, averaging $6,500/acre, but below the $12,000-$17,000/acre high water marks over the past year,” the analysts commented.
Wheatland is owned 75% by the Revocable Inter Vivos Trust of Harold G. Hamm, of which Harold Hamm is sole trustee and beneficiary, and 25% by Jeff Hume. Hamm is chairman of the board, CEO and the majority shareholder of Continental Resources. Hume is president and COO of Continental Resources.
“As Wheatland is owned by CLR’s CEO Harold Hamm and president Jeff Hume, the transaction does raise some corporate governance questions, however with a purchase price in line with recent Bakken transactions and Harold Hamm’s position as CLR’s largest shareholder placing his interests in line with CLR shareholders, we believe that the transaction price appears to be fair, and the acquired assets only serve to enrich CLR’s leading position in the Bakken,” noted the analysts.
Evercore Partners served as independent financial advisor for the committee and Weil, Gotshal & Manges LLP served as independent counsel for the committee.