The Oklahoma City-based petroleum liquids producer recently completed the acquisition of 119,218 net acres in the Bakken field, primarily in Williams and Divide counties, North Dakota, from Samson Resources Company for $649.3 million in cash. The acquisition includes production of approximately 6,500 barrels of oil equivalent per day (boepd), of which 82% is crude oil.
In addition, Continental completed the sale of properties and approximately 1,100 boepd of production in its Eastern Region for $125 million in cash, subject to post-close adjustments.
Combined, the transactions are expected to reduce 2013 production operating costs per barrel of oil equivalent (boe), compared with previous guidance, and increase production growth to a range of 35-to-40 percent. The Bakken transaction increases Continental's leasehold to 1.1 million net acres, further strengthening its position as largest leaseholder in the Bakken and producer in what the company believes will prove to be the largest oil field in the nation.
"We bought the Bakken acreage to develop it and expand it," said Harold Hamm, chairman and CEO. "This is consistent with our continued concentration of investment in high rate-of-return projects. Together the transactions add 20 net Bakken wells to our 2013 drilling program, in addition to other well completion activities, and eliminate 11 Eastern Region wells."
The acquisition includes 45,167 net acres (77% held by production) located along the Nesson Anticline in a jointly developed area of mutual interest (AMI) between Continental, as operator, and Samson. As a result of the acquisition, Continental's average working interest in the AMI acreage increased to 71%, compared with the previous working interest of 46%.
The balance of the acquired net acreage (74,051 net acres) is primarily located immediately west of the AMI acreage and is 40% held by production. Subsequent to the acquisition, Continental has an average working interest of 34% in the non-AMI area, but it will operate a majority of this acreage, due to the distribution of its ownership.
The company noted that the acquisition has two strategic elements.
In the AMI acreage, Continental is focused on accelerated development:
- The company is increasing its ownership, adding another 25% working interest, in existing and future operated wells;
- The company is leveraging its scale and efficiency of operations to drive costs down, especially as it transitions to more ECO-Pad® drilling in the northern part of the Bakken field.
In the non-AMI acreage, Continental's strategic focus is expansion through exploration and new technology. The company is already in the process of expanding and de-risking the non-AMI area, where it previously had ownership:
- Recent results include the Selmer 1-35H (75% WI) and Sverdrup 1-36H (48% WI), which had initial 24-hour production test rates of 912 boepd and 1,313 Boepd, respectively.
- Two Continental-operated rigs are currently drilling in the non-AMI area, continuing the company's expansion/de-risking program.
Finally, Continental believes the entire acquisition area of 119,218 net acres has potential for deeper Three Forks development, based on three strategically placed cores taken in 2011.
"This is a classic bolt-on acquisition, from a number of perspectives – strategic, tactical and financial," said Rick Bott, President and COO. "It fits nicely into our deeper bench Three Forks de-risking plan, and we expect it to add immediate value. Within the next 30 days we plan to spud the first of 10 wells in the northern region, targeting the deeper benches to confirm commercial production and appraise our down-spacing concept, so we can quickly leverage operational efficiencies with pad drilling."
Revised 2013 Guidance
The net effect of the two transactions is expected to increase Continental's production growth in 2013, while reducing production expense per boe and general and administrative expense per Boe. Regarding the acquisition, the company expects cash flow from increased production will largely offset additional 2013 capital expenditures, related to increased ownership and new drilling activity. (The remainder of the company's 2013 guidance, as disclosed in its November 7, 2012 third quarter earnings press release, remains unchanged.)
"The net effect of the two transactions should enhance our cash margins," said John Hart, Senior Vice president and CFO. "We're funding the acquisition at attractive rates from our existing revolver and continue to maintain strong liquidity for funding operations."
Continental recently increased the borrowing base for its revolving credit facility to $3.25 billion, from the previous base amount of $2.75 billion. The company currently has commitments of $1.5 billion under the revolver.