Magnum Hunter Buys In Williston
Purchase of 20,000 net acres with 310,000 BOE proven reserves in Williston Basin in Divide Cnty, North Dakota
A subsidiary of Magnum Hunter Resources Corp. (NYSE: MHR) plans to buy 20,000 net acres in the Williston Basin in Divide County, North Dakota from Samson Resources Co. for $30 million in cash.
Magnum Hunter currently owns an approximate 47.5% working interest in the properties being acquired, and upon closing, it will have varied working ownership interests in the properties up to approximately 100%. The company will become operator of that portion of the acquired properties which is currently being operated by Samson Resources Co.
In addition to the acreage being acquired, Magnum Hunter is also acquiring approximately 310,000 barrels of oil equivalent (BOE) of proved developed producing reserves and about 192 net BOE of production per day. Upon closing, Magnum Hunter will own approximately 180,000 net acres in the Williston Basin.
Glenn Dawson, president of Williston Hunter Inc, the Magnum Hunter subsidiary which will buy the assets, said, "The acquisition of these central Divide County assets will result in Williston Hunter becoming a Three Forks Sanish/Bakken operator in North Dakota along the border of Canada, which has been a primary goal.”
“We anticipate our initial drilling operations in this area will commence in the first quarter of 2013 utilizing one-mile horizontal lateral drilling and completion technology similar to our successful cost-effective strategy deployed in the Tableland Field in Saskatchewan this past year. In the Tableland Field, our drilling and completion costs have averaged $3.4 million for laterals completed with 25 to 30 frac stages with cemented liners and pressure-pumped down coil tubing,” he said.
Recent flowbacks have generated initial production rates of 500 - 750 barrels (bbl) of oil per day range and IP-30 rates in the 250 - 300 bbl of oil, he said.
Magnum Hunter is an independent oil and gas company based in Houston, Texas. Its assets are located primarily in the states of West Virginia, Kentucky, Ohio, Texas and North Dakota, and Saskatchewan, Canada. Magnum Hunter is active in five of the most prolific unconventional shale resource plays in North America, namely the Marcellus Shale, Utica Shale, Eagle Ford Shale, Pearsall Shale and Williston Basin/Bakken Shale. Samson Resources is a privately-held oil and gas company based in Tulsa, Oklahoma with offices in Denver, Colorado, and Midland, Texas.
The transaction is expected to close around Dec. 20, with an effective date of August 1.
The announcement was no surprise to analysts. Gabriele Sorbara, an analyst with Imperial Capital LLC, said the purchase price makes it a good deal for Magnum Hunter.
“The transaction does not come as a surprise to us, given it is consistent with management’s goal of coring up its position in the Basin, as well as the improving results from its drilling program. We view the valuation as attractive at ~$1,500 per acre. We believe more of these small bolt-on transactions could be likely, as the company cores up its Bakken/Three Forks acreage,” he said in a report after the transaction was announced.
The asset could be spun off into a separate entity given the scale of operations that Magnum Hunter has in the Williston Basin and the low valuation the market is placing on shares relative to peers in the basin, he said. Sorbara rates Magnum Hunter as “outperform” and has a target price of $6 per share.
“While we believe shares may underperform on the announcement, given investors are expecting asset sales rather than acquisitions, we like shares at this level, as MHR shares present an opportunity to build a position in front of a pipeline of potential liquidity events into 2013 that may further shore up the company’s balance sheet,” he said.
In addition, Magnum Hunter could sale other assets. “Currently, all eyes are on a potential sale or joint
venture of its Eagle Ford asset, which we believe could occur as soon as year-end," he said.