Whiting Petroleum Corp (WLL), BreitBurn Energy Partners L.P. (BBEP), Statoil ASA (ADR) (STO): A Deeper Look at the Latest Bakken Oil Deal

Source: Whiting Petroleum Investor Presentation (link opens a PDF)

On the surface Whiting Petroleum Corp (NYSE:WLL)’s $260 million acquisition of 17,282 net acres in the Bakken looks like nothing more than a small bolt-on acquisition. However, digging a little deeper, the deal is bigger than the numbers indicate. Let’s take a closer look.

Setting the stage
What investors need to first realize is this acquisition really follows on the heels of its recent divestment of the Postle assets. In that deal Whiting Petroleum Corp (NYSE:WLL) sold a mature enhanced oil recovery project to BreitBurn Energy Partners L.P. (NASDAQ:BBEP) for about $860 million. It was a great deal for BreitBurn Energy Partners L.P. (NASDAQ:BBEP) as it was able to acquire a perfect MLP type asset because of its well-developed, oil rich production.

Whiting Petroleum Corp (NYSE:WLL)

These assets fit much better into BreitBurn Energy Partners L.P. (NASDAQ:BBEP)’s portfolio because its business model is to acquire assets that it can milk for income. Whiting Petroleum Corp (NYSE:WLL)’s business model, on the other hand, is more focused on production growth. The capital it freed up from that one deal has given the company the fuel it needed to pursue more growth focused projects.

Reallocating capital
Whiting Petroleum Corp (NYSE:WLL) used the money from the deal to pay down its credit facility. However, it used the flexibility from that facility to increase its capital budget by $300 million to bring it up to $2.5 billion. By adding that small amount of capital Whiting Petroleum Corp (NYSE:WLL) will be able to completely replace the production of the Postle assets that it sold. Now it is using more of its flexibility with an eye to the future.

The $260 million acreage acquisition is important for one big reason: Location. Whiting is picking up acreage in two of the most oil rich counties in the Bakken. These two counties, Williams and McKenzie, produced half of the top ten most recent Bakken Wells as measured by initial production rates. So, while 76% of the acreage Whiting acquired is proved undeveloped, it is likely to turn out to be very solid acreage.