Hess Corporation (HES) said yesterday, that the company has completed the acquisition of additional acreages in the Bakken oil shale play in North Dakota. Late last month, Hess had agreed to acquire 167,000 net acres from TRZ Energy, LLC for $1,050 million in cash.
The acquired properties are located near Hess’ existing acreage and have current net production capacity of approximately 4,400 barrels of oil equivalent per day. This acquisition will increase Hess’ acreage position in the Bakken oil play to over 750,000 net acres.
The Bakken Shale is the largest continuous oil accumulation and is often eyed by companies interested in expanding their acreages in the area. Hess’ recent deal is not an exception in this regard. In July 2010, Hess added about 85,000 acres on the oil-rich Bakken shale formation through its acquisition of an independent energy company American Oil & Gas Inc. (AEZ) in an all-stock transaction valued at about $445 million.
We continue to see an upstream momentum on the back of Hess’ large line-up of exploration and production (E&P) projects. The company’s improving fundamentals, commodity price leverage and exposure to areas with high resource potential have improved its prospects. A ramp up in activities at the Bakken, Eagle Ford, and Marcellus, in the U.S. and the Paris Basin in France, accompanied by a rich portfolio of offshore drilling opportunities in the Gulf of Mexico, Brazil, West Africa, and Egypt, will strengthen the company’s future production growth as well as drive its earnings, cash flow and valuation.
Although there is significant resource potential from new discoveries, the E&P business is inherently risky, often with equal share of successes and failures. Our Neutral recommendation for the stock remains unchanged at this stage and the company holds a Zacks #3 Rank (short-term Hold rating).
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