Crude and natural gas producer, Hess Corporation (HES) entered into an agreement to acquire 167,000 net acres from TRZ Energy, LLC for $1,050 million in cash in the Bakken oil shale play in North Dakota. The acquisition will increase Hess’ acreage position in the Bakken oil play to over 750,000 net acres. The deal is expected to close by December 28, 2010.
The acquired properties have a production capacity of about 4,400 barrels of oil equivalent per day (Boe/d) and are located near the company’s existing acreage.
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. The deal is expected to be wrapped up in the fourth quarter of 2010.
Last week, Williams Cos. (WMB) acquired a major acreage position in North Dakota’s Bakken oil play and agreed to buy 85,800 net acres from private owners. Williams will pay $925 million for the Williston Basin properties estimated to hold net reserve potential of approximately 185 million Boe (MMBoe). Other assets included in the deal were 24 existing wells with net production of 3,300 barrels of oil per day.
The current Hess transaction is the third Bakken acquisition announced in the last seven days. The Williams’ deal and a Plains All American Pipeline LP (PAA) deal valued at $210 million, were both announced on November 15.
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 and drive its earnings, cash flow and valuation.
New Yorkbased Hess Corporation is an integrated oil company engaged in oil and gas exploration, production and refining as well as marketing activities. Although there is significant resource potential from new discoveries, the E&P business is inherently risky, often with an 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).
AMER OIL & GAS (AEZ): Free Stock Analysis Report
HESS CORP (HES): Free Stock Analysis Report
PLAINS ALL AMER (PAA): Free Stock Analysis Report
WILLIAMS COS (WMB): Free Stock Analysis Report
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