With the target to boost production in the coming years, energy company Williams Companies (WMB) entered into an agreement to acquire about 85,800 net acres from private owners in the Bakken oil play of North Dakota. The company will pay $925 million for the Williston Basin properties estimated to hold net reserve potential of approximately 185 million barrels of oil equivalent (MMboe).

Other assets included in the deal are 24 existing wells with a net production of 3,300 barrels per day of oil.

Following the completion of the acquisition, Williams will be able to diversify into the production of light, sweet crude oil, which is expected to contribute almost 25% to the company’s exploration and production segment’s output in 2013.

Williams currently has three operating rigs on these properties and the company currently aims to nearly double the number of working rigs to six by 2012.

Apart from the purchase price, Williams will be investing approximately $60 million in 2010 and $200 million to $300 million in 2011 for the development of drilling activities. Williams will fund the acquisition and its capital programs from cash on hand that include proceeds from the Piceance asset sale to Williams Partners L.P. (WPZ).

The deal is expected to be sealed by the end of 2010, subject to standard closing conditions and regulations.

William’s foray into the Bakken Shale along with the 100,000 net acreage position in Pennsylvania’s Marcellus Shale (acquired over the last 18 months) strengthens the company’s foothold in the industry – both in terms of geographic diversification as well as product mix.

We believe that post this acquisition, Williams will have access to most of the prolific onshore oil play regions of the U.S. – the Piceance, the Marcellus, and the Bakken. The company with the aid of its strong engineering base and technical expertise will be able to reap beneficial results from these core attractive growth areas.

We are currently maintaining our long-term Neutral rating on the stock.

 
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