Ugly Bakken babies

Equinor, formerly Statoil, divested their Bakken position today for ~$900 mm and brings to an end a 10 year foray into the basin, a position acquired for $4.4 billion. Ouch.

With 48,000 boe/d of production and 242,000 acres... the metrics reflect what those trying to buy and sell deals already know. To get cash... prepare to have your face ripped off (assuming 0 for acreage, it’s slightly less than $19,000/boed). After Equinor’s mea culpa in October 2020, clearly they were prepping to exit but the cost to do so was high.

On the flip side, as an entry price for Encap backed Grayson Mill, it looks attractive, although with Bruin Smashco’d into Enerplus and with WLL and OAS out of bankruptcy, the Bakken is ripe for consolidation, not growth, so a new entrant, even at this price, surprises me. Yet cash is king and no one else has any.

Next up, Liberty, Resource, Kraken and Rimrock are all in PE purgatory (for more on this refer to the chapter entitled “What you need to know about money and the Ligers”), and with a mark at <$20,000/boed, it makes them selling for cash very unlikely. The wise move, in my opinion, would be for the four of them (and I would add Nine Point) to figure out the ‘relative value math’ amongst themselves and come together as one to kick the can much further down the road. Oil continues to want to rally hard and, together with a lower G&A structure and better control of marketing across the large footprint, the efficiency would allow them all to win.

Unfortunately for the management teams, the chances of that are slim, as those types of mergers are brutally difficult across PE funds, especially when no one wants to admit their baby might be the ugliest.

More likely, Oasis and Whiting, having emerged from bankruptcy, may be able to roll them up for equity and give the PE sponsor a potential exit through public equity over time. Consolidation is needed, and now more than ever, the fewer the players, the better the chance of winning with local communities and stakeholders. With COP, XOM and DVN focused elsewhere and CLR entering the PRB, maybe Grayson Mill will end up playing a bigger role than I currently envision.

Stay tuned!