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Overview: A guide to the Whiting-Kodiak transaction

Part 3
Overview: A guide to the Whiting-Kodiak transaction (Part 3 of 9)

Why Bakken growth fuels corporate wedding

Bakken Shale oil play

The Bakken Shale, which lies in North Dakota and Montana, is a major oil producing region. Another formation, known as the Three Forks formation, which lies below the Bakken, is also a major oil resource. Both the Bakken and the Three Forks are part of the Williston Basin.

2013.12.03 - Williston BasinEnlarge Graph

Surge in Bakken oil production

The Bakken formation is a major contributor to the recent U.S. oil production boom. According to the Energy Information Administration (or EIA), since April, 2011, production from the Bakken has increased 19,000 barrels per day each month.

Also, in early July, North Dakota surpassed the one million barrel per day oil mark, driven by the Bakken and Three Forks formations. The Whiting (WLL) and Kodiak (KOG) announcement followed this auspicious news.

More than just a marriage of convenience

However, given this surge in oil production, producers who are looking to expand are unable to do so because most drilling rights have already been taken up by corporations. As a result, the only option remaining for producers looking to expand is acquisitions. This is likely why WLL chose to acquire KOG.

Bakken “plays” matchmaker

Bakken’s massive oil production potential is a positive for both WLL and KOG. KOG is a pure-play Bakken producer while ~73% of WLL’s production is from Bakken. Also, the larger scale of the combined company will allow for better purchasing arrangements with oil service providers.

Bullish projections for Bakken production will likely spur mergers and acquisitions (or M&A) activity between producers. The recent WLL-KOG merger will help increase production, per shareholder, to levels that couldn’t have been reached individually by the two stand-alone companies.

Key stocks and exchange-traded funds (or ETFs)

Top Bakken producers include Continental Resources (CLR), Whiting Petroleum (WLL), Hess Corporation (HES) and EOG Resources (or EOG). All of these companies are components of the Energy Select Sector SPDR ETF (XLE).

The following sections in the series discuss both WLL and KOG as individual companies. We’ll also discuss why the acquisition could be positive for shareholders.

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