Land-rich independents continue to be squeezed between the drag of low gas prices on cash flows and high drilling requirements if they are to achieve production growth targets. The result is an ongoing, if sometimes costly, opportunity for international companies to buy into North American unconventional resource plays as a strategy to achieve future production growth.
Recent examples include BHP Billiton's acquisition of Chesapeake's Fayetteville shale assets and Petrohawk. Also, in a small transaction GAIL entered a JV alliance with Carrizo.
Statoil was an early entrant in a Marcellus deal with Chesapeake followed by an Eagle Ford JV alliance with Talisman. Now, in a US$4.7 billion deal (including assumed debt) Statoil has reached agreement to acquire Brigham Exploration. The deal involves 415,000 net acres, but the key Brigham assets and its attraction to Statoil are: (1) Brigham's inventory of 375,000 net acres in the Bakken oil play and (2) significant existing production.
At US$11,325 per acre, the acquisition cost is at the 80th percentile of a sample of 11 Bakken transactions announced in 2010 and 2011. Factoring in the discount on Bakken crude, our analysis indicates that the transaction is value adding at a 10% cost of capital at prices slightly lower than in our US$70 WTI mid-cycle case.
With the Brigham deal, the role of North American unconventional oil and gas plays in Statoil's new project reserve base has increased to 24% from 19% on a boe basis. The role of these plays in Statoil's global new project liquids reserves has been boosted from 3.2% to 14%.