Exxon Mobil Expands Operations In Bakken With $1.6 Billion Deal

Oil & gas super-major Exxon Mobil (NYSE:XOM) recently agreed to buy Denbury Onshore’s assets in the Bakken Shale for $1.6 billion in cash and operating interests in the Hartzog Draw field in Wyoming and Webster field in Texas. The deal will expand Exxon Mobil’s acreage in the Bakken to over 600,000 acres and will increase its production in the region by over 15,000 oil equivalent barrels per day during the second half of 2012. ^[1]

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Denbury Onshore, a subsidiary of Denbury Resources Inc., will be selling 100% of its acreage in the Bakken. The company did not consider the region as part of its core operations and plans to use the cash proceeds to purchase oil fields in the Gulf Coast or Rocky Mountain regions for capital expenditures and to repay debt.

The Bakken shale formation, located between the U.S. states of North Dakota and Montana, has recently emerged as one of the most sought-after energy plays in the country. North Dakota’s energy profile has improved considerably in recent years, primarily due to accelerated development activity in the Bakken, and is now the second largest crude oil producer in the country after Texas. The Bakken now accounts for 90% of the state’s total oil production. ^[2]

Exxon Mobil is the largest shale gas producer in the U.S., producing an average of over 8.4 million million cubic feet (mcf) per day. However, the company still sees substantial growth opportunities in the sector and will fuel its expansion partly through such asset purchases.

The company has large cash reserves (over $17 billion as of June 30, 2012), and we expect it to continue to look for opportunities to deploy this to increase its operations in unconventional resources. This will also allow the company to diversify its upstream revenues, which are primarily generated from the production of crude oil, NGL and other liquids.

Other oil & gas majors, such as Royal Dutch Shell Plc, which recently purchased unconventional oil assets from Chesapeake for $1.94 billion, are also buying properties rich in unconventional oil & gas resources. The growing interest for these assets is primarily due to recent technological breakthroughs which provide access to “tight oil” which has been trapped within shale rock formations but can be obtained through horizontal drilling combined with hydraulic fracturing.

We currently have a Trefis price estimate of $98 for Exxon Mobil, which is around 5% above the market price.

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1. ExxonMobil to Increase Production and Acreage in Bakken Oil Shale Region, Exxon Mobil, September 2012 [↩]
2. State Ranking – Crude Oil Production, EIA, June 2012 [↩]