This week in Technical Tuesday, I’ll take “Companies that fired me for $200, Alex” as we visit the Canadian company, Enerplus, with a little help from the late, great Alex Trebek.

Alex: “This acquisition was announced yesterday and grows the Enerplus position in the Bakken.”

Bzzzzz!

DRW:  “What is their acquisition of Bruin E&P Partners?“

Yes!

In all seriousness, I really like the folks at Enerplus and I have a warm spot in my heart for the Bakken asset we put together in 2009 and 2010.  I feel fortunate for the 3 years I spent there and for the team we put together to lay the foundation for what has happened on Fort Berthold.  With Marathon to the south and EOG to the north, only Kodiak (now Whiting), Lonestar and Peak Resources (now Enerplus), and Zenergy (now Devon) saw that 7 stage blast joint diversion “pump and prays” in the south were artificially deteriorating the results from those in the north.  It was a great example of private equity as the first movers in a time when “3 guys, a cell phone, and a truck” could drill 2 wells, prove a play and flip all the acreage.

As the last 10 years has played out, Fort Berthold is widely seen as one of the best remaining areas in the Williston basin.  I still remember when we announced the Peak deal, the analysts thought we were crazy, but as we know, acquisitions need time to play out and stress tested at purchase against a wide range of commodity prices.  It’s been the anchor asset for the company for nearly a decade and for me personally, the experience set me up for what our team was able to accomplish at OneEnergy and gave me the inspiration to write “What the F@&K is Wrong with Everybody Else?  What They Didn’t Teach you in Business School.”  So I’m going to go win-win.  And, for what it’s worth, I’ve always been a huge fan of Ian Dundas.  So, there you go.

In October 2014, I gave a presentation to an SPE group in Denver called “A view from the Bus Bench: The Death of the Bakken“.  The thesis was that oil was headed to $75/bbl (ok, I was optimistic, it hit $37) and that the Whiting-Kodiak merger, as a 0 premium deal, meant it was the top and there were no new entrants into the basin.  To accent the point I declared “This is the top and Whiting is the best short out there.”  But I wasn’t done.  I looked at the high density tests including Wahpeton and Hawkinson, and said “Purely from a recovery factor standpoint, the data is out there.  You don’t need these extra wells.”  I said that the “correct” spacing was 2-3 Bakkens and 2-3 Three Forks per spacing unit and that industry had substantially over drilled and acquired inventory that wouldn’t work sub $80.  Rigs would fall to sub 50, forever, and that Continental’s announcement of 6 Springer wells that only had 30 day IP’s, but that they were moving a whole bunch of rigs to attack it, was all the evidence you needed.  The 50 or so people that were in the room were wide eyed and thought I was insane.  It was my first unofficial #hottakeoftheday presentation.

Now, 7 years later and with the industry starved for capital, the Bakken needs to be consolidated.  The “acquire and flip” model long ago turned into “drill your returns” and to do so, you need the most efficient cost structure and asset base you can have.  With Whiting and Oasis through bankruptcy and with clean balance sheets, they will participate in some way but Enerplus, always financially conservative and with a strong balance sheet, is really the only small- or mid-sized player that has the balance sheet to do a deal with cash, which they did yesterday buying Bruin E&P Partners for $465 million in cash for 18,000 boe/d NRI (Canada vs. US) and 131,000 acres.  The company said it’s roughly 3x 2021 cash flow at $50/bbl and with 84 mmboe of 2P resource, looks like $26,000/boed and 0 for acreage or $6.92/2P boe.  Similar to what we said about the Samson divestiture in the PRB, if you want cash, prepare to have your face ripped off.

Bruin itself has had a tough go since announcing the acquisition of 104,000 acres and 29,000 boe/d of production from Halcon in July of 2017 for $1.4 billion.  Almost 3 years to the day in 2020, they filed for Chapter 11 protection to eliminate $840 million of debt and emerged August 31st so this transaction with Enerplus makes sense.  The creditors became shareholders, they had an opportunity to get cash and it eliminates their go forward exposure.  For Enerplus, it adds scope and scale to an already solid asset base and with 111 net estimated drilling locations and an attractive entry with existing cash flow, it provided the catalyst to issue 28.75 million new shares to raise $115 million of gross proceeds, approximately 25% of the transaction value.  With uncertainty around the Biden administration and actions that will be taken on BLM/BIA land, it provides operational flexibility to move off reservation as required.

From a well performance standpoint (with thanks to ShaleProfile Analytics), it’s illustrative to see the range of well performance by oil normalized by lateral length with 2010 and 2011 wells performing at the top end of the range of well performance.  Just sayin’…

This is a good first step for the basin overall.  But, there remain 4 major private equity companies that will go/need to go the same way, and with less producers focusing on maximizing NPV and returns rather than “growing to make the acquisition multiple look better”, production will continue to fall, costs will be optimized, and the shrug will mean that increasing prices will offset declining volumes.  Especially with the ruling on DAPL, fewer players controlling more volume and marketing capacity will be essential to profitability and controlling ones own destiny in the coming years.