Natural Resource Partners (NYSE: NRP) Bakken Investing

Brian Hicks

Written By Brian Hicks

Posted June 18, 2013

In an announcement made on Monday, Natural Resource Partners LP (NYSE: NRP) has said it reached a deal with Abraxas Petroleum Corp. (NASDAQ: AXAS) to purchase the company’s majority working interest in its non-operated Bakken shale properties stretching from North Dakota to Montana.

oil wellThe agreement will be a cash payout of $35.3 million. The effective date of the sale is March 1, 2013, and it remains subject to all customary closing conditions and purchase price adjustments.

Included in the announcement, NRP, the Houston-based coal and property management firm, announced it will be paying an additional $8.1 million for 22 wells that Abraxas has either recently started producing, recently drilled, or come close to completing. A portion of this capital will be paid at closing.

The acquisition is expected to close in the third quarter of 2013 and immediately show returns for its unit holders.

The total net acreage of the purchase is roughly 13,500 acres covering a rough working interest in 11 percent of the Bakken and also the Three Forks play. In total, Abraxas was producing 120 different wells, as well as the 22 that are still in various stages of development – all of which will go to NRP.

Abraxas Petroleum Corp. will focus on core operated properties. The San Antonio-based crude oil and natural gas exploration and production company still operates throughout many regions: the Rocky Mountains, Mid-Continent, Permian Basin, and onshore Gulf Coast sites in the U.S. and in the province of Alberta, Canada.

Why Now?

This purchase made by NRP will mark the company’s strategic entrance into the Bakken play, and as of the closing of the deal, the company will instantly be a major oil and gas player in the region.

NRP’s principal business has always been in the ownership and management of coal and mineral reserve properties. It has some gas and oil reserves that it collects royalties on through various partnerships, but now it will become a major force in the production of gas and oil in the Bakken – the cornerstone for American gas and oil.

Abraxas plans to use its proceeds from the purchase to pay its remaining debts and to speed the growth in its operating core regions that were mentioned earlier. Since the beginning of 2013, Abraxas has reaped about 502 boepd from its non-operated Bakken play, netting proceeds of $47.3 million. That’s partly how the purchase price was determined.

The sale has helped Abraxas pay an approximate $10 million budgeted CAPEX commitment. Additional proceeds from the sale will be put down towards the company’s bank line, and from there efforts will be redistributed to its core areas, where it can accelerate growth.

With the sale of its non-operated Bakken play, Abraxas now shows production projects in its remaining operations, which still include some holdings in the Bakken, to produce between 4,550-4,700 boepd for 2013.

Fort Mill Times reports:

Bob Watson, President and CEO of Abraxas commented, “This is obviously a transformational day for Abraxas as we significantly reduce our leverage while simultaneously shifting our focus to a core operated portfolio. Heading forward we will continue to rationalize our asset base to focus on our core operated properties primarily in the Bakken and Eagle Ford. Moreover, the removal of the non-operated Bakken assets from our portfolio will provide the Company with a much more predictable production growth profile and CAPEX schedule. We look forward to updating the market shortly as we evaluate opportunities to accelerate growth in our core operated areas.”

The Bakken Now

Production in the Bakken soars ever greater by the day, and the region increased its oil output to a record 727,149 barrels per day in April. Companies like Continental Resources Inc. (NYSE: CLR) and Whiting Petroleum Corp. (NYSE: WLL) are among those who are leading the way, and since April of 2012, they have helped boost output 33 percent higher than it was one year ago as part of another record setting year.

Production hasn’t been this high in 20 years.

Much of the oil being transported from the Bakken is leaving on rail – about 75 percent of all oil is carried by train – up from 71 percent in the month of March, according to Bloomberg. Only about 17 percent was carried via pipeline, a drop from the month before.

Production is through the roof, and it’s the rail industry that is transitioning into the primary source of transportation to refineries.

There are still wells being completed every day. The 22 that NRP has acquired should come online in the near future, adding to the 119 wells that were completed by other companies in April.

It appears the Bakken is always a safe bet, no matter where you steer.


If you liked this article, you may also enjoy:

Angel Publishing Investor Club Discord - Chat Now

Brian Hicks Premium


Hydrogen Fuel Cells: The Downfall of Tesla?

Lithium has been the front-runner in the battery technology market for years, but that is all coming to an end. Elon Musk is against them, but Jeff Bezos is investing heavily in them. Hydrogen Fuel Cells will turn the battery market upside down and we've discovered a tiny company that is going to make it happen...

Sign up to receive your free report. After signing up, you'll begin receiving the Energy and Capital e-letter daily.