First quarter earnings season in the exploration and production sector has demonstrated that the Bakken play in the Williston Basin is a fickle one, as recent news from companies active here both enriched and hurt investors last week.
SEE: Oil And Gas Industry Primer
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GeoResources (Nasdaq:GEOI) and Halcón Resources Corporation (NYSE:HK) announced that the two companies would merge in a cash and stock deal worth $1 billion. Shareholders of GeoResources will receive $20 in cash and 1.932 shares of Halcón Resources common stock for each share owned. The total consideration of $37.97 per share represented a 23% premium to where the stock traded prior to the deal announcement.
Although some shareholders of GeoResources may not have been impressed with the premium offered, the stock was already up by approximately 100% prior to the deal announcement, from a low of $15 per share reached back in October 2011.
The Bakken is one of two core areas for GeoResources, which has 55,000 net acres under lease here. The company has interests in four separate project areas in North Dakota and Montana, and is active as an operator and on a non-operated basis.
While many energy investors may not be familiar with Halcón Resources Corporation, they are probably familiar with the HK ticker symbol, which used to belong to Petrohawk Energy.
Halcón Resources is led by Floyd C. Wilson, who founded Petrohawk Energy a decade ago and ran the company until its sale to BHP Billiton (NYSE:BHP).
SEE: Fueling Futures In The Energy Market
Hess Corporation (NYSE:HES) is also involved with the Bakken and reported production of 47,000 barrels of oil equivalent (BOE) per day in April. Although this was up significantly from the 25,000 BOE per day reported in the first quarter of 2011, management disclosed that 2012 production would fall short of the 60,000 BOE per day target promised to investors.
This admission of slower Bakken production growth by management did not go over well with many investors, and the stock sold off approximately 6%.
Despite this setback, the company has ambitious plans for the Bakken and has budgeted spending of $1.9 billion for development in 2012. It plans to operate 16 rigs across its 900,000 net acre position during the year.
Another operator active in the Bakken is Whiting Petroleum (NYSE:WLL). The company has interests in several different project areas and plans to ramp up to 24 rigs operated here by September 2012.
The Bottom Line
The reaction of investors to slower than expected Bakken production growth by Hess Corporation seems to be an overreaction by short-term players that have limited attention spans. Longer term investors should use this opportunity to analyze the fundamentals of the company to see if an investment is warranted.
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.