Emerald looks to boost liquidity, pay credit facility borrowings, and provide a southerly exit for Williston Basin hydrocarbons; Koch makes push into upstream
Denver, CO-based Emerald Oil Inc. (NYSE MKT: EOX) has entered agreements with Koch Exploration, a wholly-owned subsidiary of Koch Industries Inc. related to assets in North Dakota and Montana.
Subject to customary closing conditions, Koch Exploration will acquire a 30% working interest from Emerald in all of its undeveloped southern drilling spacing units in McKenzie County, North Dakota, for $16.6M million (approximately 25,000 net acres). Separately Koch Exploration has agreed to acquire a portion of Emerald's undeveloped leasehold in Richland County, Montana, for $0.9 million (approximately 4,500 net acres). Koch Exploration will reimburse Emerald for their proportionate 30% share of the existing AFEs of recently drilled and uncompleted wells in southern McKenzie County.
The total size of the transaction is approximately $24.4 million. Proceeds are expected to repay credit facility borrowings—$109.7 drawn at the end of Q1 as estimated by Global Hunter Securities analysts—and to “reduce EOX’s go-forward spending,” the analysts noted.
In conjunction with the transaction, Emerald and Koch Exploration have entered into a drilling agreement whereby the companies have agreed to drill two wells in 2016 in southern McKenzie County, on two undeveloped drilling spacing units to further delineate the acreage position. An area of mutual interest (AMI) was established as part of the deal so that when acreage is acquired by either company in the future, leasehold and costs will be split 50/50 between them.
Promising Southern McKenzie County wells
Emerald recently completed and produced the Greg Marmalard 3-28-33H and Dagny Taggart 3-21-16H wells. These are Emerald's southernmost wells in McKenzie County, and now substantially derisk the largest percentage of our undeveloped acreage position.
Emerald's Greg Marmalard 3-28-33H (77% WI) well in McKenzie County, which was completed with an approximate 10,000 foot lateral and was fracked with the new 50 stage equivalent enhanced completion design, achieved a peak 24-hour average production rate of 1,597 barrels of oil equivalent (boe) per day and a 30 day cumulative production rate of 20,139 boe on a 28/64 inch choke.
Emerald's Dagny Taggart 3-21-16H (100% WI) well in McKenzie County, which was completed with an approximate 10,000 foot lateral and was fracked with the new 50 stage equivalent enhanced completion design, achieved a peak 24-hour average production rate of 1,089 boe/d and a 30 day cumulative production rate of 16,178 boe on a 28/64 inch choke.
The Marmalard and Taggart wells initially track the type curve of multiple Emerald operated oil wells approximately 20 miles to the north in McKenzie County. These two wells confirm Emerald's geologic thesis in southern McKenzie County and provide two modern control points for further development of our southern acreage.
Additionally, to build out a multi-commodity gathering system on Emerald's currently undedicated acreage in southern McKenzie County in the Bakken and Three Forks formations in the Williston Basin, Emerald has signed a term sheet to form a midstream joint venture (JV) with two public midstream companies. The deal, expected to be finalized by year, is expected to consist of several existing Emerald infrastructure assets and approximately 74,712 net acres in McKenzie County. Emerald expects its ownership percentage in the JV to be “meaningful” and the company will not be required to make a capital contribution at inception, nor obligated to make future capital investments in the entity.