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Current EOX Stock Info

Emerald Oil, Inc. (ticker: EOX) is an oil weighted exploration and production company focused primarily on acquiring acreage and developing wells in the Williston Basin of North Dakota and Montana. EOX specifically targets the Bakken and Three Forks shale formations.

On September 23, 2013, EOX expanded its Bakken properties by leasing 33,851 operated acres in the Williston Basin for approximately $24.7 million in cash. EOX holds a 68% working interest in the area, expanded its acreage in the Low Rider project by 14,777 acres and established three new operating regions, including:

  • Easy Rider (3,179 net acres) in Williams County, ND in the West Nesson Area of the Williston Basin
  • Emerald Pronghorn sand (2,945 net acres) in Stark and Billings Counties, ND in the core of the Pronghorn field
  • Emerald Lewis & Clark (12,950 net acres) in McKenzie County, ND south of Low Rider.

On September 19, 2013, EOX announced the sale of substantially all of its non-operated Williston Basin acreage in two transactions for approximately $113 million. Roughly 26,580 net acres of non-operated leasehold with current production of 850 BOEPD were sold. The buyers’ were not named but are described as industry partners. McAndrew Rudisill, Emerald’s Chief Executive Officer, said, “These divestitures complete Emerald’s transition to a large scale, pure play Williston Basin operator.”

A summary on the acreage locations can be found in EOX’s press release.

Prior to the sale of its non-operated acreage, EOX completed another transaction to acquire approximately 2,900 net undeveloped operated acres adjacent to the company’s Low Rider operations for approximately $1,000 per acre.

Given the total of EOX’s latest transactions, the company decreased its non-operated acreage from 32,250 to 6,070, but increased its operated acreage to 59,867 from 25,750. Emerald’s forecasted capital expenditure budget of $125 million will be allocated entirely to the 12 wells in its operated drilling program.

EOX Operations Update

EOXIn July 2013, Emerald completed its fifth and sixth EOX-operated Bakken wells, the Talon 1-9-4H and the Slugger 1-16-21H, in the Low Rider project area. The wells were drilled from a single pad and each was completed with 34 frac stages. In the first 30 days of production, Talon averaged 818 BOEPD and the slugger averaged 782 BOEPD. Combined, the two wells produced a total of 49,163 BOE in the first month.

In August, the Hot Rod 1-27-26H and Excalibur 5-25-36H wells were drilled. Both wells are presently undergoing frac activities. Going forward, the company expects to report well results in quarterly earnings releases.

EOX plans to add a third rig during 2014 to develop the newly leased acreage. The preliminary 2014 drilling budget will consist of approximately $182 million to drill 18.2 net wells. A separate land budget of approximately $25 million will be deployed in 2014 for operated acreage acquisitions and leasing in the Williston Basin.

Increase in Production Guidance

EOX also increased its Q3’13 production guidance by 33%, expecting 1,600 BOEPD instead of 1,200 BOEPD. Its 2013 exit rate guidance rose to 2,400 BOEPD from 2,000 BOEPD, a 20% increase.

In connection with Emerald’s recent acreage leases and the announcement of the 2014 capital budget, Emerald established a 2014 average annual production forecast of 3,300 BOEPD. This compares to average annual production guidance for 2013 of 1,590 BOEPD, an increase of 108%. Emerald will establish 2014 quarterly production guidance, year-end exit rate production guidance, and year end operated acreage targets on the 2013 third quarter conference call in early November.

As noted in its Q4’12 fiscal year-end report, EOX’s goal was to achieve an average working interest of 75% in its operated wells in McKenzie County. Through a combination of operated and non-operated acreage swaps and acquisitions, Emerald has surpassed its target and now holds an average working interest of 91%. Roughly 35,723 acres, or 54% of EOX’s property, is located in the Low Rider project area.

Source: Company 10Q Filings

Liquidity

Based on the strong performance of the Company’s recently drilled wells, Wells Fargo elected to maintain the Company’s borrowing base at $75.0 million following the non-operated property sale. Given the substantial amount of cash received in the sales and its reconfirmed borrowing base, Emerald elected to redeem an additional $20 million of its Preferred Stock on August 30, 2013. The Company plans to redeem the balance of the Preferred Stock by year-end. After the sale and the Preferred Stock redemption, Emerald currently holds approximately $120 million of cash and has no debt outstanding under its credit facility.

Common Stock Offering

On September 23, 2013, EOX announced an underwritten public offering of 15,000,000 shares of its common stock. The company granted the underwriters a 30-day option to purchase up to an additional 2,250,000 shares.

Five minutes after announcing the public offering, EOX announced the signing of a definitive agreement with affiliates of White Deer Energy, an energy private equity firm. The firm acquired 19.9% of the company’s common stock and is expected to close within fifteen business days following the closing of the company’s proposed public offering.

EOX intends to use the net proceeds from the offering for general corporate purposes, the acceleration of development and growth plans, and to finance the cost of leasing, capital expenditures, and acquisitions.

Other Williston Basin Acquisitions

Company

Acquisition Date

Acquisition Cost (Millions)

Total Net Acreage Acquired

Oasis Petroleum

September 2013

$1,500

161,000

Halcon Resources

October 2012

$1,450

81,000

QEP Resources

August 2012

$1,380

27,600

Kodiak Oil & Gas

July 2013

$660

42,000

Whiting Petroleum

August 2013

$260

17,282

Triangle Petroleum

August 2013

$103

9,350

Emerald Oil

September 2013

$27.6

36,751

Source: Compiled BY EnerCom from company press releases

Analyst Comments on the EOX Transactions

Ryan Outman, Research Analyst for SunTrust Robinson Humphrey, covered Emerald’s transactions in his note on September 24, 2013. “Emerald’s ($24.7 million purchase) works out to ~$730/acre and more than doubles Emerald’s Williston footprint. Recall Emerald recently divested 850 BOEPD and 26,580 net non-operated acres (~16,300 core) for $113 million, or $2,650-4,325/acre after valuing production at $50,000/BOEPD. As the recent Oasis (ticker: OAS), Whiting (ticker: WLL) and Kodiak (ticker: KOG) acquisitions averaged ~$8,000/acre after valuing production at $50,000/BOEPD, we see the deal as very attractive for Emerald.”

Anayzing the added acreage in the Low Rider area, Oatman said, “This seems to be as close to a “bolt-on” acquisition as one could get.” EOX’s $182 million drilling budget for 2014 was above Oatman’s $165 estimation, but didn’t agree with Emerald’s guidance. He said: “We adjust our estimates to be in line with updated guidance, but can’t help thinking Emerald is being conservative. The acquisition budget of $25 million is above our $10 million expectation as well, though this is probably a good thing given Emerald’s leasehold prowess.”

Oatman’s final adjustments included lowering EOX’s 2015E cash flow per share to $1.18 from $1.79, the reduction coming from greater share count and lower efficiency and the target cash flow multiple rising to 7.25 times from 4.75 times on lower leverage and greater resource potential.

Curtis Trimble, Managing Director at Global Hunter Securities, in his note on September 24, 2013, said: “Although it’s difficult to imagine an E&P company being overcapitalized, it appears Emerald is attempting to make itself so. Incorporating the prospective dilution expected from this equity offering in concert with the increase in acreage and in 2014 activity leads us to drop our price target to $9 per EOX share from $10. While Emerald’s propensity to tap the equity markets is troublesome, we still estimate that the shares harbor sufficient upside to warrant a Buy rating.”

Management Comments

McAndrew Rudisill, Emerald’s Chief Executive Officer, said: “The acreage leasing adjacent to Low Rider continues Emerald’s expansion of its operated position in central McKenzie County, ND. The Company will leverage its existing operating infrastructure in the area to develop the new acreage. Easy Rider sits directly west of the Nesson Anticline in Williams County, ND and is surrounded by multiple high EUR Middle Bakken and Three Forks wells drilled by industry partners. Emerald believes the geology of Easy Rider is very similar to Low Rider. As a result, we can apply similar well completion techniques. The undeveloped Emerald Pronghorn sand acreage sits in the middle of a heavily developed, high EUR, and high rate-of-return oil field where horizontal drilling and fracture stimulation are now effectively being applied. We are confident in our ability to unlock substantial production growth from the acquired Pronghorn sand drilling spacing units. We increased our 2014 operating capital program to accelerate the development of our newly leased position, which is reflected in our 2014 production guidance; Emerald now has a multi-year drilling inventory with hundreds of potential Middle Bakken, Three Forks and Pronghorn sand well locations.”

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication.

 


Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.