Reuters reports that Occidental Petroleum (ticker: OXY) is leaving the Williston Basin, announcing a $500 million sale with Lime Rock Resources for its 303,000 net acres. The deal, if finalized, equates to just $1,650 per net acre, roughly half of Capital One Securities’ estimated value of approximately $3,300 per net acre. Other agencies believed the region held roughly $3.0 billion in value ($6,000 per acre) prior to the commodity downturn.
OXY management said it was marketing the Williston properties in a Q2’15 conference call, saying the assets couldn’t compete with its position in the Permian Basin. OXY’s Piceance Basin assets, spanning 187,000 net acres, are also on the block. Capital expenditures on the two respective assets dropped by 50% on a year-over-year basis in 2015 and consisted of only 5% of its capital budget.
In the Q2’15 call, management said the spread differentials and the lack of running room due to limited operating interests prompted the company to make a sale. OXY virtually eliminated its Williston capital spending in its Q4’14 earnings release, citing “unacceptable returns in the current price environment.” The company recorded $1.7 billion in Williston property impairments in its results.
Lime Rock Resources: Private Equity Makes Its Mark
Buy low, sell high is a rule of thumb in the commodity market (whether it be fantasy football, real estate, company shares or petroleum), and private equity funds have spent the majority of 2015 gearing up to capitalize on a depressed oil and gas industry. A survey in June 2015 said nearly half of United States private equity investors were eyeing oil and gas funds. David Preng, President and Chief Executive Officer of Preng & Associates, an executive search firm, said at EnerCom’s The Oil & Gas Conference® 20 in August that as much as $80 billion in capital was available.
The latest potential transaction comes on the one-year anniversary of when Lime Rock closed on its first Williston Basin acquisition for $533 million, locking down non-operated interests in 337 active wells. At the time, Lime Rock Resources management called its Bakken purchase a “right-sized entrance” into the prolific basin, and believe the non-operated agreements will allow the company to learn the area from an outside perspective.
Pending completion, the latest purchase is the second in four months for Lime Rock Partners, with the first transaction consisting of $381 million in Midcontinent assets. Company management has raised more than $5.5 billion through its growth vehicles. LRR Energy, a publicly traded limited partnership of Lime Rock, recently completed its merger with Vanguard Natural Resources (ticker: VNR) for total consideration of $541 million. Management implied that Lime Rock is still very much a player on the M&A market following its June 2015 acquisition.