Halcon - Petro Hunt Bakken Deal Announced for $1.45 Billion

Halcon Resources Bakken Acreage Map

Halcon Resouces is acquiring Petro-Hunt's Bakkken assets for $1.45 billion ($700 million cash and $750 million in equity). Halcon will receive 10,500 boe/d of production and 81,000 net acres spread across Dunn, McKenzie, Mountrail, and Williams counties in North Dakota. The acreage is less than 40% developed and includes just over 42,000 net acres are located in the Fort Berthold area and just over 38,000 acres are located in the Marmon area.

Proved reserves are estimated 42.4 mmboe, with total resource potential that Halcon believes is more than 100 mmboe. Approximately 88% of reserves and production are crude oil.

After the deal, Petro-Hunt will remain one of the largest acreage holders in the basin, with more than 600,000 acres of leasehold. The company will also retain production of more than 24,000 boe/d.

Bruce Hunt of Petro-Hunt commented:

"We are pleased to become a significant Halcon shareholder through this transaction. The track record of Halcon's management team speaks for itself and we are confident they will do a great job of developing these solid assets.

Halcon's CEO commented:

"This acquisition is immediately accretive on all measures and is consistent with our strategy of building an oil company with a multi-year drilling inventory in liquids-rich basins. The assets we are acquiring are located in what is arguably the most attractive oil producing basin in the lower 48, on a risk adjusted basis..."

Halcon's Williston Basin Assets Expand

Halcon Resources Bakken Acreage Pre-PetroHunt

Halcon now has more than 135,000 net acres prospective for the Bakken in the Williston Basin. The company recently provide an operational update on its Bakken assets and disclosed the company was targeting a position of 125,000+ acres. This deal puts them over that threshold, so I don't expect additional transactions of this magnitude any time soon. 95% of the acreage acquired will be operated by Halcon.

Halcon had three rigs running in the area and Petro-Hunt hds five rigs running the properties sold. The assumption all five rigs won't come with the acreage is fair, but don't be surprised if you see Halcon ramp up to 5 rigs or more going forward.

Halcon also outlined several areas it sees opportunity for improvement and value creation:

• Reduce drilling days with pad drilling
• Lower completion costs by lower frac fluid volumes
• More effective completions
• Install gas and oil gathering systems
• Utilze Halcon on salt water disposal facilities

Bakken Refinery on Fort Berthold Reservation Gets Interior's Approval

Fort Berthold Indian Reservation Map

A proposed Bakken refinery on the Fort Berthold Indian Reservation has been approved by the department of interior. The refinery will be the first built on U.S. soil in over 30 years. Several major refinery expansions have been undertaken by Marathon, Exxon, and others in the past decade, but difficult permitting has made new build refineries a scarce sight. The 13,000 barrel per day Bakken refinery will be small in comparison to the super refineries that process more than 500,000 b/d, but it will be a significant economic development for North Dakota.

Secretary Salazar commented - [blockquote type="blockquote_quotes" align="left"]By working with the Mandan, Hidatsa and Arikara people to place this land into trust status, we are supporting infrastructure that will help bring American oil and gas to market while promoting Tribal economic development and self-determination regarding land and resource use.[/blockquote]"By working with the Mandan, Hidatsa and Arikara people to place this land into trust status, we are supporting infrastructure that will help bring American oil and gas to market while promoting Tribal economic development and self-determination regarding land and resource use."

The MHA National Clean Fuels Refinery will be another Bakken job engine in North Dakota. As many as 1,000 jobs will be created during construction and 140 permanent operational jobs will continue once the Bakken refinery is brought online.

The Bakken refinery is being designed with capacity of 13,000 b/d and will refine local crude into diesel, propane, and naptha products. The proposed site will be contributed to a trust by the MHA Nation for development. The three tribes asked the Interior`s Bureau of Indian Affairs to accept a 469-acre piece of property into trust. The proposed refinery will use ~190 acres and the remaining acreage will be used for the production of feed for the Tribes` buffalo herd.

Additional federal permitting will be handled by the U.S. Army Corps of Engineers, EPA and OSHA. The Bureau of Indian Affairs and the EPA led the drafting of the Environmental Impact Statement that was issued in 2009.

The EPA issued a National Pollution Discharge Elimination System permit for the refinery in August 2011, a step under the Clean Water Act that details required conditions and limitations for the proposed refinery`s operations. A thirty-day notice of the Department`s decision to acquire the land in trust is being published in the Federal Register.

Continental Resources Plans to Triple Production & Reserves by 2017

Continental Resources Bakken Development Map

Continental Resources announced plans to triple production from 36 million boe in 2012 to 108 mmboe in 2017. That's an increase from a little less than 100,000 boe/d to 300,000 boe/d. The company's proved reserves are expected to follow suit, increasing to near 1.8 billion barrels of oil equivalent in the same timeframe.

Continental expects 2013 production growth in the range of 30-35% based on a $3.4 billion capital budget accounting for the drilling of 738 gross (300 net) wells.

Production and reserves growth were just two points in the company's analyst day presentation. Highlights include:

• Bakken is a true oil field, producing more than 85% oil
• Continental accounts for 13% of Bakken production, 10% of the active rigs, and has 10% of potential acreage leased
• 1.5 Billion boe of potential reserves in the Bakken and Three Forks 1 - additional reserves in the TF 2, TF 3, and TF 4 zones
• Accelerating exploration of lower Three Forks
• At 160-acre spacing there is potential for almost 14,000 wells and 4.5 Billion boe of resource potential
• Elm Coulee exploration has extended the field 8 miles further north
• OOIP estimates increasing from 577 Billion boe to 903 Billion boe. Lower Three Forks resource adds considerable potential
• Well performance continues to improve - Over 600,ooo boe/well expected today
• Results support 320-acre spacing

Bakken Reservoir Study - Marathon Oil SPE Gulf Coast

Marathon Oil Bakken Shale Map

A Bakken reservoir study luncheon was held in Houston on September 27th as part of the SPE's study series. Marathon Oil's subsurface asset manager, Russ Buettner, was on hand to share his thoughts. A few notes from the meeting are included below:

• Marathon's EURs have grown from 350,000 boe to 550,000 boe today
• Spud to spud cycle times have fallen from 90 days to 28 days
• 30-stage fracks are the norm, but he's not convinced it's perfect in every situation
• Open hole to 20-stage fracks improved 12-month recoveries by 40,000 b0e (41,000 boe vs. 91,000 boe). 30-stage fracks are showing they will be better
• 8-12 mmbbls on oil in place on a 1,280-acre unit. That grows to 40-60 mmbbls when considering other formations like the Three Forks, etc.
• Vertical communication and not tighter well spacing is proving to be key in higher recoveries
• Water costs are as high as $20/bbl to handle from procurement to recovery and disposal
• A normal frac uses 25,000-50,000 bbls of water
• .7 PSI/ft is the expected pressure in their area of the Bakken
• Conservative about trying "Hi-Way Fracs" - They know more water is better and HiWay Fracs use less
• Producing 43 degree API crude with a 600-1,200 GOR
• Enhance oil recovery (EOR) characterization is important to the future of the play.

Marathon has 420,000 net acres targeting the Bakken and estimates its p50 resources at ~450 mmboe on 420-640 acre well spacing. The company currently has 7 rigs running, with plans to drop to 5. Two dedicated frac crews are also working for the company. Production from the area average 28,500 boe/d in July 2012

Tioga Pipeline Gets Regulatory Approval - 2013 In-Service

Tioga Pipeline Map

The Tioga Pipeline received regulatory approval on October 1st. Alliance Pipeline has proposed the 12-inch, 79.3 mile lateral from Tioga, ND, to an intersection with the Alliance mainline near Sherwood, ND. From Sherwood, natural gas will be delivered to the Chicago market.

The pipeline has the potential to be expanded, but has been initially approved to transport a little more than 106 mmcfd. The pipeline is supported by a ten-year, 61.5 mmcfd agreement with Hess.

The new lateral will run through Williams, Mountrail, Burke, and Renville counties.

This is a good step toward marketing Bakken Shale gas production. Much of the gas produced to date has been flared due to limited pipeline capacity in the region.

Construction is expected to start immediately with the pipeline being completed in February of 2013. Additional facilities required before the pipeline is placed in service have a target completion of May 2013

Tioga Pipeline Construction Timeline