After riding a five-year high, land acquisition in core areas of the Bakken formation has peaked, according to analysts at Global Hunter Securities LLC.

While Bakken land-grab participants have been able to acquire a sizable base, analysts Philip McPhearson and Michael R. Grijalva say that bidding for acreage is winding down in the North Dakota counties of Mountrail, McKenzie, Williams and Dunn.

“Simply acquiring acreage and expecting a robust valuation on that acreage has hit a bubble,” the analysts said in a June 3 report.

In the last three years, land increased in price from $500 per acre to as much as $8,000 per acre in core areas at state land leases. In some cases, mergers and acquisition activity propelled prices to nearly $10,000 per acre, according to the McPhearson- Grijalva report. The supply of capital and robust spending also drove prices up.

Mountrail's weighted average price per acre of $6,043 topped a May report of North Dakota county lease sales. McKenzie followed at $3,929, Dunn at $3,510 and Williams at $2,494.

In the next phase of Bakken development, the analysts are expecting to see "investors shifting from basing valuation solely on undeveloped land to applying more traditional E&P metrics such as production and reserve growth followed by cash flow and EBITDA multiples."

Therefore, the analysts said, Global Hunter Securities is raising its rating on GeoResources Inc., Kodiak Oil & Gas Corp. and Whiting Petroleum Corp. from Neutral to Accumulate. Global Hunter is maintaining its Accumulate ratings on Brigham Exploration Co. and Continental Resources Inc. and its Buy ratings on Triangle Petroleum Corp. and U.S. Energy Corp.

Emerging areas in Montana, such as Billings, Divide, Golden Valley and McLean, "can still add value, but not until more wells have been drilled and proven productive at something other than goat pasture," the analysts said.

Meanwhile, the Alberta Basin Bakken in northwestern Montana and southern Alberta, Canada, is becoming more of a target for exploration, the McPhearson-Grijalva analysis said. Operators on both sides of the United States-Canada border "are beginning to define targets as well as the productive fairway."

Forty participants, 32 from Canada and eight from the United States, are pursuing production of the Alberta Basin Bakken, the report said. Operators paid as much as $1,800 per acre in June.

Contact the author, Mike Madere, at mmadere@hartenergy.com.

Comments