Bakken acquirer Kraken Resources has ramped up its production to more than 80,000 boe/d with the pick-up of a $500 million package from Canada’s Veren Inc. in October.

The affiliate of Houston-based Kraken Oil & Gas Partners, which operates in the Williston Basin as Kraken Operating and Neptune Operating, won a BB+ from Fitch Ratings on July 22 in a first-time credit score from the rating agency.

In North Dakota, Kraken Operating produced 25,273 boe/d, including 23,794 bbl/d, according to state data.

In Montana, the company produced an average of 19,285 bbl/d of oil, or 23,476 boe/d in 2023, according to Montana state data. The volume was double that of 2021, according to the state file.

Meanwhile, Neptune Operating made 38,245 boe/d, including 37,250 bbl/d of oil, in May, all in North Dakota.

“We purchased the assets of Crescent Point in North Dakota, and Neptune Operating is the operating sub for Kraken Resources II LLC,” Bruce Larsen, president and CEO of Kraken Resources and Neptune, told Hart Energy. “We are working on consolidating everything back to Kraken."

The BB+ Fitch rating applies to the Kayne Anderson-backed Kraken Oil & Gas Partners’ senior, secured bank credit facility. Separately, Kraken received a BB- on its proposed senior unsecured notes offering.

After selling an undisclosed amount of unsecured notes, Kraken will have $625 million outstanding under its secured bank facility, which has a $1.4 billion borrowing base.

The BB rating, which is at the highest-quality end of Fitch’s speculative range, is the grade received recently by SM Energy (Eagle Ford- and Permian-focused), Baytex Energy (Canada and Eagle Ford), Crescent Energy (Uinta Basin and Eagle Ford) and TG Natural Resources (Haynesville).

Acres, inventory

Kraken Resources was formed in 2012 and Kraken II (Neptune Operating) was funded in July of 2021.

The latter bought Bowline Energy’s North Dakota property in December of 2022 and the Veren (fka Crescent Point Energy) package last year.

Kraken’s combined property in North Dakota and Montana is 330,000 net acres, 92% operated and 87% HBP, according to Fitch.

In North Dakota, Kraken and Neptune operate 741 wells (Kraken, 286; Neptune, 455) in Williams and McKenzie counties, according to state data.

In Montana, Kraken operates in Roosevelt and Richland counties—the latter of which was the May 2000 birthplace of the modern horizontal, stimulated Bakken play.

The epicenter, Sidney, is Larsen’s hometown.

Fitch estimates Kraken Oil & Gas Partners has six to eight years of drilling inventory at its current two-rig count with one frac crew and expects “the company will likely have to engage in M&A activity to maintain,” it reported.

The company holds at least 400 undeveloped locations in its portfolio, “of which approximately 220 have breakevens of $50 WTI or less.”

Fitch added that its initial BB+ and BB- ratings on Kraken “reflect its high-quality, high-oil-mix Williston Basin assets,” strong margins, credit-friendly acquisition financing, strong free cash flow, hedging and liquidity.

“These factors are partially offset by the company's smaller production size versus BB-category peers” as well as the expectation that maintaining adequate inventory to sustain production will require more dealmaking.

Kayne Anderson backing

Altogether, Fitch counted five Kraken I and II acquisitions since 2016 totaling $1.7 billion, with Kayne Anderson directly investing $660 million to fund four of them.

“The sponsor has also invested an additional $120 million to provide leasing and drilling capital, bringing the total equity investment in Kraken to approximately $780 million,” Fitch reported.

Most recently, Kayne Anderson put more than $400 million into newly formed Kraken II from funds managed by its Kayne Anderson Capital Advisors.

Kraken I team members also invested in the second startup.

At that time, the original Kraken already held more than 130,000 net acres, drilled more than 200 wells since 2017 and operated 350, with more than 20,000 net boe/d of production, it reported.

Kraken’s proved developed producing (PDP) decline rate is less than 40%, Fitch reported, and has “a reinvestment rate below 50%, both of which are better than many of the company's closest peers.”

Capex is projected at $625 million this year.

EBITDA leverage will be 0.8x after issuing the unsecured notes, Fitch calculated. Kraken’s “lean cost structure results in one of the strongest unhedged cash netbacks within Fitch's aggregate E&P peer group,” it added.

The Veren property

Calgary-based Veren, which changed its name from Crescent Point Energy in May, had listed its North Dakota property for sale in the summer of 2023.

It reported at the time that the package’s size had “limited scalability” for it and the sale would allow it to have more “focus on our core operating areas" in Canada.

Kraken didn’t publicly acknowledge at the time that it was the buyer. However, well files in North Dakota’s state records showed a change of ownership from Crescent to Neptune with Larsen listed as president.

Larsen confirmed to Hart Energy on July 23 that Neptune was the buyer and that it is part of Kraken.

Veren stated in 2023 that production from the property was 23,500 boe/d, 89% liquids, and was expected to decline to 18,000 boe/d by 2027, “given the limited drilling inventory.”

Leasehold was 115,000 net acres, according to Enverus.

Year-end 2022 proved and probable reserves (2P) were 86.9 MMboe, according to Veren’s year-end 2022 annual report. Some 35% of Veren’s 2023 capex was targeted for North Dakota.

Gross producing wells were 218; net, 175.

According to an Enverus report after the sale announcement, Veren’s wells on the property typically cost $7.2 million each and paid out in nine months to 13 months.

Another private E&P, Silver Hill Energy Partners, entered the Bakken in January, picking up some 13,000 boe/d, 86% liquids, in North Dakota from Liberty Resources II for an undisclosed price.

PDP reserves were 16 MMboe. It came with 84,000 net acres, 80% HBP, in Mountrail, Burke, Williams and Divide counties.

Silver Hill I and II were backed by Kayne Anderson. Silver Hill III and IV are institutionally funded PE funds that Silver Hill manages directly. 

Comments