Whiting, Oasis combine in $6 billion deal to form Williston Basin oil, gas powerhouse

Williston Basin operators Whiting Petroleum and Oasis Petroleum agreed March 7 to combine, creating a producer with one of the largest acreage positions in one of the US' most prominent oil basins – albeit one widely considered to be maturing.

The merger of equals will be a company with 972,000 net acres in the Williston Basin of North Dakota/Montana, spanning both states although by far the bulk of the complementary acreage is in North Dakota, the companies' presentation shows. Combined production in fourth-quarter 2021 totaled nearly 170,000 boe/d, including about 97,000 b/d of oil.

Both companies said the combined entity, which is expected to produce 164,000-169,000 boe/d in 2022 – or roughly flat output pro forma with 2021 – will be a premier Williston Basin operator that combines top-tier assets with low breakeven prices operated by an experienced team.

"Together, we will have the largest net acreage position among peers in the basin, and we will have the second-highest production level" based on current volumes, Danny Brown, current Oasis CEO who will maintain that same position for the combined company after the transaction closes in second-half 2022.

Lynn Peterson, currently Whiting's CEO, will be executive chair of the merged entity.

"That's why we're bringing the two companies together to ... strengthen our ability to move forward and create size, scale and investor interest," Brown said.

While Whiting and Oasis didn't mention dwindling inventories and talked instead about the benefits of blending their respective portfolios, a widely perceived maturation of the Williston and other US basins has been on many minds in the industry.

Bakken 'rebranded' mature

In his most recent monthly production webinar in February 2022, Lynn Helms, director of North Dakota's Department of Mineral Resources, lamented that the Bakken Shale, one of the US' biggest oil plays, has been "rebranded" an aging asset.

The Williston currently produces about 1.202 million b/d of oil on the North Dakota side, and another 42,000 b/d from Montana, according to S&P Global Commodity Insights. It also produces a total 2.1 Bcf/d of natural gas from both states.

For February 2022, the Bakken also yields internal return rates of around 60% at prices of $73.96/b-$86.51/b for oil and $3.17/Mcf -$4.69/Mcf for natural gas.

"The Bakken and the Eagle Ford Shale [sited in South Texas] are now considered mature, so we're looking at very low rates of growth," Helms said. "Some companies are just holding their production flat" in the basin.

Even though the Bakken Shale has "very good economics" and generates "a lot of cash and lot of revenues," most operators there are not reinvesting in the play, he added.

And at the opening of the CERAWeek by S&P Global conference March 7, John Hess, CEO of Hess Corp, which is one of the few companies that is still raising its production in the Bakken, echoed Helms' February comments, stating that oil companies as a whole have only about a decade of inventory left in the Bakken.

Although the world needs oil and will continue to need it, after 10 years of unconventional oil production "people have to realize that shale is a mature business now," John Hess said. "There's only about a 10-year inventory of shale drilling locations left, maybe 15, and people are being more judicious" about how they produce and accelerate production.

Whiting and Oasis said combined, their inventories support 10 years of development.

"While the Bakken is a fairly mature basin, both Oasis and Whiting are well-established Bakken operators, and the combined company will have an immense amount of acreage," Nathan Hasbrook, supply and production energy analyst for S&P Global Commodity Insights.

Inventory not a concern, yet

"Given their new scale, the combined company should be able to cut costs and eliminate redundancies across the new organization," Hasbrook said. "In the short and medium term, I don't have any concerns about drilling inventory considering their sizable acreage position, but eventually (in 10-20 years) they will need to grow organically, acquire more acreage within the Bakken or get assets in another basin."

After closing the deal, the merged company will operate under a new name to be announced at a later date and will be headquartered in Houston while maintaining Whiting's Denver office, the companies said.

Even though both Whiting and Oasis were involved with other plays in the past – Whiting in the DJ Basin of Colorado and Oasis in the Permian Basin of West Texas/New Mexico – they separately divested those properties in 2021.

At that time, both said they saw more value in their Williston properties. That shouldn't change going forward, Peterson said.

"I think our [Whiting's and Oasis'] vision is really aligned, how we've gone the last year trying to grow our positions in the basin," he said. "I think putting the two companies together obviously gives us much, much more financial strength to pursue or chase other situations that might arise. So again, I think we're just a bigger entity of what we both were individually, and we're stronger together than we are a stand-alone."

The companies also stressed the revenue benefits of the transaction, which should result in estimated free cash flow of $1.2 billion for full-year 2022.

The company targets its second-half 2022 return of capital to shareholders at 60% of cash flow. E&Ps in Q4 calls cited percentage givebacks from 40% to as much as 90%.

The company's leverage will be exceptionally low at 0.2 times net debt/estimated first-half 2022 EBITDAX at closing.