Northern Oil is – as previous posts have made clear – not an exploration and production company. It buys acreage and it participates in wells drilled by other people on that acreage. Its only skill – its only reason for existence – is choosing which acres to buy and managing their ownership position. That is why it manages to be a $1.6 billion company with only 11 staff. The staff don't do anything except buy and manage an acreage ownership position.
Well here is list of completions from the most recent 8K.
RECENT COMPLETION HIGHLIGHTS
The following table illustrates first quarter 2011 completions in which Northern Oil has participated with a working interest.
JEANIE 25-36 #2H
HOVDEN FEDERAL #1-20H
BORSETH #15-22 1H
ERNEST SCHARCHENKO #34-33H
MUSKRAT FEDERAL #1-28-33H
ZI PAYETTE #10-15H
GEORGE TANK #151-96-10C-3-3H
BROWN 30-19 #1H
COWDEN #5404 13-35H
VIXEN FEDERAL #1-19-30H
ROUND PRAIRIE #10-1819H
PAYARA # 2-21H
MICHAEL STATE 31X-16
EN-WILL TRUST B #157-94-2635H-3
FORT BERTHHOLD #152-94-13B-24-1H
There are a bunch of things to notice. Every single well is in North Dakota. That is not surprising - the "sweet spot" in the Bakken is in North Dakota. We know that Northern has been buying its large acreage in Montana and buying small plots in North Dakota - but all the drilling is on those small plots. (The large Montana acreage might one day be valuable but they paid not very much for it - and as far as the current drilling is concerned the Montana positions only pad the acreage numbers.)
The second thing to note is how variable these wells are. Only three wells have an initial flow of above 2000 barrels per day. Ten wells have an initial flow below 500 barrels per day.
The third thing to note is that - as per all Northern releases - no decline data is given.
Lets contrast this to Brigham Exploration (BEXP) who have published a summary of their Williston Basin North Dakota results. BEXP averages greater than 2850 barrels per day initial flow. The average of Brigham is above the highest achieved by Northern Oil. Brigham has multiple wells that flowed above 5000 barrels per day initially.
Moreover Brigham does not have a single well with an initial flow below 1000 barrels per day.
Further Brigham published flow rates averaged over the first 30 days and the first 60 days. Declines are massive. Initial flows averaged 2858 barrels per day. Average of the first 60 days is 826 barrels of oil per day and those averages include very high initial flows.
Whatever: it is clear that Brigham's results are much much better than Northern and that Brigham deserves a premium valuation. All things equal these results suggest that Northern's acreage position is inferior to Brigham despite Northern being entirely focussed on acreage.
Decline rates are massive at Brigham - albeit from high initial flows. We do not know the decline rates at Northern but the initial flows are much lower.
A postscript is warranted. Brigham Exploration was acquired. It was a good call...