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Devon is Latest to Deal as M&A Transforms Bakken

Written by Gage Dwan | Jul 18, 2024 2:27:09 PM

Double (H) The Volatility - Join us for our Crude Webinar today at 10 AM. Register here. Devon Energy (DVN) will acquire the Williston Basin assets of Grayson Mill Energy for $5B in cash and stock. The deal is the latest amid E&P dealmaking that has transformed the Bakken industry in 2024, with room for more consolidation ahead.

The agreement with Grayson Mill adds 307,000 net acres and 100 Mboe/d of production (55% oil) to Devon in North Dakota and Montana. The package includes 500 gross locations and 300 refrac candidates, plus ownership in 950 miles of gathering lines for gas, water and crude, DVN said.

Houston-based Grayson Mill has been running 3 rigs steadily in the Bakken in 2024, mainly on G&P systems owned by ONOEK (OKE), Kinder Morgan (KMI) and Hess Midstream (HESM), according to rig allocations in Energy Data Studio. DVN guided to maintaining the 3 rigs and holding production flat on the acquired properties through 2025.

The deal by DVN is the latest in a consolidation wave that will winnow the Bakken oil patch down to only eight main operators by the end of 2024. These eight producers will account for 80% of the basin’s 1.3 MMb/d of crude oil production.

A year ago, 11 companies produced at least 50 Mb/d of oil in the Bakken, of which only seven were public. By YE24, these 11 companies will consolidate into eight; one merger has closed and three are pending. Currently, there are only six public companies out of 130 producers in the play.

The figure shows the changing landscape in the Bakken. In May 2024, Chord Energy (CHRD) completed the acquisition of Enerplus, making it the largest oil producer with ~225 Mb/d. The Enerplus deal moved Continental Resources (~215 Mb/d) down to the number two producer. ConocoPhillips’ (COP) acquisition of Marathon Oil (MRO), scheduled to close in 4Q24, will make it the third-largest Bakken producer (~165 Mb/d). Devon will be number four after closing the Grayson Mill deal. Chevron’s (CVX) acquisition of Hess will make CVX number five (~150 Mb/d) by crude oil volumes.

The entry of larger operators like CVX and COP should bring more advanced technologies to the Bakken. These companies have invested in new drilling techniques like longer laterals and enhanced recovery methods to increase the output of wells.

East Daley’s Production Scenario Tools, available in Energy Data Studio, forecast Bakken crude oil production to increase 70 Mb/d Y-o-Y in 2024, averaging 1.32 MMb/d vs 1.25 MMb/d in 2023. We model 2025 oil production to average 1.41 MMb/d, a 90 Mb/d Y-o-Y increase. Gas production grows to 3.75 Bcf/d in 2025 vs 3.6 Bcf/d this year (see figure from Energy Data Studio). While M&A activity is consolidating rigs crews and driving a decrease in rig counts, our data indicates more wells to be turned in line (TIL) in 2H24, driving the back-half-weighted growth in the Bakken.

We view the Bakken as ripe for further mergers and acquisitions (M&A) due to the unusually large number of smaller private producers. While eight companies supply 80% of the Bakken’s oil volumes, there are another ~122 private companies producing less than 1 Mb/d in the basin. This fragmentation presents opportunities for further consolidation and enhanced operational efficiencies to maintain the Bakken's competitive edge in the global oil market. - Gage Dwan and Kristine Oleszek Tickers: CHRD, COP, CVX, DVN, HESM, KMI, MRO, OKE.

 

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