Whiting Petroleum Corp. (WLL) announced that it will acquire Kodiak Oil & Gas Corp. (KOG) in a transaction valued at $6 billion, comprising $3.8 billion in stock and $2.2 billion of debt assumption of Kodiak.
The transaction, uniting the two Denver, CO-based exploration and production companies, would make the combined entity the largest producer in the North American prolific shale play Bakken and Three Forks. The first quarter production from both the companies was over 107,000 oil equivalent barrels per day from the region.
As per the terms of the agreement, shareholders of Kodiak will get 0.177 share of Whiting Petroleum for every Kodiak share they hold. On completion of the agreement, Whiting Petroleum shareholders will be the owner of about 71% of the combined company whereas Kodiak shareholders will have 29% ownership.
Whiting Petroleum mentioned that the combined company is expected to have an initial enterprise value of $17.8 billion. Additionally, the combined entity will expectedly have 2014 production of 152 thousand barrels of oil equivalent per day and proved reserves of 606 million barrels of oil equivalent – which constitute about 80% oil.
Whiting Petroleum stated that it has increased its borrowing base to $4.5 billion, which it believes would suffice the new combined company’s financial needs as well as settle Kodiak’s borrowings under its credit facility. The transaction is expected to close in the final quarter of the year.
Management at Whiting Petroleum stated that the transaction adds significant high return drilling acreage to its inventory and is expected to be accretive to the company’s cash flow, earnings as well as production from 2015 onwards.
Kodiak management stated that it expects the transaction to bring about operational and financial flexibility in the combined company that will facilitate better and faster development of the company assets. Moreover, Kodiak expects the deal to be tax free for the company’s U.S. shareholders.
Currently, Whiting Petroleum has a Zacks Rank #2 (Buy), while Kodiak has a Zacks Rank #3 (Hold). Other stocks to consider from the oil exploration and production industry include EXCO Resources Inc. (XCO) and Clayton Williams Energy, Inc. (CWEI). Both these stocks sport a Zacks Rank #1 (Strong Buy).