Northern O&G provided an operations update related to acreage and drilling activity in the Williston Basin Bakken and Three Forks play.
2011 ACREAGE ACQUISITIONS
During the first quarter of 2011 through March 28, 2011, Northern Oil has acquired leasehold interests of approximately 11,100 net mineral acres for an average of $1,540 per net acre in its core Bakken and Three Forks prospect areas of North Dakota and Montana. All acreage acquisitions year-to-date were consistent with Northern Oil's strategic non-operated business model.
Northern Oil controls 151,327 net acres targeting the Bakken and Three Forks prospects as of March 28, 2011. This acreage position will allow Northern Oil to participate in approximately 709 net wells assuming six wells per 1280-acre spacing unit.
INCREASED 2011 DRILLING GUIDANCE
Due to accelerating drilling activity and key acreage acquisitions, Northern Oil has spud approximately 9.8 net wells in the first quarter of 2011 year-to-date and now expects to spud approximately 40 net wells during 2011, which represents an increase from previous guidance of 36 net wells.
As of March 28, 2011, Northern Oil has participated with a working interest in 343 successful Bakken or Three Forks discoveries. Northern Oil is currently participating in 141 gross (14.17 net) additional Bakken or Three Forks wells drilling, awaiting completion or completing. Northern Oil maintains a 100% success rate in the Bakken and Three Forks play.
According to the North Dakota Industrial Commission, approximately 173 rigs are currently drilling in the North Dakota Bakken and Three Forks play, representing a new record. The significant rig increase over the past year is driving the continued acceleration of the development of Northern Oil's core acreage position.
Slawson Exploration, Northern Oil's operating partner in the Windsor prospect in southern Mountrail County, North Dakota, has commenced the second well in each spacing unit of that prospect. Downspacing in the Windsor prospect to six wells per spacing unit has been approved by the North Dakota Industrial Commission. Slawson Exploration has recently contracted 1.5 dedicated frac crews, which we expect will materially shorten the spud-to-sales timeline in this highly productive prospect. Northern Oil is Slawson's largest working interest partner in the prospect.
INCREASED 2011 PRODUCTION GUIDANCE
Based on recent drilling activity and continued accelerated development of Northern Oil's acreage, Northern Oil currently expects daily production to average 6,500 to 7,100 barrels of oil equivalent ("BOE") during calendar year 2011.
2011 CAPITAL EXPENDITURES
Northern Oil now expects to spend approximately $252 million in drilling capital expenditures during 2011, which represents an increase from previous guidance of $227 million. Northern Oil currently expects to participate in wells during 2011 at an average completed cost of $6.3 million per well. Based on acreage acquired in the first quarter of 2011 through March 28, Northern Oil expects to continue deploying additional capital toward strategic acreage acquisitions throughout the remainder of 2011. Northern Oil currently expects to fund all 2011 drilling commitments and anticipated acreage acquisitions using cash-on-hand of approximately $125 million, 2011 cash flow and its currently undrawn $100 million credit facility.
2011 DEPLETION, DEPRECIATION AMORTIZATION AND ACCRETION
For the fiscal year ending December 31, 2010, Northern Oil's depletion, depreciation, amortization and accretion expense ("DD&A") on a per BOE basis was $19.22. For comparison purposes, based on information provided in their respective annual reports on Form 10-K for the fiscal year ending December 31, 2010, Kodiak Oil and Gas reported a DD&A expense of approximately $18 per BOE, Oasis Petroleum reported a DD&A expense of $19.91 per BOE and Brigham Exploration's DD&A expense calculates to approximately $20.47 per BOE. As such, Northern Oil's 2010 DD&A expense was in the mid-range of its peer group in the Bakken and Three Forks play. Northern Oil anticipates its DD&A expense for the fiscal year 2011 to remain in-line with this peer group.
Michael Reger, Chairman and Chief Executive Officer, commented, "We are very encouraged by the continuing pace of acreage acquisitions and the development of our substantial Bakken and Three Forks position thus far in 2011. We continue to leverage our franchise value in the North Dakota Bakken play to expand our footprint and convert acreage to production. We have converted approximately 25% of our acreage to production or under the bit and expect to end the year at approximately 50%, on pace to hold virtually all of our current position by production through 2013." Reger continued, "We adamantly reaffirm our confidence in our depletion calculation and reiterate that we are in the mid-range of our peer group in the Williston Basin Bakken and Three Forks play."
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