SM Energy Makes Historic $330M Purchase

By The Bakken magazine staff | September 22, 2014

SM Energy Co. made a $330 million purchase of 61,000 net acres in the Bakken and Three Forks shale play located in Divide County, N.D., the largest monetary acquisition in company history. 

The acquisition from Baytex Energy Corp. includes acreage adjacent to SM Energy’s currently operated block known as the Gooseneck and brings SM Energy’s exploration and production acreage total to 97,000 acres in the area. With this purchase, SM Energy received 126 drilling spacing units, 81 of which will be operated by the company.

The deal was completed through cash on hand and borrowings from its current revolving credit facility, and according to CEO Tony Best, the need for an asset divestiture is not necessary. And according to Jay Ottoson, president and chief operating officer the company, only needs to drill one good well per spacing unit to pay for the transaction.

In SM Energy’s second-quarter conference call, Ottoson said that SM’s wells in the Three Forks are getting even better over time. Current wells in that area average 10,000-foot laterals and are decreasing drilling time by close to 30 percent. By increasing the amount of frack sand used in drilling by 40 percent, SM Energy has seen a 25 percent increase in the rate of return for its wells in the area.

“We don’t think we’ve reached the limit on operational improvements,” said Ottoson. “Given these results, it is easy to see why we are excited about the acquisition. We think there is significant opportunity in the Bakken where we are drilling.”

“If you look at our results, we stick out as an outstanding operator,” said Ottoson. He also added that SM Energy hasn’t had any issues in dealing with excessive produced water or in accessing water for completion. SM Energy has found it feasible to use surface water in the region for well completions due to high water cuts incurred at well sites.

Many wells in the area use sliding sleeves on a 26 to 30 discrete fracture stage process and can be found using artificial lift systems with long stroke lifts, a method SM believes is aggressive.

“We are drilling four Three Forks wells in our current acreage and we haven’t even gotten to the Bakken yet,” said Ottoson. The success SM Energy has in increased sand loads in the Gooseneck may alter its plans for downspacing, potentially adding more wells onto the pad.
Most of the oil produced on the purchased acreage is moved via truck, but SM Energy thinks there could be an opportunity to move the oil via pipe. The company will also look into investing in water disposal for the newly acquired property.