Plans by Camarillo oil producer BNK Petroleum Inc. to sell part of an Oklahoma shale oil field show that the company is getting a handle on some of the challenges that have been drilling down on its stock price.
The $148 million sale announced last week injects much needed cash into company coffers – money the company will use to pay down debt, boost exploration and production domestically and shore up its troubled European holdings.
“We’re monetizing the shale assets we’ve accumulated over the years,” BNK Chief Executive Wolf Regener told the Business Journal last week. Regener added that the deal also preserves the company’s ability to produce more oil in the region.
Shares of BNK surged 43 percent March 18, the day the sale was announced, closing at 80 cents a share. Until last week, the stock had been on a long, steady decline, losing 54 percent of its value over the past year, more than twice the average for small and midsize oil companies. Much of the decline had come after news of setbacks in its European exploration efforts.
The sale to XTO Energy Inc. – a unit of Exxon Mobil Corp. of Irving, Texas – involves the rights to a deep layer of shale oil deposits, known as the Woodford Shale Formation in a southeastern Oklahoma oil field.
During the last several years, BNK has drilled into the formation and the wells there now produce the equivalent of about 1,800 barrels a day of oil.
After the sale, Regener said BNK retains the rights to two sedimentary layers above the Woodford formation. Using cash from the sale, the company is set to start drilling in one of those layers, known as the Caney Formation.
“We had to drill through the Caney Formation to get to the Woodford Shale Formation, so we have a pretty good idea about what’s there,” Regener said. “We believe (there is) a promising opportunity to develop new oil reserves and production.”
Problems in Poland
Other cash from the sale will go to boost the company’s efforts in Europe. In recent years, BNK has amassed major oil and gas field holdings in Poland, Germany and Spain, hoping to capitalize on improved hydraulic fracturing, or “fracking,” which can extract oil and natural gas from shale deposits in those countries.
But those efforts have suffered setbacks. Last year, ExxonMobil announced it was withdrawing from northern Poland, saying exploratory wells were producing less natural gas than expected. That prompted concern that BNK’s holdings nearby would not prove as lucrative as hoped. Then the company encountered extensive delays in obtaining drilling permits from the Polish government.
“We’re one of the first companies to go through the approval process after the government passed new regulations,” Regener said. “So it’s going much slower than we would have liked.”
Complicating the Polish efforts was an accident last summer involving an overturned tanker truck that BNK had contracted to haul liquids used for fracking. Those liquids were released into a nearby river. While no immediate environmental damage occurred, the incident heightened awareness of the dangers inherent in fracking and further slowed the permit process.
In Germany, BNK halted exploration efforts on most of its holdings after determining that extracting oil or natural gas at those fields was too risky.
“We decided not to pursue those holdings at this time,” Regener said.
The company is moving forward with exploration at another one of its German holdings.
BNK is awaiting approval from the Spanish government to begin drilling on holdings near the north coast; Regener said he expects the OK to come late this year.
Finally, Regener said that some of the cash from the sale will pay down debt. In January, BNK obtained a $76 million credit facility from Morgan Stanley Capital Group Inc. in New York, which was more than double the previous $32 million.
BNK formed five years ago when Calgary, Alberta-based Bankers Petroleum Ltd. decided to spin off its U.S. holdings in Oklahoma, Mississippi and Alabama.
While those oil- and gas-producing assets generate most of BNK’s revenue, the company early on decided to focus its exploration efforts on new shale gas markets in Europe.
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