Oil Investors Are Flocking To North Dakota Looking For A 'Bargain'

According to the Wall Street Journal, oil investors looking for a bargain are acquiring oil and gas wells from struggling operators in North Dakota.

Or, as the Wall Street Journal described it, the "vultures are descending on North Dakota" at a time when producers are scaling back production or looking to sell assets to help pay creditors.

The state emerged as a notable oil producer, but companies need to drill deep wells, which makes the region one of the costliest shale fields.

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North Dakota's Bakken Shale contains hundreds of wells that have been recently sold or in the process of being sold to "fortune seekers," "industry experts" and "first-time wildcatters."

One buyer is Lime Rock Resources, a Houston-based firm that bought more than 340 North Dakota wells from Occidental Petroleum Corporation OXY. The company is run by a former Goldman Sachs banker and oil-industry veterans and backed by at least $1.6 billion in private-equity money to invest.

"In this slump there's definitely opportunities to acquire second-tier unconventional reservoirs," Eddie Rhea, chief executive of another buyer, Foundation Energy Management told the Wall Street Journal. "We buy the ‘strip mall,' pretty it up and sell it. We leave it to other companies to build from scratch."

Foundation Energy Management operates more than 3,000 wells on behalf of endowments and pension funds. The firm began looking at the North Dakota oil market in November 2015.

Finally, the Wall Street Journal suggested that oil investors who are buying assets in the region are likely to hold off on production until oil prices stabilize in the $60 to $70 per barrel range.