Oil wells a good buy?

Investors hoping for a bargain are buying up oil and gas wells from cash-strapped operators in the state’s Bakken Shale, a bet they will eventually be able to profit off one of the country’s hardest-hit oil plays.

Hundreds of wells have changed hands or are in the process of being sold, state figures show, to a grab bag of fortune seekers ranging from industry experts to first-time wildcatters. They are picking up properties as more established producers scale back or shed assets to pay creditors.

Houston-based Lime Rock Resources, founded by a former Goldman Sachs Group Inc. banker and an oil-industry veteran, bought more than 340 North Dakota wells from Occidental Petroleum Corp. in November. The firm says it has at least $1.6 billion in private-equity money to invest, a portion of which it has spent on the Bakken. In another pairing of Wall Street and oil-patch veterans, NP Resources LLC bought 53 wells from Whiting Petroleum Corp. in December and is looking for more Bakken acreage.

“In this slump there’s definitely opportunities to acquire second-tier unconventional reservoirs,” said Eddie Rhea, chief executive of another buyer, Foundation Energy Management LLC, which operates more than 3,000 wells nationwide on behalf of endowments and pension funds. “We buy the ‘strip mall,’ pretty it up and sell it. We leave it to other companies to build from scratch.”

Dallas-based Foundation Energy entered North Dakota for the first time in November 2015 by purchasing about 100 wells for an undisclosed price from Whiting, until recently the largest Bakken producer.

North Dakota emerged as a major oil source over the past decade. A combination of technological innovations such as horizontally drilled and hydraulically fractured wells, steadily rising oil prices and ample Wall Street financing helped the state displace Alaska as the second-largest U.S. producer after Texas, with output topping 1.2 million barrels a day.

But the need to drill deep wells and a lack of infrastructure also have made the Bakken one of the costliest U.S. shale fields. U.S. oil prices settled above $50 on Tuesday for the first time since July, but that still isn’t enough to make many of the region’s wells profitable. The number of rigs drilling new wells has shrunk to the lowest level in a decade.

In the Boxcar Butte oil field near Watford City, pump jacks stand idle on a cattle pasture surrounded by wheat fields. The wells haven’t produced a drop of oil in over a year and are among 2,005 idled in western North Dakota, according to state data.

Companies like Whiting, which paid a premium to take over rival Kodiak Oil at the height of the Bakken boom, are paring back operations. Occidental exited from its investments in the Bakken last fall and has focused on other plays. Emerald Oil Inc. and others have sought bankruptcy protection and sought to sell their Bakken assets to pay creditors.

© Chester Dawson/The Wall Street Journal undefined

The new investors say they are waiting for prices to stabilize in the $60-to-$70 range before starting up the drill bits again. Meanwhile, they say they can make money nursing along wells they bought on the cheap. They are cutting costs by laying off excess staff and selling spare equipment like pickup trucks.

State regulators are watching the shift in ownership warily amid concerns financial investors could leave oil fields in worse shape than they found them if prices drift lower.

“It is a big concern,” said Lynn Helms, director of North Dakota’s Department of Mineral Resources, noting the state runs background checks on the buyers’ management teams.

North Dakota drafted new rules in February that add new bonding requirements for pipelines connecting to well sites and storage tanks for oil-field wastewater to prevent operators from skimping on maintenance or abandoning them if their Bakken bets don’t pay off. The North Dakota government took over a pair of two improperly abandoned wells earlier this year and is threatening to confiscate others.

Emerald Oil, which owns the idled Boxcar Butte sites, is among those in violation of statutes requiring it to produce or plug. The Denver-based oil-and-gas producer filed for bankruptcy protection in March. Before doing so, it signed a $10 million deal in December to sell a few dozen wells to Angelus Group, an investment firm run by a pair of Austin, Texas, entrepreneurs new to the energy business. Emerald Oil didn’t respond to requests for comment on the asset sales.

Angelus managing partner Paul Haarman is a self-described financial planner and former host of a radio talk show on investing. “You had a lot of people who overleveraged themselves when oil prices were high, so we’re taking advantage of that obviously,” said Mr. Haarman.His partner, Patrick Duke, is a multifamily-housing investor who says his industry experience comes from working on oil rigs while in college in the late 1970s.

Mr. Duke said Angelus has raised $75 million from wealthy investors for energy deals.

“The production pays for itself, because we’re buying at such a reasonable rate,” he said.

As part of its bankruptcy proceedings, Emerald said last month it received a $73 million bid for its remaining assets from affiliates of institutional investor Crestline Management LP and private-equity firm Sole Source Capital LLC, setting the floor ahead of a July auction. Representatives of Crestline and Sole Source declined to comment.