Exclusive Interview with Bud Brigham, CEO of Brigham Exploration

The CEO’s of small cap Oil & Gas companies are typically of a more rugged breed than most Fortune 500 companies. Where most CEO’s are number crunchers who like chatting in the boardroom, oil execs are more comfortable getting their hands dirty in the field and Bud Brigham, CEO of Brigham Exploration is no exception. He started out in the trenches as a geophysicist and saw an opportunity to use his technical expertise to launch Brigham Exploration.  For the longs that hopes a Brigham buyout is in the future, that hope should still be intact as Bud indicates that his focus is around maximizing shareholder value whether it be via organic growth or being acquired. Enjoy the interview below:

Question: Mr Brigham, you got your start as a exploration geophysicist back in the mid 80’s. How did your technical background in seismic data help shape Brigham Exploration into the company it is today?

Answer: Since our founding, our business model was to leverage technology to reduce finding and development costs to generate optimal economic returns and enhance shareholder value. My background in geophysics benefited us in the early days given that 3-D seismic was the breakthrough technology that drove our strong performance during the 1990’s. However, as we built out our technological team we brought on and further developed core competencies in drilling and completion technologies. Those competencies benefited us beginning in the late 1990’s when we were drilling deep pressured lower Vicksburg wells in areas where many operators had experienced severe problems. Our team made three large field discoveries in Brooks County, Texas, and have drilled over 42 successful Vicksburg wells which generated extremely attractive economic returns for our shareholders. They’ve also successfully drilled difficult wells in Southern Louisiana and even 25,000 foot directional discoveries in the Hunton of the Texas panhandle. So our operational expertise leveraging drilling and completion technology was proven even prior to the success we’ve enjoyed drilling the first very high frac stage long laterals in the Bakken and Three Forks play of the Williston Basin.
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Question: What are some of the challenges Brigham faced in the early days of drilling in the Bakken region?

Answer: Early on the then current technology did not deliver the production and economic performance required to generate the returns we were seeking for our shareholders. So the initial challenge was to see beyond the then current results, to pick up acreage in the best areas, with confidence that our innovations in drilling and completion techniques would ultimately deliver the returns for our shareholders that we were seeking. Our staff rose to the challenge, and we’re proud of the fact that our operations team demonstrated operational leadership in the play, which has now led to sixteen consecutive high frac stage long lateral discoveries with initial peak production rates of roughly 2,400 Boe per day.

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Question: There is currently a lot of innovation occuring in the Bakken region from Continental Resources Eco-Pad drilling pads to Brigham’s pushing the limit on frac stages and completion technology. Do you view oil & gas companies in the region as competitors or partners (or perhaps a bit of both).

Answer: A little bit of both. Continental is an example of an excellent operator advancing the play to all of our benefit. We enjoy a strong relationship with Continental and most of the other quality operators in the play, and in many ways we’re working together to help each other out. On the other hand, there are occasions where we are directly competing, particularly for acreage. That being said, it’s a friendly and ethical competition that’s beneficial to the region and it’s landowners.

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Question: What is Brigham’s growth strategy in the Bakken region with the 288,000 net acres you control and do you expect to acquire additional acreage in the coming year?

Answer: We are blessed with a huge inventory for a company of our size. For example, with four rigs running the roughly 150,000 net acres that we view as derisked provides us with a more than 17 year inventory of drilling projects. If we have success with our first operated Three Forks well in Rough Rider our inventory would potentially grow to 26 years. Success in Montana, and our other extensional areas, would grow it further. That being said, this is a once in a lifetime opportunity to capture value for our shareholders, and we are doing so today with a focus on adding additional acreage in our proven areas.

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Question: Is Brigham still on track to drill 25.7 net Williston Basin wells in 2010 and do you expect similar growth for 2011?

Answer: Given the amount of inventory in front of us we are looking for optimal ways to accelerate our drilling in 2011 and subsequent years, beyond the roughly 26 net wells we have planned for 2010. Our wells have generally outperformed our expectations, which could by itself support an accelerated effort. We also have substantial conventional assets that could potentially be monetized and the capital redeployed to further accelerate our drilling pace. Fundamentally, given the return on these projects accelerating our drilling will be very accretive for our shareholders, it’s simply a matter of seeking the least expensive sources of capital to accomplish that end.

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Question: There has been a lot of buzz around the operational efficiency your drilling/exploration teams have achieved in the last year which has given Brigham a definitive competitive advanatage. Would Brigham Exploration ever consider being acquired in the future as a number of larger O&G companies may see a great deal of synergy in your portfolio of expertise and assets.

Answer: Our goal is to optimize our creation of shareholder value for our shareholders, and we will consider any option that accomplishes that objective. We believe we’re in an enviable position with demonstrated operational leadership in what we believe to be the premier domestic resource play. For us now it’s about largely about “blocking and tackling”, and about being of course smart in our strategy and execution.

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About Brigham Exploration

Brigham Exploration Company is an independent exploration, development and production company that utilizes advanced exploration, drilling and completion technologies to systematically explore for, develop and produce domestic onshore oil and natural gas reserves. For more information about Brigham Exploration, please visit our website at www.bexp3d.com or contact Investor Relations at 512-427-3444.

Forward-Looking Statement Disclosure

Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements within the meaning of the federal securities laws. Important factors that could cause our actual results to differ materially from those contained in the forward-looking statements include initial production rates which decline steeply over the early life of wells, our growth strategies, our ability to successfully and economically explore for and develop oil and gas resources, anticipated trends in our business, our liquidity and ability to finance our exploration and development activities, market conditions in the oil and gas industry, our ability to make and integrate acquisitions, the impact of governmental regulation and other risks more fully described in the company’s filings with the Securities and Exchange Commission. Forward-looking statements are typically identified by use of terms such as “may,” “will,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements may be expressed differently. All forward-looking statements contained in this release, including any forecasts and estimates, are based on management’s outlook only as of the date of this release, and we undertake no obligation to update or revise these forward-looking statements, whether as a result of subsequent developments or otherwise.

March 15th – Bakken Fund Update

For questions on the Bakken Fund, please see our FAQ here

The markets continue their choppy but upward ascent over the last 10 days and our Bakken Fund has followed suit as well.   American Oil & Gas (AEZ: N/A N/A) continues to outperform with a 40% gain and GeoResources Inc (GEOI: N/A N/A)  and Kodiak Oil & Gas (KOG: N/A +0%) are also close behind.   All of our Bakken plays are still in the black and have held up well as oil has traded up and down days over the last 2 weeks.   The Bakken Fund is still outperforming the Nasdaq, Dow and Russell 2000 indexes and we expect that to continue unless oil totally diverges from the overall market. The fund now stands at a 16.9% gain and we are continuing to hold most positions as we have not seen technical weakness in the constituents.

Bakken Fund NAV: $11.69 YTD Return: 16.9%

     
left curve   recent returns vs. major indexes right curve
   
  Beating Today MTD QTD YTD
BKN   -1.01% 9.31% 18.83% 18.83%
S&P 500 YES -0.04% 4.22% 3.58% 3.58%
DOW YES 0.09% 2.90% 1.89% 1.89%
Nasdaq YES -0.28% 5.78% 4.34% 4.34%
     

 

 

Symbol Price Shares Value % of Fund Gains Today Return
AEZ $5.85 23,765 $139,025.25 11.81% $41,645.71 -0.85% 40.96%
GEOI $15.22 8,698 $132,383.56 11.24% $31,193.02 -1.49% 30.83%
KOG $2.94 15,985 $46,995.90 3.99% $10,241.22 0.00% 27.86%
BEXP $17.20 6,710 $115,412.00 9.80% $24,058.59 -1.94% 24.03%
WLL $77.73 1,390 $108,044.70 9.18% $20,768.11 -1.06% 20.66%
SM $36.68 3,020 $110,758.50 9.41% $17,472.81 -0.42% 17.53%
MRO $31.23 3,395 $106,025.85 9.00% $11,137.21 -0.79% 11.08%
CLR $40.88 2,540 $103,835.20 8.82% $11,009.20 -1.47% 10.96%
EOG $96.93 1,000 $96,930.00 8.23% $6,581.50 -0.67% 6.61%
NOG $12.95 8,090 $104,765.50 8.90% $4,642.37 -0.69% 4.64%
               

Bakken happenings

The news from the Bakken region seems to be accelerating due to the uptick in activity.  Some pertinent tidbits are below:

  • A joint venture between Resolute Energy Partners and GeoResources was announced, to develop acreage in the Bakken Shale Trend, North Dakota, US. Resolute will hold a 45% interest in the joint venture, while GeoResources will hold another 45% interest and the remaining 10% will be held by a third industry partner.
  • Resolute Energy Corporation announced 2009 year end figures. Total proved oil and gas reserves were 64.4 million barrels of oil equivalent, 31% more than in 2008. Net production was 2.7 million barrels of oil equivalent, 4% down on last year It plans to put aside $22 – $25 million for acquisition and operations in its new leasehold position in Williams County, North Dakota.
  • The Bakken lease sale for February in North Dakota raised $47 million, which was the second highest figure on record. The two highest bids were for Mountrail County land and the Burke County leased the most acres at 11,977.
  • Brigham Exploration’s16-9 #1H well in the Bakken region produced 2,264 BOEPD at its initial rate.
  • PetroBakken now has 51 bilateral horizontal wells on production in Saskatchewan, which are proving to be 50% more efficient, production-wise, compared to conventionally drilled wells.
  • TransCanada Corp. met with two governors and Montana and North Dakota oil producers to discuss a possible on ramp to the Keystone XL pipeline, which could happen by 2013.

March 4th

  • One Exploration drilled 3 (0.9 net) horizontal wells in Q1 of 2010 at Tableland, Saskatchewan. They plan to drill another well there, also targeting the Sanish-Three Forks formation.
  • Credo Petroleum Corporation continued to acquire acreage in North Dakota. Their first well was completed with an initial production rate of 1,474 barrels of oil per day equivalent. A second well should spud in about two months. They have 9 other wells in the area immediately surrounding these two.

March 3rd

  • Enbridge, which has already spent $223 million upgrading its North Dakota pipeline system is consider spending nearly $300 million more to increase capacity.

March 1st

  • Quicksilver Resources Q4 2009 net income was up 19% from the same period in 2008. They have over 130,000 acres in Montana and are planning to drill 2 horizontal wells to test the Bakken and other formations. The fact they will reach the Bakken at a depth of between 3,000 and 4,000 feet is of great interest as far as the economics of drilling there goes.
  • American Oil & Gas Inc. is selling off other assets to focus on the development of their Goliath project area in the Bakken formation

March 4th – Bakken Fund Update

For questions on the Bakken Fund,  please see our FAQ here

Despite some pressure on oil today,  The Bakken Fund continues to roll and outperform the Dow, Nasdaq and pretty much every standard index on the market.    We resisted our urge to trade out of some plays last week during some down days,  and that proved to be a wise decision.    American Oil & Gas  (AEZ: N/A N/A) has really taken off after some positive news earlier this week and is currently holding gains over 30%.    Brigham Exploration (BEXP: N/A N/A)  and GeoResources Inc (GEOI: N/A N/A)  also continue to excel with 20% gains.    We are a bit cautious in the short term and will look for signals to book gains and reenter at better entry points on some of our positions.

Bakken Fund NAV: $11.31 YTD Return: 13.1%

recent returns vs. major indexes
Beating Today MTD QTD YTD
Bakken Fund -0.50% 4.52% 13.10% 13.10%
S&P 500 yes 0.37% 1.31% 0.69% 0.69%
DOW yes 0.46% 0.69% -0.30% -0.30%
Nasdaq yes 0.51% 1.90% 0.51% 0.51%

Symbol Price Shares Value % of Fund Gains Today Return
AEZ $5.38 23,765 $127,855.70 11.31% $30,476.16 -2.00% 29.98%
GEOI $14.06 8,698 $122,293.88 10.82% $21,103.34 2.24% 20.86%
BEXP $16.62 6,710 $111,520.20 9.86% $20,166.79 -2.81% 20.15%
WLL $75.74 1,390 $105,278.60 9.31% $18,002.01 -1.70% 17.91%
SM $35.05 3,020 $105,851.00 9.36% $12,565.31 0.06% 12.61%
KOG $2.56 15,985 $40,921.60 3.62% $4,166.92 0.39% 11.34%
CLR $39.84 2,540 $101,193.60 8.95% $8,367.60 -1.07% 8.33%
NOG $13.22 8,090 $106,949.80 9.46% $6,826.67 0.84% 6.82%
MRO $29.58 3,395 $100,424.10 8.88% $5,535.46 0.37% 5.51%
EOG $95.20 1,000 $95,200.00 8.42% $4,851.50 -0.65% 4.87%

A serving of Canadian Bakken: Key players in Saskatchewan

There has been considerable amount of press in the US about the exploits in Montana and North Dakota, but the Canadian Bakken shale has seen substantially less coverage by the US press.   Most US investors are aware that the Bakken formation, covers parts of the states of Montana and North Dakota in the USA but over 25% over the entire Bakken formation resides in Saskatchewan province over the border in Canada.     Two of the main Canadian players at the moment are Crescent Point Energy Corp (TSX:CPG) and PetroBakken (TSX:PBN) which was formed by an alliance of TriStar Oil and Gas and Petrobank Oil and Resources Ltd.  Smaller players include Cenovus, Painted Pony Petroleum & PetroStar.   An overview of some of these players are below

 

Crescent Point Energy (TSX:CPG)    Market Cap: 7.5 Billion (CAD)

The expected production figures for Crescent Point Energy is currently in the region of 27,000 BPD oil equivalent comparing to the 24,500 BPD oil equivalent that was reported as being extracted by Crescent towards the end of last year.   Crescent Point Energy Corp is one of the larger Bakken plays in Canada with a market capitalization of 7.95 billion dollars (CAD) and an average production in Q3 last year of just over 46,000 BPD oil equivalent for all operations, comprising roughly 88% oil with the remainder being natural gas and natural gas liquids.   Crescent Point Energy Corp currently is  $39.40 (CAD)  at the final bell yesterday. They have a drilling inventory rumoured to comprise of almost 3,000 locations in the Bakken area.   In looking at a 6 month chart, the stock should have support around $39 and has been in a narrow $4 trading range over the period. 

 

 

PetroBakken (TSX: PBN)     Market Cap: 4.83 Billion (CAD)

PetroBakken wasn’t far behind in the same period, producing an average of approximately 41,500 BRP oil equivalent from their operations. 94% of this comprised light oil, excluding Alberta production figures where they are planning to sell a majority of their assets. They have also been active on the acquisitions front recently, acquiring Berens Energy Ltd and Result Energy Inc. early this year.    Since having a share price of over $35 CAD in October 2009, a couple of months after the formation of the alliance, PetroBakken shares have languished relative to other Bakken plays and currently sit just above $28 CAD per share.   PetroBakken have approximately 1,300 wells in the Bakken region and look to have an aggressive  acquisition strategy.    PetroBakken added a 3rd acquisition this year by acquiring a private west Pembina Cardium play a few days ago.   Recent highlights include the following:

  • Fourth quarter 2009 average production increased by 105% to 45,621 barrels of oil equivalent per day (“boepd“) from 22,274 boepd. 
  • Proved plus probable (“2P“) reserves increased by 146% to 143.6 million barrels of oil equivalent (“boe“) at December 31, 2009.
  • 2009 working interest production was replaced more than ten times as a result of increases in reserves from operations and acquisitions.
  • Net present value (“NPV“) (before tax, discounted at 10%) of 2P reserves increased by 145% to $3.7 billion.
  • 2P finding, development and acquisition (“FD&A“) costs, including revisions and future development costs of $32.11 per boe. Excluding net acquisitions, including the TriStar Oil & Gas Ltd. (“TriStar“) acquisition, our 2P finding and development (“F&D“) costs were $30.82 per boe.
  • January 2010 production averaged 43,600 boepd, after the disposition in December 2009 of approximately 2,000 boepd.
  • We anticipate further dispositions of non-core producing assets in the first quarter of 2010 totalling 3,800 boepd.
  • To-date in 2010, we have announced three corporate acquisitions focusing on the Cardium light oil resource play in Alberta. In addition to more than 500 development drilling locations for Cardium, these assets are expected to initially add, in aggregate, approximately 5,800 boepd of production.
  • Since July, 2009, PetroBakken has been implementing the use of long bilateral horizontal wells with 51 bilateral horizontal wells now on production. Bilateral horizontal wells have generated on average greater than a 50% increase in productivity compared to offset single leg Bakken horizontal wells.

If we look at a 6 month chart,  we see good support at the 200 day MA which the stock has bounced off of twice in the last 3 weeks.   The stock has been hit by some selling pressure due to a number of acquisition related expenditures, but this may present a good long term buying opportunity as PetroBakken has poised itself for production growth in the next 3 years.

 

 

 

Cenovus Energy (TSX: CVE.TO)     Market Cap:  19 billion CAD

Cenovus Energy Inc (CVE.TO), a traditional oil sands-focused company which spun off from EnCana Corp (ECA.TO), is expanding its business prospected by investing in light oil prospects in Saskatchewan.    Cenovus Vice-President Don Swystun said the company is investing in its own lands and acquiring new acreage in the Bakken and Lower Shaunavon unconventional light oil plays in the southern part of the province, something it was unable to do under the EnCana umbrella.      Similar to shale natural gas operations, companies drill numerous horizontal wells and fracture rock deep underground to maximize oil output.  Cenovus is currently producing about 1,000 barrels a day from eight wells in Lower Shaunavon, Swystun said. It can likely boost that to 3,000-5,000 bpd, depending on how aggressively it decides to drill, he said.       In reviewing the 6 month chart for Cenovus,   the stock is in a downtrend since the spin-off  and is currently testing the 50 day MA.    We would stay on the sideline until more definitive plans are released on their Bakken strategy and investment.

 

Painted Pony Petroleum (TSX:PPY.A)    Market Cap: 325 million  (CAD)

 Painted Pony Petroleum Ltd. (TSX:PPY.A) and (TSX:PPY.B), has  a market cap of slightly over 340 million dollars (CAD). In Q4 of last year their average production was just shy of 2000 BPD oil equivalent which was up 70% on the same period in 2008.     In 2009, Painted Pony carried out an active horizontal Bakken development drilling program with the drilling of 19 (16.5 net) wells at 98% success. Painted Pony has budgeted to increase its Bakken drilling in 2010, with approximately 30 net wells forecast. In the first quarter of this year, the Company expects to drill 10 (8.8 net) horizontal oil wells in Saskatchewan. The Company has drilled 3 (2.3 net) wells to date, and 2 (2.0 net) wells are currently drilling. Painted Pony expects to have two operated rigs drilling primarily in the Midale and Huntoon development areas for the balance of 2010.    A one year chart shows that Painted Pony has had a steady climb over the last 12 months that is commensurate with their increased bopd production.     Some back of the napkin math indicates that if they can acheive the same bopd rates on the 30 wells they plan to drill,  they should be able to top 5000 bopd by the end of the year and average 3500 bopd throughout 2010.  At current rates that equates to about $100 million CAD in 2010 revenue which fairly values the company at its current pps.  But similar to a Brigham Exploration,  the investment community is expecting growth to continue 30% yoy for the forseeable future.   The 6 month chart shows the stock has been in a steady uptrend with consistent support at the 50 day MA.

PetroStar Petroleum (TSX: PEP.V)    Market Cap:  < 10 Million CAD

Its hard to call PetroStar Petroleum a key player as it is a tiny micro-cap,  but we figured we would include as a minuscule bakken play.  Petrostar Petroleum Corporation (TSX-Venture: PEP) is a small Canadian-based oil and gas producer focused on production of heavy and medium oil properties and development, implementation and commercialization of enhanced oil recovery systems and processes.  Petrostar Petroleum announced recently that work is scheduled to commence on one of the company’s 100% owned P&NG leases that are located in the SE. Saskatchewan extension of the prolific Bakken oil formation. . The extent of this initial work program will be to re-enter and re-complete the A1-26-14-31W located near Moosomin, SK l in order to place the well into production.   If Petrostar management can execute on this plan and get the aforementioned well into production,  they will most likely be able to raise financing to fund further Bakken ventures.  To date the Company has acquired P&NG leases covering some 30 locations, both in the SE Saskatchewan area and in SW Manitoba.     The stock is thinly traded on the TSX and is below .10 cents CAD.    This is a pure speculation play with no fundamentals to back up any legitimate investment thesis.  However,  if the company does execute,  it could easily be a 5 or 10 bagger.     A 6 month chart of PetroStar Petroleum is below but any technical analysis of trends is not relevant with such a thinly traded equity

 

Summary

The closest thing to a pure-play in the Saskatchewan Bakken Region is currently PetroBakken with a growth strategy focused on both aggressive organic growth as well as growth through acquisition.     Their horizontal drilling technology and deployment process appears to be slightly behind American counterparts such as Brigham, but this gap will inevitably close in the next 12-24 months.   Expect to see the average bopd increase and a proportional increase in production.   I wouldn’t be surprised to see 65,000-70,000 boepd by mid 2011 as they develop their 210,000 acres in the Bakken region.   

 Drop us a line if there are other Canadian players we should consider profiling