News Briefs: Brigham Exploration (BEXP), Petrohawk (HK), Whiting (WLL)

Bud Brigham (CEO, Brigham Exploration, BEXP) sold 275,000 shares at $17.52. I don’t consider it a major negative; nonetheless is shows selling by the guy who knows more about Brigham than any one. He still owns about 1 million shares.

Petrohawk Energy (HK) is selling its Oklahoma WEHLU natural gas property for $155 million. This is the first of its four property sales planned for this year. Proceed will be used to drill more wells in the Haynesville and Eagle Ford shales.

The move is an excellent one, which allows Petrohawk to concentrate its capital in its most profitable plays. I was looking to buy HK for about $20.50, but this news has driven

Whiting Petroleum (WLL): I remain very positive on this company, but suspect that its overpriced at $78.00. Whiting apparently feels that its new and large North Dakota “Lewis and Clark” project is largely derisked. It is a Three-Forks-horizon-only project as the Bakken is not present there.

Whiting paid only $200 an acre for the leases, but drilling costs will be a bit higher. Lewis and Clark wells are likely to be a little below average, but still highly profitable. Whiting has only 1 drilling rig there now but could have 9 rigs by year end.

Hedging Oil Is Necessary for independent E&P (exploration and production) firms. Continental Resources (CLR) was one of the few firms that refused to hedge oil. In 2009, when oil prices fell from $130 to $30 per barrel, CLR suddenly face a cash flow emergency. It was drilling with 32 rigs, and was forced to cut that to 2 rigs as fast as it could.

Now Continental hedges its future oil prices out as far as two years, like other small-cap E&P firms do. CLR found out that a conservative balance sheet is no substitute for a guaranteed cash flow. Banks that loan money almost force E&P firms to hedge some of their oil; after all, loans are serviced by cash flow.

I’m Cash Heavy: I’m about 90% in cash. Don’t take my blog as a suggestion that you should put every last dollar in to small oil stocks. I’m just playing with the riskiest part of my money, and waiting for oil prices to make a major retreat. I do not predict a major drop in oil prices but think it is more likely than a major advance.
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