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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Brigham Exploration 25 Feb 2010 Earnings Conference Call, Bakken, Three Forks, Rogney

My Notes:

BEXP is currently running four drilling rigs, which will yield them 25.7 net wells for the full year 2010. In Rough Rider and Ross areas combined, they have 422 derisked locations yet to drill. Therefore, at the current rate of 25.7 wells/year, it would take BEXP 17 years to drill the 422 locations. Obviously, they plan to do it much faster; this just illustrates how much proven potential Brigham has.

Updated acreages by area:
Rough Rider 105,000 acres
Ross/Parshall 99,000 acres
Ghost Rider (Eastern Montana) 84,000 acres

Brigham Exploration has started to lease again, and have put $15.6 million in their 2010 capital expenditure (CapEx) budget for leasing.

Brigham management is optimistic about both the Three Forks Formation wildcat in the Rough-Rider area and the Bakken Formation wildcat in the Ghost Rider area. BEXP believes both targets have good porosity (8%-10%).

Rogney Wildcat: BEXP’s Eastern Montana wildcat will be the Rogney well, which is in the middle of their 84,000-acre Ghost Rider prospect. A couple of wells to southeast were economic completions, even though they used archaic single-stage frac jobs. One had an Initial production (IP) of 500 barrels of oil per day (BOPD). In my opinion, unless that operator got real lucky on his single stage frac, that well could have easily IP’ed at 3,000-4,000 BOPD using a multi-stage frac stimulation. Ghost Rider is a red hot prospect!

BEXP will be able to glean some information from two wells currently being drilled to the east and south east, because Brigham owns a small percentage of both wells. BEXP will spud the Rogney well in mid-March, but BEXP is unlikely to give us any information on initial production until mid to late June. Much of the delay will be due to coring the Bakken and Three Forks and the 30-day delay in getting those cores examined.

Lance Langford commented on Geosteering, which he said gives them the ability to keep the drill bit within ten feet of where they want it. This keeps them drilling in the highest quality rock. [That is truly amazing].

Each time that Brigham Exploration completes one net well, the value of BEXP goes up $9.5 million, assuming a present-value discount rate of 10% (PV10) on future oil. In other words, if you take the PV10 value of the complete well and if you subtract all the drilling and completion costs, you net out $9.5 million. ‘‘Net well” is a term needed because, if BEXP drills a well in which they own only 60%, they have only drilled 60% of a net well because their partners own the other 40%.

Non-Williston Basin Properties Updates: Brigham Exploration is currently drilling a Vicksburg gas well. This is down on the Gulf Coast where BEXP has some good leases that they would like to sell. In response to a question, Ben Brigham said they have no plans to drill a Mowry shale well (Wyoming, Powder River Basin), and, instead, are watching nearby drilling. They have been looking at some other oil plays in the Rockies, but haven’t budgeted any money to acquire leases there.

No Lease Expiration Proplems: One man asked BEXP what percentage of BEXP’s North Dakota leases are “held by production.” Oil leases have an expiration date. If BEXP hasn’t drilled and found production by a certain date, the leases expire, or sometimes BEXP must pay a large renewal fee. “Held by production” means that BEXP already has a producing well on the lease, and so the lease cannot expire.

The value of Brigham is not their existing oil wells but their leases on which they can drill more oil wells. Obviously, expiring leases and renewal fees are to be avoided. So BEXP drills first on the leases that will expire first. Bud Brigham’s answer was all important leases that would have expired in 2010 are either help by production or being drilled now. Currently, Brigham is drilling mostly 2011 leases.

The AFE cost to drill and complete a Williston Basin well is $6.825 million.

BEXP defines Initial Production (IP) as the peak oil 24-hour early flow rate. [This is a liberal definition, and BEXP is sometimes accused of overstating their IPs.]
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Brigham Exploration, BEXP, Pure Williston Basin Play, Main Fact Sheet

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Brigham Exploration Company (BEXP) is a pure oil play in the Bakken Shale and Three Forks Sanish Formation in the Williston Basin of North Dakota and Montana.

Brigham Exploration was formed in 1997 by CEO Ben M. “Bud” Brigham, an entrepreneurial geophysicist. BEXP is a one-man company with Bud involved in the details of geophysics, exploration, leasing, drilling, completion, finance, regulations, production, and marketing. This works very well as Brigham is almost exclusively focused in the Williston Basin oil boom in Western North Dakota and Eastern Montana.

Brigham stock price has had four major up spikes: 1997-98, 2005, 2008, 2009-2010. Both in 1999 and again in 2009, BEXP stock was down to about $1.10 per share suggesting that the firm was on the edge of collapse. Unless oil prices fall below $50 per barrel and remain there for several years, BEXP will not collapse.

BEXP was natural gas-focused until 2006, when it began acquiring Bakken Shale acreage in the Williston Basin. By May 2009, BEXP was focused almost entirely on oil in North Dakota where it holds 190,000 acres which is enough to drill over 700 wells. Currently BEXP has about 20 completed wells in North Dakota.

Ross Prospect, 26,400 acres: Just under the Bakken Shale is the Three Forks (sometimes called Sanish) formation. BEXP has made enough Bakken and enough Three Forks discovers in its Ross prospect, to suggest that Ross has been “derisked” for both. Derisked means the oil is there; and it only a matter of drilling wells to produce it.

Rough Rider Prospect, 105,000 acres: During 2009 BEXP drilled and completed enough Bakken wells in Rough Rider to essentially derisked most of that acreage for Bakken production. BEXP will drill its first Three Forks test in Rough Rider in about May 2010. The only surprise will be if the Three Forks is not commercial under most of Rough Rider.

BEXP’s Ross and Rough Rider properties in North Dakota are reasonably profitable (returns of 30%) at a NYMEX oil price of $50 per barrel and are extremely profitable (returns of 70% - 100%) at a NYMEX oil price of $70 per barrel. BEXP has about 430 derisked undrilled oil well locations in Ross and Roughrider.

Ghost Rider, Eastern Montana, 86,300 acres: The value of BEXP’s acreage in Montana is essentially unknown. BEXP’s first wildcat well will be drilled soon, with results known by early summer 2010.

BEXP has four operated drilling rigs in North Dakota, and may add a fifth soon. [BEXP does not own the rigs but contracts for their services. “Operated” means that BEXP is the oil firm in charge of the drilling if the well is partnered with other oil firms.]

It takes about one month to drill a Bakken or Three Forks well. Then the drilling rig moves out, and the fracking crew moves in. However in winter, fracking is often delayed do to extreme cold.

BEXP is trying to sell (monetize) almost all of its non-Williston Basin properties, some of which are valuable natural gas properties.

BEXP heavily hedges its oil and gas, as much as two years out.

BEXP has been the brightest star in the oil patch for the last couple years.