The smartest guys on the block just got a bit smarter. Such is the general sentiment around the recently announced acquisition of Brigham by the Norweigan company Statoil. Statoil gets credit for being in the upper echelon of technical ability and rightfully so. Just run a google image search of their offshore Norway operations and you develop an appreciation for some of the conditions they operate in. I think the same could be said of Brigham exploration with their first rate, innovative development of the Bakken in North Dakota. The deal is an all-cash tender offer of all outstanding Brigham shares at $36.50 / share totaling $4.4B.
What Does Statoil Get From Brigham?
Statoil gains a top position in arguably the premiere unconventional oil play in the US. According to Drillinginfo, over 3,000 Bakken wells have been drilled since 2004, with 98 being Brigham operated. The Brigham Williston Basin position is broad spanning their Rough Rider project West of the Nesson Anticline to their Ross project East of the Nesson. The position entails 235,200 net “core development” acres and an additional 140,600 “future development” acres. In their October 5th presentation Brigham noted 794 net remaining locations in their core area. Statoil will be busy for years in the Bakken, even with wells per year at 140.
Much has been made of the Statoil technical expertise and how the Brigham technical culture is a good fit. I agree with the Brigham assessment. I have seen Brigham present a few times here in Texas and am always impressed with their innovative techniques. The ultimate Brigham vision for a developed North Dakota section includes not only four or maybe five Bakken wells, but also 3 Three Forks wells where the TFs exists. This ultimately will be acheived with a combination of pad drilling and effiicient frac techniques, such as zipper fracs and Smart Pads. Combine these lofty goals with current frac stages topping 35 per well, and you have a technically savvy, technically ambitious company.
Drilling info data shows Brigham’s 30-day peak oil rate is 80% above the average. The Brigham type curve shows a peak monthly oil rate of 514 BOE/D. Not only does Brigham sit on top quality acreage, but they do it justice with top tier results.
Anyone who follows the Bakken closely understands operators had to contend with an abnormally harsh winter this year. Shut-ins were commonplace across the Williston Basin and record spring flooding didn’t help matters. Impressive was the 8% sequential increase in Brigham’s 2Q total production volumes. No doubt drilling and completion efficiencies, and innovative, creative planning played a large role.
How Does This Purchase Fit With Statoil Objectives?
Late this summer, Statoil CEO Helge Lund made the conference rounds stating that Statoil has a goal to increase production from the current levels of ~1.8 MMBOE/D to 2.5 MMBOE/D by 2020. How material will production from the Brigham assets be towards this goal? Currently Brigham is only producing about 15 MBOE/D in the Williston Basin from about 100 wells. According to a Statoil press release, the new acreage has the potential to be producing 60 MBOE/D – 100 MBOE/D in five years. This will make a nice sized dent in the overall Statoil production goals and will provide the company with valuable experience and expertise in dealing with unconventional oil.
Pre Brigham-acquisition, Statoil had US onshore assets in the Marcellus shale of PA, and the Eagle Ford in TX, neither of which they operate. The Marcellus is predominately dry gas and their Eagle Ford position is firmly in the wet gas window. The Brigham pickup provides an important foothold in true black oil, unconventional territory, along with operatorship.
With their flagship assets in natural decline, Statoil has stated publicly an aggressive interest in future international deals. Data provided by Statoil shows 27% of their current production is international. The company’s newly strengthened unconventional asset base and operatorship can give them a leg up in any future unconventional deals (Russian, Chinese, whatever). One would assume the bulk of the future Statoil production increase would come from offshore development (Brazil, future Arctic, Russia, additional Norway discoveries) but Statoil will be able to leverage their ever-increasing unconventional skills.
Brigham Not The First Statoil Investment In Austin, Texas This Year
The University of Texas at Austin made a recent announcement of a partnership with Statoil in which the company will grant the university $5MM to research such topics as deep sea drilling, sub-salt imaging, and improved unconventional production. I don’t mean to bring this up as a shameless plug to my alma mater, I think the fact that Austin is home to the Brigham headquarters provides a nice synergy with their UT partnership. Also, the Brigham corporate office sits atop one of the nicest views in West Austin which makes me think Statoil should buy the entire hill and make it their North American office. They would have the Brigham crew already in place, be an hours drive to their Eagle Ford position, and be close to the Univerisity. And it would be very cool for the city.
Let us know your thoughts.
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