Stock Preacher

Brigham Exploration Company (Nasdaq: BEXP)

Brigham Exploration Company (BEXP) 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. The Company’s exploration and development activities are concentrated in four provinces: the Rocky Mountains, the Onshore Gulf Coast, the Anadarko Basin and West Texas. The Company has also accumulated acreage positions in the Williston and Powder River Basins. Operations within these two basins are included in and constitute the bulk of its activity in its Rocky Mountains province.

At present, BEXP has approximately 290,000 net leasehold acres in the Williston Basin and has identified more than 800 horizontal drilling locations on its acreage. As of December 31, 2008, the Company had estimated proved reserves of 137.1 Billions of Cubic Feet Equivalent (Bcfe). It also operated seven exploration wells and 64 development wells. The Company sells its oil and natural gas to intrastate pipeline purchasers, operators of processing plants, and marketing companies.

BEXP was founded in 1990 and is based in Austin, Texas.

Source: Reuters.com, SEC Filings.

Financial Summary

The Company’s second-quarter 2009 oil and natural gas revenues, including hedge settlements but excluding unrealized hedging gains and losses, were 58% to $10.5 million, compared to that in the second quarter 2008. The net loss for the quarter was $7.0 million or $0.12 per share compared a net income of $1.5 million or $0.03 EPS in the second quarter 2008.

In the second quarter 2009, the average realized prices for the quarter decreased by 55% to $5.93 per Mcfe compared to $13.08 per Mcfe in the prior year’s quarter. Implicitly, the average sales price that the Company received for oil was $49.41 per barrel, which represents a $72.81 per barrel decrease from that in the second quarter 2008; the average sales price that Brigham received for natural gas was $3.50 per Mcf, which represents an $8.43 per Mcf decrease from that in the second quarter 2008. On a per unit basis, production cost increased 22% to $1.80 per Mcfe from the second quarter of 2008.

As of June 30, 2009, BEXP had $73.4 million in cash and marketable securities and $404.4 million in total assets. The Company had $110 million outstanding under its senior credit facility and a $160 million of senior notes outstanding.

Source: Reuters.com, SEC Filings.

BEXP is trading now at $7.60, up $3.70 or 120% since January 2009. Over the last 52 weeks the stock has ranged from a low of $1.04 to a high of $14.50. Recently shares of the Company rose 14% on positive results from its Figaro well and anticipated increased oil volumes in the third quarter. BEXP stock has been showing support around $6.14 and resistance in the $7.04 range.

Analyst Consensus

Analysts polled by Thomson Reuters expect BEXP to “Outperform,” with 4 analysts recommending the stock a “Buy,” up from 4 analysts 3 months ago; 1 analyst expecting the stock to “Outperform,” up from 3 analysts three months ago; and 7 analysts rating the stock a “Hold,” up from 6 analysts three months ago. According to Reuters Estimates, analysts are expecting the Company to report revenue of $73.1 million and a loss per share of $0.03 for fiscal 2009 and revenue of $111.5 million and EPS of $0.18 for fiscal 2010.

Investment Highlights

At December 31, 2008, the Company had estimated proved reserves of 137.1 Bcfe with a standardized measure of $279.3 million and a pre-tax PV10% value of $288.0 million. Approximately 69% of proved reserves are natural gas and BEXP operates approximately 70% of its proved reserves. The average daily production for 2008 was 31.8 MMcfe, which represents a 23% decrease from 2007. The second-quarter 2009 production averaged 27.2 MMcfe per day, which represents a 10% decrease from the second quarter 2008. The overall decrease was offset by oil volumes that increased by 28% to approximately 164,000 barrels versus that in the second-quarter 2008 as a result of increased activity level in the Williston Basin. For the third quarter of 2009, the Company expects production volumes to average between 4,667 barrels of oil equivalent per day to 5,167 barrels of oil equivalent per day. Furthermore, BEXP currently anticipates oil production to grow to approximately 2,458 barrels of oil per day in the third quarter 2009 based on the midpoint of production guidance.

BEXP has succeeded in driving down its costs in the Bakken shale while increasing the efficiency. The Company used a seven-stage hydraulic fracturing process when it started, and is now at 24 fracturing stages. This has increased the estimated ultimate recovery (EUR) of these wells from 127,000 barrels of oil equivalent in 2006 up to a range of 500,000 to 700,000 BOE by mid-2009. Initial production rates are two to three times higher with the multi-stage hydraulic fracturing. Although the Company’s well costs increase due to the complexity of drilling, its finding costs per BOE are falling due to the higher EURs (from $34.45/BOE in 2006 to $11.16/BOE in 2009).

During the second quarter, the Company’s oil revenues exceeded gas revenues for the first time as a public company. BEXP is anticipating that oil production volumes will grow to be roughly equal or may even exceed that of its six to one equivalent gas production volumes, during the third quarter. Thus, BEXP is evolving from a short reserve lot to a conventional natural gas exploration company and long reserved lot resource play oil company, with a significant multi-year inventory of Bakken and Three Forks locations. Bakken and Three Forks reservoirs have been proven as commercially attractive. The total reserve potential, for complete development, is estimated at 66 million barrels of oil equivalent.

In late August, BEXP announced successful results from its Figaro well. During its early peak 24-hour flow back period, the well produced approximately 1,616 barrels of oil and 1.7 MMcf of natural gas, or 1,895 barrels of oil equivalent per day from the Bakken formation. BEXP’s Figaro 29-32 is the third 18+ stage fracture stimulation completed in the Williston after earlier in the month, the Company had announced that the Anderson well produced approximately 2,154 BOE per day and the Strobeck well had produced 2,021 BOE per day during its 24-hour initial period. The Company maintains an approximate 95% working interest and 74% net revenue interest in the Figaro.

BEXP signed an agreement with U.S. Energy Corp. to increase 2009 drilling in some of its holdings in Williams and McKenzie Counties, North Dakota. Terms of the agreement call for the drilling of up to 15 initial Bakken wells in 15 separate 1,280 acre spacing units. The number of wells could reach 90. Brigham will retain a 35% working interest in the initial well in each spacing unit and U.S. Energy will acquire the remaining 65%. BEXP will serve as operator and will drill the first six wells during the remainder of 2009 using two drilling rigs.

In May 2009, BEXP completed a public offering of common stock pursuant to a shelf registration statement. It sold 36.3 million shares at a price of $2.75 and received net proceeds of $93.5 million after underwriting fees and offering expenses. The net proceeds from the offering were used to repay $35 million of outstanding indebtedness under the Company’s Senior Credit Facility. The remaining net proceeds are used to fund the expanded capital budget in 2009, as well as fund a portion of 2010 capital budget. The increase in budget to $64.5 million from $37.1 million for 2009 was used to fund the restart of BEXP’s operated Bakken and Three Forks drilling program in the Williston Basin in North Dakota.

Preliminary data indicate that global oil consumption declined by 3.1 million barrels per day (bbl/d) in the first half of 2009 compared with year-earlier levels. Overall, global oil consumption is projected to decline by 1.7 million bbl/d in 2009, then rise by 940,000 bbl/d in 2010 as the global economy begins to recover. Crude oil prices continue to be very volatile. The West Texas Intermediate (WTI) crude oil spot price fell from $71.47 on June 29 to $59.62 on July 14, and then increased to $71.59 by August 3. EIA expects the price of WTI crude oil to stay roughly flat at an average of $70 per barrel in the fourth quarter of 2009, an increase of about $27 compared with the average for the first quarter of the year. The WTI spot price is projected to rise slowly as economic conditions improve, to an average of about $72 per barrel in 2010. The Henry Hub natural gas price is projected to increase from an average of $3.92 per Mcf in 2009 to an average of $5.48 per Mcf in 2010.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

BEXP has been relatively stable recently. This is evidenced by the width of its Bollinger Bands, which are tighter than normal. Additionally, the Company is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

BEXP’s MACD is indicating a weak bearish signal. Although the indicator is above the critical level of 0, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9-day moving average or signal line. This suggests that positive momentum has begun to slow.

Comparative Analysis

The Company’s competitors in the Bakken Shale include XTO Energy, which recently completed one well that produced 2,360 BOE, and Whiting Petroleum Corp., which reported one of the highest initial production rates on a well, with the Rohde 44-1H producing at a rate of 2,528 BOE. Other operators with acreage positions in the Bakken shale include Newfield Exploration with 200,000 acres and Continental Resources, with 581,000 acres.

BEXP is traded with significant premium to peer 2010 P/E multiples. The Company reported excellent results from its Bakken wells. A lot more of the Company’s acreage in the Bakken shale is yet to be tested and this supports BEXP’s decision to invest more in each well. In addition, by year-end the Company expects to see significant reserve and production additions from Rough Rider area.

Source: Thomson Financial, Yahoo! Finance, Analyst estimates.

Insider Trading Activity

Net Share Purchase Activity

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