Statoil enters Bakken Shale with $4.4B purchase of Brigham Exploration

By Oil & Gas Financial Journal staff

Norway’s Statoil ASA said Oct. 17 that it has entered into a merger agreement for Statoil to acquire all of the outstanding shares of Austin, Tex.-based Brigham Exploration Company for US$36.5 per share through an all-cash tender offer.

The move is the latest effort by Statoil, which is partially owned by the Norwegian government, to become a major participant in the North American shale market, particularly the Bakken Shale in this case, which has boosted domestic oil and gas production in the United States significantly in recent years.

The Brigham board of directors has unanimously recommended to its shareholders that they accept the offer. Ben “Bud” M. Brigham, chairman, president, and CEO, and the other executive officers and directors of Brigham, who collectively own about 2.5% of the outstanding shares, have agreed to tender all of their shares.

The total equity value is approximately US$4.4 billion, reflecting an enterprise value of around US$4.7 billion, based on June 30, 2011 net debt.

Analysts say the transaction price is good as long as WTI crude prices don’t fall below about $55 per barrel, which Statoil says is the “break-even price” for operators in the Bakken and Three Forks shale plays, where Brigham’s assets are concentrated.

Brigham has over 100 employees in Austin and North Dakota and a strong position in the attractive Bakken and Three Forks tight oil plays in the Williston Basin in North Dakota and Montana.

“The US unconventional plays hold a substantial resource base and represent an increasingly important part of future energy supplies,” said Helge Lund, president and CEO of Statoil. “Statoil has step by step developed industrial capabilities through early entrance into [the] Marcellus and Eagle Ford [shale plays]. Entering the Bakken and Three Forks tight oil plays and taking on operatorship represents a new significant step for Statoil. We are positioning ourselves as a leading player in the fast-growing US onshore oil and gas industry, in line with the strategic direction we have set out.”

The transaction will provide Statoil with more than 375,000 net acres in the Williston Basin of North Dakota and Montana, which holds potential for oil production from the Bakken and Three Forks formations. Brigham also holds interests in 40,000 net acres in other areas. At this early stage of development the risked resource base is estimated at 300-500 million barrels of oil equivalent (boe), equity. Current equity production is approximately 21,000 boe per day, and the acreage has potential to ramp up to 60,000-100,000 boe per day equity production over a five year period.

The Bakken and Three Forks formations are among the largest oil accumulations in the United States. Various sources have estimated the technically recoverable reserves to be in the range of 5 – 24 billion boe, over a 38,000 square kilometers area. The attractiveness of the Bakken and Three Forks plays has resulted in Statoil offering a 36% premium over the average trading price of Brigham stock for the last 30 days.

“A bigger enterprise with a larger balance sheet will be better positioned to take advantage of our large and growing inventory of Williston Basin drilling locations and the associated assets,” said Bud Brigham. “We are excited to see this transaction completed and look forward to having our assets and employees integrate with the Statoil organization and the substantial asset position that they are growing in their US onshore business.”

“Brigham has proven itself as a premier operator with a highly attractive position in the Williston Basin,” added Statoil’s Lund. “We are a strong strategic fit, as both companies put a premium on technological innovation and advancement. We look forward to creating value and developing this position further together with our new colleagues.”

Read Ben "Bud" Brigham's interview with OGFJ about how improved technology helped drive the company's success in the Bakken.

Tight oil reservoirs are being developed with similar methods as shale gas and liquids with long lateral wells that are hydraulically fractured, and have similar production profiles. Commercial tight oil extraction is a relatively new activity and has increased significantly the last couple of years. The oil produced from the Bakken and Three Forks formations is a light crude quality.

As an experienced operator in the Bakken and Three Forks formations, Brigham has gained strong operational capabilities by adapting new technology in horizontal drilling and hydraulic fracture stimulations to develop the tight oil resources in the Williston Basin. Brigham has drilled 88 consecutive producing North Dakota wells, with an average early 24-hour peak production rate of approximately 2,800 boe per day. The company currently operates 12 rigs in the area and said it plans to drill roughly 140 wells per year.

“We are impressed by the performance and technological prowess demonstrated by the employees of Brigham and look forward to further responsible development of these world-class assets,” said Bill Maloney, executive vice president for Statoil in North America. “We will build on Brigham’s good neighbor program and continue to engage with local authorities and communities in the Williston Basin area.”

Statoil will continue to build upon Brigham’s operational capability, and will maintain and possibly strengthen the Austin location, according to Maloney, during a press briefing Monday afternoon. He said the company would welcome all current employees and encourage them to stay with the company.

Statoil plans to focus on exploration and production rather than downstream activities such as refining and marketing, said Maloney. He added that the company may pursue further acquisitions in unconventional resource plays.

The Brigham transaction provides Statoil with around 430 miles (690 kilometers) of oil, natural gas, and water transportation systems in the Williston Basin. Maloney said this will not only secure offtake, but it will also significantly limit the environmental footprint and allow Statoil to continue to implement industry leading HSE standards. Statoil says it plans to expand transportation infrastructure in the area, including pipelines, as it has done in the Marcellus Shale play in eastern North America.

Statoil expects its worldwide daily production to reach 2.5 million barrels by 2020, and 500,000 barrels would come from the US. The company hopes to increase its reserves replacement ratio up to 100% during this span by growing its portfolio in the Gulf of Mexico and with US onshore oil and gas. Currently the replacement ratio is about 87%.

The cash tender offer is expected to commence by Oct. 31 and shareholders will have 20 business days following the day of commencement to tender their shares. Closing of the transaction is expected in late 2011 or early 2012.

Tudor, Pickering, Holt & Co. Securities, Inc. and Goldman, Sachs & Co. are acting as financial advisors to Statoil, and Vinson & Elkins LLP is acting as legal advisor to Statoil on this transaction. Jefferies served as exclusive financial advisor to Brigham Exploration. Its legal advisor is Thompson & Knight LLP.

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