Brigham Exploration has grown very quickly in the past year on the back of higher oil prices, but as commodities start to top out, its future may soon be in question.Market cap and value/Bakken acre:
Brigham holds more than 300,000 acres, and it has ramped up production quickly, leading to outpaced revenue growth in the past year. Moreover, the company plans to double daily production in 2011.
Of course, Brigham has plenty of company in the Bakken. Oasis, after its recent IPO and KOG expanded in the area last year.
Perhaps the obvious exit strategy for shareholders is to hope for a buyout. With Chesapeake Energy and EOG suffering from low natural gas prices, expansion could lead them to acquire smaller players such as Brigham.
- BEXP: 300,000 acres? It has almost 400,000 acres (371,000 according to recent presentation.) Market cap -- $3.4 billion ($9,000/acre); BEXP is not exclusively in the Bakken, so value per acre is actually less
- KOG: 70,000 acres. Market cap -- $1.2 billion ($17,000/acre); as far as I know, pretty much pure-play Bakken
- Oasis: 303,000 acres. Market cap -- $2.7 billion ($9,000/acre); as far as I know, pretty much pure-play Bakken, although they may have acreage elsewhere. Niobrara?
EOG: $28 billion
I assume buying BEXP, KOR, or OAS could require as much as a 50% premium -- thus $2 billion for KOG, $5 billion for OAS, and $7 billion for BEXP. The takeover offer would be much less, but I don't think any of the three are for sale, thus resulting in a bidding war, taking their shares to a 50% premium. Just my 2 cents worth.
I think they all are a target. One has a huge target and getting looked at very closely. Some companies don't want to work the BIA properties, So you pick the target!!
ReplyDeleteI believe these companies also have debt on the books that would need to be assumed no?
ReplyDeleteAlso, I think all of these companies are going to have to top lease as they have leased more acreage than they can drill under the funding level (rig count) of their current programs for the primary term of the leases. An acquiring company would inherit this problem so why not just adopt a strategy of outbidding for selected acerage when it comes up for lesase renewal rather than buying the whold company debt and all? I have no expert knowledge in this area but just seems that most of the larger player will not be able to get to all of their acreage as a result, their cost structure will take a hit or they will lose some acreage. If a company is unable to drill out its own leases, then why accumulate more acreage that you cannot drill out?
I won't argue because I am not an expert in this area either but I've done the math on this before and I don't think it will be a problem.
ReplyDeleteIn addition, these companies are run by pretty smart folks and they aren't going to lose acreage because a lease has expired.
Take a company with 300,000 net acres.
Divide those 300,000 net acres by the typical spacing unit: 1,280 acres --> 235 locations to drill and if they produce (which they generally do in the Bakken) the area is held by production for additional drilling.
Divide the 235 locations by 10 (one rig can drill 10 wells/year) --> 24 years. Now divide those 24 years by 4 rigs (and all companies mentioned have at least four rigs) --> 6 years. The typical lease is for five years. With five rigs, they have more than enough time to get the wells drilled.
In addition, drillers without acreage can come in and drill wells; and/or companies with "excess" rigs can drill and the company holding an interest can be a working partner. Lots of ways to skin this cat. But with 300,000 acres, and five rigs, not a problem. BEXP has 8 rigs and will take delivery of a new rig each month until BEXP has 12 rigs. Way more than they need for their 400,000 acres using numbers noted above.
12 rigs x 10 wells/year --> 120 wells/year x 5 years --> 600 wells x 1280 acres/well -> 768,000 net acres. BEXP has less than 400,000 acres.
Again, I may be missing something but the math works. By the way, the law says they only have to show activity, not actual spudding to save the leave. Building a pad will satisfy that, but of course, they need to move along once the pad is built, but a month or two delay would not be a problem.
In an earlier post regarding this issue, I opined that there will be a lot of talk about not being able to drill all their acreage, but I think that talk is a distraction. These guys are too smart to lose acreage by not having enough rigs/time.
This link states bexp "drilled" 39 bakken and tfs wells in 2010 using 8 rigs.
ReplyDeletehttp://www.oilshalegas.com/bakkenshale.html
That is 5 wells per rig per year not 10.
The bexp leases are at least three years old and what were the completions for 08 and 09? I don't have those numbers in front of me. I have to question bexp ability to drill out their land even if they can employ 4 more rigs this year (just over 7 months remaining). We shall see.
Another way to look at these numbers may be to look at dmr yearly statistics.