Brigham Exploration: Fear Not the Flood

| About: Statoil ASA (STO)

Tudor Pickering held a conference call with Brigham Exploration (BEXP) Monday afternoon to discuss current operations in light of flood conditions in some parts of the North Dakota slice of the Williston Basin. In a nutshell, things are approaching business as usual and that business is continuing to evolve and improve.

Guidance Reiterated. BEPX reiterated prior 2Q11 comments that it will make the low end of the original guidance range of 12,000 to 14,000 BOEpd, which may prove to be one of the rare sequentially higher quarters out of the Bakken group for the quarter. Since we are at the end of the second quarter, you'd guess it has a good handle on current quarter production and indicated that only three wells out of 69 long lateral Williston wells announced to date were offline due to flooding. My sense is that while a foot of water at the Sedlacek well isn't ideal, it's not a reason for the stock to suffer further punishment. It noted that conditions in Mountrail county are still wettish but also showed a number of photos taken last week in Williams and McKensie Counties (Rough Rider) of dry roads and well sites. The sun is starting to shine and the wind is blowing, helping to accelerate the drying out process. Management indicated that at present, weather isn't much of an issue.

BEXP's Infrastructural Arc Is Almost in Place. Bud Brigham did note that the weather may be more troubling for some operators than others and that right now BEXP is really "clipping along" in terms of activity, having completed a record number of wells in 2Q11. BEXP went on to reiterate that its fluid handling capabilities (fresh water, frac recovery water, and hydrocarbons), while still under construction, are helping it drill, complete, and produce its wells while others wait for the water levels to recede enough to have access to their drill sites and wells. BEXP's fresh water pipes bring water for the frac jobs to the well site from lakes and the Missouri River, while salt water disposal lines transport away recovered loads to three (and counting) SWD wells. When they are up and running at full capacity, BEXP expects to see 1,000 truckloads eliminated during the drilling and completion phase of each well. By next winter it expects to be fully ready for the snow and high water of another bad North Dakota winter, even a 100-year type winter like the last one. This should also yield significant savings vs. its current elevated completed well cost of $8.9 mm.

BEXP's Montana Program Continues to Shine. BEXP also took the opportunity to announce another strong rate middle Bakken producer on its East Montana position in Roosevelt County. The Gobbs 17-8 IP'd at 1,818 BOEpd, near the Rogney well, representing a distinct improvement over that well, and is the second highest IP for it to date in this area, and the best IP I've seen that far west (17 miles west of the North Dakota border) in the Basin.

BEXP has two more East Montana Bakken wells nearing completion and offset operators are moving quickly as well, now targeting both the Bakken and Three Forks with a total of seven rigs running. One has to think it's likely we are seeing the start of the next big rig count bump, much like in North Dakota four years ago. Note that this well is welcome news for tiny Samson (NYSEMKT:SSN), whose new East Montana position on the Fort Peck Indian Reservation is south and west of BEXP's position. In fact, the Gobbs well is located 12 miles to the east of where SSN will spud its first well on its new acreage, the Australia II, in September.

BEXP continues to put on a strong show in the Williston. Despite a lot of wet weather that's highly regrettable for the citizens of North Dakota, the company's own operations seem much less hindered than all the newscasts covering the flooding of Minot would suggest. In short, the weather, at least for BEXP, is proving to be less of a roadblock than the Street has feared. More important than the recently past high tide is the preparations BEXP has put in place to allow it to continue to accelerate its drilling effort. In Montana; although it's early days and we don't have a huge amount of data, we are seeing increasing news flow and IPs are walking higher ... and this has a similar feeling to the early days of Rough Rider.

Lastly, I'd add that some of the dark recesses of the Street have decided for one reason or another that weather is a shortable event and that may just bite them as the sun starts to shine again in North Dakota.

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Disclosure: I am long BEXP, SSN