Bud Brigham is a poster child for how to build a business in the Bakken Region. He leveraged his technical expertise as a geophysicist to start Brigham Exploration (BEXP) more than 20 years ago and hasn't looked back since (and built a multibillion dollar company in the process). A little over a year ago, Bud Brigham of was kind enough to share his thoughts on his company and we decided to touch base with him again on Brigham's current operations and its future prospects.
Question: Brigham recently came out with an estimate of Q2 production at the lower end of 12,000 to 14,000 barrels of oil equivalent per day. Operations been impacted by the worst winter in almost 100 years and heavy rain. Can you expand upon some of the support infrastructure improvements that may mitigate this risk going forward?
Brigham: We began to see some of the benefits of our support infrastructure system during the second quarter and expect to generate significant benefits next winter after our system fully comes on line in the fourth quarter 2011. For example, in the second quarter, we were able to continue to frac our wells as our fresh water system reduced our dependence on trucks that take water to our sites and therefore enabled us to continue fracking a key well despite the short-term moratorium on trucking along the county roads that occurred in early June. Next winter, we’ll be able to take oil and produced water off our locations with our gathering system and deliver fresh water out to our locations without the need for trucks. A reduced dependence on trucks will enable us to continue to produce and complete our wells during periods of bad weather uninterrupted.
And it’s not just our support infrastructure that will help us going forward. Our operations engineers foresaw early on the need to be more efficient in our drilling and completion operations via the use of smart pads, or drilling and completing multiple wells from a single drilling pad. Drilling from a single pad allows us to reduce our rig and equipment moves, which also makes us less susceptible to weather. Furthermore, our smart pads allow us to complete wells using our zipper frac technology. Zipper fracs allows us to complete wells more efficiently than if wells were completed independently. During June, we brought on line to production a record number of wells, which was partially attributable to our zipper fracs.
We believe both of these enhancements will allow us to deliver sequential production growth in the second quarter 2011 at a time when many other operators in the Williston Basin are revising their sequential production estimates downward. In summary, we believe this foreshadows the advantages we will increasingly experience relative to our peers, which should enable us to continue to operate even under adverse weather conditions such as we experienced in the winter of 2010-11.
Question: Back in 2010, during our last interview, you indicated that Brigham was focused on executing but would consider being acquired if it was in the best interest of the shareholders. A year later, is the company still heads-down on executing and expanding? Has your strategy changed at all in the last year?
Brigham: We continue to stay focused on creating value for our shareholders. We are ramping up our rig count to 10 operated rigs by July and will add our first walking rigs in the first quarter 2012. Furthermore, this summer, we think we’ll go a long way toward de-risking the Three Forks on our Rough Rider acreage in Williams and McKenzie Counties, North Dakota and will bring on line a number of wells in Montana. For example, we just brought on line to production our Gobbs 17-8 #1H well in Roosevelt County, Montana at an early 24-hour peak rate of 1,818 barrels of oil equivalent. This well was approximately 17 miles to the northwest of our record Montana Bakken well, the Johnson 30-19 #1H, and bodes well for our acreage between the Johnson and Gobbs wells.
This is a very exciting time at Brigham and I and all of our highly dedicated employees are extremely excited about the opportunity to drill and complete wells in what we believe is the best shale play in North America. We’re getting the oil manufacturing plant rolling at time when America needs an ever-increasing supply of secure oil. We're thrilled to be working with the great people of the states of North Dakota and Montana to find oil in America for Americans.
Question: In a few years, it has become apparent that Brigham has some valuable intellectual property around horizontal drilling & fracking . Many smaller players in the region have not been able to replicate your success/production. Would you consider some acquisitions to scale the business?
Brigham: Yes, we've enjoyed a great deal of success with acreage acquisitions. Last year we grew our acreage by roughly 30%, and have had additional success acquiring acreage thus far in 2011. We continue to source and evaluate other acreage transactions and would consider larger transactions. We think we can create and compound value in the Williston Basin better than anyone, given our inherent competitive advantages -- in part due to our success, but also due to our concentrated dominant early mover acreage position in the best portions of the play.
Question: Can you describe your hedging strategy for 2012 and beyond?
Brigham: We hedge our volumes to help to ensure a stable level of cash flow so that we can keep rigs in the field even during times of depressed crude prices. We typically use costless collars and in April added about 900,000 barrels of crude oil collars with a floor price of $85 to $90 and a ceiling price of $134 to $144. We believe these wide collars protect us to the downside and still allow our stockholders to participate in crude price upside.
Question: Brigham currently has around 371,000 net leasehold acres under its control. Do you believe that this is sufficient acreage to handle Brigham's drilling expansion over the next five years?
Brigham: We believe our core de-risked acreage alone provides us with an 11 to 17 year inventory of net drilling locations assuming our 2011 drilling pace. We expect this inventory to grow over time with continued drilling success in Montana and the acquisition of additional acreage. We’ll be out here a long time drilling wells in North Dakota and Montana.
Question: Brigham has had some fantastic production out of its Sorenson and Cvancara wells (as well as many others). Do you feel that drilling/fracking technology has reached a plateau or do you expect further innovation and productivity in future wells?
Brigham: We continue to generate improving well performance, so the trend is very positive. We’re out in the field continually trying to innovate and deliver the best possible well result for our stockholders. We believe our entrepreneurial work environment fosters innovation and will allow us to deliver better well results over time in terms of estimated ultimate recoveries and also be able to reduce our wells costs by potentially 10 to 20%. The bottom line is that we’re attempting to enhance economics by adjusting both levers, increased cash flow from more productive wells and better economics by drilling cheaper wells. Fundamentally, we believe we're very early at figuring out optimal ways to drill, complete and stimulate this world class resource. If you think of it in terms of baseball, we’re in the early innings of the game.