Brigham Exploration Company

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Brigham Exploration Company

6300 Bridge Point Parkway, Building 2, Suite 500
Austin, Texas 78730
U.S.A.
Telephone: (512) 427-3300
Fax: (512) 427-3400
Web site: http://www.bexp3d.com

Public Company
Incorporated: 1997 as Brigham Oil & Gas, L.P.
Employees: 55
Sales: $72.23 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: BEXP
NAIC: 211111 Crude Petroleum and Natural Gas Extraction; 211112 Natural Gas Liquid Extraction; 213111 Drilling Oil and Gas Wells; 213112 Support Activities for Oil and Gas Operations; 541360 Geophysical Surveying and Mapping Services

Brigham Exploration Company is an independent oil and natural gas exploration, development, and production company. It specializes in using 3-D seismic imaging technology to find onshore deposits. The company is no giant in the industry, despite its three million barrels of proven crude oil reserves and 100 billion cubic feet of natural gas reserves. However, it has been quite successful in its niche. Focused on exploration in its early years, the company in the late 1990s began to add substantial development activities. (Brigham hires subcontractors to handle drilling and production.) The company drilled 120 wells in 2004, more than half of them development wells. The family of founder Ben Brigham owns about 7 percent of stock; about 30 percent is held by Credit Suisse First Boston.

Origins

Brigham Oil & Gas, L.P., the operating subsidiary of Brigham Exploration Company, was formed in Dallas in 1990 by Ben M. "Bud" Brigham. Brigham was a native of Midland who had earned a degree in geophysics from the University of Texas at Austin. He started out as a seismic data processing geophysicist for Western Geophysical, Inc., which specialized in 3-D seismic services, and was an exploration geophysicist with Rosewood Resources from 1984 to 1990. Brigham would be the company's chairman, president, and CEO. His brother, David T. Brigham, an oil and gas attorney, would also be an executive in the company beginning in 1992.

Ben Brigham told the Austin American-Statesman that his namesake firm was founded with $25,000 and the support of his wife Anne, an oil industry lawyer. In 1992, after some promising early findings, Brigham secured $10 million in venture capital from General Atlantic Partners.

The company's mission was to explore proven oil fields using advanced 3-D seismic technology. This used sound waves to produce detailed maps of underground formations. While the industry did not generally feel this to be a cost effective approach, using it only to probe the borders of proven finds, Brigham believed it would make its money on the much improved chances of drilling success, as a well could cost up to several million dollars to drill. The company's initial efforts were concentrated in west Texas. It then ventured into the Anadarko Basin of Oklahoma and Texas and the onshore Gulf Coast of Texas.

The Anadarko Basin proved a rich source of natural gas. Brigham entered the area around 1994 and soon amassed more experience in 3-D exploration there than anyone (some of its staff had been involved in the area since the mid-1980s, Brigham told Oil & Gas Investor ).

Brigham typically held up to a 60 percent or more working interest in the projects in which it was acquiring 3-D seismic data. In drilling projects its average working interest was about 21 percent.

Public in 1997

Brigham Exploration Company, a holding company for Brigham Oil & Gas, L.P. (which hired subcontractors to handle drilling and production), was established as a Delaware corporation in 1997 and went public on the NASDAQ that May. Proceeds from the initial public offering (IPO) were earmarked for continued exploration and development and for paying off the company's $13 million debt. According to Platt's Oilgram News, as a smaller company, Brigham braved a bearish market, pricing its offering at $8 a share versus the $9.50 to $11.50 it had anticipated. The company raised about $24 million in the IPO.

Brigham had 40 employees and soon relocated its headquarters from Dallas to the state capital of Austin, a city with a reputation as a liberal-leaning, high-tech island. The move was made largely over quality of life issues; many of the company's staff had gone to school in the area, CEO Ben Brigham told the Austin American-Statesman. It also made sense culturally, since Brigham's business was built around advanced technology. "We have invested approximately $2 million in cutting-edge computer hardware and software," he told the Austin Business Journal. The company also maintained an office in Houston.

By the time of its IPO, Brigham had acquired more than 3,300 square miles of 3-D seismic data and interpreted more than 2,800 square miles of that, locating 1,200 potential drilling spots. The company had drilled 330 wells and struck oil or gas 63 percent of the time, well above the industry average of 20 percent or less.

1998 Industry Downturn

Brigham had difficulty funding its drilling program when oil prices took a hit in 1998. The company unsuccessfully tried to garner interest in a secondary offering. Instead, it obtained financing from Enron Corp., which bought $50 million of debt and equity securities, ending up with a 14 percent holding.

In April 1999, Brigham sold two of its Anadarko Basin properties to two different buyers for $17.1 million. These fields had been operated by third parties. CEO Ben Brigham told Petroleum Finance Week that the company was raising money to fund higher quality prospects. More capital also allowed the company to retain larger shares in wells that went into production.

Brigham ended the year with its largest find to date at the Home Run Field on the Texas Gulf Coast. This was part of the Diablo Project, a joint venture with Exxon Mobil in which Brigham had a 34 percent interest. Another significant discovery for Brigham followed in the Anadarko Basin in 2000.

New Technology for the New Millennium

Brigham added directional drilling technology to complement its 3-D seismic expertise. Directional drilling allowed for unprecedented precision in drill bit guidance. It allowed Brigham to revisit abandoned wells. In 2000, Brigham reentered one, the Mills Ranch Field Discovery on the eastern edge of the Texas Panhandle. It had been abandoned 19 years earlier at a depth of 15,000 feet. Brigham drilled an additional 10,000 feet for Texas's deepest well that year. The company saved about $1.5 million off its usual $8 million drilling and completion costs by entering an existing well.

Despite the company's impressive track record, CEO Ben Brigham complained it was undervalued in a September 2000 interview with Oil & Gas Investor. This was a lingering effect of the capital crunch in the 1998 industry downturn. "Optimally capitalizing our company has proven difficult ever since." However, its debt situation was improving with the recent finds and rising commodity prices. In 2000, Brigham had revenues (as restated) of $19.2 million and net income of $16.7 million.

By 2001 the company was boasting a 65 percent success rate at the 500 wells it had drilled using 3-D seismic imagery. It had discovered more than 500 billion cubic feet of equivalent gross reserves, Brigham told the Wall Street Transcript. Brigham's drilling expenses rose to $18 million in 2000 from $11 million the year before. After 1999, the company had begun drilling more development projects versus exploration-oriented ones, Brigham told the Transcript. Revenues reached $32.3 million (as restated) in 2001 while net income was $9.2 million.

In 2002 and 2003 Brigham reported several discoveries on the Texas Gulf Coast, Anadarko Basin, and in west Texas. However, it went into the red in 2002, when revenues (as restated) were $35.2 million.

Breaking Out in 2003

Oil & Gas Investor called 2003 a "breakout year" for Brigham Exploration. A secondary offering in September brought in $40 million, substantially alleviating the company's debt load. It continued to increase its reserves and production. "We were pure exploration when we went public, but now with our discoveries, production has mitigated the volatility of our cash flow," CFO Gene Shepherd, Jr., said. Revenues were $51.5 million (as restated) for 2003, and the company posted a net income of $14.6 million after losing $676,000 the previous year.

Company Perspectives:

Brigham Exploration Company's strategy is to achieve superior growth in shareholder value by applying 3-D seismic and other advanced technologies to reduce the risks and finding costs in drilling for oil and natural gas reserves.

Key Dates:

1990:: Brigham Exploration Company is formed in Austin by Ben Brigham.
1997:: Company goes public on the NASDAQ, relocates to Austin.
1998:: Energy industry experiences major downturn, sending company scrambling for capital.
1999:: Brigham makes a major discovery at Home Run Field.
2003:: Secondary offering nets $40 million.
2004:: Increasing oil prices fuel a profitable year.

Brigham's fortune continued to rise with energy prices in 2004. At $50 a barrel, crude oil was fetching well over the $18 to $20 needed to be profitable, Ben Brigham told the Austin American-Statesman. He added that the company's operating costs were rising; Brigham was spending $35,000 to $70,000 per square mile for seismic surveys. The company's stock was rising, too; it had a market capitalization of $350 million at the end of the year. Revenues were $72.23 million in 2004, with net income of $19.7 million.

The company's large inventory, successful wells, and high commodity prices allowed it to drill more while holding larger stakes in the projects, Brigham told Natural Gas Week. It planned to drill 36 wells in 2005, with an average working interest of 63 percent. While its activities were focused on the Anadarko Basin, onshore Gulf Coast, and west Texas, in the fall of 2005 Brigham acquired property in North Dakota to complement an existing area of exploration in Montana. Revenues for the year were expected to exceed $100 million, with net income around $40 million.