6300 Bridge Point Parkway, Building 2, Suite 500
Company Perspectives:
Brigham Exploration Company's strategy is to achieve superior growth in shareholder value by applying 3-D seismic and other advanced techn ologies to reduce the risks and finding costs in drilling for oil and natural gas reserves.
Brigham Exploration Company is an independent oil and natural gas exp loration, development, and production company. It specializes in usin g 3-D seismic imaging technology to find onshore deposits. The compan y is no giant in the industry, despite its three million barrels of p roven crude oil reserves and 100 billion cubic feet of natural gas re serves. However, it has been quite successful in its niche. Focused o n exploration in its early years, the company in the late 1990s began to add substantial development activities. (Brigham hires subcontrac tors to handle drilling and production.) The company drilled 120 well s in 2004, more than half of them development wells. The family of fo under 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 Expl oration Company, was formed in Dallas in 1990 by Ben M. "Bud" Brigham . Brigham was a native of Midland who had earned a degree in geophysi cs from the University of Texas at Austin. He started out as a seismi c data processing geophysicist for Western Geophysical, Inc., which s pecialized in 3-D seismic services, and was an exploration geophysici st with Rosewood Resources from 1984 to 1990. Brigham would be the co mpany's chairman, president, and CEO. His brother, David T. Brigham, an oil and gas attorney, would also be an executive in the company be ginning in 1992.
Ben Brigham told the Austin American-Statesman that his namesa ke firm was founded with $25,000 and the support of his wife Anne , an oil industry lawyer. In 1992, after some promising early finding s, Brigham secured $10 million in venture capital from General At lantic Partners.
The company's mission was to explore proven oil fields using advanced 3-D seismic technology. This used sound waves to produce detailed ma ps of underground formations. While the industry did not generally fe el this to be a cost effective approach, using it only to probe the b orders of proven finds, Brigham believed it would make its money on t he much improved chances of drilling success, as a well could cost up to several million dollars to drill. The company's initial efforts w ere concentrated in west Texas. It then ventured into the Anadarko Ba sin of Oklahoma and Texas and the onshore Gulf Coast of Texas.
The Anadarko Basin proved a rich source of natural gas. Brigham enter ed the area around 1994 and soon amassed more experience in 3-D explo ration 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 producti on), was established as a Delaware corporation in 1997 and went publi c 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 m arket, pricing its offering at $8 a share versus the $9.50 to $11.50 it had anticipated. The company raised about $24 mill ion in the IPO.
Brigham had 40 employees and soon relocated its headquarters from Dal las to the state capital of Austin, a city with a reputation as a lib eral-leaning, high-tech island. The move was made largely over qualit y of life issues; many of the company's staff had gone to school in t he area, CEO Ben Brigham told the Austin American-Statesman. I t also made sense culturally, since Brigham's business was built arou nd advanced technology. "We have invested approximately $2 millio n in cutting-edge computer hardware and software," he told the Aus tin Business Journal. The company also maintained an office in Ho uston.
By the time of its IPO, Brigham had acquired more than 3,300 square m iles of 3-D seismic data and interpreted more than 2,800 square miles of that, locating 1,200 potential drilling spots. The company had dr illed 330 wells and struck oil or gas 63 percent of the time, well ab ove the industry average of 20 percent or less.
1998 Industry Downturn
Brigham had difficulty funding its drilling program when oil prices t ook a hit in 1998. The company unsuccessfully tried to garner interes t in a secondary offering. Instead, it obtained financing from Enron Corp., which bought $50 million of debt and equity securities, en ding up with a 14 percent holding.
In April 1999, Brigham sold two of its Anadarko Basin properties to t wo different buyers for $17.1 million. These fields had been oper ated by third parties. CEO Ben Brigham told Petroleum Finance Week that the company was raising money to fund higher quality prospe cts. 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 int erest. Another significant discovery for Brigham followed in the Anad arko Basin in 2000.
New Technology for the New Millennium
Brigham added directional drilling technology to complement its 3-D s eismic expertise. Directional drilling allowed for unprecedented prec ision in drill bit guidance. It allowed Brigham to revisit abandoned wells. In 2000, Brigham reentered one, the Mills Ranch Field Discover y on the eastern edge of the Texas Panhandle. It had been abandoned 1 9 years earlier at a depth of 15,000 feet. Brigham drilled an additio nal 10,000 feet for Texas's deepest well that year. The company saved about $1.5 million off its usual $8 million drilling and com pletion costs by entering an existing well.
Despite the company's impressive track record, CEO Ben Brigham compla ined it was undervalued in a September 2000 interview with Oil &am p; Gas Investor. This was a lingering effect of the capital crunc h in the 1998 industry downturn. "Optimally capitalizing our company has proven difficult ever since." However, its debt situation was imp roving with the recent finds and rising commodity prices. In 2000, Br igham 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 mo re than 500 billion cubic feet of equivalent gross reserves, Brigham told the Wall Street Transcript. Brigham's drilling expenses r ose 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 i ncome was $9.2 million.
In 2002 and 2003 Brigham reported several discoveries on the Texas Gu lf Coast, Anadarko Basin, and in west Texas. However, it went into th e red in 2002, when revenues (as restated) were $35.2 million.
Breaking Out in 2003
Oil & Gas Investor called 2003 a "breakout year" for Brigh am Exploration. A secondary offering in September brought in $40 million, substantially alleviating the company's debt load. It contin ued to increase its reserves and production. "We were pure exploratio n when we went public, but now with our discoveries, production has m itigated the volatility of our cash flow," CFO Gene Shepherd, Jr., sa id. Revenues were $51.5 million (as restated) for 2003, and the c ompany posted a net income of $14.6 million after losing $676 ,000 the previous year.
Brigham's fortune continued to rise with energy prices in 2004. At &# 36;50 a barrel, crude oil was fetching well over the $18 to $ 20 needed to be profitable, Ben Brigham told the Austin American-S tatesman. 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 marke t capitalization of $350 million at the end of the year. Revenues were $72.23 million in 2004, with net income of $19.7 millio n.
The company's large inventory, successful wells, and high commodity p rices allowed it to drill more while holding larger stakes in the pro jects, Brigham told Natural Gas Week. It planned to drill 36 w ells in 2005, with an average working interest of 63 percent. While i ts activities were focused on the Anadarko Basin, onshore Gulf Coast, and west Texas, in the fall of 2005 Brigham acquired property in Nor th Dakota to complement an existing area of exploration in Montana. R evenues for the year were expected to exceed $100 million, with n et income around $40 million.
Principal Subsidiaries: Brigham Oil & Gas, L.P.
Principal Competitors: Anadarko Petroleum Corporation; Apache Corporation; Burlington Resources, Inc.; KCS Energy Inc.
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