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Norway’s Statoil to acquire Brigham Exploration for US$4.4B cash; entry into the US Bakken and Three Forks tight oil plays

17 October 2011

BakkenWells_468
The Bakken is a prime US unconventional oil play, and is believed to be one of the largest, if not the largest, oil accumulation in the US. The tight oil is extracted in the same way as shale gas, through horizontal wells and hydraulic fracturing. Click to enlarge.

Statoil ASA and Brigham Exploration Company have entered into a merger agreement for Statoil to acquire all of the outstanding shares of Brigham for US$36.5 per share through an all-cash tender offer. The total equity value is approximately US$4.4 billion, reflecting an enterprise value of approximately US$4.7 billion.

Brigham, based in Austin, Texas, has a strong position in the Bakken and Three Forks tight oil plays in the Williston Basin in North Dakota and Montana. “Tight oil” is a term used for oil produced from reservoirs with relatively low porosity and permeability; tight oil reservoirs can consist of shale or other tight rocks.

In the Bakken formation, the oil is extracted from tight carbonate. In the Three Forks formation the oil is extracted from tight dolomite. The oil produced from the Bakken and Three Forks formations is a light crude quality.

To unlock the oil from these tight rocks, the reservoir is stimulated using the same technologies as in shale gas production. Horizontal wells are drilled into the oil bearing formation and the reservoirs are fractured to allow the oil to flow into the well.

Tight oil wells have production profiles similar to those of shale gas wells—they have an initial and relatively short lived peak, before stabilizing at a lower output level that can continue for decades.

laterals
Long laterals have increased Brigham’s productivity. Click to enlarge.

Brigham has adapted new technology in horizontal drilling and hydraulic fracture stimulations to develop the tight oil resources in the Williston Basin. From drilling and completing long lateral wells with single large uncontrolled fracture stimulations in the late 2006, to drilling long lateral wells with 20 isolated fracture stimulation stages in 2009, the company has most recently completed long lateral wells with up to 38 isolated fracture stimulation stages.

Brigham also utilizes:

  • 3D seismic imaging and interpretation to identify the compartments, faults, fault sealing, and trapping mechanisms that hold hydrocarbons and to understand the depositional history of the environment. These factors help determine drilling locations, and ultimately, exploration and development project scope and cost. The company has a current library of almost 13,000 square miles of 3D seismic data for use in exploration and development

  • Directional/horizontal well drilling combined with geosteering. In unconventional formations such as the Bakken, directional drilling allows more contact with the producing formation.

  • Swell packers for effective zonal isolation in the well-completion process. Swell packers have no moving parts and require no down-hole or surface activation.

  • Brigham Exploration controls the location of its fracture stimulations along the length of the borehole by inserting composite plugs, also known as bridge plugs, above the region to be fractured. It then runs a set of perforating guns down the wellbore on wireline and perforates four times between each swell packer. Brigham believes it initiates a fracture during hydraulic stimulation where a perforation has been created. This method is commonly referred to as “perf and plug.” Brigham believes utilizing perf and plug effectively fractures the wellbore between swell packers.

  • Ceramic proppants to create a permeable channel through which the hydrocarbons can flow more freely, thereby increasing both production rates and the amount of oil or gas actually recovered from the well. Based on their research and supported by research from the Society of Petroleum Engineers, it has been shown that the additional strength and uniform size and shape of ceramic proppant provides higher performance than other types of proppant (SPE 77675).

  • Microseismic monitoring is a technique for measuring the orientation and approximate size of hydraulic fractures. Microseismic activity is measured by placing an array of geophones in a nearby wellbore and on the surface and listening to the fracture process. By mapping the location of small seismic events that are associated with the growing hydraulic fracture, the approximate geometry of the fracture is inferred. Based on this information, development plans can be adjusted to geometries that characterize a field.

Brigham has drilled 88 consecutive producing North Dakota wells, with an average early 24 hour peak production rate of approximately 2,800 boe per day. The company currently operates 12 rigs in the area and aims to drill approximately 140 wells per year.

Tight oil should not be confused with oil shale, Statoil says, which is very different with regards to oil quality and extraction methods. Oil production from Brigham’s assets in Bakken are CO2-efficient, with emissions per barrel below the average level for oil produced at the Norwegian Continental Shelf.

The US unconventional plays hold a substantial resource base and represent an increasingly important part of future energy supplies. Statoil has step by step developed industrial capabilities through early entrance into Marcellus and Eagle Ford. Entering the Bakken and Three Forks tight oil plays and taking on operatorship represents a new significant step for Statoil. We are positioning ourselves as a leading player in the fast growing US onshore oil and gas industry, in line with the strategic direction we have set out.

—Helge Lund, President and CEO of Statoil

bakken
Historical activity in the Williston Basin. Click to enlarge.

The Bakken and Three Forks formations are among the largest oil accumulations in the United States. In 2008 the US Geological Survey revised its estimate of the Bakken Formation resource, stating that the Bakken may contain up to 4.3 billion barrels of technically recoverable oil. Since then production has increased substantially and technology has consistently improved well performance. Various sources have estimated the technically recoverable reserves to be in the range of 5–24 billion barrels of oil equivalent over a 38,000 square kilometer area. The attractiveness of the Bakken and Three Forks plays has resulted in Statoil offering a 36% premium over the average trading price of Brigham stock for the last 30 days.

The transaction will provide Statoil with more than 375,000 net acres in the Williston Basin, which holds potential for oil production from the Bakken and Three Forks formations. Brigham also holds interests in 40,000 net acres in other areas. At this early stage of development the risked resource base is estimated at 300-500 million barrels of oil equivalent (boe), equity. Current equity production is approximately 21,000 boe per day, and the acreage has potential to ramp up to 60,000-100,000 boe per day equity production over a five year period.

Statoil will continue to build upon Brigham’s operational capability, and will maintain the Austin location. Retention plans for employees are in place.

Statoil says it is committed to leveraging its technological competence, project execution skills and financial capability to secure continued high operational performance and value creation. The Brigham transaction also provides Statoil with approximately 430 miles (690 kilometers) of oil, natural gas and water transportation systems centrally located in the Williston Basin, securing offtake.

The cash tender offer is expected to commence within 10 business days and shareholders will have 20 business days following the day of commencement to tender their shares. The transaction is subject to the terms and conditions set forth in the merger agreement, including that at least a majority of the outstanding Brigham shares are tendered, that the waiting period under the U.S. antitrust laws has expired or been terminated, and other customary conditions. If the tender offer is completed, un-tendered shares will be converted into the right to receive the same US$36.5 per share paid in the tender offer. Closing of the transaction is expected by the end of Q1 2012.

Tudor, Pickering, Holt & Co. Securities, Inc. and Goldman, Sachs & Co. are acting as financial advisors to Statoil and Vinson & Elkins LLP is acting as legal advisor to Statoil on this transaction.

October 17, 2011 in Oil | Permalink | Comments (12) | TrackBack (0)

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Comments

http://www.youtube.com/watch?feature=player_popout&v=M2V4EM_jaFg

Norway is a curious State. They wield the second largest petroleum trust fund valued long term at more than 2 TRILLION dollars - only Abu Dhabi controls more petroleum money. Rarely however do we hear protest or anger aimed at this tiny northern nation that enriches itself on the substance it publicly abhors.

This play into Bakken is far too late. The value of oil is already falling due to non-fossil energy breakthroughs. But it probably is cheaper drilling than the North Sea. And it will put North Americans to work.

American crude production in the shale plays is very smart right now...especially with Chinese appetite for oil on the rise. Even with the new finds off the coast of Brazil & in the Arctic ocean, there will be continued increasing demand for oil in China for decades. What's wild is the level of demand at current prices in China. I don't know if the Chi-coms subsidize the oil of their citizens, but it sure is expensive based on exchange rates...for example, I saw this article the other day....

China cuts retail gasoline, diesel prices
http://www.marketwatch.com/story/china-cuts-retail-gasoline-diesel-prices-2011-10-09

"China slashed prices for gasoline and diesel fuel Sunday, in its latest effort to fight inflation. China's National Development and Reform Commission cut both prices by 300 yuan ($47) per tonne, sending regular gasoline to 22 yuan per liter and diesel to 26 yuan per liter, in a move announced Saturday"

22 Chinese Yuan per liter = $3.46 per liter
http://www.xe.com/ucc/convert/?Amount=22&From=CNY&To=USD

1 Liter = .2642 gallons
http://www.wolframalpha.com/input/?i=1+liter+equals+gallons

3.78 Liters per gallon
http://www.wolframalpha.com/input/?i=1+divided+by+.2642

3.78 Liters times $3.46 per Liter = $13.078 per Gallon!
http://www.wolframalpha.com/input/?i=3.78+times+3.46

The gas station by my house shows gas at about $3.25 per gallon. Given all the energy deals China has already done & their gas is still extremely expensive, and with an auto industry that is growing very powerful in China, I would expect many, many more deals like this around the world for years to come. The Chinese are going to eventually have a dependency on foreign oil that is truly insane.

Every time I see "..the fracking is safe..far below the water table..oil loves you.." stuff I think of the guy catching his drinking water on fire in his kitchen.

Of course, a legal twenty year study is needed to see if this "..if never catch fire before ma.." occurance could be linked to fracking by his house: >)

Really, how can Americans be put through this bs..

@Ejj,
The article has to be wrong - it is probably 22 Yuan / gallon, not litre.
If you look at the Wikipedia article, it says it is 3.46 / US Gallon.

@ejj,

I was in China this Feb and gas was about USD$3.25 a gallon. Mahnonj must be correct and you're talking gallons not liters.

Norway's oil $$ fund belongs to the nation i.e. to the people and not to Big Oil. That's is very different from what has happened in USA and to lesser degree in Canada. A hand to Norway and Abu d'Abi.

The price of gasoline in China/Being is a very low $0.26/Liter or $0.977/gal. It is not really subsidized but Big Oils do not take 50+% and there are less taxes. The very low fuel price favors the sales of gas guzzlers like the Buick and Cadillac and associated higher pollution. The low liquid fossil fuel price policy will soon change to reduce oil imports and air pollution. This change has start in January 2011.

By 2015, with 55 manufacturers, China will produce about 50% of the world's electrified vehicles but will need liquid fuels for a few more decades.

Mahonj & Dave D - I agree...the marketwatch article must have the wrong units...other sites talk about gallons & not liters.

Better call Homeland Security:

http://www.youtube.com/watch?v=U01EK76Sy4A&feature=related

http://www.youtube.com/watch?v=d6G6Ap-mF0k&feature=related

http://www.youtube.com/watch?NR=1&v=gObcuveoBJ0

kelly....is your call to stop current demonstration in 900+ cities? Better call all your armed forces too?

HD, no.

The king/serf economic disparity has to end, esp. since the serfs blood, genes, organs, etc can save the king and vice-versa.

Kelly....History has a strong habit/custom to repeat itself. In the past (and in the present and future too) when the majority has been deprived or cheated long enough, resistance movements take root and new leaders are born.

More often than none, it leads to peaceful and/or not so peaceful changes. What happened in 2000/2008 in USA and exported to many other countries, set the stage for the worldwide resistance movements currently taking place. The cry for changes will not go away but will be multiplied in the coming months and years unless effective economic and financial changes are applied to better control speculation and greed, better distribute wealth and better share the cost of public services. Except for naysayers and profiteers, too many people have had enough and are just about ready to support movements for change. I doubt that the ridiculous 9-9-9 will satisfy the majority.

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