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
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.
|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
|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.
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