Brigham Exploration Company (Nasdaq:BEXP) laid out a fairly convincing investment case for the company's future prospects based on the Bakken Shale at its analyst meeting held last week. However, the stock has moved up with such sudden momentum recently, investors should be cautious despite the fundamental picture.
IN PICTURES: How To Make Your First $1 Million
Overview
The Bakken Shale is Mississipian age shale deposited over North Dakota, Montana and parts of Canada more than 400 million years ago. The Bakken Shale is split into an upper, middle and lower zones, with most activity to date focused on the middle zone. The U.S Geological Survey estimated that the area holds mean reserves of 3.65 billion barrels.
Brigham Exploration has 274,500 net acres under lease in six project areas in the basin, and the company believes that it has 1,263 possible well locations.
These are nice size wells also. One of the company's latest completions came in at an initial production rate of 2,154 barrels of oil equivalent (BOE). Prior completions came in at a range of 727 to 2,021 BOE. Results vary all over the region, so it may not be good to extrapolate the limited results to date to the entire acreage.
Brigham Exploration, like many other independent exploration and production companies, have mastered the technology of hydraulic fracturing to enable access to these resources. The company's latest well used a 24 stage hydraulic fracturing to complete the well.
The Bakken Shale also works at fairly low oil prices. Brigham Exploration has lowered its finding and development costs from $34.45 per BOE in 2006, to $11.16 per BOE in mid 2009. Whiting Petroleum (NYSE:WLL) has an even lower finding and development cost of $7.89.
One advantage that Brigham Exploration and the Bakken Shale has over other emerging shale plays in North America is that the Bakken shale produces primarily oil instead of natural gas. This is important because the fundamentals situation for natural gas remains weak, with high inventories, increasing supply and weak demand.
The Upside
There is more to the basin than just the Bakken Shale, as just below the Bakken is a formation zone called the Sanish/Three Forks. Recent test drilling by the industry seems to indicate that this zone is a separate producing formation distinct from the Bakken.
Continental Resources (NYSE:CLR) recently drilled a well proving that it is separate, although more drilling must be done before the industry accepts its as conclusive. If the results are confirmed, it will boost the reserves of this area by a wide margin.
XTO Energy (NYSE:XTO) also has extensive acreage in the Bakken Shale, with 450,000 net acres. The company estimates its drilling inventory at up to 250 locations Other players in the Bakken Shale include EOG Resources (NYSE:EOG), with 100,000 net acres in the core area, and Kodiak Oil and Gas (NYSE:KOG), with 37,800 acres.
The Bottom Line
Brigham Exploration stock has had a "good run" for the last few months, to put it mildly, tripling in price. Investors might want to wait for one of the periodic sell offs that convulse the energy market every so often before jumping into this name. (To learn more, see our Oil And Gas Industry Primer.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
