An investment in Brigham Exploration Company (NASDAQ:BEXP) may be a good hedge for investors who are worried about the macro situation in the natural gas markets, as this oil and gas exploration and production company has large exposure to an oil-based shale play.
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Brigham Background
Brigham Exploration Company has properties in several different areas in North America, but the one with the most potential, and that the market is focused on, is its acreage in the Williston Basin.

The company has approximately 290,000 acres under net lease in this basin, which is located in North Dakota and Montana. This acreage is prospective for the Bakken shale, an oil-producing shale that has restarted the oil industry in North Dakota. The acreage is also exposed to the Sanish/Three Forks formation, which might possibly be a separately producing formation.

Driving Down Costs
Brigham Exploration Company has succeeded in driving down its costs in the Bakken shale by increasing its efficiency. The company used a seven-stage hydraulic fracturing process when it started and is now at 24 stages. This has increased the estimated ultimate recovery (EUR) of these wells from 236,000 barrels oil equivalent (BOE) up to a range of 500,000 to 700,000 BOE. Initial production rates are two to three times higher with the multi-stage hydraulic fracturing.

Although the company's well costs increase due to the complexity of drilling, its finding costs per BOE is falling due to the higher EURs.

Two of Brigham's recently completed wells highlight the effectiveness of this technique. The Anderson 28-33 #1H, completed in August 2009, produced 2,154 BOE during its 24-hour initial period. The Strobeck 27-34 #1H produced 2,021 BOE during its 24-hour initial period.

These are high rates for the Bakken Shale. XTO Energy (NYSE:XTO) completed one recently that produced at 2,360 BOE, while Whiting Petroleum Corporation (NYSE:WLL) reported one of the highest initial production rates on a well here, with the Rohde 44-1H producing at a rate of 2,528 BOE.

Brigham Exploration is currently focused on the Ross Area, where the company estimates that it has 66 million barrels of reserves. This is a large amount for a company of this size.

Disadvantages and Competitors
There is one disadvantage to oil from the Bakken shale, as the price received typically trades at a discount to the NYMEX price. This discount for Williston Basin oil is typically at $9.12 per barrel, but was as high as $17.22 in December 2008.

Other operators with acreage positions in the Bakken shale include Continental Resources (NYSE:CLR), with 581,000 acres and Newfield Exploration (NYSE:NFX) with 200,000 acres.

Bottom Line
Brigham Exploration Company is leveraged to oil due to its acreage in the Bakken shale, one of the few oil-based shale plays in North America. Investors might be wise to invest in this company as an offset to exposure in natural gas names. (For a review on the oil industry, refer to our Oil and Gas Industry Primer.)

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Tickers in this Article: BEXP, CLR, WLL, XTO, NFX

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