Monday, May 9, 2011

This Small Oil Explorer is Both Lucky and Good

When it comes to finding crude oil, the saying that it's just as good to be lucky as good often proves true. The latest technology and most experienced exploration team will get close to the oil, but to put a drill directly into an oil elephant requires a lot of good fortune as well.

Lately, one company has been both lucky and good. And the stock is performing exceptionally well in these days of $100 a barrel oil.

This company is Brigham Exploration (Nasdaq: BEXP) and it is knocking it out of the park in bringing oil out of the Bakken region of the northern plains states. Brigham's share price is up 90 percent over the last year, more than three times the gain of its benchmark index - the Dow Jones U.S. Select Exploration & Production Index. The chart below compares these returns.

The name Brigham Exploration may sound familiar to long-time readers of this publication. Back in 2008, Small Cap Investor Daily relayed news that Brigham had just announced a drilling update on three new wells. The share price at the time was just over $8, or one-fourth its current value.

If you followed our advice and purchased sahres back then, you're sitting on a nice 400 percent gain! The four year chart below puts this in perspective.

The Austin, Texas-based company, which now has a market cap of $3.9 billion, is embarking on an aggressive expansion program, looking to double its capital expenditures for exploration in 2011.

Like most explorers, Brigham Exploration relies heavily on cutting-edge technology in its exploration work. It utilizes three-dimensional seismic equipment to sniff out the oil that resides deep in the Bakken shale deposits.

At the end of 2010 the company held 365,000 net acres in the Williston Basin, and 66.8 million barrels oil equivalent of total proved reserves. It has 56 net wells completed in the Williston Basin, with an average peak rate of nearly 2,900 barrels oil equivalent a day.

That's the company's currently producing assets. There is a lot of exploration potential with Brigham too. The company says it has the potential to develop more than 650 more wells just on its core acreage in North Dakota, and it expects to drill number 200 by the end of 2012.
Brigham's total production during the fourth quarter of 2010 was 11,384 barrels a day, 125 percent higher than in the final three months of 2009. That's good news for investors, as is the resulting increase in revenue and earnings.

Full-year revenue increased 135 percent in 2010 to $182.4 million. Net income of $42.9 million reversed the prior year's loss of $123 million. The company also appears on firm financial footing with $248 million in cash and a new $600 million line of credit that it can tap into if needed.

Brigham Exploration has issued a rosy forecast for 2011. The company expects to nearly double daily production, to an average of between 14,000 and 16,000 barrels oil equivalent. If oil stays above $100, Brigham's should post yet another significant jump in profits.

Analysts surveyed by Thomson Reuters predict full-year earnings per share of $1.29, nearly four times 2010 EPS of $0.38. Also, the consensus price target of $38.58 implies shares are 20 percent undervalued at current levels.

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