Statoil to expand into Bakken with Brigham takeover

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A global energy giant struck a friendly multibillion-dollar takeover agreement Monday, giving it a stake in the Bakken light oil play and demonstrating how companies now need deep pockets to compete in the prolific zone.

Statoil ASA , Norway's state-controlled oil and gas company, said it plans to buy Brigham Exploration Co. for $4.4-billion (U.S.) in cash, as well as assuming the smaller outfit's debt. It marks Statoil's first move into the popular Bakken and Three Forks region in Montana and North Dakota, and the company wants to further expand its territory in the play.

The U.S. formation, which stretches into Alberta and Saskatchewan, albeit at shallower depths, is expected to churn out an enormous amount of oil as drilling activity blooms. But, given Bakken's potential to host tens of thousands of wells, smaller players that are focused solely on the increasingly expensive play are expected to dwindle, challenged by wealthy competitors.

"This [acquisition]gives us a very good position and obviously we think that we can build on that and develop that position even further," Ola Aanestad, a spokesperson for Statoil in the U.S., said. "Unconventional oil and gas in the U.S. has a lot of promise and will become a very important part of future energy supply."

Texas-based Brigham pumps out about 21,000 barrels of oil equivalent per day before royalties, with the potential to hit between 60,000 and 100,000 barrels of oil equivalent per day before royalties over the next five years. Statoil's current North American production rings in at about 100,000 barrels of oil equivalent per day, Mr. Aanestad said. The deal will give Statoil 150,000 hectares in the Williston basin, as well as 16,000 hectares elsewhere, the European company said in a statement.

Enbridge Inc., along with a partner, last month proposed a pipeline to move oil to refineries in Texas from Cushing, Okla., and expects growth in the Bakken will make the line necessary. Further, Exxon Mobil Corp. in the second quarter started shipping crude via rail from North Dakota to its refineries. Others have made similar moves as production grows.

Statoil's new Bakken and Three Forks properties rest in the Williston basin, a tight oil play covering about 3.2 million hectares which may need about 35,000 wells to extract its bounty, according to Marcus Talbert, a Canaccord Genuity analyst based in Houston. It cost roughly $4-million to $5-million to drill a well there two years ago, but with costs rising, more hydraulic fracturing needed, and different geological makeup, companies now need about $9-million per well, he said.

"It is this massive amount of capital that is required to drill through this huge amount of inventory, which thus far looks to be some of the most prolific oil-weighted wells in the Lower 48 [United States]" Mr. Talbert said. "It is a several-hundred-billion-dollar problem."

He did not expect the consolidation spree to kick off until late 2012 and early 2013. "This [deal]is indicative of the sheer amount of capital it is going to take to drill through these sites." While Brigham is a speck compared to its new owner, analysts give it credit for developing technology and sporting a respectable balance sheet.

Statoil's cash, coupled with investments from other major energy companies, does not necessarily mean drilling in the Bakken will explode. While large companies have stronger balance sheets to help them drill through the vast tracks of land, they can also afford to let rigs sit idle if oil prices are unattractive. With property around the world, the global giants have flexibility that pure-play Bakken companies like Brigham lack.

"With these bigger guys in the picture, down the road they could grow at a [faster]pace if oil prices allow, but if oil prices are [about]$70 per barrel, the Bakken is not as competitive as some other assets they might have," said Vanessa Howell, a research associate at Raymond James in Houston.