Wednesday, July 15, 2009

Brigham Exploration (NASDAQ:BEXP): Upgraded to Strong Buy from Underperform at Raymond James

Brigham Exploration (NASDAQ:BEXP) is getting very positive comments this morning after the co last night issued an operations update and announced that the Strobeck 27-34 #1H well came online with an initial rate of 2,021 boe/d from the Three Forks/Sanish (TFS) zone:

- Jefferies notes the first of three wells scheduled for completion this summer achieved a new record for BEXP ... it is also the second highest Three Forks Sanish (TFS) test in N Dakota. The Strobeck 27-34 (63% NRI; Mountrail County) flowed 2,021 boepd during the first 24 hours from the TFS. BEXP's prior record was 1,433 boepd from the Bakken. The highest report TFS test is XTO's (XTO, $35.85, Buy) Boucher 41X-21 well in Williams County at 2,571 boepd.

Demonstrates that longer laterals, more frac stages is working ... the Strobeck is 3 miles away from BEXP's Adix well which tested 892 boepd from the TFS from 11 frac stages in a 5,500' lateral. The Strobeck was completed with 20 frac stages, but 18 are effectively stimulated, in a 9,000' lateral. In effect, BEXP achieved more than double the production with 50% more frac stages. Also, the Strobeck well will be accretive to '09 reserves and will benefit from PUD-recognition. Last year the company booked only 4 million barrels in the Bakken, representing 17% of total reserves. Firm estimates that Strobeck's reserves would approximate 600 - 700,000 barrels if first month production averaged 600 bopd. This is possible considering the high initial production rate. Add in the two offset locations, even with a haircut, and Bakken reserves could be up 30% from this test alone. A 600,000 barrel well would achieve 25% threshold returns at $50 WTI assuming a $7 basis differential and $6.6 million well cost.

Next two catalysts imminent ... Jefferies expects to hear results from the Figaro 29-32 #1H (75%) in the Rough Rider area and possibly a second well in Mountrail County, the Anderson 28-33 #1 (55%), by the earnings call in the first week of August. Both wells will have 9,000' laterals and will be stimulated with 20-24 frac stages. Stimulation is scheduled for the Figaro in late-July and the Anderson in early August. Both wells would be accretive to '09 reserves.

"Rough Rider" delineation underway ... the Figaro is particularly important because it is in the largely undeveloped area West of the Nesson Anticline, where BEXP has one-half of their ND Bakken acreage.

Reiterates Buy and $6.50 tgt on BEXP.

- KeyBanc notes that while they believe it is more important to see how this well will produce over time, they expect the wells' IP to grab investors attention, as it is one of the strongest TFS wells to date (although a 20 stage frac was put into the well). They expect this to be a positive read-through for other TFS players, including Whiting Petroleum (WLL-NYSE), Continental Resources (CLR-NYSE), Encore Acquisition (EAC-NYSE), Newfield Exploration (NFX-NYSE), Kodiak Oil & Gas (KOG-AMEX) and XTO Energy (XTO-NYSE) - to name a few.

Couple of other wells to watch for. In addition, later this month, the Company plans to complete the, Figaro 29-32 #1H well, located in McKenzie County, ND. This long lateral Bakken well is expected to be completed with 20 isolated fracture stimulations. BEXP has also commenced drilling of the Brad Olson 9-16 #1H well, located in Williams County, ND in BEXP's Rough Rider Area. This well will be drilled to a total depth of 20,000 feet and is planned to be completed with 24 frac stages. Firm notes that this well is estimated to cost $6.25 million to drill and complete. In the Rough Rider Area, the Company controls ~100,345 net acres.

- Last but not least...Raymond James is upgrading BEXP to Strong Buy from Underperform.

Notablecalls: I think BEXP will have 25-30% upside in it today (close to a full point)

Positive news + similar catalysts on the horizon for the next couple of weeks. Nice combo.

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