Statoil ASA, Norway’s biggest oil company, agreed to buy Brigham Exploration Co. for about $4.4 billion in cash, expanding in unconventional U.S. assets because of declining North Sea production.
Statoil will buy all of Brigham’s shares for $36.50 each, a 20 percent premium to the Oct. 14 closing price, the Stavanger-based company said today in a statement. It would be the seventh-largest takeover announced in the oil and gas industry this year. The premium compares with a 23 percent average this year in the industry, Bloomberg calculations show.
By buying Brigham, Statoil joins ConocoPhillips and Exxon Mobil Corp. in the top 10 holders of Bakken shale acreage, according to Bloomberg Industries. The 200,000 square-mile (518,000 square-kilometer) geological formation, centered in North Dakota, may eventually produce as much as 2 million barrels of oil a day, compared with 400,000 barrels a day last year, according to local producers.
“By entering the Bakken and Three Forks we get immediate operatorship,” Statoil Chief Executive Officer Helge Lund said in an interview. “It’s important for us to position ourselves in the best unconventional areas and all the areas we’re in now have very competitive cost levels.”
Government-controlled Statoil, which operates about 80 percent of Norway’s petroleum production, is expanding in unconventional gas, harsh-environment and deep-water areas abroad such as Brazil, Angola and the U.S. Gulf of Mexico. Norway’s oil production has slumped 50 percent since 2000 and Statoil missed output targets last year.
Statoil in 2008 entered U.S. shale gas resources by acquiring $3.38 billion in assets from Chesapeake Energy Corp. and in June bought Eagle Ford shale acreage from SM Energy Co. for $225 million with Talisman Energy Inc.
“I like it strategically,” Carl Christian Bachke, an analyst at RS Platou Markets AS with a “buy” recommendation, said by phone. “They are now heavily involved in Marcellus, Eagle Ford and Bakken. That’s the place you want to be in the U.S. onshore and this is the last piece of that puzzle.”
Brigham, based in Austin, Texas, has more than 100 employees in Austin and North Dakota and a “strong position” in the Bakken and Three Forks tight oil areas in North Dakota and Montana, Statoil said.
Statoil fell 0.4 percent to 137.200 kroner at the close of Oslo trading. Brigham surged 21 percent, the biggest gain in more than two years, to $36.75 in New York.
The deal will give Statoil more than 375,000 net acres in the Williston Basin, where the Bakken and Three Forks are located. Brigham also holds interests in 40,000 net acres in other areas. Statoil said the risked resource base is estimated at 300 million to 500 million barrels of oil equivalent equity.
Equity production is now at about 21,000 barrels of oil equivalent a day, with potential to increase to 60,000 barrels to 100,000 barrels a day over a five-year period, Statoil said.
The break-even price of production from the Bakken acreage is about $55 a barrel of oil equivalent and Statoil expects the area to become self-financing by 2014. The producer will invest about $750 million in Brigham next year, Lund said.
Tight oil is extracted in the same way as shale gas, by drilling horizontal wells and using hydraulic fracturing, called “fracking.” Natural gas companies risk causing serious environmental damage from fracking unless they commit to the best engineering practices, a task force commissioned by U.S. Energy Secretary Steven Chu concluded in August. The increased use of fracking, which forces water and chemicals into rock, raises the potential for a “serious problem,” the panel found.
“The industry is getting better when it comes to water use,” Lund said. “There’s been a lot of research done on fracking and the risk of leaks into the groundwater and if the job is done properly, there’s no proof that such leaks occur.”
Statoil expects its U.S. daily production to reach about 500,000 barrels a day by 2020, out of total output of about 2.5 million barrels, Lund said. The company aims to get its reserves replacement ratio up to 100 percent in the coming years from about 87 percent at present, by growing its portfolio in the Gulf of Mexico and U.S. onshore oil and gas, Lund said. Further transactions in unconventional resources may follow Brigham, he said.
“Over the course of the past months we’ve announced transactions for approximately $10 billion,” Lund said, including sales of assets in Canada and Brazil. “We’re implementing our plans to be active on the portfolio side and streamline the company.”
The acquisition is expected to close in the first quarter, Statoil said. The company was advised by Tudor, Pickering, Holt & Co. Securities, Inc. and Goldman Sachs Group Inc. Vinson & Elkins LLP is the legal adviser.
Jefferies & Co. advised Brigham.