In many ways, 2003 was a break-out year for Austin-based Brigham Exploration Co. (Nasdaq: BEXP). It greatly reduced debt through a secondary offering in September that netted $40 million, and through a bank refinancing. Its reserves profile improved and production grew. Now the company is poised to ramp up activity even more. In February the board of directors approved a $79.4-million budget for 2004, a 72% increase over 2003 spending. "We are going to create a lot of net asset value per share this year by drilling to bring our PUDs [proved undeveloped reserves] into the producing category," vows president and chief executive Ben (Bud) Brigham. "We now have the inventory and the capital to accelerate our program." Brigham plans to drill 59 wells this year, retaining an average working interest of 42%. Last year it drilled 37 wells, keeping an average working interest of 45%. It completed 11 of 12 wells begun in fourth-quarter 2003 alone. At press time it had not yet reported 2003 results, but at year-end 2002 it had 121 billion cu. ft. equivalent of proved reserves, 82% gas and 54% undeveloped. Brigham claims an internal rate of return of 119% on drilling from 2000 to 2002. Net debt-to-book capitalization was a low 24% at September 2003. The company went public in 1997. Years of acquiring and reprocessing one of the industry's largest 3-D seismic databases for a company of its size are now starting to pay off. A string of six field discoveries since 1999 has attracted more investor attention. The road show last fall introduced the company to more investors as well. "It was almost as if we had been pseudo-private before," says chief financial officer Gene Shepherd Jr. "We had 47 meetings in two weeks for the secondary offering." At press time the stock was trading at $7.94 per share, almost double from last year's low of $4.40. State Street Research and Wellington Management are two of the largest holders. In the past few years the company has steadily ramped up its capital spending and retained a greater percentage of working interest in the prospects its geology and geophysical team generates. After years of being focused purely on exploration, its discoveries give it a development flavor. This year it will allocate its capex dollars 64% to development drilling, with 63% to the onshore Gulf Coast region, 34% to the Anadarko Basin and 3% to West Texas. About half of the drilling budget will be spent on Brigham's discoveries made since 1999-the Home Run, Triple Crown, Floyd Fault Block, Floyd South Vicksburg, and Providence Frio fields. In February it commenced a 14-well program in the Frio formation, where it has completed 19 of 21 well attempts in the past few years. In South Texas in the Vicksburg play, it has completed 18 consecutive wells. The latest, the Sullivan F #1, was the discovery well for Floyd South Field, and is flowing 6.7 million cu. ft. of gas per day. Brigham plans to spud its first development well in this field in the second quarter. "We were pure exploration when we went public, but now with our discoveries, production has mitigated the volatility of our cash flow. We were capital-constrained before, drilling solely off of cash flow, until we did the September offering," says Shepherd. Today the company has a multi-year inventory of nonproved locations to drill and it plans deeper drilling in 2005 and 2006, Brigham says. The focus on onshore exploration means it doesn't have the higher operating expenses associated with offshore platforms or "tired old properties with old pumpjacks," he adds.
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