Approximately $300 million of debt securities affected
New York, February 15, 2011 -- Moody's Investors Service upgraded Brigham Exploration Company's (Brigham)
Corporate Family Rating (CFR) to B3 from Caa1 and the Probability of Default
Rating (PDR) to B3 from Caa1. Moody's also upgraded Brigham's $300
million senior unsecured notes due 2018 to Caa1 from Caa2 and lower its
Speculative Grade Liquidity rating to SGL-3 from SGL-1.
The rating outlook is stable.
"The primary driver for the upgrade is Brigham's strong reserve
and production growth and significant financial flexibility," said
Francis J. Messina, Moody's Vice President. "The B3
Corporate Family Rating is prospective and it incorporates our expectation
that the company will significantly increase proved developed reserves
and production rates over the next two years."
The rating upgrade and stable outlook reflects Brigham's property portfolio
transformation, strong expected production trends, strong
liquidity and financial flexibility after issuing a cumulative $576
million in equity since May 2009 to fund accelerated drilling of the firm's
promising properties in the Williston Basin of North Dakota and Montana
where it holds 368,400 net acres in the Bakken/Three Forks oil shale
play. Moody's estimates 2010 production volumes have increased
over 64% from the previous year's level.
While Brigham's recent results and 2010-11 drilling program are
positive and provide cash flow visibility, the rating also reflects
Brigham's small size and scale of production and proven reserves,
its undiversified future growth and full-cycle reinvestment costs,
which are reliant on Bakken/Three Forks. The company's estimated
year-end 2010 proven developed reserves have dramatically increased
from its 2009 level. However, large proven undeveloped reserve
bookings, which require heavy capital spending and face execution
risk, did help reduce finding and development costs. At year-end
2010, production rates relative to capital invested and finding
and development costs have illustrated better capital intensity of reserve
replacement and production growth.
In April 2010, Brigham completed a $290 million equity offering
and announced the acceleration of its 2010 and 2011 drilling programs.
The company will double its rig count in the Williston Basin from four
to eight rigs by early 2011 (7 rigs running currently), and anticipates
its annual drilling rate when at the 8 rig level to be approximately 80
gross wells a year. The expanded drilling program, while
concentrated in the Williston Basin, significantly reduces individual
new well risk and well sequencing in Brigham's efforts to grow production
and replace reserves. For calendar 2010, Moody's estimates
that Brigham has increased it PD reserves 131% from its 2009 total.
Leverage levels, as measured by its reserve base and production
levels, has declined significantly over the past two years.
Nevertheless, while benefiting from Brigham's debt reduction and
a rising production trend, leverage remains elevated. Moody's
estimates that at year-end 2010 debt to average daily production
has declined to $38,000 per boe while debt to proven developed
reserves declined to $14 per boe and debt plus future development
costs to total proven reserve will track to approximately $15 per
boe. While all three leverage metrics remain in the Caa range,
rapid production growth this year will reduce leverage on production and
leverage on reserves which should continue the company's improved
Brigham's SGL rating has been downgraded to SGL-3 from SGL-1
due to Moody's expectation that the company will outspend its cash
flow through 2013. Nevertheless, Moody's estimates
that Brigham has strong liquidity through the next 18 month horizon.
At December 31, 2010, Brigham had $250 million of cash
and an undrawn $110 million borrowing base revolver. Brigham
plans to outspend cash flow during the next three year period, concurrent
with a significant increase to its borrowing base revolver. Covenants
under the revolver include: a maximum leverage ratio of 4.5x
reducing to 4x; minimum interest coverage of 2.5x; and
a minimum current ratio of 1.0x. As of December 31,
2010 Brigham had full availability of its revolver and was in compliance
with the covenants. Other then its bank revolver there are no debt
maturities until 2018.
The Caa1 rating on the $300 million senior notes due 2018 reflects
both Brigham's overall probability of default, to which Moody's
assigns a PDR of B3, and a loss given default of LGD 5, 75%
(changed from LGD 4, 66%). The senior unsecured notes
are notched one rating category lower than the B3 CFR to Caa1.
The notching reflects the priority of claim that the senior secured revolving
credit facility would be entitled to in a liquidation or bankruptcy.
The stable outlook reflects: (i) Brigham's liquidity profile;
(ii) its increasing proportion of liquids production, comprising
74% of total 2010 production versus 46% for 2009 (4Q 2010
was 80% versus 57% for 4Q 2009]; and, (iii) the
expectation that Brigham's accelerated drilling program results will translate
into sustainable production and reserve growth.
In the near-term, a positive rating action is unlikely due
to Brigham's limited scale. To be considered for a positive
rating action, the company should have increased average daily production
to at least 20 mboepd with debt to average daily production less than
$30,000/boe. A negative rating action could occur
if sequential quarterly production trends significantly deteriorate,
if the company's liquidity diminishes, if leverage on production
increases, or if the company does not meet its production guidance
while achieving favorable F&D costs.
The last rating action on Brigham was September 13, 2010 at which
time Moody's assigned a Caa2 rating to Brigham's unsecured note
The principal methodology used in this rating was Moody's Global Independent
Exploration and Production Industry rating methodology published in December
Brigham Exploration Company is headquartered in Austin, Texas.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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in assigning a credit rating is of sufficient quality and from sources
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independent third-party sources. However, Moody's
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
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Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Francis J. Messina
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Brigham's CFR to B3, outlook stable
250 Greenwich Street
New York, NY 10007