Surprisingly, what international supermajor Statoil ASA needed next in its development of a world-scale unconventional-resource asset is headquartered in Austin, Texas. In contrast to Houston, the world’s energy capital that is just a three-hour drive east, Austin is better known for launching U.S. presidential bids, music and film careers, national-championship-winning college football, bicyclist Lance Armstrong and computer-maker Dell.

But tucked into the rolling hills and woods of the city whose natives urge “Keep Austin Weird” is Brigham Exploration Co. and a staff that is teeming with unconventional oil- and gas-resource expertise via a leading, operated position in the new, world-class Bakken and Three Forks tight-oil plays in the Williston Basin of North Dakota and Montana. More than 100 Brigham employees work these pay-zones from Austin and from Williston, North Dakota.

With Statoil’s acquisition, which was expected to close at press time, of the E&P, the Norway-based integrated energy company will take the next step in its journey that began in 2008—from gaining a partner position in the fascinating U.S. unconventional-resource landscape to taking over operatorship in a basin that is changing global oil markets.

With the offer to buy all the shares of Brigham, Statoil will build on its future growth as an operator in the U.S., says Torstein Hole, Statoil senior vice president, U.S. onshore.

The road to Bakken

“We have taken this step by step as a long-term strategy,” says Torstein Hole, Statoil’s newly named senior vice president, U.S. onshore, from his office in Houston.

In the fall of 2008, Chesapeake Energy Corp. and Statoil ASA stunned world energy investors and analysts, announcing that the latter would step onshore the U.S.—where it had previously held E&P assets in the Gulf of Mexico only—with a ticket into Chesapeake’s Marcellus shale-gas play in Appalachia.

The deal involved a $1.25-billion upfront cash payment and up to $2.125 billion in drilling carries for a 32.5% interest in wells drilled on 1.8 million gross acres Chesapeake had amassed in the high-Btu gas play. Development of the acreage in the joint venture may involve drilling between 13,000 and 17,000 horizontal wells during the coming 20 years.

The deal was stunning for the time too: Cash in the midst of one of the Dark Ages in the oil and gas M&A business as capital markets had nearly flat-lined two months earlier and were still in intensive care. In fact, a 10-figure deal value was commonplace in U.S. E&P M&A leading up to the fall of 2008, with 23 of these in the first nine months. But multi-billion-dollar deal-making didn’t resume until nearly a year later.

The entry to the Marcellus play represented real assets to Statoil but also an education. “So we started off with the partnership with Chesapeake in the Marcellus as they are a major onshore operator,” Hole says. The arrangement included embedding Statoil personnel in the Marcellus operations for hands-on experience with drilling these shale-gas wells.

With that growing expertise, Statoil partnered with Canada-based E&P Talisman Energy Inc. in another head-turning play, the Eagle Ford in South Texas, in late 2010. In it, Statoil and Talisman bought Denver-based, privately held Enduring Resources LLC’s 97,000 net acres there for $1.325 billion in a 50/50 deal and, separately, Statoil bought 50% of Talisman’s existing Eagle Ford acreage for $180 million, gaining exposure to an additional 18,500 net.

Adding this to its portfolio, Statoil gained more exposure to unconventional-resource best practices, but it also gained an agreement that it will eventually take over operatorship of 50% of the joint interests within three years. The total paid by Statoil was $843 million, adding 550 million barrels of oil equivalent (BOE) of recoverable resources to its portfolio.

And, while the Marcellus is giving up dry and wet gas, the Eagle Ford exposed Statoil to more of that as well as to crude-oil production from shale. This summer, it and Talisman picked up another 15,400 net acres in the play from SM Energy Co. for $225 million.

“And now, with the offer to buy all the shares of Brigham, we will be an operator in the Bakken area and that is a major step forward for us,” Hole says. “Brigham is prominent in the Bakken and they are doing it superbly. That will build on our future growth as an operator in the U.S.”

With its Bakken acquisition, Statoil is taking the next step in a journey that began in 2008, in the Marcellus shale.

The Brigham intersection

With the Brigham acquisition, Statoil gains more than 375,000 net acres in the Williston Basin, 60% derisked, as well as 40,000 net acres in long-time Brigham plays in Texas and Oklahoma, for $4.4 billion in cash and $300 million of debt assumption. In the Williston Basin, Brigham is making 21,000 BOE a day, gross, at a breakeven cost of $55 a BOE. Statoil expects output to triple or quintuple to between 60,000 to 100,000 BOE per day in the coming five years.

That’s just from Brigham’s existing risked resource base of 300- to 500 million BOE. There is still more to hoe upon applying further technology to the leasehold, Statoil expects, and by expanding the play from the Middle Bakken formation, which has been the earliest target, to the Three Forks that sits below it and appears to give up just as much oil, independent of the Bakken.

This summer, Brigham took a 300-foot core of the upper, middle and lower Three Forks benches in McKenzie County, North Dakota, and was examining the middle and lower for future drilling opportunities. The play’s foun - der, Continental Resources Inc., reported this summer that its tests of a lower Three Forks bench suggest more oil in place in the Three Forks than previously thought.

For Bud Brigham, founder, chairman, president and chief executive officer, the road to $4.7 billion in enterprise value has been eventful. Just two years ago, the company was struggling to capitalize Bakken drilling to continue to secure its leasehold in the midst of depressed equity prices across E&P and all industries worldwide. Brigham had begun to amass a Bakken position in 2005, shortly after Continental Resources opened the play with a horizontal discovery in 2004.

The sale to Statoil for $36.50 a share, a 36% premium to the prior-30-day average trading price, is more than 13 times the price Brigham sold stock for in May 2009 to continue to fund Bakken drilling. In the midst of capital-markets turmoil that began in second-half 2008 and persisted for E&P companies seeking fair-value funding into 2010, Brigham had laid down all of its rigs that were drilling the Bakken. Of the May 2009 stock sale for $2.75 a share and one in October 2009 for $10.50 a share, Brigham said, as the company was named Oil and Gas Investor’s “Turnaround of the Year” for 2009, “It was very painful at the time, suffering that kind of dilution, particularly given that we recognized we had the premier acreage in what we view as the most promising oil play in the U.S.”

By this summer, an exit for Brigham at a premium seemed inevitable as major oil companies continue to grab positions in onshore U.S. unconventional-resource plays at remarkable multiples. Various attendees at Hart Energy’s annual A&D Strategies and Opportunities conference in Dallas in late August queried each other: “Would Bud sell Brigham?” The consensus: “Absolutely—for the right price.”

Its deal with Statoil was secured in mid-October. A bonus in the arrangement, Brigham says, is that Statoil is not only keeping Brigham’s employees, it is keeping the Austin office.

Where to from Bakken?

What is so fascinating about the Williston Basin to Statoil, the Norwegian national oil company that was founded on drilling the North Sea continental shelf, operates in 34 countries and has some 20,000 employees worldwide?

The Bakken and Three Forks formations are among the largest oil accumulations in the U.S., Statoil’s Hole notes. Various sources estimate technically recoverable reserves of 5- to 24 billion BOE in the 38,000-square-kilometer formation. When looking across the globe for new-play opportunities, the Bakken/Three Forks ranks high for resources, market demand and price for it, and stability in operating environment, Hole says.

Before announcing the Brigham acquisition, Statoil had $15 billion of cash on hand, a great deal of it from getting Brent-like prices for its oil production worldwide, while onshore U.S. producers have been getting prices similar to West Texas Intermediate, or up to $20 less, for their output. In the Bakken, production is further discounted some $7 to $10 as it is far from Cushing, Oklahoma, at which WTI is priced.

Some of that cash is also from the spin-off of its retail-fuel business for some $900 million this past year, and the sale of its Peregrino assets offshore Brazil for $3.1 billion, 40% of its Kai Kos Dehseh (KKD) oil-sands business in Canada for $2.3 billion and major parts of its onshore Norwegian wind-power business. It is also currently selling its interest in Norwegian continental shelf midstream assets for more than $3 billion.

Like entering the Marcellus and then the Eagle Ford, for Statoil this is another beginning: Operatorship. Hole was in Williston the day of the deal announcement, where he met Brigham employees and Williston-area community members. He has returned again since.

“I really like the organization and the people are fantastic in regard to professional competence, openness and cooperation. We have the best possible opportunities for building that organization further. We want to keep them on, we want to build on what they have in place and what they have achieved, and go further in developing activities based on their organization,” he says.

That further activity is both within the U.S. and abroad. While there is much more resource development to be profited from in the U.S., the application of horizontal drilling and multistage fracturing to unconventional resources outside North America has not taken off yet. Results from shale-gas tests by operators in much-hoped-for Poland have been underwhelming to date, and France has banned hydraulic fracturing, which quashed Toreador Resources Corp. shareholders’ horizontal- and multistage-frac hopes for their 340,000 net acres in the Paris Basin this summer.

But application in the oil- and gas shale of the Neuquen Basin in Argentina this summer suggests a world-class play may develop there, and Chinese E&Ps are hoping to translate the unconventional-resource expertise they’re gaining from partnerships with Chesapeake in the U.S. to develop resources at home.

Hole says, “So far, we have seen shale production in other places in the world has not taken off to the same degree as it has in the U.S., but, obviously, we will follow that development elsewhere in the world. We know there are resources elsewhere in the world.”

He notes that horizontal drilling isn’t new, but Statoil is intrigued by U.S. operators’ advancements in fracing. “I think it will develop further. Statoil is very strong in reservoir understanding, stimulation and management. I think we can contribute to this industry with our competence.”

It isn’t surprising to Hole that the onshore U.S.—as the oldest commercial oil and gas producer in the world—continues to put out new bounty. “We have seen elsewhere in the oil and gas industry that both technology development and increased knowledge of the underground bring new opportunities.”

On the Norwegian continental shelf, for example, Statoil’s Aldous/Avaldsnes oil discovery earlier this year is one of the largest finds there. “It was actually in the most mature area of the shelf,” Hole says. “There were discoveries in the past 20 or 30 years that were evaluated initially to be so complicated that they couldn’t be developed but that we have been able to develop much later. And, technology will continue to advance.”

What’s next onshore the U.S. for Statoil? Certainly an expansion of its holdings, according to Hole. “We will definitely build further on the positions we have gained. We have a long-term perspective of our activities in the U.S. and we will continuously look for other opportunities.”

It will become the first non-U.S.-based major operator in the Williston Basin tight-oil play upon closing the Brigham deal.

Until this, Statoil has been an operator in the U.S. Gulf of Mexico, where the sole mineral-rights owner is the federal government, but it has not operated assets onshore the U.S., where mineral-rights owners range from individuals and embattled estates to professionally managed funds and trusts to native American nations and local, state and federal governments.

Hole says Statoil’s record of being a responsible and cooperative operator elsewhere in the world will be just as important in the Williston Basin. “We take that very seriously. It is part of our policy to have a good relationship with all stakeholders.

“Brigham is very well aligned with the way we want to work. We will also learn from them as we extend our operatorship in other areas as well.”