For small-cap companies feeling the pain of the downcycle, let us not forget the tale of Brigham Exploration Co., the Rocky of E&P comebacks. In 2011, Norwegian national oil company Statoil paid $36.5 per share in a $4.7 billion cash deal for Brigham’s Bakken and Three Forks portfolio—a triumph for a $25,000 private start-up.

Yet in March 2009, during the last energy downcycle, Brigham’s stock price hung near a dollar, falling from $17; its market cap had fallen to less than $60 million from a year-over-year high of $280 million; and it labored under $314 million of bank debt.

“It looked like they were going to the courthouse to file,” said Global Hunter Securities’ Michael Bodino. “Then they did something pretty amazing.”

Brigham management did three sequential equity offerings, more than doubling shares outstanding, over a one-year period. It raised more than $500 million as the share price increased in tandem with the price of oil into 2010.

Not only did Brigham double its shares outstanding as part of its comeback strategy, it doubled its debt as well—twice. It raised $300 million in 2010 and again in 2011.

“The company remained aggressive,” said Bodino. “Despite low prices, they remained laser-focused on their strategy and in the capital markets.”

Then Brigham sold off all of its assets in South Texas and West Texas, essentially putting all of its eggs in one basket in the Rough Rider play in North Dakota, “which, by the way, was not economic at that time,” Bodino said.

As we all know, Rough Rider worked in a big way, and Brigham’s stock went from $1 to $37 in under three years.

“They dug out of the hole. It’s one of the best case studies out there.”

Bodino views a lot of companies struggling today under heavy debt as down but not out. “A lot have the potential to grow out of their current situation.”

He notes that most of Brigham’s value—from $4 to $20—was created in a period of $60 to $80 oil. “It wasn’t $100 oil that bailed out these guys.”

Management of strapped E&Ps today must have confidence in how their projects will evolve, he said. “Rough Rider wasn’t economic at the end of 2008, and it turned out to be a home run that led to an asset sale.”

Are equity raises the answer to a beat-up E&P’s prayers?

“Dilution may be the solution for a number of these guys to have a shot at survival and to grow beyond where they currently sit,” Bodino said. “Instead of doing one deal that cures all, they may have to do a number of smaller deals that slowly improve their balance sheet in conjunction with other types of transactions.”

But even with capital markets regaining momentum, repairing balance sheets via equity raises is going to be tough, even now.

“It’s going to be difficult or impossible for a company with debt that is trading in the 60s [percent] to grow with equity, when the ones being helped are the debt-holders,” he said.

“If you’re an equity guy, where is your return coming? The first thing to do is figure out a solution for your debt.”

Like, buy back your debt at a discount; do a debt-for-equity swap; or sell everything but the kitchen sink, as did Brigham.

“Nobody wants to sell acreage at the bottom of the market, but are you better lopping off 25% to 50% of your acreage now and being able to manage your debt? The reality is that inventory is pushed far into the future and you’ll never get to it.”

Kodiak Oil & Gas is a similar comeback kid. In the 2009 downturn, company shares fell from above $6 to just 18 cents. Mercifully, it held no debt then. Its operations were spread between the Vermillion and Williston basins.

“They didn’t have a whole lot going on at the end of 2008, and the Vermillion Basin was looking marginal. Then they reinvented themselves.”

The company launched a series of follow-on offerings, eventually increasing the share count from 46 million in 2008 to 265 million in 2014. It also levered up, ultimately increasing the load to $2.4 billion. Much of that was plowed into Bakken and Three Forks asset acquisitions.

“They focused on debt as a growth driver,” Bodino said, “and grew the company to a $5 billion enterprise value over a six-year period.”

The happy ending came when Whiting Petroleum offered a cool $6 billion in a merger completed in December.

So, hope floats. If you’re toeing the bottom today, we’ll check back in five years for your multibillion-dollar divestiture.

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