Poison Pills in the Oil Patch

With share prices beaten to a pulp, E&Ps are popping poison pills left and right.

Poison whaa? Glad you asked. Time for a little Corporate Governance 101.

When introduced under the euphemism "shareholder rights plans," these antitakeover measures can sound noble enough. What shareholder wouldn't want her right to a fair buyout price protected? The unseemly side of poison pills -- which can greatly dilute the ownership claim of someone who's amassing a stake as a prelude to a takeover -- is that they tend to entrench management and thwart takeovers that in some cases would be in the best interest of outside minority shareholders like you and me.

It would be hypocritical of me to bash all shareholder rights plans, considering that my biggest holding, Contango Oil & Gas (AMEX: MCF), has adopted one. Considering management's huge ownership stake, I know our interests are aligned, and furthermore, I want management entrenched. They're the main reason why I'm a shareholder!

Of course, not all poison pills are equally palatable. Take the one introduced by Brigham Exploration (Nasdaq: BEXP) on Wednesday.

Brigham is a small E&P company that's playing Bakken bingo alongside big boys like Marathon Oil (NYSE: MRO) and XTO Energy (NYSE: XTO). The company also has some interesting Gulf Coast plays, including the Main Pass discovery recently brought online at a prodigious initial production rate.

Brigham is run by founder Bud Brigham. Bud's been steering the ship since 1990, so you can hardly blame him for trying to protect his baby. (The adoption of the measure isn't in response to any specific takeover threat, the company said.) He also owns a decent chunk of shares, which goes a long way in my book.

I'm a bit conflicted on this one, though. I applaud the early move into the Bakken formation, but the firm's rising debt trend makes me question whether this company's being run as well as it could be. I personally prefer the model of Northern Oil and Gas (AMEX: NOG), which puts less capital at risk in its Bakken program by taking small farm-ins on wells being drilled by EOG Resources (NYSE: EOG), Continental Resources (NYSE: CLR), and others. The Northern Oil and Gas management team also scrapped their salaries, which signals more confidence in a company's future than any antitakeover measure ever could.

So, am I underestimating the five-star Brigham? Tell me over in Motley Fool CAPS by commenting alongside an outperform call, which you can make right here.