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At $60 oil, our wells are very economic: an exclusive OAG360 interview with Great Western Oil & Gas CEO Rich Frommer

As summer heats up, the days are winding down on the second quarter of 2015, marking the second full reporting period of oil and gas prices staying near or below the $60/barrel and $3/Mcf range. While the new commodity market has created obstacles in the form of reduced borrowing bases and tighter budgets, it has also created opportunity for private equity firms.

A recent survey by Reuters discovered almost half of United States private equity investors are targeting oil and gas funds to take advantage of the lower commodity prices.

Rich Frommer, Chief Executive Officer of Great Western Oil & Gas

Rich Frommer, President & Chief Executive Officer of Great Western Oil & Gas

Great Western Oil & Gas (GWOG) is an example of a private company capitalizing on the market downturn. The E&P focuses exclusively on the Wattenberg Field in Colorado and has expanded its Wattenberg position with two acquisitions since February 2015. The latest purchase, made on June 8, included 6,000 net acres and up to 100 new horizontal drilling locations.

The company’s primary investor, the Broe Group, a private equity firm with its investments planted in energy, transportation and real estate, provides the financial backing necessary for Great Western’s growth. The Group has expressed confidence in the evolution of Great Western via the recent acquisitions. The company now holds more than 50,000 net acres in the Denver-Julesburg basin and is a top-ten producer in the play. More than 1,300 additional horizontal drilling locations have been identified.

Oil & Gas 360® had the opportunity to speak with Rich Frommer, President and Chief Executive Officer of Great Western Oil & Gas, at the company’s headquarters in Denver, Colorado.

OAG360: You participated in a private company panel last August at EnerCom’s The Oil & Gas Conference 19™. What has changed for your company since then?

FROMMER: In the summer of 2014, we were just starting out with our first horizontal wells and getting their results. This summer we’ve rocketed past that point, so it’s been a fun ride.

We are running one rig, and we continue to become more and more efficient. Last year, a one-mile long lateral would have taken 12 days to drill and set pipe. Today, we can do that in about seven days, so we can almost get twice as many wells drilled today as opposed to last year. I think you’re seeing that [efficiency] with a lot of plays, as they become more mature and we learn how to drill them. So in that sense, you don’t need to see the rig count step up, you really need to look at the well count. And we now have more than 400 producing wells and volumes of more than 8,000 BOEPD.


OAG360: From a private company standpoint, how difficult is it to compete with public companies?

FROMMER: Well you know there’s all sorts of levels of private companies, right? So the key to being a successful private is to have good investors behind you. So we, just like a public company, still have investors behind us. We happen to have two major investors at Great Western and they are both very supportive of our business and they both have deep resources which allows us to be competitive. As a private company, you don’t have access to the public capital markets but you can still access the bond markets. So we think we’re very competitive against public companies, you just don’t necessarily get to see our financials.

OAG360: What is the benefit to being an operator as opposed to holding more of a minority interest in your wells?

FROMMER: We always prefer to operate where we can because we believe we have good expertise in our operations. If you’re in the non-op position, you basically are just responding to someone else’s desires to drill here or drill there. This way we can drive our development program ourselves, and that’s our true advantage. And we can control the pace at which we spend our capital.

OAG360: Was it a goal to focus on growth recently, or have you just been able to take advantage of acquisition type opportunities?

FROMMER: So, Great Western has been around for about seven years now and it originally started as an outgrowth of real estate transactions made by our primary investor, the Broe Group. Through the first four or five years, they were basically involved in the Wattenberg but as a vertical driller.

My team and I came on board about three years ago to make the conversion over to horizontal drilling. Phase one was to focus on being able to execute successful horizontal Niobrara/Codell wells. That has been achieved. Phase two has been to continue to grow our footprint. We currently have about 50,000 net acres in the greater Wattenberg area, and we are continuing to grow that position wherever we can.

OAG360: Have you noticed an uptick in acquisition opportunities lately?

FROMMER: Opportunities in the Wattenberg Basin have always been few and far between. There’s really not a big group of sellers because so much is already held by the larger independents. When we make acquisitions it tends to be on a smaller scale. We just announced a 6,000 acre acquisition which is probably one of the largest we’ve ever done. It was kind of a unique set of properties and we’re in the process of probably negotiating on another 2,000 acres right now. That capital for acquisitions either comes from our existing cash flow or from equity contributions.

OAG360: Is the Broe Group able to integrate its rail and real estate segments with Great Western Oil & Gas?

FROMMER: The three segments are all individual standalone lines of business, but yes, there is naturally integration. We obviously interact with our real estate side when we’re buying properties. If there are surface rights, we offer it to them to see if they’re interested in developing the surface properties. We deal with the rail segment, not directly necessarily, but indirectly because they bring the frac sand in for our completions through the Halliburton facility up in the town of Windsor. They also take some of our crude away through the Musket crude-by-rail facility, also in Windsor, that takes some of our product to market.


OAG360: On a personal level, your entire career has focused on the Rocky Mountain region. What drew you to the Wattenberg Field rather than the giant fields in Texas, for example?

FROMMER: Well, in my career I’ve seen the basin start and continue to evolve which has been interesting to watch. It’s probably at its peak phase right now with the success of the horizontal Niobrara/Codell and there’s probably another phase down the road that we have yet to fully discover.

It’s amazing how it’s the gift that just keeps on giving. It’s an amazing oilfield that’s been there for over 50 years and it keeps reinventing itself. There’s an old saying; it’s always good to look for oil where it’s already been found. This is a prime example of that. Now we’re just applying new technologies to more efficiently produce the hydrocarbons that are in place.

OAG360: Have you thought about extending into Wyoming or does that become complicated with the different state laws?

FROMMER: You know, we have no problem looking at Wyoming. But right now we’re pretty much focused on the core of Wattenberg. It’s hard to find much else that competes with that.

OAG360: Going forward, are you basing your prices off of $3 gas/$60 oil? Do you believe that’s the new price basis or do you see the market bouncing back at some point?

FROMMER: Well, we’re oil price takers, not oil price makers. We work with what the market gives us, but with that being said we obviously do forecasts of our spending based on certain forward strips. The forward strip right now tends to be in the $60 range and we can continue to run our business profitably at $60. We also manage our downside with hedges that protect us if for some reason oil goes down to $40. Those hedges serve as an insurance policy. And then if it goes higher, we just benefit from the new barrels that are not hedged, coming on at the higher prices. But at $60, our wells are very economic at that range.

OAG360: Thank you for your time!

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.