The Oil & Gas Conference® 20 stepped away from its traditional spotlight on public company presentations on Thursday morning, shifting its attention to a special private company panel. The participants included:
- Caerus Oil & Gas, LLC: David Keyte, Chairman and CEO
- Jonah Energy, LLC: David Honeyfield, Chief Financial Officer
- Laramie Energy II: Bob Boswell, Chairman and CEO
- Oakspring Energy, LLC: Jeff Miller, President
The participants followed a similar footprint to previous presentations made by their public peers, expressing confidence in a commodity market rebound and the utmost importance of rate of return. The starkest difference, however, was the source of capital to fund company growth in a down environment.
“This is one of the few times the private guys have better access to capital than the public guys,” said David Keyte of Caerus. “It doesn’t happen often.” A couple of the executives mentioned what they perceived as the benefits on the private side, such as avoiding market overreactions and handling investors. Keyte said succinctly that he doesn’t miss the “hubbub” of the public sector, even though capital is more readily available.
Although the private companies don’t have access to overnight equity raises, the benefits of creating stable, long-term relationships with providers can arguably prove to be even more beneficial. “There is, without question, less patience for equity with public companies,” explained Bob Boswell of Laramie Energy II. “On the private side, we can focus more on the actual business operations and key in on our rate of return.”
Boswell’s previous company, Laramie Energy, was sold in May 2007 for $1.1 billion – creating a return on investment in excess of 3.0x. Laramie’s latest venture is backed by some heavyweight lenders, including private equity firms like Avista, EnCap Investments, Par Petroleum and Wells Fargo.
Jeff Miller of Oakspring Energy also chimed in on the capital raises, saying the private company route involves more patience. Oakspring is a differentiator among the group; the company acquires non-operating interest in wells and offers their geological expertise rather than taking full control of development. Miller was the Vice President of GeoScience Technology at Chesapeake Energy (ticker: CHK) prior to assuming his role at Oakspring, and said his firm has found a niche in the industry for small and mid-cap companies who generally do not employ a geosciences team on a full-time basis.
The expertise of Oakspring would fit in line with the ventures of Caerus and Jonah Energy – two operators who take advantage of “out of favor investments.” Jonah Energy has grown to be the fifth largest private producer of natural gas in the United States, pro forma on a full year basis for its inception in May 2014.
The general theme of the four participants centered on two main objectives: returns and relationships. “Generating predictability is the goal of Jonah Energy’s business,” said David Honeyfield, adding that the relationship with Jonah’s service providers allowed them to generate more comfort ability in the commodity downturn. Jonah has hedges in place through 2019, while Caerus is 80% hedged through 2017.
The same predictability method goes for Oakspring, even though the company does not operate any of its assets. “We make it a point to look hard for competent, reliable operators,” said Miller. Oakspring is not only involved in generating the best prospects, but also identifying those that are uneconomical in the current environment.
On the other side of the spectrum, Laramie Energy II follows the same formula. The company holds high net revenue interest (anywhere from 82% to 95%) on its wells and Boswell stressed the importance of executing on its operations. “We don’t just go for low bids when we look for service providers, it’s much more beneficial to know what you’re getting in return,” he explained. “The efficiencies alone from a solid relationship will most likely offset the initial cost savings of a lower bid anyways.”
Each participant agreed that cooperation among the sector will help themselves and their peers survive the oil price swoon, and opportunities are abound once oil prices recover from their lowest levels in six years.
“In this business, there’s always the feel-good story at the end of the book,” said Keyte in the closing comments. “It’s all a matter of building the bridge to get there.”