PITTSBURGH—Stan Berdell says his company, BLX Inc., is like a barrel of water.
“It’s got a leak in it and it’s dripping every day. If we don’t do something, it’s going to be empty one day.”
Conventional oil and gas producers are experts at pessimistic metaphors. They’ve been edged off their perch by large companies tapping the Marcellus and Utica shales. Some tried drilling shale wells themselves but couldn’t compete. The price of natural gas dropped and it became uneconomical to drill shallow wells, too. They sold some shale rights to big operators. They started side businesses. They had layoffs.
Now “We’re swinging for the fences to see what happens,” Berdell said. For the past six months, he’s been herding a group of independent operators—Berdell puts an emphasis on “independent” to imply the challenge involved—to form Vintage Land Holdings, the latest survival strategy.
The idea is to aggregate the deep oil and gas rights of a dozen conventional operators and market them to a private equity fund. The 40,000-acre package will be an all-or-nothing proposition which Berdell hopes will fetch between $200 million to $300 million. But the trick is convincing independent companies to give up control over what might be their last promising asset for a five-year term.
It’s not something Berdell takes lightly. His company’s future is on the line with this deal, too. In January he hired Paul Kimmell, a landman who used to broker shale deals for major players, to help with Vintage.
“I hope this works,” Kimmell said. “This is our final fight. We’re all trying to survive.”
Hard times in the industry
THE theme of this year’s pig roast and industry conference put on by the Pennsylvania Independent Oil and Gas Association (PIOGA) in late July was: “Hard times—unique solutions.”
In one session, titled “Strategies a small business can use to survive a market downturn,” an attorney from Leech Tishman gave out a tip sheet for how to prepare for bankruptcy.
“It’s a good time to open up a Dairy Queen,” said Lou D’Amico, executive director of PIOGA.
It’s a running joke—running time five years now—he has with Jim Kriebel, president of Kriebel Cos.
Natural gas spot prices peaked in 2005 above $14 per million British thermal units. In June 2008 they spiked again to more than $12.
Then the recession collided with shale development, creating a supply glut. It’s difficult to make many Marcellus Shale gushers work at gas prices below $3, where they currently are, let alone conventional wells that hiccup by comparison.
Strength in numbers
AGGREGATION deals aren’t new. Landowner groups often pool their acreage for a better negotiating position with oil and gas firms.
In 2012 Snyder Brothers, the oil and gas arm of Snyder Associated Cos., organized more than a dozen shallow well operators into a block that was marketed to shale firms. BLX was in the bunch, as was Turm Oil. It was supposed to be an all-or-nothing proposition, said Turm Oil Director Dickson Forbes.
Instead, Penn Energy Resources, a start-up founded by former Atlas Energy CEO Rich Weber and Atlas alum Greg Muse and backed by private equity group EnCap Investments LP, cherry-picked properties. Only about 10 percent of Turm Oil’s offering was sold, leaving the company with 7,000 acres.
BLX was left holding 5,000 acres.
Berdell says banding together once again is the best option. “No one’s knocking on our doors,” he said. In 2009, he said, he got weekly offers for several thousand dollars an acre. He didn’t sell “because I’m…an independent operator,” he said, once again using the term euphemistically.
TNS
Image credits: Nate Guidry/Pittsburgh Post-Gazette/TNS