The four-time E&P build-and-divest success aims to take his newest public via a merger with Earthstone Energy.
Earthstone Energy Inc. shares (NYSE MKT: ESTE) shares are up 59% in five weeks in anticipation of Frank Lodzinski’s take-over of the company in a reverse merger with Lodzinski’s Oak Valley Resources LLC.
The deal is expected to close in September or October. Lodzinski said earlier this month, in Oil and Gas Investor’s annual Energy Capital Conference, that he looks forward to being in the public arena again. “We’re about 35% gas (reserves) right now,” he said of Oak Valley’s portfolio.
Earthstone primarily operates in the Williston Basin and South Texas and has net proved reserves of 3.2 million barrels of oil equivalent (BOE), 82% liquids, and production of 600 BOE a day. Oak Valley has 11.4 million BOE of proved reserves, 65% liquids, leasehold of 67,000 net acres and production of 2,150 BOE a day, primarily from the Eagle Ford in South Texas.
The combined company’s liquids reserves will be 68.5%. Oak Valley shareholders—including management, EnCap Investments LP, The Vlasic Group, Wells Fargo Energy Capital Inc. and BlackGold Capital Management LP—will own 84% of Earthstone.
As for the combined company’s name, Lodzinski, 64, said he may shed the “Oak Valley” moniker he gave his current start-up, as peers have teased that it sounds like the name of a retirement home.
Lodzinski’s career began in the early 1970s as an auditor of utility companies. In 1984, he began rolling up failing drilling partnerships into Energy Resource Associates Inc., particularly with financial backing of the Vlasic family, which sold its interest in the pickling company in 1978. Some of the assets were sold for stock in Hampton Resources Corp., which was sold in 1995 to Bellwether Exploration Co. Lodzinksi then formed Cliffwood Oil & Gas Corp., acquiring a controlling interest in Texoil Inc. He sold Texoil in 2001 to Ocean Energy Inc., which later merged into Devon Energy Corp.
Lodzinski then took on the restructuring and liquidation of Aroc Inc. and, in 2004, his Southern Bay Energy LLC took on Aroc’s remaining assets. Merging Southern Bay into GeoResources Inc., Lodzinski sold that in 2012 to Halcon Resources Corp.
According to an Earthstone and Oak Valley report,
--Hampton Resources produced a 30% return to preferred investors and 700% return to initial investors,
--Texoil, 250% to preferred investors, 300% to follow-on investors and 1,000% to initial investors,
--Aroc, 17% to preferred investors and 400% to initial investors, and
--Southern Bay, 40% to initial investors.
Lodzinski noted in the conference in June that the Vlasic family has backed his start-ups all along, beginning in 1984. Capital partners with experience are the best, he told industry members who are considering starting their own companies. “The worst thing you can do is take in people who don’t understand the risks,” he said.
His team at Oak Valley has worked with him for between 12 and 25 years, he added. And, he noted, the job of running an oil and gas company isn’t a job. “It’s a commitment…You have to think of everything. Tonight it might be frac sand or logistics or oil prices….” His team stays on top of the day-to-day “so I can stay ahead of the ball and anticipate where we’re going because these plays are so logistically complex.”
Shares of Earthstone, which was formed in 1969 as Basic Energy Science Systems Inc., traded below $2 into 2003 and pushed to $27.50 in 2006 as EOG Resources Inc. and others began to prove Bakken leasehold commercial in North Dakota. (Note: Share prices are adjusted for a 1-for-10 split in January 2011.) The price rose and tumbled during the next several years to about $13 in July 2013.
Prior to Lodzinski’s news on May 15, shares were $21.74; they closed at $34.61 Monday.
–Nissa Darbonne, Author, The American Shales; Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.
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