HOUSTON ─ As he reflected on his company’s and the industry’s positions in light of the events of the past year, EnerVest Ltd. president Ken Mariani said the company continues to focus on its strategy.

One factor of the company’s strategy is its insistence on reducing the direct cost per unit of rigs. Since the time the company entered shales, it has attempted to reduce costs and has succeeded. He pointed out that EnerVest has achieved a cost reduction of 15% in the Appalachian Basin. In the Austin Chalk, that reduction has reached 45%. Other notable cost reductions: In the Permian, it was 34%, and in the Barnett, 26%. Building out a sizeable position in each of these areas has had a hand in forming a strategy.

“Our strategy at all points of the cycle is to drive down costs through size,” he said at a recent breakfast meeting of the Houston Energy Finance Group. Furthermore, he said, “We really believe size does matter. It gives you a lot of operating efficiencies and synergies.”

EnerVest Ltd. currently holds 36,000 wells spread across 15 states. Its 6 million acres’ worth of leases employ 1,280. It has 2P reserves of about 6.2 trillion cubic feet equivalent (Tcfe), about 70% of which is gas. Its current net production is about 970MMcfe/d.

Ken Mariani, EnerVest Ltd.

Ken Mariani Source: EnerVest Ltd.

EnerVest’s first real shale acquisitions were in Appalachia, totaling $1.2 billion since 2003. In the Austin Chalk, the company snagged five more purchases for an aggregate $900 million. It added on to its portfolio by making five acquisitions in the Barnett from 2010 through 2013 for $2.5 billion. And it has also made six acquisitions in the Midcontinent, beginning in 2013, for a net investment of about $1.6 billion. It ranks as the largest producer in the Austin Chalk, a top-three producer in Appalachia, and it is the fifth-largest in the Barnett Shale.

The company has also responded to lower crude prices by reallocating resources and trying to maintain a steady cash flow and 15% internal rate of return (IRR). It has slashed its capital spending by about half, from $762 million last year to $368 million this year.

Despite diligent efforts to reduce costs, the company has seen its revenues drop faster, he said. Whereas EnerVest could realize $5.27/Mcfe in revenue last year, this year so far revenue has averaged about $3.26/Mcfe, a reduction of about 40%. In that same time, operating costs have dropped by about 9%, from $2/Mcfe to $1.81/Mcfe. That’s about a 55% drop in margins.

Of course, with commodity prices halved and geopolitical variables beyond his control, Mariani knows he’s not the only one facing difficulties.

“You know, I tell everyone, no basin, no company is immune from the downturn.”

But he has seen a quick response from the industry.

“What’s the first thing you do when prices crash?” he asked. “Quit spending money.”

And quit spending money the industry has, by his analysis. In his presentation, he showed how, since 2010, yearly A&D spending has totaled between $42 billion and $62 billion. Year-to-date: $2.2 billion.

“People are shell-shocked,” he said. “First step: price collapse. Second step: quit spending money. Third step: What do we do? I call it ‘paralysis by analysis.’ ”

Despite everyone taking a step back during the first half of this year, he says that he has seen a lot more activity in the past 30 days, and he thinks things will pick up soon. “People will be forced to do something,” he said.

Moreover, this downturn is different from the previous ones he’s seen. First, there has been a lightning response from the industry. The rig count is down 55% since last fall, he said. Second, there’s a lot of private equity available.

“Money’s cheap,” he added. “There’s a lot of it out there.”

Finally, there are more market efficiencies today, from developed midstream resources to a greater availability of hedges to a more efficient A&D market.

These greater efficiencies will have an effect on the market’s ability to respond to the downturn.

“I don’t want to say it’s flipping a switch, but it’s getting closer to flipping a switch.”

As a result of this, producers will have more confidence about being about to react up—or down—quickly, and that will have even more consequences for the market.

“Because of that confidence on the supply side, I do think you have a progression of when prices go down you can react real quickly. That’s the good news. But the bad news is when prices go up we will react even quicker.”