Roger Jarvis is a true success story in the industry-starting from a family background with no experience in energy, he has just formed his fourth energy company. The last one, Spinnaker Exploration Co., was sold to Norsk Hydro for $2.6 billion.

A native of southwestern Missouri, Jarvis received a degree in petroleum engineering at the University of Tulsa and then went to work for Amoco Production Co., working as a senior engineer in the Rockies and Midcontinent. In 1978 he co-founded his first business, engineering and consulting firm Lawson Engineering Inc., before leaving to form Barrick Exploration in 1982. Barrick was eventually bought by King Ranch Oil & Gas Inc., which Jarvis ran before becoming CEO of its parent, King Ranch Inc., in 1988.

But since Jarvis wanted to run his own company instead of someone else's, he left King Ranch in 1994 to form his third company, Spinnaker, which was started with private-equity backing from capital provider Warburg Pincus. He worked with chief financial officer Robert Snell to grow the company into one of the most prominent players in the Gulf, with 129 million barrels of oil equivalent resources. After Spinnaker was sold to Norsk Hydro in 2005, Jarvis took some time off from the business. While serving on the boards of both Bill Barrett Corp. and National Oilwell Varco, he focused on different charitable causes and spent time with his family on their horse farm.

Yet, the E&P business has called to him again. Jarvis has created Common Resources LLC with a line of equity from Pine Brook Road Partners, a new private-equity firm formed by former Warburg group leader Howard Newman, who had backed him at Spinnaker. EnCap Investments was the lead investor and contributed 50% of the initial commitment of $500 million.

At Common, Jarvis has reunited with Snell who is again CFO. They are joined by former Newfield Exploration Co. executive vice president, worldwide exploration, Elliott Pew, who is chief operating officer of the new venture. "Quite a team!" he says.

With a new focus on onshore assets and his phone constantly ringing, Jarvis discussed with Oil and Gas Investor his view of changes in the energy industry since his time at Spinnaker and what challenges the new company faces.

Investor What made you decide to come back into the industry right now?

Jarvis I think the entry point's pretty good. I'm not sure it's perfect. One can never be sure of that. Gas prices have leveled out a little bit and that's comforting to me as someone with some capital and no assets.

We see the onshore industry in particular improving in quality and quantity in terms of equipment availability. The rig fleet has modernized and the industry has put quite a bit of capital in new equipment and I think that's helped to moderate the cost environment. I think the Btu disparity between oil and gas prices is probably something that works long-term to the benefit of natural gas plays. And the availability of private equity was an important determining factor for us.

Investor Do you plan to take Common public?

Jarvis I never say never, but it's not the plan right now. Periodically we may create some liquidity but we'd really like to remain private as a bias. Sometimes you can do things with the public market in terms of capital that aren't possible in the private arena. And if that were to be the case again, we would have to consider what's best for shareholders.

Investor How has the industry changed since 2005?

Jarvis Spinnaker was an offshore player and I'd say the biggest change there is costs in deep water have escalated rapidly. Onshore, the resource plays are becoming dominant and are capturing a lot of the industry's capital and focus. It was going on in 2005 but I think it's the clear and future focus for most of the onshore business from here. The emergence of the MLP structure is pretty important from the standpoint of that being a real force in acquisition of proven assets.

The other change is really the breadth of availability of private equity. Robert and I came from Spinnaker; Elliott Pew came from Newfield. Both of those companies were started with private equity from Warburg, but that was the exception during that period of time. It was pretty tough to finance those companies initially. Now private equity is really the rule for start-ups.

Investor Why are you focusing onshore this time?

Jarvis I think it's just good prospectivity versus risk. Right now our plan is to start onshore because of its less-concentrated risk profile and because costs onshore appear to be a bit more controllable. We do have a pretty substantial background offshore and we're watching it and we'll be opportunistic about that.

Investor Where will you focus first?

Jarvis We've got some biases, but we're doing quite a bit of trend analysis right now. I think in the end we'd like to create a position in East Texas. I know it probably won't be cheap and it probably won't be easy but I think we'll remain committed and eventually we'll be able to do that. We're interested in a couple of the West Texas basins, particularly the detrital plays around the platform. We all have history in the Frio-Vicksburg in South Texas and we'll probably work that to some degree. And then we'll have a group dedicated to the shale plays. So it will be a balanced approach. We'll be working several areas simultaneously.

Investor The unconventional plays aren't all leased up?

Jarvis I think one could say a phase of primary leasing is definitely over. We'll have to pick our moments, but we think there will be opportunities just by virtue of the size of the plays. The resource plays have seen an awful lot of leasing during the past three or four years. And there's a commanding presence held by the larger independents in particular. But lease terms are relatively short and there's a burden that goes with those commanding positions. Those plays are taking huge focus from the industry and taking a large amount of capital, so that could spawn opportunities in a couple different subsets. From time to time people are going to want some help, both technically and in terms of capital to ease the burden of risk in noncore positions.

And, I think there are conventional positions that are going to be devalued by virtue of the focus on the resource plays. So we'll try to bring some technologies to those plays. We'll have five or six top-quality G&G teams and we'll take our opportunities where we see them properly priced.

Investor Under what circumstances would you focus on the offshore again?

Jarvis The deep water has a cost equation that is not well-suited to a private start-up. The capital demands are just so large. And again, leasing activity has been heavy. The companies that are going to make that play successfully are typically those with bigger balance sheets than we're likely to have any time soon. I'm not saying a start-up can't be successful out there, but there are challenges to it.

A whole lot would have to change to put us in the deep water. On the shelf there are good opportunities, but as a smaller entity, everything from the cost of bonding to per-well risk is a bit tougher on the shelf.

Investor Would acquisitions play into your strategy?

Jarvis Our view is all access strategies are on the table. I don't rule out acquisitions by any means. We're going to have a balanced approach to it. Entry into a number of these plays will be made more robust with an acqui­sition/exploration strategy. We'd always rather have our capital invested at the drillbit, because it is harder and harder to compete for a proved developed resource because of competition for these assets with the MLPs and other financial buyers. So we don't want to concentrate exclusively around producing property acquisitions. But in areas we like, some of that's going to be necessary to create positions, then we'll try to add value going forward. We'll do some grassroots leasing. We'll joint-venture in some cases. We'll look at acquisitions where it's strategic and it provides a position in an area that we like.

Investor You have plenty of firepower.

Jarvis Yes, $500 million in equity commitment is enough. We're never going to be a highly levered company, but to the extent that we do make producing property acquisitions, it will be appropriate to take some leverage and we'll do that. And then our track record determines how easy it is to continue to raise funds as we need them.

Investor Any advice for others looking to start a company?

Jarvis It's an interesting question because there's a lot of technology and a lot of know-how held in the hands of guys that don't have much history in the structural stuff. The thing I pay most attention to first is chemistry. My first rule of thumb is to always hire people smarter than I am. That tends to make you look good over time.

How people handle challenges probably has more to do with success than any of the individual technical factors. I've always stayed really focused and tried to be mindful of technologies and how they're going to impact us. Maybe 90% of the resources we're exploiting today were not commercial or technically viable just 10 or 15 years ago. So to do things the way you've always done them and expect that to work, I think, is naïve.

The industry creates value in cycles: technical cycles, financial cycles, pricing cycles and you have to remain committed through those cycles to see your G&G output rewarded.

If you try to get too cute about any of those things-it's a humbling business anyway-you get your head handed to you most of the time.

Investor What lessons from Spinnaker and your other companies will you apply to Common Resources?

Jarvis Be focused and pay attention. The standard outcome is not necessarily success. You've got to be a little bit motivated by fear of failure, because it's a business that is just so competitive.

Investor You mentioned having five G&G teams. That seems to indicate you will have a lot of employees.

Jarvis Five plays sounds like a lot, but Spinnaker worked 22 plays actively in the Gulf of Mexico simultaneously. I think a G&G staff like the one we're contemplating here could manage five plays, particularly considering the technical tools we have. We currently have between 15 and 20 people. We see a high-water mark of between 40 and 50 people. That's probably a year out. With the right technical platforms and a pretty focused strategy we'll be able to work five areas very effectively.

Investor Now that people know you're up and running, you'll be contacted for a lot of deals.

Jarvis The phone's ringing quite a bit for a start-up at this phase. There's a broad range of opportunity out there. We've just got to pay attention and make sure we're bringing our very best to the table, whether we're a partner in a joint venture of some kind, or whether we're investing in a concentrated way.

Investor What issues or challenges do you expect to see?

Jarvis I guess the competitive environment is always the biggest question in our business. Information and technologies tend to be transferred quickly. I'm always concerned about being a buyer when the commodity price is high. Buying high and selling low is not a good habit to get into. LNG (liquefied natural gas) is definitely on the horizon. Its market share is increasing.

Right now we have uncertain economic times. I would always be concerned about the commodity itself and the value of that commodity.

Investor But you're more or less optimistic?

Jarvis Whether we are or not, it's not going to change what happens. I think it's just something to be aware of. Hopefully we're not designing an asset portfolio that requires perfection in pricing.

Investor When you had Spinnaker, did you hedge a lot?

Jarvis Actually, during the last three or four years of our existence, we were one of the more successful hedgers in the business, which meant we didn't hedge at all. We did hedge in the earlier years as it was required to insure that our program could go forward. What I learned in those years is that one just shouldn't hedge into rising markets. We couldn't have predicted it, but our balance sheet made that possible.

I do think, looking forward and particularly as you mix acquisitions into a strategy, hedging is a prominent tool. We'll probably look at hedging to some extent, particularly as we take on some leverage and acquire some producing properties.

Investor What keeps bringing you back to E&P?

Jarvis It's a great business; it's the thrill of discovery. I don't think anyone who's been successful in the business entirely loses affection for it. I love building things; I always enjoyed doing that. I'm lucky enough to be partnered with people who have the same affliction. It's a really rewarding business, not just financially but psychologically. There's nothing like seeing a discovery take place. And seeing value created from ideas.