The terse email came from a good friend at Petrohawk Energy Corp. after hours: "Big day for HK."
No kidding! BHP Billiton Ltd. intends to buy the Hawk for a 65% premium to Petrohawk's closing price on July 14. Congratulations are due all around. Chief executive officer Floyd Wilson had this in mind all along. He told us so when we profiled him in 2003, when he founded the company—and again this past April, at the IPAA's Oil & Gas Investment Symposium (OGIS) in New York.
Funny, though: Back in March 2010, Wilson told Jefferies analysts that buyers "have zero interest" in Petrohawk because they fear the large premium they'd have to pay for its 2P and 3P reserves.
Like many serial "chief monetizers," this is not Wilson's first rodeo. He created a private, Midcontinent-focused company in 1976, selling it in 1982 to a Kuwaiti partnership for more than $20 million. Since then, he's brought several ever-bigger build-to-sell deals to the finish line.
It's just one reason why we love covering this business. Through 30 years, we've seen some enormous paydays for independents big and small, whether thanks to stunning, unexpected discoveries or successful build-to-sell sales.
The same day the BHP deal came down, ConocoPhillips announced it will disintegrate—er, that is, dis-integrate—into two stand-alone companies: an upstream independent (51% oil reserves at year-end 2010) and a downstream company (third-largest in the U.S.).
It follows in the footsteps of Marathon Oil Corp., Murphy Oil Co., Questar Corp. and other diversified companies whose management has decided to focus on E&P. Trust me, a few years from now some of these companies will reverse course. Investment bankers and consultants will convince them to aggregate-acquire-grow again, if 30 years of deal-watching is any indication.
These two huge transactions sum up nicely the evolution of the E&P business we have watched since the August 1981 inaugural issue. For one thing, corporate strategy seems to go in cycles, with some herd mentality thrown in. U.S. assets only. No, grab some international diversification. This model was in. Now it's out. They did it, so I guess we better do it too, or our stock price will lag.
Companies, especially majors, used to focus on building up huge reserves, holding the acreage and producing it out. Then, they started a U.S. divestment frenzy and went overseas. Now, they are back. Indies merged, grew bigger than the majors (in terms of U.S. gas production), and ventured abroad. Now they are back too. We find in the 2001 issues of Investor that BHP was acquiring Billiton, and Devon Energy Corp. was acquiring more assets abroad (Indonesia, China, Argentina, Caspian Sea). Now Devon is mostly a U.S. firm again.
Today the focus for all? Unlocking value per share.
Remember when the E&Ps cried that there were no good prospects anymore? Today the E in E&P doesn't mean exploration, it means exploitation. We like to say the shales have changed everything, and it's true. The enormous amount of capital that needs to be spent in the next decade to produce shale reserves will drive dramatic changes in company practices, dealmaking and U.S. energy policy.
It will drive companies into each other's arms, or to their balance sheets. I am told that in the Bakken alone, if operators need to drill one well per 1,280-acre unit to hold it, and the play is approximately 8 million acres, then maybe 6,000 wells need to be drilled, each costing $8 million. That's $50 billion spread over about 30 operators, just to HBP a play, never mind develop it and build infrastructure.
New alliances will transform the industry: E&P with utility, E&P with truck stops, E&P with LNG plant.
There's no telling where this is going to go. The U.S. Geologic Survey just raised its Cook Inlet, Alaska, estimates to 19 trillion cubic feet—more than eight times the previous 1995 estimate of 2.1 Tcf. "The sizeable increase in gas reserves was primarily due to the inclusion of unconventional potential."
When Investor was created in 1981, it, too, had unconventional potential. We are extremely proud of what we have accomplished, and we hope that the value has been significant for readers and advertisers.
There is not space enough here to thank all the editorial sources who have helped us through 30 years. Some went above and beyond, taking us to rigs as remote as western Siberia and the jungles of Sumatra, or as difficult to reach as was recently the case in the flooded Williston Basin.
To our loyal readers, we say thank you for your trust in us, in our magazine, our newsletters, the websites and our conferences. We've kept evolving just as people and companies in the oil and gas industry have. It's been a fascinating, exciting 30 years, and we look forward to as many more. All the best. Carry on.
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