Fieldwood Energy LLC today is the largest E&P operating on the Gulf of Mexico (GoM) shelf. A year ago it was three guys and an idea — and not even with a GoM focus.
“Six months ago I didn’t know what Fieldwood was going to look like, and I have no idea what it is going to look like in five years,” says Fieldwood founder and CEO Matt McCarroll. “I don’t think you can plan the future; you can only plan to execute the assets you own.”
After selling his previous GoM venture Dynamic Offshore Resources to SandRidge Energy (NYSE: SD) in 2012 for $1.3 billion, McCarroll remained subject to a noncompete agreement in the Gulf at the time of Fieldwood’s formation. Backed by New York private-equity sponsor Riverstone Holdings LLC, as was Dynamic, McCarroll secured a $625 million commitment in early 2013 and went shopping for assets elsewhere. “We couldn’t start Fieldwood with a ‘let’s go buy Gulf of Mexico’ strategy,” he says.
Yet serendipity brought McCarroll and his former Dynamic team full circle, in more ways than one. By summer the noncompete had expired, and with any acquisition efforts unrequited, his powder horn remained full. Then came along Apache Corp. (NYSE: APA) with an unexpected shift in strategy, followed shortly by a thanks-but-no-thanks opened-item return from SandRidge.
Call it preparation meets opportunity, but the second-half 2013 power shift on the GoM shelf is staggering.
“We didn’t think we would have the opportunities that have presented themselves, which is to buy the largest asset base on the shelf, and three months later buy the fifth largest producer on the shelf,” McCarroll acknowledges.
Apache for 30 years had built its shelf position, largely from majors casting off assets whose growth profiles had leveled, to exceed all others. Of late, the company used these producing assets as a cash machine to fund growth operations in the onshore U.S. and abroad, reinvesting only enough money into the shallow Gulf to maintain the production profile. But with investors harping for better returns, Apache bid farewell to its shelf portfolio.
Fieldwood was at the right place at the right time. Although it had neither assets nor revenue, it did have an experienced management team and a pocketful of Riverstone capital. McCarroll jumped at the 500-plus fields and, for $3.75 billion, immediately went from nothing to the pinnacle, leapfrogging the likes of Chevron Corp. (NYSE: CVX), Energy XXI Ltd. (NasdaqGS: EXXI), W&T Offshore Inc. (NYSE: WTI), Stone Energy Corp. (NYSE: SGY) and EPL Oil & Gas Inc. (NYSE: EPL).
Ironically, just three months later, SandRidge initiated a process to dump the shelf assets it had acquired from McCarroll two years prior, as new management deemed the position noncore. During its ownership window, capex, production and reserves had all trended down. Fieldwood was all too happy to reclaim them at a $500 million discount to the Dynamic sale price, which McCarroll attributes to the interim reserves drawdown.
“Buyers and sellers have different views on value,” he explains. “It was a win-win. They wanted to sell, and we had the capital to act quickly. There was no emotional value in our bid.”
Fieldwood is moving into the shallow water where others have exited. Yet financial backer Riverstone and McCarroll’s management team have some $1.5 billion woven into the venture, illustrating the value they believe is at hand.
And that value is not in nursing tired, mature shelf assets into retirement. When noted that 70% of proved reserves of the acquired assets are developed, McCarroll quickly counters that — like the unconventional revolution onshore — technology is unlocking new reserves offshore.
“We definitely see exploration potential in areas that were overlooked, that are now prospective primarily due to new seismic acquisition techniques. Clearly, there is drilling potential. We’re finding new things to do all the time.”
Fieldwood took over as operator from Apache of the Main Pass wide azimuth survey, a joint venture with Energy XXI, and drilled three wells below 22,000 feet with “really good results. We’ve got an active exploration program on those assets,” he says. Apache retained a 50% interest in deep rights.
Via SandRidge, Fieldwood is to be reunited with its Bullwinkle near-deepwater field, which has produced over 200,000 barrels of oil over 25 years. “We’re drilling new wells and have exploration targets there as well.”
Further acquisitions are opportunistic, not budgeted, as that would result in forced bad deals, per McCarroll. Fieldwood now has $400 million in cash and revolver available, and will have more once the SandRidge deal closes. Plus, all the cash flow Apache and SandRidge once used as ATMs will now be reinvested locally. “We’re 100% focused now. The Gulf of Mexico is a growth area for us.”
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