On May 16, Noble Energy Inc.'s $3.6-billion purchase of Denver-based Patina Oil & Gas Corp. closed and Patina's chairman and chief executive officer, Thomas J. Edelman, found himself an alumni of another successful merger, free to take a break or begin again. Previously, Edelman had co-founded Snyder Oil, now part of Devon Energy Corp., where he was president for 16 years after starting his career as an investment banker on Wall Street. In 1988, he acquired control of and restructured Range Resources Corp. and was its chairman until 2003. In 2000, he led the buyout of Bear Paw Energy, arranging its sale to Northern Border Partners 15 months later. In total, he has acted as a principal in almost a dozen energy transactions in the past 25 years. Edelman had plenty of preparation, having completed his undergraduate work at Princeton and graduate work at Harvard. With nothing but success so far, his career path after selling Patina was clear: he had begun looking for new E&P opportunities even before the merger closed. Oil and Gas Investor recently sat down with Edelman to learn his secrets behind his 100% success rate, and to find out where he might place his golden touch next. Investor You just finished the sale of Patina. Did everything go well? Edelman Everything went extremely well. The market has steadily pushed up the price of the combined entity. At this point, the company simply needs to be run well. In that regard, I have enormous confidence in Chuck Davidson and his team at Noble. We agreed to the merger because we believed it was a terrific fit and that they could continue to add value. As a director and large shareholder, I plan to do everything I can to make sure Patina's assets "pull their weight." I have joined Noble's board and agreed to advise them on consolidation-related issues for a year. Both Dave Kornder, Patina's chief financial officer, and I are committed to remain available for a year. Investor What do you plan to do next? Edelman I started looking at possibilities as soon as it appeared the merger would go through. The advice I am providing Noble is not exclusive and does not limit me. Some of my attention has been diverted to other companies I am involved with such as Bear Cub Energy, a private gas-gathering and processing company. I have also tried to be of further help to Range, but John Pinkerton and his team are doing such a good job it is hard to be useful. In all likelihood I will set up or acquire something new within a relatively short period. Nothing firm has been decided yet; I am thinking, looking and talking with a lot of people about opportunities. Investor What are the challenges of merging companies? Edelman I believe mergers face two principle challenges. First, the buyer must accurately assess the assets to be acquired and their value. You might be surprised how often someone gets over-enthusiastic and fails that test. Second, the entities need to be brought together effectively, retaining their expertise and competitive advantages. If you buy an entity that is a tenth your size, the second part is probably irrelevant. Small deals are like asset purchases; the acquiring company can just take over and run them. In the case of the Noble/Patina transaction, however, the two companies were similar in size. Patina had a terrific base of highly predictable onshore properties and an organization that was exceptionally talented at exploiting that type of asset. That talent needs to be retained and enhanced for Noble to do as well as it should. Investor What synergies need to exist? Edelman Synergy is a common term, which is rarely realized in transactions. It is an idea a professor came up with and managements like to throw about. Like most academic ideas, it is intellectually interesting but very difficult in practical terms. In the Noble transaction, there were few synergies in the traditional sense. Our properties as well as our technical and managerial expertise were very different. Noble's strength lay in the deepwater Gulf of Mexico and internationally. Patina's expertise was in acquiring and developing large numbers of fairly low-cost onshore wells. That is about as different an orientation as one can get. The company must retain both to be as successful as it should be. Most of the synergy, if there is any, is balancing Noble's high-potential/higher-risk and frequently international asset portfolio with Patina's low-risk domestic inventory of projects. We believe the resulting change in Noble's risk/return profile will lead to a very significant enhancement of its share price. Investor What advice would you give other CEOs? Edelman I think the first rule in cyclical industries is to never get into a financial position that could force you into a transaction at a disadvantageous moment. I try to remain slightly underleveraged. Investor How have you avoided difficult financial positions during downturns? Edelman Nothing is foolproof if the market gets slammed. The key is to be in the strongest possible position before a downturn begins. If you borrow heavily in the good times, it will be fine so long as they remain good. When things turn down, you are in trouble. You can never be fully prepared for a worst-case scenario, but if you plan for a very bad case, such as oil prices dropping by half, it is hard to get in trouble. At the very least, all of your competitors will tend to fall over first. If you are a professional optimist, thinking that oil and gas prices are up and they will never go down, you are likely to get in trouble eventually. Investor Do you think oil prices will decline? Edelman There's an old rule on Wall Street that when everyone agrees, they are most likely wrong. Since everyone agrees that oil and gas prices will never go down, that virtually guarantees that they will. Investor Which of your deals was most difficult to close? Edelman When I first entered the industry in the early 1980s, things were very challenging. Putting together Snyder Oil, my first company, in partnership with John Snyder in 1981, was probably the most difficult. The oil and gas market was simply melting after the 1978-80 boom. We put the deal together three or four different times over about a 16-month period before it finally stuck. It was a very difficult and complicated deal as we were combining a number of separately managed limited partnerships. Most importantly, however, the oil market just got worse and worse. Investor How did you overcome that? Edelman I think we got through it because I had the world's best partner in John Snyder and we refused to quit. I vividly remember my father, after we had been hammering away at the deal for about a year, saying, "Are you sure this isn't determination instead of common sense? Perhaps you ought to give up and fight another day." John and I just kept at it and eventually we pushed it across the finish line. Investor Why were you sure you should not give up? Edelman Probably because I was too young to consider surrendering. At that age, you are endlessly optimistic. Snyder Oil was the first public deal in which I was the principal. I just did not have enough common sense to know when to quit. We were convinced there was an enormous opportunity to benefit from the downturn if we could get the transaction done. Investor How do you know when it is time to exit? Edelman I am not smart enough to call "the high" or "the low" of a cycle. However, anyone can get a pretty good idea if they are in the upper or lower end of a cycle just by looking at a long-term historical chart. I believe that is all you need to know. It would be great to know the absolute high and low points; you'd make Warren Buffett look bad. As most of us do not have quite that ability, you are better off focusing on what you know. Are things awfully bullish, or conversely, particularly bearish? How do your internal opportunities look in that context? Investor Which deal turned out much better than you expected? Edelman The biggest positive surprise was Bear Paw Energy, a company I acquired in partnership with my close friend Bob Clark. It was a subsidiary of a public company engaged in the gas-gathering and -processing business. We bought it with the idea of building it up and taking it public. Fifteen months later, while preparing for an IPO, we received an unsolicited offer at more than six times the price we had paid. We promptly accepted. Investor What made it worth six times what you paid? Edelman We had done a number of things to make the company more valuable. We bought it at a very attractive price, ran it well and expanded it. We probably increased its value in those 15 months two- or perhaps threefold. The rest was merely luck. Commodity prices moved sharply higher, the Powder River Basin, where most of our gathering operations were, developed major industry sex appeal and finally, Bear Cub was a perfect strategic fit for the acquirer. The combination of working hard, doing a good job and having some luck was exactly the recipe in each of Patina, Snyder, Range and Bear Paw. It can be a powerful and rewarding combination.