J?im Henry, a long-time member of the Midland, Texas, oil fraternity, sold Henry Petroleum Co. to Concho Resources Inc. this past July. He and his wife, Paula, have already started their new venture, Henry Resources LLC, with 30 employees and a budget of about $40 million. The focus will remain the Permian Basin, where Henry has operated for about 40 years, and where the company was instrumental in starting the Wolfberry play. (See “Deep, Tight Gas,” Oil and Gas Investor, January 2008.)


The son of an engineer, Henry loved math. He graduated from Oklahoma University with a master’s degree in petroleum engineering in 1958. During college he roughnecked, but his first oilfield job came earlier, in 1952, “swatting flies around Wichita Falls, Texas. I was a ‘jug hustler’ (setting up geophones for a seismic crew).”


He served two years in the Air Force as a research engineer in Dayton, Ohio, working on liquid-hydrogen projects, and later worked for Humble Oil & Refining Co. and Skelly Oil. After going to Humble’s reservoir school in Houston, he was transferred to Midland.


In 1969, Henry started his own E&P company and, ever since, has also been active in the Midland community. About 20 years ago he founded the Forum for E&P, a monthly networking event for small independents, service companies and bankers.


In 2000, he helped form the Applied Petroleum Technology Academy (APTA), a non-profit charged with exporting to the world the enhanced-oil-recovery technology widely used in the Permian Basin.


We asked him about the thinking behind his new company, and his initiatives with the technology academy.


Investor The sale of Henry Petroleum was unanticipated by many. Why did you sell and why now?
Henry We considered a combination of factors. One of the more important ones was the chance to do something special for our employees while oil prices were at an historic high. Today there’s an outstanding environment for start-up firms to form companies, develop assets and then sell them. Often, the principals involved do quite well financially, but we wanted to extend that model to the rank-and-file employees…and share with them a substantial amount of the financial gain.


Investor Were there other reasons to sell?
Henry There were. Structuring the sale the way we did allowed us to take advantage of the capital-gains tax structure as it currently exists, with the thought being that capital-gains tax rates could go up substantially over the next few years. Another was the oil price. We have never been good at timing the market, but there is some comfort in selling when oil prices are at an historic high.
The sale also allowed us to gather what had become a fairly diverse and complex portfolio of assets and to refocus a little. Finally, we knew Concho shared our values and was committed to keeping the employees in Midland. We were prepared not to sell if we could not meet these conditions.


Investor And you are not retiring?
Henry We unequivocally plan to continue. We never really stopped. The new company, Henry Resources, is in the same building, with the same phone number. We already have more than 30 people, have two operated drilling rigs running and are considering adding a third. While many experienced employees went to Concho, we were able to take a very strong team with us.


Investor What will you focus on?
Henry The Permian Basin, because that’s where our expertise lies. Henry’s niche has always been as a low-cost developer of reserves, and we plan to continue that. We have a wide range of experience from unitization and secondary recovery to tertiary experience. Initially, we’ll focus on the Wolfberry, but on different acreage that hasn’t been developed. In some areas, it’s been proven, but in others, such as the eastern edge of the basin, the industry hasn’t quite figured it out yet.
We will spend more than $40 million over the next 12 months from identified opportunities.


Investor Are you seeking partners?
Henry We’ll generate many of our projects internally, but we also hope to expand our participation with other companies. We do plan on being pretty aggressive, by stepping up the percentage of any given project we take. We started with 25% interests when we entered the Wolfberry play, but now we’ll retain a higher average, 50% or 75%, and in some cases, even 100%.
Good partners can be of great benefit because they bring a different perspective to the table along with different skillsets. Some of our recent partners include Chuck Rubins and his local team at Chevron in the Wolfcamp. Tony Best and Newt Newton have partnered with us multiple times, including now in their new roles at St. Mary Land & Exploration.


Investor What lessons do you bring to the new firm?
Henry One is how much value we can gain by treating our vendors as partners rather than just suppliers. This lesson did not come easily or naturally to us, but once we started to treat these contractors with the respect they have earned, our successes really started to multiply.
I’ve been in this industry for 45 years, and I absolutely love it. I want there to be a Henry company employing people in Midland long after I am gone.


Investor Tell us about CO2.
Henry In the Permian Basin, we are further along in CO2 recovery than anywhere in the world. We’ll host a Chinese delegation in the next few weeks, and we’ve had people in from Russia. Australia is interested. We want to help other nations and benefit from an exchange with them.