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HOUSTON—Nearly 340 professionals attended the Independent Petroleum Association of America (IPAA) Private Capital Conference at the JW Marriott in Houston on January 25 to hear advice from industry experts on the conference theme, “Embracing the New Normal: Private Capital Stokes Production Growth.”
In a session titled, “Acquisitions and Divestures, Deal Flow Seeks Capital,” John Jacobi, co-CEO at Covey Park Energy, told attendees that to be successful, “You have to have a plan, understand the plan, and implement the plan.”
Doing this well means “doing the math,” he said, noting that it is vital for an A&D team to understand the assets being bought, the estimated reserves, and potential expenses.
“Never think you know what the price of oil and gas is going to be,” he cautioned. Instead, “You have to really dig into the asset to get to know it and know its value.”
Over nearly four decades in finance, Jacobi has learned some things that he said have been indispensable to him in his career, and he shared five of the most important lessons at the IPAA event.
First, he said, “Know as many folks as you can. They’re the most valuable asset in your careers.” Next, be a good listener, and when it comes time to make a decision. Have conviction, and be passionate about what you’re doing.” Fourth, develop a reputation as a good closer, “because the seller wants to make sure when they pick you that you can close the deal.”
Finally, he said, “Never, never, never not think you’re smart,” but remember that “luck counts.” Timing a deal often boils down to luck, he said, “and once you think luck didn’t have anything to do with where you are in this business, you probably will have problems.”
Fellow panelist and industry veteran, Bill Marko, Managing Director at Jefferies LLC, picked up the thread of luck and timing. He shared how living through the downturn in the 1980s and seeing the dramatic impact price fluctuations had on the industry has informed some of his views. Looking back at the drop in oil prices in the 1980s, Marko described how unique conditions brought about historic changes to financing.
When Saudi Arabia flooded the oil market and drove the price down to less than $10/barrel in 1986, asset owners were forced to divest, Marko said, and that situation had significant repercussions.
“Private Equity was born from that. Acquisitions and divestment advisories were born out of that. Public independents were born out of that, and data companies and those sorts of things you see today were born out of that as well,” he said.
While some companies went under in the fraught market, others expanded, picking up assets at a bargain.
“A lot of people made a lot of smart decisions and took advantage of the deal flow,” Marko said, explaining how money was made—and continues to be made—with “good fortune and good planning.”
Looking at today’s oil prices, Marko acknowledges that although they are challenging, they have not been nearly as disastrous to business as the price drop in the 1980s. Today, the lower-for-longer scenario has depressed the oil price but has not created a calamity. Instead, it has changed the way companies are looking at investments and what they are placing as their priorities.
“With one-third to one-half of the money they previously had to spend, asset owners are thinking about how to spend their money more effectively and efficiently,” Marko explained, noting that the biggest influencer now is technology advances that will allow companies to make those gains.
“The best thing out of this downturn is it made companies focus on technology,” he said.
Jacobi agreed. “Technology has been a really big game changer,” he said, pointing out how important innovation is to improving extraction and efficiencies.
“We always have known that there is a lot of resource in this country and around the world. Technology has opened that,” he said.
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