Rockcliff Energy CEO Alan Smith’s plan was to go shale shopping with $700 million of capital—at least double most management teams’ private-equity commitments.
Smith said his plan was to have enough money to dip his toes into two basins to find the right assets. He zeroed in on the Delaware Basin—just as it was starting to catch fire—and the ArkLaTex region, which was starting to see deal flow improve.
Smith founded Rockcliff Energy LLC in January 2015, after selling Houston’s QR Energy LP to Breitburn Energy Partners LP in a deal worth about $3 billion. Within nine months, the new company sold 45,121 net acres in the Terryville Complex to Memorial Resource Development Corp. for $283.8 million.
Smith was in familiar territory; then came Rockcliff’s deal drought. With his MLP days behind him, Smith stayed disciplined.
The company worked its two-basin strategy.
“We try to skate where the puck’s going,” Smith told Hart Energy. The Haynesville, which Rockcliff remapped, had clear appeal. The Delaware Basin was far less risky—but extremely expensive.
From October 2015 through August, Rockcliff’s efforts to find a new basin home stalled. The company steadfastly chased deals. At times, it raced along frenetically like Steve McQueen’s Mustang in Bullit—only to plow headlong into a Lawrence of Arabia sandstorm.
“You’ve got to identify what it is you’re looking for and you’ve got to be ready to move whenever the appropriate time is to move. And I think that’s what we did,” Smith said.
In August, the company signed two deals to acquire roughly 270,000 net acres in the Haynesville, Mid-Bossier and Cotton Valley. Rockcliff publicly disclosed an agreement to buy 210,000 net acres from Samson Resources II LLC for $525 million.
Rockcliff’s most recent success took two years to make reality.
Retracing his steps in a telephone interview, Smith’s first and most important acquisition was perhaps the assembling of his team.
“In our DNA we really have to understand the geology of what we’re looking to invest in. That starts with technical team and geology,” he said. “I cut my teeth in East Texas. We built successful businesses there before.”
Still, Smith vastly retooled his team, adding personnel who understood what makes the Delaware and Haynesville subsurface tick. The company is stocked with hands experienced in the Haynesville, including running big budget, 15-rig programs for Petrohawk Energy Corp.
Rockcliff’s interest in Samson Resources’ acreage was, by deal time, no secret. The company tried to buy the acreage before bankruptcy and had participated in a stalking horse bidding process that eventually ended up a gluey mess.
Samson’s acreage finally came to market in second-quarter 2017.
“By the time Samson came to the market, we knew the asset very, very well. We had already tried to buy it a couple of times,” Smith said.
The second, 60,000-acre deal was nearly as tough a grind and involved additional “private process,” he said. The seller was not disclosed.
“It just happened to come together at the same time, but we’ve been working on the Samson deal for at least two years and the other deal at least a year,” he said.
More broadly, the timing may not have been entirely unconnected. In 2016 and early 2017, capital markets were “on fire”—driving up prices and making it difficult for Rockcliff to compete.
In the Permian, the company faced those gusts of money in 2016 head on.
Rockcliff already owned roughly 1,000 net acres in the heart of the Delaware and leased about 35,000 acres in the San Andres in New Mexico. But as the company was unpacking its Delaware data in 2016, acreage prices shot up by triple or more to $30,000 and $40,000 an acre.
“We’re certainly not down on the Permian. We were just late getting out there,” he said.
Now that the capital markets have started to come to a crawl, if not a standstill for all but prestige E&Ps, sellers were interested in talking.
“For whatever reason, I don’t know if there’s a direct correlation with that or not, we are seeing obviously some windows of opportunity here that worked out well for us,” he said.
Smith is satisfied. The newly acquired acreage is largely HBP, which “you can’t underestimate” in making the deal, he said.
“You don’t have to worry about having to rush out here and make bad decisions just because you’re trying to hold acreage,” he said. “You can be thoughtful with your development and be thoughtful about your infrastructure and facilities and marketing. We’re excited about it.”
And the Permian Basin? It may end up a financial lever for the company.
“That’s kind of literally what we’re going to be talking about over the next three months,” he said. “How do we further develop those and what do we do with those assets out in the Permian?”
For any E&P, it’s an enviable problem to solve.
Darren Barbee can be reached at email@example.com.