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From Wildcatters to Wall Street: The Role of Independents and Small Operators in Today's Oil Patch*

By

Monika Ehrman¹

Search and Discovery Article #70036 (2007)

Posted August 6, 2007

*Adapted from oral presentation at AAPG Annual Convention, Long Beach, California, April 104,2007

¹Locke Liddell & Sapp LLP, Dallas, TX ([email protected])

Abstract 

The topic of this presentation will focus on the session, “Niche Players: Where do Independents and Small Operators Fit in Today's Oil Patch?” This presentation argues that independents and small operators (“I/SO” or “I/SOs”) are vital to the health of the oil and gas exploration and production sector. Their agile structure and ability to take on risk encourages development and growth in areas that integrated and larger companies are unable to solely focus on. Although this presentation will focus on domestic operations, it will also briefly examine the role of the independent and small operator abroad.

In particular, this presentation will: (1) present an overview of the makeup of I/SOs; (2) explore ideas on how I/SOs can stay competitive; and (3) examine what lessons other E&P companies, even those who are not I/SOs, can learn from I/SOs. Specifically, this presentation will separately examine each of the above points as related to independents and small operators. Part one is a general overview and will include discussion on risk management and financial limitations; parts two and three will include discussion on building relationships with majors, developing partnerships, implementing a successful acquisition strategy, and keeping up with technology. Throughout the presentation, examples of “real” I/SOs will be used as illustration.

Importance of Independents 

Energy demand increasing. 

Focus on domestic growth. 

Estimated 90% of oil gas wells in United States are drilled by independents.

Lessons to Learn 

• Define scope

  • Define geographic focus

    • EnCana

      • North American resource plays

      • Divested non-core divisions

  • Define operating area

    • Southwestern Energy

      • Investment in Fayetteville Shale

  • Avoid empire building

• Set Measurable goals

  • Determine risk levels

    • Geographic risk

    • Operational risk

    • Political risk

  • Set financial limits

  • Perform routine measurement

• Become an expert

  • Numerous ways to become an expert

    • Acquire expertise

      • Devon’s acquisition of Mitchell Energy

      • Industry partnerships

    • Develop own expertise

      • Dale Resource Partners and urban development

  • Utilize appropriate technology

    • Unconventional resources may require R&D

    • Mature fields may just require basic technology

• Market and communicate

  • Market the company to stakeholders

    • Chesapeake’s general public relations

    • Dale Resource Partners’ town hall meetings

  • Size of company is not related to need to communicate

Conclusions 

Independents offer valuable lessons. 

Each company should adopt lessons or strategies to its own advantage. 

Adaptation and evolution to industry fluctuations are vital.