By Anya Litvak, Pittsburgh Post-Gazette (TNS)
PITTSBURGH — Stan Berdell says his company, BLX Inc., is like a barrel of water.
“It’s got a leak in it and it’s dripping every day. If we don’t do something, it’s going to be empty one day.”
Conventional oil and gas producers are experts at pessimistic metaphors. They’ve been edged off their perch by large companies tapping the Marcellus and Utica shales. Some tried drilling shale wells themselves but couldn’t compete. The price of natural gas dropped and it became uneconomical to drill shallow wells, too. They sold some shale rights to big operators. They started side businesses. They had layoffs.
Now, “We’re swinging for the fences to see what happens,” Berdell said.
For the past six months, he’s been herding a group of independent operators — Berdell puts an emphasis on “independent” to imply the challenge involved — to form Vintage Land Holdings, the latest survival strategy.
The idea is to aggregate the deep oil and gas rights of a dozen conventional operators and market them to a private equity fund.
The 40,000-acre package will be an all-or-nothing proposition which Berdell hopes will fetch between $200 million to $300 million. But the trick is convincing independent companies to give up control over what might be their last promising asset for a five-year term.
It’s not something Berdell takes lightly. His company’s future is on the line with this deal, too. In January, he hired Paul Kimmell, a landman who used to broker shale deals for major players, to help with Vintage.
“I hope this works,” Kimmell said. “This is our final fight. We’re all trying to survive.”
HARD TIMES IN THE INDUSTRY
The theme of this year’s pig roast and industry conference put on by the Pennsylvania Independent Oil & Gas Association in late July was: “Hard times — unique solutions.”
In one session, titled “Strategies a small business can use to survive a market downturn,” an attorney from Leech Tishman gave out a tip sheet for how to prepare for bankruptcy.
“It’s a good time to open up a Dairy Queen,” said Lou D’Amico, executive director of PIOGA.
It’s a running joke — running time five years now — he has with Jim Kriebel, president of Kriebel Cos.
Natural gas spot prices peaked in 2005 above $14 per million British thermal units. In June 2008 they spiked again to more than $12.
Then the recession collided with shale development, creating a supply glut. It’s difficult to make many Marcellus Shale gushers work at gas prices below $3, where they currently are, let alone conventional wells that hiccup by comparison.
STRENGTH IN NUMBERS
Aggregation deals aren’t new. Landowner groups often pool their acreage for a better negotiating position with oil and gas firms.
In 2012, Snyder Brothers, the oil and gas arm of Snyder Associated Cos., organized more than a dozen shallow well operators into a block that was marketed to shale firms. BLX was in the bunch, as was Turm Oil.
It was supposed to be an all-or-nothing proposition, said Turm Oil director Dickson “Deke” Forbes.
Instead, PennEnergy Resources, a startup founded by former Atlas Energy CEO Rich Weber and Atlas alum Greg Muse and backed by private equity group EnCap Investments LP, cherry-picked properties. Only about 10 percent of Turm Oil’s offering was sold, leaving the company with 7,000 acres.
BLX was left holding 5,000 acres.
Berdell says banding together once again is the best option. “No one’s knocking on our doors,” he said.
In 2009, he said, he got weekly offers for several thousand dollars an acre. He didn’t sell “because I’m … an independent operator,” he said, once again using the term euphemistically.
Now, he keeps thinking back to that time when a guy from one of the majors told him, “‘You’re all for sale. You just don’t know it yet.'”
VOLATILITY IS AN OPPORTUNITY
He’s met with three private equity groups so far and says all have expressed an interest in Vintage.
When it comes to energy, private equity investors view volatility as an opportunity, said Rob McCeney, a partner at PricewaterhouseCooper’s U.S. energy & infrastructure deals division.
“There’s a tremendous amount of capital committed to energy funds today that investors are trying to put to work,” he said. “Many of these investors are comfortable investing in the cycles and looking at the opportunity sets that may not be highly returning today but may be highly returning in the future.”
Ryan Devlin, a director with EnCap who brokered the PennEnergy investment, said his firm is anticipating some good pickings from companies forced to sell assets or reorganize in the continuing low commodity environment.
EnCap can wait for those opportunities to ripen. “It’s a cyclical business, we all know it,” he said.
Devlin would love to hear from Vintage. “Give him my number,” he said. “Seriously, do.”
Even if the Vintage deal succeeds, BLX — which Berdell founded in 1989 — still needs to figure out what it will look like in the future. It won’t be drilling wells, he said. The focus will shift — and this has already begun to happen — to the service side, helping other companies drill and manage their wells.
In May, Berdell co-founded a wireline company, which operates cables that bring tools in and out of wellbores. He also invested in an Albuquerque mobile water treatment firm and is hoping to sell units in the Marcellus.
He joked about taking a page from Snyder Associated Cos, which has a successful business selling mushroom spawn internationally.
“I’m thinking about getting into pork belly,” he said.
When it was suggested he might be too late with the idea, that pork belly is more of a 1980s sensation, Kimmell replied: “So is gas.”
(c)2015 Pittsburgh Post-Gazette. Distributed by Tribune Content Agency, LLC.
Stan Berdell owns an oil and gas company that’s been struggling for years to keep up with, first, booming shale, and now, the collapse in commodity prices. He is forming a new company, Vintage Land Holdings, and is going after private equity money. (Nate Guidry/Pittsburgh Post-Gazette/TNS)