George M. Yates is chairman, president and chief executive officer of Heyco Energy Group Inc. (Heyco being an acronym of his late father’s name, Harvey E. Yates). He divides his time between Dallas and Roswell, New Mexico—and destinations farther afield, including Spain’s Basque country.

Yates grew up in Artesia, New Mexico, in an oil family—at 12, he was scrubbing tanks; at 14 he was a tool dresser. He graduated from New Mexico Military Institute in 1964 and received a bachelor of business administration degree from the University of Texas in January 1969. He has been president of the New Mexico Landmen’s Association and the Independent Petroleum Association of New Mexico. Yates is also a past chairman of the board of the Mountain States Legal Foundation, BIPAC and the Natural Gas Council. He is also a member of the National Petroleum Council.

From 1997 to 1999 he was chairman of the Independent Petroleum Association of America, and at its annual meeting in 2004, he received the prestigious Chief Roughneck Award.

The Yates family has a proud tradition in New Mexico oil and gas. Grandfather Martin Jr. was a partner in the first productive oil well in the state’s southeast corner in 1924, and claimed the first state oil and gas lease. His father, Harvey Sr., continued in the business along with Yates’ three uncles, Martin III, S.P. and John. Brothers Harvey Jr. and Fred are oilmen, as well as other relatives.

Today Heyco operates about 200 producing wells, mostly in southeastern New Mexico, with 50 to 60 operated and nonoperated wells added each year in the Permian Basin, East Texas and other domestic basins.

In addition, the company has pursued international exploration ideas for more than 20 years, having operated in Morocco, England and Spain. Currently it has license interests in England, Spain’s autonomous Basque region, and France.

Oil and Gas Investor caught up with Yates at Winter Nape 2012 for a wide-ranging discussion.

Investor You and the family have been drilling in the Permian Basin and New Mexico for decades. Yet you are also watching what’s happening in the unconventional space and have interests in four international shale plays.

George Yates

Yates I’m grateful to participate in such an important, dynamic and innovative industry—the transition to an unconventional world being a great example. I regard it all as a fabulous educational experience.

Our international work is really an extension of our work domestically—that is, trying to apply what we think we know to large opportunities where we can acquire large positions rather inexpensively. I am very excited about our international prospects, but I am also very excited about our potential domestically, particularly in the Permian Basin: multistage fracturing is incredibly effective in unlocking nature’s treasures.

In this business, you always want to have your eyes absolutely open and not be clouded by your conventional experience, because that would lead you to a different conclusion. Conventional thinking used to be, “This is a limited reservoir and we need to plug those wells.” Today we say, “Aha, it’s just tight.”

Investor How far along are you in Basque country?

Yates After years of technical work, we will be drilling our first appraisal wells late this year or early next year in our first play. The Basque National Oil Co. is our partner, as is True Oil out of Casper, Wyoming.

The Basque region is part of Spain but fairly autonomous. The Basque government is very supportive and includes our project in its energy strategy. We recently hosted the president of Basque country and a high-level delegation in Dallas—we conducted a private seminar for them at Southern Methodist University with help from the Railroad Commission and the Maguire Energy Institute. Devon Energy was kind enough to host a tour of a Barnett frac job and a reclaimed well site in an urban setting.

Our challenge, of course, is to prove commerciality. But, we have a lot to work with. The target is an overpressured Cretaceous section 2,000- to 4,000-meters thick (similar to the Deep Gas Basin in Canada), composed of tight sands and shales. Fourteen wells have been drilled since the 1950s, and every one had continuous gas shows—with lots of flowing drillstem tests and a couple of respectable completions. It’s never been fractured. Outside studies indicate the gas in place could be a couple hundred trillion cubic feet. A high-adrenalin play for sure.

If the industry should discover two Barnett-type fields in Europe, that would make Russia a swing producer and give Europe energy security. There are potentially huge geopolitical implications.

Investor How do you decide which ideas to pursue?

Yates As you’re making E&P decisions, you have to erase the short-term flak and look longer term. Focus first on macro issues, then reduce that to commodity cycles within a larger context. We’re in the upcycle today, but we’ve also learned that we don’t have $13 natural gas any more. In my 40-something-year career, one thing I’ve learned for sure is that the market works. It’s more powerful than governments.

—Leslie Haines

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