Top US Private Producers See Opportunity in Market Volatility

Editor’s Note: This is the first in an ongoing series of Hart Energy’s deep dive reporting on private producers in the Lower 48.

Whether backed by traditional private equity, a family with generational oil and gas ties or foreign investors, many of the most prolific private producers in the Lower 48 share a key component in their corporate strategies. They view the market’s current volatility as advantageous.

It’s a contrarian approach compared to how many public companies operate. But as bankers, analysts and producer executives tell Hart Energy, these private enterprises are supported by investors that take a longer view or at least one unencumbered by fickle public capital. Many of them take risks that public companies eschew, buying into basins with challenging terrain, tight regulations or questionable economics and creating their own paths to profit.

Hart Energy interviewed executives at a variety of top private producers with operations ranging across the Lower 48. Despite differences in their origin stories, base of operations and capital backing, their commonalities stand out. Most said peak oil is upon us. Many have a family office component in their capital structure. They maintain faith in technology.

And each shared an optimistic—and opportunistic—plan to grow. Without exception, Surge Energy CFO Travis Guidry; Northeast Natural Energy CEO Mike John; Joseph DeDominic, CEO at Anschutz Exploration; Greylock Energy CEO Kyle Mork; Jonah Energy CEO Brian Reger; and PureWest COO Kristel Franklin each shared their firms’ appetite for M&A.

Surge Energy ready to deploy capital

Surge Energy has been running three rigs since the industry began ramping back up from the pandemic downturn. But in recent weeks, the firm has opted to reduce its count by one rig.

“We [can] still generate good economics at [oil prices in the] high $50s and low $60s,” CFO Travis Guidry told Hart Energy.

But while Surge is pulling back a bit on its drilling program to manage the volatile price environment, its leadership is looking at deploying capital toward corporate growth.

“We believe that this is going to be an opportunity for us. We think once the prices settle down a little bit, the acquisition market will open up, and there will be an opportunity to grow from the volatility that we've experienced in the first half of the year, so we're definitely going to keep a keen eye on asset packages that come to market,” he said.  

Surge has liquidity of $1.4 billion “that we're looking to deploy in growing the business. Hopefully we can get an acquisition done in the near term.”

Guidry said that in the near term, growing in the Midland Basin is the goal.

“But in the meantime, while the acquisition opportunities aren't there, we've been very focused on organic growth, and we continue to push the economic development of Borden County further north,” he said.

Northeast Natural Energy’s upward trajectory

Leadership at Northeast Natural Energy anticipates solid demand growth for natural gas through the end of the decade and beyond, president and CEO Mike John told Hart.

“This encourages us to continue our company’s growth trajectory into this macro environment,” he said.

“Being one of the lowest cost producers in the lowest, break-even cost natural gas play in the United States allows Northeast to plan for continued growth even in macro market uncertainty. We also have the ability to change our pace of growth to align with current market indicators which sets us up well for future opportunities.”

Private operators can often be more nimble and agile when value-add opportunities present themselves, John said. Moreover, they generally have the license to focus on overlooked or undeveloped areas that larger public producers often bypass.

“Private operators often have better cost control and capital discipline than some of the larger public operators, which allows for focused asset development and value creation in these areas. Some general challenges faced by private companies can often include higher costs of capital, the amount which can be deployed quickly, and scaling concerns around field services.”

Anschutz Exploration: For the life of the well

In the middle of last year, Anschutz Exploration bought some acreage in the northern Powder River Basin from Occidental. It included holdings that were part of Oxy’s 2019 purchase of Anadarko. Oxy CEO Vicki Hollub said the southern Powder River assets were more contiguous to Oxy’s footprint, and she believed Anschutz would be able to develop the northern acreage. Anscutz has started its preparatory work there.

Joseph DeDominic, Anschutz CEO, said the firm is open to other acquisitions if the offerings make sense. 

“Our long-term objective is to continue to grow the company, to increase the value of the company,” he said. “My saying internally is that you operate it like you're going to own it for the life of the well.”

And, selling to another company isn’t necessarily a non-starter.

“If somewhere down the road, someone wants to buy us, well, then they'll give us a call. We're not going to go and have a big marketing process right now. Maybe someday—as those things change, and I never say never, but if you're running a good company, it's well organized, well run, and financially sound, it's easy to put together a sales package.”

Greylock Energy looking to buy

About two-thirds of Greylock Energy’s assets are in Appalachia and one-third in the Rockies, CEO Kyle Mork told Hart. Greylock has increased production from its western assets without drilling news wells, by bringing some back online and working over other wells, he said.

But its M&A ambitions are strong, too.

“We are always looking. Every year, we look at a lot of different deals, often bidding on different packages and different assets. As we think about the next 12 to 24 months, I think we will be looking to expand development in our Utica play, potentially a little more in the Marcellus and then definitely, get our first development activity going in the Rockies, but we will also be looking for outside opportunities,” Mork said.

“We’re pretty basin agnostic. We want to look at everything that comes to market in Appalachia and in the Western Rockies as well, but we're open to other basins and we've looked at assets in a lot of other basins as well,” he said. “We will definitely be looking at potential acquisitions this year.”

Greylock’s technical expertise allows it to use in-house savvy methods when considering an acquisition. The firm can operate legacy assets and the more complex assets on the proved developed producing side, using unconventional development expertise.

Jonah Energy: Tap Rock buy is only the beginning

In January, family office-owned Jonah Energy closed on its acquisition of Tap Rock Resources, an NGP-backed Delaware Basin producer in New Mexico. It was the first foray outside of the Rockies for Jonah, which has plans on growing well beyond the region.

Newly installed CEO Brian Reger said that during the last two years, the firm has been building its foundation for growth, and that’s where the Tap Rock acquisition comes in.

“Now we're executing on that plan, so the Tap Rock deal was the first of many,” Reger said. “We have another deal that should close here shortly and then more to come from there.”

Jonah is generally agnostic toward both basin and commodity, he said.

“We're looking to grow and gain cash flow and see where it takes us.”

While Jonah’s position is surrounded by larger players, the company isn’t interested in selling, he said.

“Our owner is a long-term investor. He wants to grow this business and hold this business for a long time,” Reger said. “There may be assets here and there where we look to do that, but generally we're looking to gain assets, not shed assets.”

PureWest Energy: Actively seeking M&A

While PureWest Energy could add significant growth with the addition of a second rig, the firm’s investors remain open to dealmaking, COO Kristel Franklin told Hart Energy.

“We are in a position where we're actively seeking M&A opportunities—any place where we think we have a financial, technical and commercial advantage.

“On that point, while we focus on western plays, our team's collective experiences allow us to operate in most of the major and Tier 2 plays across the Lower 48,” Franklin said. “We've got a lot of expertise in looking at these Lower 48 rocks broadly, across the board, with the talented and highly experienced team that we have in place.”