A year ago, Floyd Wilson had his Petrohawk Energy LLC team together and capitalized, forming the latest in his series of start-up E&P companies. Based on the success of his earlier build-and-sell ventures—Kansas Oil, Reach Oil, Hugoton Energy and most recently, 3Tec Energy—the smart money was betting that Wilson would find success again. EnCap Investments and Liberty Mutual were among investors taking private-equity positions in Petrohawk, plus members of management. The nascent firm put together some assets and was looking for bulk and access to the public-equity market. Wilson first solved the latter concern: he would reverse-merge Houston-based Petrohawk and its 3 billion cubic feet equivalent (Bcfe) of proved reserves with publicly held small-cap Beta Oil & Gas and its 30 Bcfe of proved, forming Petrohawk Energy Corp. (Nasdaq: HAWK). That deal was done in the summer of 2004. Much earlier than that, however, he came upon a solution to the need for bulk. While Beta brought Petrohawk to a total 33 Bcfe of proved reserves, or an enterprise value of about $100 million, the acquisition of Dallasbased, privately held Wynn-Crosby Energy Inc. would take it to 233 Bcfe and nearly $600 million in enterprise value. Equity value has grown from $3.30 per share at the time of the Beta deal to $9.70 at press time. Wilson had heard that W-C founder Ronald Wynn Crosby might be interested in selling, so he contacted Dallas-based Mitchell Energy Advisors’ principal Mike Mitchell to organize a meeting with Crosby. In June, while Wilson was about to close the Beta deal, which had been under way for several months, he met Crosby in Dallas. Crosby was, in fact, looking to exit W-C, which was the operator of eight partnerships formed between 1995 and 2002 with roughly 60 investors, mostly from the Dallas area. A native of Wyoming, Crosby’s career began with Exxon in 1976. He joined reservoiranalysis firm Netherland Sewell & Associates in 1981 and then Headington Oil Co. in the early 1990s. He launched Wynn-Crosby Energy in 1995 with a $32-million purchase of assets from Cherokee Resources, a subsidiary of Santa Fe Energy. The Cherokee assets included a large number of termroyalty properties previously owned by Arco. Ironically, some of the Cherokee properties produce from fields pumped by Crosby’s grandfather during his childhood near his hometown of Cody, Wyoming. The W-C business plan focused on cash distributions rather than growth, and by 2004 the partnerships had all paid out. Otherwise, WC carried only a small amount of bank debt. There were no hurdles for W-C. It was an asset-seller’s market. It was a good time to exit. Crosby agreed to talk more with Wilson. “We used those meetings to come to an understanding of the range of value that would lead to a deal, until we could get into the technical data,” Wilson says. The deal proceeded with a handshake. “We don’t go to data rooms much,” Wilson says. “We haven’t done a significant transaction in this company or in prior companies through data rooms. We try to source opportunities and speak with owners privately and work to convince them we can pay fair value, execute quickly and have a cooperative process during due diligence. “Oftentimes, in a privately negotiated process, the seller’s data is not prepared. We help to get the data in shape and analyze it. It becomes an interactive process rather than an adversarial one. We work through all the issues. We discover them as we go.” A price was agreed to: $425 million. “We established a range of value early on and agreed that there would be a deal within that range. Lots of things can happen—hitting a well or drilling a dry hole, for example—during the few months when you’re working on a transaction. At the end of the day, we were right in the middle of that range.” While Crosby had been asked often to sell W-C’s assets, the offers didn’t reflect the value Crosby believed the property set to contain. However, W-C’s assets were exactly the type of quality property group Petrohawk needed—a mix of operated and nonoperated, producing and undeveloped, and in several basins. The good fit made Wilson’s offer different. Crosby says, “Floyd really understood the value of our assets, and he insisted on buying everything, including the nonoperated interests and royalties. If I were starting a company and trying to build a public entity, our property base would be a great one to start with.” The purchase-and-sale agreement was signed October 13. The next step was financing. Petrohawk needed to raise $425 million to close, and by late November. Because it was fresh from the reverse merger with Beta, Petrohawk was unable to simply make a common-stock offering at the time. Instead, investment-banking firm Friedman Billings Ramsey proposed a $200-million convertible preferred stock deal that was placed with 73 institutions. Wilson says, “We talked to quite a few bankers and FBR was the one that came up with the structure.” Key to moving forward with the financing proposal was FBR’s commitment. “The principals said, ‘We will get this done.’ That was important. We had only a few weeks to get the paperwork ready, the road show lasted 10 days, and then we closed.”