Oil & Gas Financial Journal asked three private company officials about their operations, goals, and future plans.
OGFJ: When and how was your company formed, and what were your first properties?
Charles G. Rippy, president of Rippy Energy Corp., Tyler, Tex.
Charles G. Rippy: Rippy Oil Co. was incorporated in 1986 with the purpose of being the operating entity for projects that we or partners generated. We originally were not planning on spending too much time in operations. It was apparent that we lost some measure of control of our projects when we turned them over to another partner. My father (Jim Rippy) is a petroleum engineer with field experience dating back to the sixties, and my brother (Reed Rippy) has a petroleum land management degree. It was natural that we began to operate our own projects. We came up with the ideas, leased the land, and then supervised the drilling and completion procedures.
Some of our first properties were shallow oil producers. They were wells producing from the Woodbine and Paluxy sands in East Texas. Some of them we bought and some of them we drilled.
Maurice F. Storm: Crow Creek Energy LLC was formed in October of 2002 with a $1 million equity commitment from our management team and a $15 million equity commitment from Natural Gas Partners (NGP) of Irving, Tex. My partners are Pat Hall, our CFO, and Mike Rollins, our vice president of engineering.
We spent most of our first year evaluating and bidding on acquisitions and acquiring acreage in our horizontal coal play. In March 2004, Crow Creek bought a small Arkoma basin operator for $5.7 million. This gave us 1,100 mcfd net production and 5.0 bcf in PDP, all within the Arkoma of Oklahoma. We followed that in April of 2004 with the $13.3 million acquisition of all of the US properties of publicly traded Wilshire Enterprises. This gave us an additional 10.5 bcf of PDP and 3.0 mcfed net production which was predominantly in the Arkoma and Anadarko basins. We financed the first acquisition with equity and then used a new revolving credit facility with Comerica Bank to close the Wilshire acquisition.
H. Kent Brock, president of Strand Energy LC, Houston, Tex.
H. Kent Brock: Strand Energy LC was formed in March of 1996 from assets owned by Strand Energy Inc. and Dolomite Resources Inc., as well as outside capitol from several new shareholders. Strand and Dolomite had jointly purchased a property from Texaco in 1994. This property was located in West Texas in an area that I had worked for a number of years and it contained a large amount of undeveloped acreage. After drilling a number of wells on this property it was contributed to the new company.
OGFJ: Where do you operate now and how has this changed over the years?
Charles G. Rippy: Currently we are operating in north Louisiana. We recently had a 3,500 acre lease in Panola County, Tex. that we were operating and developing for the Cotton Valley sand. We had the opportunity to sell the property last June to a major for a fair price with over 80 locations left to drill. We have a project in North Louisiana that is approximately 11,000 acres where we just drilled two successful Cotton Valley sand wells. We plan to stay busy there with the potential to drill over 200 wells as Cotton Valley sand wells are being developed on 40-acre spacing.
Initially, our projects were more exploration oriented focusing on oil and geographically located in East Texas. For the last six or eight years we have tried to focus on close in tight gas sand projects and work anywhere in North Louisiana and East Texas. We are finding lower operating costs with natural gas and it is obviously cleaner to produce.
Maurice F. Storm: Our geographic focus has always been in Oklahoma, where my partners and I have a great deal of experience to draw on. We are active in drilling in both the Arkoma basin in Southeastern Oklahoma and the Anadarko basin in Western Oklahoma.
H. Kent Brock: Strand currently operates in West Texas, the Texas Panhandle, the Ark-La-Tex area and the onshore Texas Gulf Coast. The majority of our reserve value is now in the Gulf Coast. This has changed over the years.
Initially Strand was most active in West Texas drilling moderate depth wells in the Canyon sand. Our familiarity with tight sands led us into East Texas, and we were very active there for a number of years. We focused our activity in the Travis Peak and Cotton Valley sands along the Sabine uplift. After selling these assets in 2001, Strand became more active in the Wilcox trend along the Texas Gulf Coast.
We have also maintained an active exploitation program in one particular portion of the Texas Panhandle since 1996. This area has involved secondary recovery projects as well as conventional drilling projects. We currently control approximately 9,000 acres that are prospective for both Pennsylvanian and Mississippian reservoirs.
OGFJ: Can you talk about your drilling program a little? Is anything slowing you down, such as rig availability?
Energy Drilling Rig #10, drilling the Rippy Oil Co. - Barlow #1 in July 2005, Red River Parish, La. LEFT: Flare during the flowback of the Rippy Oil Co. Sample #1 in September 2005, Red River Parish, La. Photos courtesy of Strand Energy LC
Charles G. Rippy: Our main drilling program is in north Louisiana. We plan to drill a well per section and come back later to downsize the units to 40-acre spacing. To accomplish this we may have to sign some long-term contracts with drilling contractors to lock in some day rates. In the past we could send out requests for turnkey bids and go ahead with building our location. Usually within a month or two the contractor would have a rig available. At least for the near term, that process of drilling wells is not as likely. In July and August our first two wells on the 11,000-acre project were drilled on daywork without a long-term contract. Other services are getting harder to contract for, but we have been operating in these areas for many years and have developed some good relationships for getting things done.
We have a 25 percent non-operated working interest in 2,500 acres in Nacogdoches County, Tex. and a smaller non-operated interest in eight sections in Desoto Parish, La. These are projects we generated with the first wells drilled being successful. We expect to be involved with drilling programs in both those areas in 2006.
Maurice F. Storm: Our first exploration venture was the horizontal Hartshorne coal play in the Arkoma basin. Our acquisitions in the Arkoma put us into the middle of the developing play that was being driven by Williams, Questar, Chesapeake, and El Paso. We acquired an additional 12,000 acres of leasehold in the fairway and began drilling our own blocks and have added over 2,000 mcfed of production. We have also booked a large number of PUD’s on our Hartshorne acreage. We will drill another five to six wells in the play before year end.
In the spring of this year we drilled a 12,300-foot wildcat discovery well in the Anadarko basin. The producing zone is a tight sandstone that had been bypassed by previous operators who were drilling to deeper formations. Early production from the discovery well has been very encouraging. We are currently drilling an offset confirmation well and have plans to drill four more wells to prove up the trend. We currently control 18 sections that are underlaid by commercial pay thickness.
Separation for 30 MMcfd in Lavaca County. Photos courtesy of Rippy Energy Corp.
We are generally pleased with the pace of our drilling. We are getting drilling rigs, but day rates are climbing on a monthly basis and the quality of drilling crews is sub par. We also have to schedule fracs out a few months in advance in order to guarantee availability.
H. Kent Brock: Strand primarily seeks growth through the drillbit so maintaining an active drilling program is essential. We work hard to maintain a balance between both exploration and exploitation projects. Currently our most active area is the onshore Texas Gulf Coast. We are also active on our acreage in the Texas Panhandle and with several new projects in West Texas. One aspect of our drilling activity that has changed in the last few years is that we are drilling deeper wells along the Gulf Coast, primarily in the expanded Wilcox trend.
Rig availability has definitely become a problem in many of our operating areas. In some areas we have long relationships with contractors that have been important in insuring rig availability for our projects. In addition, Strand has partnered up with other operators who have strengths where we do not. Although historically we have operated all of our activity, this is no longer the case. Most of our deep Wilcox drilling activity is currently being operated by other companies.
OGFJ: What goals have you set for the company and how do you expect to achieve them?
Charles G. Rippy: We sold most of the assets in Rippy Oil Co. over the last two years believing in the timing because of the commodity price environment. Currently, we use Rippy Oil Co. as our operating company. We formed Rippy Energy in 2003. This is the entity we use for financing and use as our asset base as we develop current and future projects. Our plan is to continue to generate natural gas projects and move on opportunities that arise in East Texas and North Louisiana. Our focus on tight gas sands and natural gas continue to make sense, especially in light of the new price environment.
Maurice F. Storm: Our goals from the inception of the company have been fairly simple. We wanted to be a Mid-Continent player because that is what we know best. Our goal was to grow Crow Creek from a start-up with no assets to a company with 50 bcf or so in proved reserves within a three- to four-year time frame. Thirdly, we wanted to earn our partners better than a 3:1 on the equity they placed with us.
To accomplish this we knew we would have to have a balanced business approach that allowed us to do both acquisitions and drilling. We also knew we would need to focus on repeatable resource plays that have a lot of running room. Starting with a relatively small amount of capital, we knew we would have to finance our activities by using relatively cheap commercial debt to leverage our more expensive private equity.
To achieve these goals, Crow Creek has had to be very selective about the acquisitions we have pursued and how we have allocated our capital, keeping our G&A costs low. It took more than a year to find properties that fit both our geographic focus and our resource play emphasis. The cash flow from these acquisitions has funded our drilling programs which have in turn have yielded rapid reserve growth. We are at or near our reserve target and to date have drawn down only about $9 million of NGP equity.
H. Kent Brock: Strand’s primary goal is to maximize the rate of return on capitol for its shareholders and working interest partners. We typically achieve this goal by having an active drilling program with a broad range of risk/reward projects and timely divesting of our developed reserves. This divestiture of our properties further accelerates our rate of return and keeps us focused on new opportunities.
OGFJ: Finally, could you discuss some of the pros and cons of being a private company versus going public and is an IPO on the horizon for your company?
Charles G. Rippy: We have always been family owned so decision making has usually been pretty easy. We usually bring partners or investors in for individual projects, but have never had an equity partner in our company. That may have limited our access to capital on some projects, but we have been successful in getting them funded. I have friends who are involved with public companies that have told me it has opened doors to larger sources of capital. This is always attractive to small private companies, but it seems that the timing would need to be perfect.
Maurice F. Storm: Being private frees us up from all of the daily communicating a public company must engage in. Public company management teams must constantly explain their strategy to various stockholders, conferences, analysts, and bond rating agencies to compete for investment with their peer group and the universe of other publicly traded stocks. Our management team has only to elucidate its strategy to the three NGP members who sit on the board.
It has been my experience that private companies are at no disadvantage in terms of access to capital. From commercial debt to private equity, we can raise almost any amount needed for the right deal very quickly. The only obvious negative to being private would be a lack of name recognition, which could impact deal flow if an aggressive business development effort wasn’t in place. Our business plan is to sell in a stock transaction within the next year to a large or mid-size publicly traded company, so an IPO is not in our future.
H. Kent Brock: Public companies typically enjoy good access to capital and high valuations of their reserves. However, the pressure on public companies to grow at all costs, in any market, is often at odds with achieving the highest rate of return for the capital deployed. Being a private company allows us to make decisions based upon the fundamental merits of a project without any outside interference from analyst expectations. We don’t anticipate any changes to our basic business model at this time. OGFJ
Charles G. Rippy graduated from Texas Tech University in Lubbock in 1984 with a BS degree in petroleum engineering. He began his career in the oil and gas business in 1985 when Rippy Oil Co. was formed and is now president of Rippy Energy Corp.
Maurice F. Storm holds a BS degree with honors in geology from the University of Arkansas in Fayetteville. He began his career in 1984 as a geologist with Samson Resources in Tulsa, Okla. He joined Barrett Resources Corp. in 1991 as exploration manager and later vice president and general manager of the company’s Mid-Continent division in Tulsa, Okla. In 1999 he was promoted to vice president of business development for Barrett in Denver. Storm is now president and CEO of Crow Creek Energy.
H. Kent Brock received a BS in petroleum engineering from the University of Texas at Austin in 1980. He started his career with Mesa Petroleum Co. in the Rocky Mountains, Mid-Continent, and offshore Gulf of Mexico. Brock left Mesa for a position with Harvard Petroleum Co. in Roswell, NM, and later joined IP Petroleum Co. in Houston as senior petroleum engineer. Brock was named exploration manager in 1987 after developing the geological concept that led to a significant discovery in West Texas. In 1988, Brock formed and became president of Strand EnergyInc.
