Firm Leverages Banking, Real-World Oil and Gas Experience to Aid Clients

Petrie Parkman & Co. founders Jim Parkman, left, and Tom Petrie

Bloomberg ranked Petrie Parkman as the No. 1 advisor and market leader with regard to M&A activity based on US crude oil and natural gas transactions for 2004. During this time, the firm established a commanding lead over such Wall Street giants as JP Morgan, Lehman Brothers, Deutsche Bank AG, Merrill Lynch & Co., Goldman Sachs, and Credit Suisse First Boston.

In 2004 and 2005 year-to-date, Petrie Parkman advised on 12 public company deals representing $18.6 billion. Since its inception in 1989, the firm has advised its clients in 89 merger, company sale, and spin-off transactions and rendered 75 fairness opinions.

In addition, Petrie Parkman has completed 181 asset transactions, reflecting a continuous involvement in the market, which the firm believes gives its industry professionals a perspective no other company has.

Since 1996, Petrie Parkman - which maintains offices in Denver, Houston, and London - has completed 36 private company sale transactions, totaling in excess of $6 billion.

The firm is also an active underwriter of equity securities. Since 1989, the firm has co-managed more than $10 billion of initial public offering (IPO) and secondary equity offerings. Several recent notable equity underwritings include Bill Barrett Corp. ($166 million) in August 2005 and ($325 million) in Dec. 2004; Cheniere Energy ($300 million) in Dec. 2004; XTO Energy ($599 million) in May 2004; and Marathon Oil Co. ($1.035 billion) in March 2004.

Beating the competition

Considering the above accomplishments, it’s no great leap to say that Petrie Parkman & Co. has outflanked oil and gas property brokers and similarly outmaneuvered its Wall Street counterparts.

When going up against energy asset brokers, Petrie Parkman has an advantage because it is accustomed to providing divestiture services for properties of all sizes -- $10 million to $10 billion. The core competency for most brokers is “tail-end” property sales, where the average deal size tends to be much smaller.

Petrie Parkman’s employees are seasoned, full-time professionals who know the industry. Staff turnover is negligible among the veteran employees. Conversely, many property brokers often use part-time consultants to staff projects. Petrie Parkman has a track record of rendering more than 70 fairness opinions on transactions totaling over $25 billion. Brokers typically are not qualified to render fairness opinions.

When the firm goes head to head with Wall Street financial houses, Petrie Parkman says it is more service oriented and leverages its in-depth knowledge of the industry with its record of relationship-building to deliver a better product. The Wall Street firms tend to be driven to achieve a quick turnaround on the transaction in order to maximize short-term revenues. Also, while Petrie Parkman has developed broad and deep technical capabilities over the years, its Wall Street counterparts often have to outsource this function because they lack sufficient knowledge in this area of the business.

“What we have to offer our clients is a unique mix of investment banking expertise combined with real-world energy industry experience,” said Tom Petrie, chairman and CEO. “This is our edge.”

Industry award

Earlier this year, Petrie Parkman was recognized as “The World’s Best Investment Bank in the Oil and Gas Industry Sector” for 2005 by Global Finance magazine. Sylvia Barnes, an investment banker who also heads up business development for the firm, says the award was a pleasant surprise.

“Global Finance is not a magazine with which we had any prior contact,” she said. We learned that the people presenting the award had done their homework and knew that we had been intimately involved in 8 of the last 12 large upstream public merger transactions. We are very proud of this kind of recognition.”

History

Petrie Parkman was founded in 1989 by Tom Petrie, a former managing director and senior oil analyst for The First Boston Corp. (now Credit Suisse First Boston), and Jim Parkman, who also served as a managing director at First Boston and prior to that worked for several energy companies and as an economist for the Federal Reserve Bank.

The two men decided their skills complemented each other. After the acquisition of First Boston by Credit Suisse, they decided to go into business for themselves. Since Petrie had been working in the Denver office of First Boston, he set up shop in the Rocky Mountains. Parkman deliberatly left New York to head up an office in Houston, and put down roots in the epicenter of the global energy industry. Their business strategy was to leverage their expertise in the oil and gas industry and the financial world to provide a premier financial firm focused exclusively on the energy industry that they had come to know so well.

Over time, the firm grew and the stated mission expanded as well. In addition to energy-related investment banking, Petrie Parkman now offers capital market advisory services, securities research, equity sales and trading, divestiture advisory services, restructuring and recapitalization advisory services, M&A services, and strategic advisory services. Clients include public and private oil and gas and other energy companies, private equity investors, institutional investors, governments, and quasi-governmental entities.

The First Boston connection

“Tom and I knew each other from First Boston,” said Parkman, who serves as company president. “He had earned the reputation as the No. 1 rated oil analyst. I worked in the merger group and worked very closely with him. We went through a lot together, including the rise of junk bonds in the late ‘80s and the turmoil that created.”

Parkman went on, “We had good synergies, so it was natural for us to consider starting our own business rather than working for a paycheck. Within a month or two, we found these two very talented people - Randy King and Jon Hughes - who came to work with us, stayed, and who are also, founding principals in the firm.”

Just this past June, King and Hughes were named co-heads of Petrie Parkman’s investment banking business. Both have extensive experience in this area. King was head of the firm’s divestiture group, and Hughes led the firm’s merger group. In their new roles, King will continue to office in Houston and Hughes has relocated to the firm’s Denver office.

King, a registered petroleum engineer, has been extensively involved in more than 216 transactions closed by the firm since 1989. He is a former vice president of Netherland, Sewell & Associates, an engineering consulting firm based in Dallas. Before that, he held management and engineering positions with Exxon’s production and corporate planning departments. He holds a BS degree in petroleum engineering from the University of Alabama.

“We have a legacy of expertise to offer our clients,” noted King. “We have a concentration of talent. Our experience represents a resident knowledge base and execution capability that are unique in our business.”

Before becoming head of Petrie Parkman’s merger group, Hughes was involved primarily in divestiture and strategic advisory assignments. The list of public merger transactions Hughes managed reads like a Who’s Who of energy companies - Magnum Hunter/Cimarex Energy, Patina Oil & Gas/Noble Energy, Tom Brown/EnCana, Wiser/Forest, and Westport/Kerr-McGee. A few other notable companies he advised include Plains Resources, Houston Exploration, Southwest Royalties, Pure Resources, and Vastar.

More recently, Petrie Parkman advised Medicine Bow Energy on its $814 million sale to El Paso Corp. and Lyco Energy Corp., a private oil and gas producer operating in Montana and North Dakota, on its merger with Enerplus Resources Fund, a Canadian income fund. In the recently announced acquisition of Vintage Petroleum by Occidental Petroleum, Petrie Parkman rendered a fairness opinion to Oxy’s board of directors. This transaction is valued at about $3.8 billion.

Hughes joined Petrie Parkman in April of 1989 in the firm’s Houston office. Previously he was an associate in the M&A group of First Boston. He spent two years in that firm’s New York office before being transferred to Australia in 1988 to help launch First Boston’s M&A effort there. Hughes has a BS degree in petroleum engineering from the University of Texas and has also worked in engineering and field positions for Exxon and Getty Oil.

“Our core competency is the independent company - not the super majors,” said Hughes. “We’ve got a good system here, and the people to execute. The big investment banking firms have seen a dilution of talent. It’s taken us 16 years to build a quality team that is second to none.”

Establishing credentials

Tom Petrie is the public face of Petrie Parkman. Chairman and CEO of the firm, Petrie is one of the most visible figures in the oil and gas business. He is widely quoted on geopolitical matters and an array of other topics related to energy and finance. He appears frequently on CNBC, FoxNews, MSNBC, Bloomberg TV, as well as local radio and TV stations, and is often quoted in newspapers and other publications.

For eight consecutive years, Petrie was ranked the number one oil analyst in the exploration/independent sector by Institutional Investor magazine. In addition to his research responsibilities at First Boston, from 1981 to 1989, he was actively involved in about $72 billion of the firm’s energy-related merger and acquisition advisory assignments.

Among others, those transactions include: Marathon Oil/US Steel; Conoco/DuPont; Cities Service/Occidental Petroleum; General American Oil/Phillips; Texaco/Getty; Phillips Petroleum/Mesa Petroleum restructuring; Union Texas Petroleum LBO; Louisiana Land/Inexco; Standard Oil/British Petroleum; and Sabine Corp./Pacific Enterprises.

Prior to joining First Boston in 1977 as senior oil analyst in the equity research department, Petrie was a vice president, senior oil analyst, and director with Wainwright Securities in New York City. Before that, he was a petroleum research analyst for Colonial Management Associates in Boston, and prior to that he held the rank of captain in the US Army, serving in Germany and Vietnam.

Petrie holds a BS degree from the US Military Academy at West Point and received his MSBA from Boston University. He is also a Chartered Financial Analyst.

Jim Parkman, who serves as president and COO of the company, is more low-key than Petrie but has a reputation for his thorough knowledge of the investment banking side of the business as well as a global oil and gas expert of the first order. In his 20-plus years as an investment banker, Parkman has advised clients in some of the largest oil industry merger transactions and been involved in numerous takeover defenses, restructuring, and other advisory assignments for public companies. In addition, he has worked with many private oil and gas interests as well in M&A and restructuring transactions, and valuation opinions. He has also advised in oil and gas asset divestitures since 1983.

After earning an undergraduate degree from Mississippi College in 1972 and a masters from Texas Tech University in 1974, Parkman went to work for Texas Eastern Corp. and honed his skills making deals in the oil and gas industry.

“Texas Eastern had tremendous reserves in the North Sea and massive amounts of cash rolling in,” said Parkman. “This was a great time for the industry and a great time for me to get my feet wet. This was all leading up to the hostage crisis in Iran around 1979.”

After that, Parkman went to work for Saxon Oil in Dallas. “It was a classic exploration venture company - very high risk,” he said. “My job was to understand the outlook for the company and the industry. I also learned how to go into the general ledger of a company and understand what I was reading.”

Deciding he had seen enough risk first hand, Parkman called a friend at First Boston to inquire about a position there. Within a short time, he moved his family from Texas to New York and began his banking career.

In addition to advising corporate executives and directors, Parkman has served in advisory capacities to governments on oil, gas, and energy matters - including the US government and the Kingdom of Saudi Arabia. He also advises some of the largest insurance companies, pension funds, and other financial institutions in connection with energy investments, restructurings, and other transactions.

Parkman addresses numerous industry groups on such topics as the oil and gas M&A environment, valuation techniques, and transaction execution. He has also conducted seminars for groups sponsored by Japan National Oil Co., Society of Petroleum Evaluation Engineers, Gas Daily, Texas Independent Producers and Royalty Owners, IPAA, and other trade and professional groups.

Apache was watershed deal

One of the landmark deals that Petrie Parkman participated in was for Houston-based Apache Corp. in 1991. At that time, Apache hadn’t yet grown to become the super independent it is today.

“Chairman and founder Raymond Plank at Apache called Tom and me into his office one day and told us that he realized that Apache needed to be a much bigger company if it was going to survive in this highly competitive environment,” said Parkman. “He and at the time SVP Steve Farris said they wanted to do the largest acquisition possible, and they wanted us to help.”

The resulting $550 million deal for Amoco’s MW Petroleum subsidiary helped launch Apache to its current position as one of the 10 largest oil and gas producers in the US, and it also represented one of the first major acquisitions in which Petrie Parkman served as advisor to one of the parties.

Continuity is critical

One of the hallmarks of a successful company is its employees, said Petrie. “We have been able to hire and retain quality people. This affords us a continuity that many of our competitors don’t have,” he said.

Petrie Parkman & Co. began to grow in the mid-1990s. The company’s business model was viable and it became necessary to “increase our resources,” said Petrie. So the company began adding professional staff, albeit very carefully.

“We have a reputation of taking a long, in-depth look at anybody we hire,” he said. “We may look at a person for two or three years before making them an offer. We want to be sure we’re getting the right person.”

In the oil business, relationships and trust are critical to the success of any deal. In days gone by, multi-million dollar deals were cemented with a handshake - legal documents were secondary in importance. Although that’s no longer the case, trust and relationships are still crucial.

“Put two oil men in a room and it won’t take long before a deal is in the works,” said Petrie. “That’s the nature of the business - it was in the beginning and still is.”

“Petrie Parkman has completed more oil and gas transactions than any other investment bank,” he added. “The industry knows who we are, knows our ethics, and we like to think there’s a level of trust there that you don’t get anywhere else.” OGFJ