Everybody knows that Texas and oil go hand in hand. But it might not be common knowledge that the resurgence of drilling in the Permian Basin and Eagle Ford has made Texas responsible for 34 percent of oil and gas production in the United States.
How can a person get in on that boom? At a Texas CEO Magazine Enlightened Speakers Series Event in San Antonio, three oil and gas entrepreneurs offered their experiences launching companies and finding the money to get it done.
Marsha Hendler, the President and CEO of TerraFina Energy, ran a marketing firm that represented operators and service companies getting in on the Eagle Ford shale play. She got her own operator’s license, and TerraFina now operates more than 30 oil and gas wells, mostly in Central Texas.
Consultant Amy Clark launched her oil and gas career in Iraq after the formation of the new national government. She now represents a firm based in Geneva, Switzerland, and has advised on new-build refineries, pipelines and transportation routes, tank terminals, and the privatization of the downstream sector with multi-national energy companies, national governments and financial institutions as stakeholders.
Paula Waggoner-Aguilar, the president and founder of The Energy CFO, consults entrepreneurs and private equity startups in the energy industry. She has held senior leadership roles in such companies as Lewis Energy Group, Buckeye Partners, BHP Billiton, GDF Suez, Duke Energy, Enron International and Halliburton.
“Are there still opportunities for entrepreneurs in Texas? Hendler asked. “This is Texas . . . and there will always be opportunities for entrepreneurs in almost any industry.”
She explained that her own start came sitting at a café table in Carrizo Springs, listening to a group of oilmen talk about their business. One day, one leaned over and said, “You know little girl, I’ve been watching you, and you get this business. You need to become an operator.”
She took the plunge. “I’m not sure if the first step was guts or smarts,” she said, “but a bit of both have been useful.”
Hendler noted that Texas has 7,618 oil and gas operators, according to the Texas Railroad Commission. That many operators can’t all be ExxonMobil or Chesapeake, she said. “They are little companies like TerraFina that you’ve probably never heard of, and that is what Texas oil has always been,” she said.
Entrepreneurs who want to get into oil and gas must realize that although Eagle Ford is getting the lion’s share of publicity right now, it’s not the only thing happening in Texas. “Eagle Ford is now for large companies, it’s not for companies like TerraFina,” she said. In Eagle Ford, companies spend between $5-$6 million per well, and they go below 10,000 feet. Hendler said TerraFina spends about $500-$600,000 per well, and rarely drills deeper than 3,000 feet.
“Someone brought me a project in Milam County, were the wells were less than 1,000 feet and running an average of about 700 feet,” she said. “They are pulling out two to three barrels per day and while it doesn’t sound like a lot of production, the economics are there when running small rig projects like that.”
Amy Clark takes a different approach. “I come from an international perspective, so what am I doing in South Texas?” she asked. “Hydraulic fracturing and shale has changed the world.”
Clark said oil-producing countries in Africa and the Middle East are now thinking about how to compete with the U.S. “Even though I can go anywhere in the world, the play today is in the U.S., and that’s Texas,” she said.
As a consultant in Geneva, she got her start in oil and gas in Northern Iraq. She has lived and worked in the Balkans, Middle East, Europe and West Africa. Now, she is based in San Antonio.
Texas, she said, is a fragmented market. The big companies have already taken the big plays, but there are other opportunities. The person that can go into that fragmented market and make a small deal will be successful. “Take one asset and then two and then three and then in comes the financing and you have an Anadarko or a Chesapeake,” she said.
Paula Waggoner-Aguilar echoed the optimism of Hendler and Clark. “Are there still opportunities? Yes,” she said. “I based my business in Eagle Ford over Houston or Dallas, because there are particular areas of opportunity here.”
She singled out oilfield services as an example. “It’s not so much the traditional jobs, but there are opportunities — especially digital opportunities,” she said. “I see companies spending dollars on automating measurement and monitoring in upstream and automation in midstream and downstream.”
Waggoner-Aguilar said another possibility is in infrastructure. “Eagle Ford is in a geographically advantaged area,” she said. “It’s so close to Corpus Christi, and the port has lots of opportunity for growth and it’s in close proximity to Mexico.” She thinks Laredo will be an important land port in the coming years.
The biggest challenge to an energy entrepreneur? Funding. “Good projects take money,” Hendler said, “and it’s hard to raise capital whether it’s through traditional financing sources or finding nontraditional private funding.”
“To the financial people in the room, if you really want to be an entrepreneur, you need to think a bit differently,” Clark said. “There are a lot of people who are sitting on some good assets. Sometimes it’s easier to get $250 million than it is to get $5 million. You have bankable reserves in the ground, and that is bankable.”
Clark says her consulting firm is based in Geneva, because it’s the commodity trading and finance capital of the world. “If you want to do anything in oil and gas, more than likely you’re going to get financing out of Geneva,” she said.
Financing in Europe is approached differently than in the U.S., Clark said. For example, Project Financing is used more in Europe than here. “On projects, debt goes in with equity,” she said. “Here it appears that debt follows equity.” Europe also has nontraditional players involved in financing, such as Vitol. “They are the world’s largest oil traders and they are financing terminals and production, and the banks and private equity are out,” Clark said.
“When I think of Project Financing, I think of large infrastructure projects and in the U.S.,” said Waggoner-Aguilar. “That’s where you do see Project Financing.”
It seems easier to get financing in Europe, because they view things on bankable reserves, Clark added.
“I’m trying to do a project right now that has good bankable reserves, and everybody keeps telling me it’s overpriced,” Hendler said. “My answer is look at the reserves. It’s hard to get people to look at the potential of a field, not what’s coming out of the ground today.”
“If you’ve got feedstock coming in you have an offtake contract,” said Clark. (An offtake contract is an agreement between a producer of a resource and a buyer of a resource to buy or sell portions of the producer’s future production.) “When you set up a refinery and you have the feedstock coming in and an offtake contract with a guaranteed buyer for so many years, that’s bankable.”
Waggoner-Aguilar said entrepreneurs have to build their financial credibility. “For small operators, you need people to know you so you can build a critical mass with a local bank who can lend up to $15 to $20 million on reserves,” she said. “When you get to Bank of America, they lend on much larger portfolios.”
Another critical challenge for entrepreneurs is to build their networks of contacts. “When I chose to become an operator, I started looking for professional organizations I could link to,” Hendler said. “I chose the Texas Alliance of Energy Producers, which also has the South Texas Wildcatters group. I made incredible connections with both of those groups and recently became involved with WEN – the Women’s Energy Network.”
Waggoner-Aguilar, the founder of the non-profit Women’s Energy Network, spends a lot of time networking. “I started my business without a sales pipeline and that probably wasn’t the smartest thing to do,” she said. “I started it in an area that I’m new to, because most of my contacts are in Houston and Dallas, so I have invested quite a bit of time in getting out of the office, meeting people, and building relationships.”
Clark realized the importance of contacts when working on her first oil deal in Iraq. She and her partner lost the deal because their competitors had better connections. “I share that story because it forces you to understand what it takes to be an entrepreneur – what it takes is relationships,” she said. “Look at your Rolodex – you may not know anybody in the oil & gas industry, but the skills will translate.”
Along with building their networks, entrepreneurs have to work on building their knowledge. “You’ve got to love the industry,” Clark said. “What is upstream? What is midstream? What is downstream? What are the shock points to each part of the business?”
Hendler took that advice to heart. “I went to the University of Texas Petroleum Extension Service classes, bought textbooks and I looked everything up and read and read,” she said. “In time, it’s like going into any business – there’s a lingo you have to learn.” Hendler learned the lingo by taking two pads of paper to industry conferences – one for notes on the meeting, and one for terms and abbreviations she didn’t understand.
So where should an entrepreneur consider getting started? New and emerging technology, said Waggoner-Aguilar. “One of the things I’m seeing is people getting involved in new technology that have not spent their careers in energy,” she said. “They are taking technologies more from the biotech or IT side and applying it to energy.”
Clark suggested looking at midstream, especially skid mounted modular crude oil refineries. Also, “Look at tank terminals, and tank terminal operations and pipeline spurs,” she said. “Right now there’s a lot of trucking and trains, but look at pipelines, they don’t have to be big. Oil getting to a refinery the most efficient way, is the way to have success.”
“Texas could be the eighth largest producer in the world by the end of 2014,” concluded Hendler. “In Texas, anything is still possible.”
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