What Happened to the Private, Family-Owned Oil Company?
For years, Dallas was home to countless private, family-owned oil and gas firms. But, over the past few decades, many of those companies have gone the way of Ewing Oil, the now defunct fictional business on which the Ewing family built its empire in the 1980s US television hit Dallas.
The reason those companies “no longer exist is that they failed what I call the intergenerational management succession challenge,” said Ray Hunt, executive chairman of the Dallas-based firm that bears his family’s name, Hunt Consolidated. His father, H.L. Hunt, founded Hunt Oil Company, now a unit of Hunt Consolidated, in 1934 after discovering the historic East Texas oilfield.
Meeting the challenge first and foremost requires “a competent next generation to move on to,” said Ray, whose son Hunter is currently co-chief executive officer of Hunt Consolidated. The father-son duo spoke at the recent CERAWeek conference by IHS Markit in Houston, the Texas oil town more known for its big public corporations.
Once a competent successor has been chosen, Ray said, the more senior generation should “step back and let the next leader exercise his or her best judgment” and learn through their inevitable mistakes. Ray became president of Hunt Oil at the age of 32 after his father passed away and continued the company’s strategy of exploring regions that other companies ignored or avoided.
Ray learned not only from his own mistakes along the way but from the big ones made by similar companies in Dallas, where it was like “growing up in a laboratory” of family-owned businesses, he said. When something went wrong in those companies, he would take time to “understand and internalize” the dynamics behind those mistakes. In some instances, those businesses had become dysfunctional by the third generation and the only outcomes were to fail or be sold to a larger company.
Taking on Political Risk
Three generations on and Hunt Oil still operates wells across the US and around the world, with exploration and production in US shale basins as well as in Latin America, the Middle East, Africa, and Europe.
Hunter credited the company’s internal cohesion and willingness to take risks—namely political risks—as essential to its survival, citing as an example its quick entry into and monetization of Peru’s largest gas fields, the Camisea fields, abandoned by Shell years before Hunt secured the blocks two decades ago. “It was on nobody’s radar at the beginning of 1999, and now it’s a major asset for us,” he said. Hunt Oil helped find a way to pipe the gas across the Andes Mountains and became a part owner of an LNG liquefaction facility on Peru’s Pacific coast.
The company also has operations in Yemen, including an LNG facility, and in the Kurdistan region of Iraq—regions certainly not viewed favorably by Wall Street or other operators. Hunter acknowledged that some of the company’s international positions do “sound like a [US] State Department travel advisory warning list on occasion.”
But, he added, “It’s real easy to look at a project in an area where you assume political stability, put a bunch of numbers in a spreadsheet, and say, ‘Well this is a good project.’ The reality is, politics is politics anywhere, and those [in the industry] in the North Sea and Canada would know that fiscal regimes change and change often.”
In the 11 years between entering Peru and selling its Canadian assets in 2010, he said, Hunt Oil experienced about a dozen fiscal changes to its contractual framework in Canada compared with none in Peru. “The point isn’t to look back in terms of how did the country end up where it is today. The point is to look from today forward, in particular when the major dollars go out the door, and say, ‘What kind of trajectory is this country on?’” Can the company, he said, differentiate itself from the majors as a partner with the government?
Another advantage of not being a public company, Hunter said, was being able to cut its capital budget “close to 95%” in 2016 while increasing its production thanks in large part to conventional production from fields such as those in Peru.
But, Ray added, “I will always want to know where the off-ramps are if the politics don’t change” in already-volatile regions.
Knowing when to bow out due to market concerns is also important, noted Hunter. “We got the exit right on North American natural gas. We were probably late by a year and a half to 2 years compared to the top [early-moving companies], but we were happy when we exited.” The company maintains positions in the Permian Basin of west Texas and southeastern New Mexico and Bakken Shale of North Dakota, two liquids-rich unconventional regions.
Hunt Oil entered the Bakken in 2007 and soon “realized it consumed a lot of cash,” Hunter said. Being a private company, Hunt Oil had to figure out a way to generate the liquidity needed to execute unconventional projects, particularly in the Permian. So it formed a “drillco” with Fort Worth-based investment company TPG Capital that included “a very strong reversionary interest” back to Hunt Oil, “which is critical because we’re long-term players,” Hunter explained.
For that reason, Hunt Oil doesn’t put a lot of stock in the estimated ultimate recovery (EUR) metric commonly cited by shale operators. A lot of people in the industry, he said, fail to realize that EUR is only “the estimate today, with today’s technology and today’s thinking. We wanted to hold on to the legacy upside of the Permian as much as we could.”
“Our view is that we’re in the business to create long-term value. Long-term is not 6 months,” Ray said, adding that long-term also isn’t squeezing all the value out of an asset in its first 3 years.
Their eye toward the energy future includes Hunt Energy Enterprises. Among the ventures it has incubated: one that found a way to extract lithium from brine water as well as directional drilling company Motive Drilling Technologies, which was acquired by rig contractor Helmerich & Payne in 2017. Motive’s bit guidance system uses cognitive computing to guide directional drilling to ensure more accurately drilled wellbores.
But Hunt doesn’t “mandate new technologies to the company,” Hunter said. “The kiss of death is if we walk into the oil company and say, ‘You’ve got to use this,’ because that’s not a commercial model. What we can do, is if the oil company says, ‘I don’t want to [use] it,’ we can say, ‘Great. Why not?’” This serves to hash out why the technology may not be ready for deployment and allows the company to figure out how—if there’s even a path—to get it ready.
Technology development “is a big part of what we’re going to do moving forward,” Hunter said.
What Happened to the Private, Family-Owned Oil Company?
Matt Zborowski, Technology Editor
10 April 2019
A “Survivor” of the Downturn, Pioneer Buying Parsley To Become Permian’s Largest Producer
In another all-stock transaction, one of the largest operators in the Permian Basin is set to add nearly 250,000 acres to its portfolio and swell oil production to more than 300,000 B/D.
ConocoPhillips Promises Big Changes as It Acquires Concho in $9.7-Billion Deal
ConocoPhillips promised more than just growth and costs savings when it announced a deal to acquire Concho.
The End Is Near for Riviera Resources
Marking the end of a 2-year existence, Riviera is preparing for liquidation and dissolution. The sale of its upstream and midstream assets for $146 million will deliver a $1.35-per-share cash dividend to shareholders. By the end of this year, the company will cease to exist.
Don't miss out on the latest technology delivered to your email weekly. Sign up for the JPT newsletter. If you are not logged in, you will receive a confirmation email that you will need to click on to confirm you want to receive the newsletter.
13 October 2020
12 October 2020