A FRESH START – Forming new energy company amid pandemic “wicked ride”

By Mella McEwen mmcewen@mrt.com

Navigating the pandemic last year was an incredible challenge for individuals and businesses alike. But to pull off an oil and gas acquisition in the midst of not only the pandemic but an oil market crash was even more challenging. “Doing that was a wicked, wicked ride,” said Don Burdick, chief executive officer of Olifant Energy II. Speaking with Grant Swartzwelder., president and owner of OTA Compression, OTA Environmental and Kimark for Swartzwelder’s Oilfield Strong online webinar, Burdick described the journey he took from forming and selling Olifant Energy I and forming Olifant Energy II in a market that was rapidly changing.
“The journey began in June 2017 with the formation of Olifant,” Burdick related. It was a portfolio company of the private equity company EnCap. By November of that year, the company had spud its first horizontal well the Delaware Basin’s Wolfcamp Shale. When it went to market in February 2019, Olifant had three producing horizontal Wolfcamp wells with 1,200 barrels of production and a 4,029-acre position. It was sold in October at a price that didn’t make anyone happy, he said.
He parted ways with EnCap and decided to form Olifant II as a self-funded entity focused on acquiring producing properties, operating efficiently and using that business model to return value to equity partners and service debt.
In October 2019 when the company started, “we had enough cash to cover base general and administrative costs for a short period of time. We asked ourselves what is the cost of capital, what’s the minimum G&A burn we need to keep the team together and what kind of equity return does a co-investor need alongside us?” Using that as a guide to evaluate assets that came on market, Burdick said the company bid and lost out on assets 11 times between October 2019 and April 2020. Finally, in April 2020, the company successfully bid on producing properties in Oklahoma being sold by Ovintiv. Winning the bid wasn’t easy, he said. As the company was trying to complete the acquisition in March and April, the pandemic took hold and “the world got wicked crazy.” As the deal proceeded, he said the company had to adjust to different financial concerns and saw its equity partner change from a single provider to a group of providers to back to a single partner. The effort also went through four or five debt partners before landing with a local Oklahoma bank. What helped was being flexible and clearly communicating with everyone along the way, he said. “The lesson learned through this process is clear communication, then dedication — if you will — to flexibility,” Burdick said. “We communicated with our financial partners that ‘this is where we are, and by the way we are talking with others in case something bad happens with you. Nothing personal but we have to have agreements.’ In the background, we were also working multiple partners to keep our options open and doing that aggressively.”
Another challenge was navigating the changing risk appetites of potential partners as well as the rising uncertainty around the hydrocarbon market. While there might be investor aversion to drilling programs, Burdick said that with oil prices at $60 a barrel and natural gas prices at $3 per Mcf, drilling opportunities will emerge, but those opportunities will be approached with caution.
Burdick said his team has always been focused on being good environmental stewards — as has Ovintiv, seller of the assets. In that regard, he said the business model built in plugging costs. “Our plan takes us to end of life of the well,” he said.
He said he looks across the oil patch and sees others trying to accomplish similar acquisitions. His advice? “Stay encouraged; stay flexible; work hard and keep after it. Honestly, there’s lots of great talent and they just need a little bit of good fortune to come their way. Keep your chin up, don’t give up.