(This article appeared in the Oct. 24, 2005, issue of Oil & Gas Journal)
Senior Staff Writer
Petrohawk Energy Corp. of Houston completed several transactions during its first 7 months of existence as it doubled in size from its predecessor, Beta Oil & Gas Co., and divested more than $140 million of noncore assets.
Floyd C. Wilson, Petrohawk's chairman, president, and chief executive officer, has a record of building companies and selling them to larger entities.
"We are an acquisition company, and we created a drilling program through the process," Wilson said. "Acquisitions and divestments are key steps. We divest a lot of low-margin properties quickly. This is all with the goal of trying to sell the company in 3-4 years from the start."
He said his senior management team combines business experience in acquisitions with the ability to find properties that have drilling potential and geographic concentration. The team primarily looks for gas properties.
Wilson is former chairman, CEO, and founder of both Hugoton Energy and 3TEC Energy Corp. Hugoton Energy launched an initial public offering in 1994, and Chesapeake Energy Corp. bought the company in 1997 for $380 million.
Wilson formed 3TEC Energy in 1999 with a recapitalization of Middle Bay Oil. Plains Exploration & Production Co. bought 3TEC for $443 million in February 2003. Other former 3TEC senior managers helped Wilson start Petrohawk.
"We are fairly competent at creating value in a smaller company," Wilson said. "We think that it is appropriate to allow a growing company's assets to be merged into a larger entity having economies of scale."
Petrohawk acquires operated and nonoperated properties that meet or exceed the company's rate-of-return criteria.
Wilson said a willingness to acquire nonoperated properties in new geographic regions provides Petrohawk with geophysical and geological information that sometimes leads to more acquisitions in the same region, operated or nonoperated.
"We sell properties when management is of the opinion that the sale price realized will provide an above-average rate of return for the property or when the property no longer matches the profile of properties we desire to own," Wilson said.
PetroHawk bought a controlling interest in Beta in May 2004, changed the company's name, organized a reverse stock split, and used the resulting new company as a foundation from which to start adding properties and companies, Wilson said.
The company's acquisition pace has been steady. Petrohawk acquired Wynn-Crosby Energy Inc., Dallas, in November 2004. This year, Petrohawk bought Proton Energy and Mission Resources Corp. (OGJ, May 2, 2005, p. 46).
Wilson said the process has resulted in a multibasin company focused on exploration in South Texas and along the Gulf of Mexico coast. Petrohawk focuses on exploitation in the Permian and Anadarko basins.
Petrohawk had reserves of 421 bcf of gas equivalent and production of 129 MMcfd of gas equivalent in early October. At the same time last year it had reserves of 33 bcf of gas equivalent and production of 8 MMcfd of gas equivalent.
"We will be involved in drilling at least 100 wells this year and that many next year," Wilson said.
"As we continue to build our drilling program, our activities are in full swing in South Louisiana and South Texas," he said. "We are preparing to kick off drilling programs in the Arkoma and East Texas basins, where we control significant acreage blocks."
Petrohawk's reserves are more than 70% gas, and most of its drilling is in gas-prone basins.
For the 6 months ended June 30, Petrohawk reported a net loss of $16.7 million, compared with a net loss of $603,000 for the same period last year. Meanwhile, Petrohawk had discretionary cash flow of $33.6 million for the first half of this year.
The 6-month net loss stemmed largely from a $37 million net loss on derivative contracts and $10.3 million in interest and other expenses.
Excluding the hedging loss, the company reported 6-month income from operations of $20.5 million compared with $131,000 in income for the same period last year.
Wilson said it's a good time for an oil and gas acquisition company like Petrohawk.
"The commodity prices have risen more quickly than the costs to acquire or the costs to drill. The economics are still quite good for what we do," he said, adding that acquisitions will continue.
Regarding the oil and gas industry in general, Wilson said independents find themselves facing increasing costs while drilling in mature US basins.
"We are spending more money for smaller targets year after year," Wilson said. "So it is a real challenge to keep the need for economic returns at the forefront of your thinking."
He also believes that independents need to be mindful of growth expectations from shareholders, particularly in times of robust oil and gas prices.
"We've been able to do it, and we have created a pretty good-sized company in just over 1 year, but it's a challenge to continue that pace," Wilson said.
When asked about what he would like to see in federal or state legislation, Wilson said that he believes in supply and demand.
"I believe that the oil and gas business is a really great business when it is a free market. That is the way I think of it, and I don't really think the government needs to be any more deeply involved than it is already."
Floyd C. Wilson is chairman, president, and chief executive officer of PetroHawk Energy Corp.
Wilson was 3TEC Energy Corp. chairman and chief executive officer from August 1999 until Plains Exploration & Production Co. acquired 3TEC in June 2003. Previously, he founded Hugoton Energy Corp. in 1987 and was its chairman, president, and chief executive officer until Chesapeake Energy Corp. acquired it in 1998. Wilson began his career in the energy business in Houston in 1970 as a completion engineer.