OGJ Top 10 Independents-No. 9: Pure Resources on 'fast track to growth' with balanced strategy

Pure Resources Inc., Midland, Tex., is implementing a balanced strategy while it pursues a fast track to growth.

Pure was formed in May 2000 through the combination of Titan Exploration Inc. and the Permian basin business unit of Unocal Corp.

Upon Pure's formation, Titan stockholders owned 34.6% and Unocal owned 65.4%.

Pure controls 6 million gross fee mineral acres throughout the southern Gulf Coast, primarily in Texas, Arkansas, Louisiana, Alabama, Mississippi, and Florida.

Strategy

Pure is concentrating on improved oil recovery techniques and horizontal drilling, and those tactics paid off during its first full calendar year of operation.

Second quarter financial results showed year-over-year production growth of 15% on Pure's original properties. Including acquisitions, the company reported a 115% increase in total production compared with second quarter 2000 results.

For second quarter 2001, Pure produced 21 bcf of natural gas, or 230.5 MMcfd, as compared with 8.5 bcf, or 93.7 MMcfd, for second quarter 2000. Oil and liquids production for the second quarter was 21,400 b/d compared with 12,200 b/d.

Pure exited the second quarter producing 390 MMcfed and estimates its third quarter production at 380-390 MMcfed. The production split was 66% gas and 34% oil and liquids.

Jack Hightower, chairman, president, and CEO, said, "We will continue to follow our balanced strategy of exploitation, exploration, and acquisition, and for the remainder of 2001, we plan to remain an active driller in each of our core areas."

Acquisitions, core areas

Hightower attributed Pure's growth in production and cash flow to two acquisitions that closed this year. Pure bought International Paper Co.'s producing properties and interests covering 6 million acres in the southern Gulf Coast region for $261 million. That deal closed on Jan. 31.

Pure acquired Denver-based Hallwood Energy Corp. for $268 million, closing that deal on May 31.

In a 2000 letter to shareholders, Hightower said, "For a company our size, we are on the leading edge of technology to find and exploit reservesellipsewater floods account for approximately 70% of the company's daily oil production. In addition, our ability to drill horizontally below 10,000 ft in very high temperatures and stay in hard rock zone gives the company a strong future in further exploiting Permian basin assets."

Pure has four core areas, with its largest core area being the Permian basin of West Texas and southeastern New Mexico, where it controls 1 million acres with ownership interests in over 150 fields.

"We have identified a sizable number of high-impact opportunities to allow for significant growth should the company's exploration program prove successful," Hightower said of the Permian basin operations.

Other core areas are the San Juan basin in northwestern New Mexico and Colorado, South Texas, and the Gulf of Mexico.

The South Texas properties were included in Titan's acquisition of Maxima Resources in Corpus Christi, Tex., during late 1999.

The acquired assets of Maxima consisted of 6 bcfe of proved reserves, 12,500 net acres of undeveloped leasehold, and 525 sq miles of proprietary 3D seismic data.

At yearend 2000, Pure had boosted its South Texas proved reserves to 20 bcfe.

Hightower told investors and analysts in an Aug. 7, 2001, conference call that Pure has been "on a fast track in terms of growth." He said the company has 20-30 opportunities that he considers "true company-maker potential projects" out of a total of 900 identified drilling opportunities, most of which are for natural gas.

One area of particular interest entails horizontal well projects in the Devonian and Montoya formations in the Permian basin, Hightower said.

As of Aug. 1, Pure was operating 15 drilling rigs, of which 9 were in the Permian basin, 3 in South Texas, 2 in the San Juan basin, and 1 in the Gulf of Mexico.