OGJ Top 10 Independents-Nos. 1, 4: Mission Resources targeting $1 billion market cap by 2005

Oct. 22, 2001
Newly formed Mission Resources Corp.-the product of a merger earlier this year of Houston companies Bargo Energy Co. and Bellwether Exploration Co.-hopes to maintain the same steady growth in earnings per share achieved earlier by its constituent firms.

Newly formed Mission Resources Corp.-the product of a merger earlier this year of Houston companies Bargo Energy Co. and Bellwether Exploration Co.-hopes to maintain the same steady growth in earnings per share achieved earlier by its constituent firms.

This continued growth will be realized through a strategy that will involve reaching well over $1 billion in market capitalization in the next 3 years, according to Mission Resources Chairman and CEO Douglas Manner.

Other ambitions over that same time, Manner noted, include boosting return on equity by 10-15%/year, increasing cash flow by 15-20%/year, and increasing production by 20-25%/year. The Houston-based independent also expects to lower its current 65% debt-to-market capitalization ratio by at least 15 percentage points.

Revenue growth

On the revenue side, Manner said, most of the company's growth is going to come from merger and acquisition activity, much like Bellwether's acquisition of Bargo. Mission Resources' M&A activities will help to further consolidate the small-cap sector, which, Manner contends, "needs to be done."

In addition, Mission will continue its base strategy of exploitation and low-risk exploration programs that is expected to add another 5-10%/year in revenue growth over the next 3 years, assuming futures prices are sustained at current levels, Manner said.

On the cost side, following its merger, Mission Resources has been successful at lowering both its operating costs and its debt through portfolio management. The company recently divested properties in Ecuador, East Texas, and the US Midcontinent, which has freed up capital commitments that will be redeployed in other areas.

Although Mission Resources' "acquire and exploit" strategy is not unique to industry, Manner said, one of the company's main strengths is its "consciously hand-picked management team," which has a long track record in corporate merger and acquisition activites. "A lot of the other companies our size are conducting acquisitions but are not necessarily geared for being closers on a corporate deal," he said.

Core areas, strengths

Presently, Mission Resources concentrates its E&P activities on the US Gulf Coast, both onshore and offshore, and the Permian basin. "The reason that we're in those areas is, obviously, because we have the expertise there, but we also think it makes a nice blend," Manner noted. While the Gulf Coast provides high-productivity areas and "reservoir serendipity," the huge oil fields of the Permian basin allow for longer-life, long-term growth.

"You put those two together," Manner said, "and we've got a nice plan to get about a 9-year reserve life index, which for a company our size, is an ideal range to be in."

Mission Resources-which presently holds reserves more heavily weighted toward oil at about 63%-would not shy away from adding long-term gas assets to its portfolio, if the deal seemed right.

Mission Resources' exploration success rate, Manner noted, is about 70%. The company does, however, generate prospects, both onshore and off the Gulf Coast, that are higher-risk and have a lot of potential to them, but it farms these out to other companies.

Challenges

Manner said that the two biggest challenges facing US independents today are price volatility and access to equity markets. "The average reserve prizes in the traditional basins are shrinking, and it's getting more costly to go outside into the bigger-prize areas in the international arenas," Manner said.

"If prices stay at high levels, or the equity market decides to come back to the oil industry and support increasing the reserve inventory in oil companies, then the strong companies are going to be fine. However, if the equity market continues to stay out of the industry and prices dwindle, then just like it was a couple of years ago, it's going to be really tough for companies of any size."

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Mission Resources Chairman and CEO Douglas Manner
"If prices stay at high levels, or the equity market decides to come back to the oil industry and support increasing the reserve inventory in oil companies, then the strong companies are going to be fine..."