Paula Dittrick
Senior Staff Writer
HOUSTON, Nov. 3 -- Vintage Petroleum Inc., Tulsa, has transformed itself from a US Midcontinent and Gulf Coast niche player in the early 1990s into an international company with operations in Argentina, Canada, Bolivia, Yemen, and Italy.
The company experienced another transition this year as it reduced debt to better position itself for future profitable growth. Vintage has sold its interests in Ecuador and Trinidad and Tobago along with certain US and Canadian properties.
President and CEO S. Craig George said Vintage seeks good investments through the drill bit and through acquisitions in the US and elsewhere.
"I think it is important for us to focus on a certain number of projects," George said. "We know we have to focus geographically and technologically. But we don't want to be too narrow and close ourselves to opportunity. We deal with this balance everyday.
"One of the company's strategic initiatives is to pursue acquisition opportunities, primarily in the US or Canada, while maintaining financial discipline. Future acquisitions could involve buying more properties in existing operating areas or entering new areas," he said.
"Ideally, it would be where we already are successful. We know how to reduce operating costs and how to exploit the reservoirs through workover and secondary recovery techniques at the lowest possible cost," he added.
In assessing new areas, Vintage looks for areas where it can apply the "same skill set" in which the company already is proficient while also evaluating the long-term political and economic risks.
Vintage has more reserves internationally now than George would have predicted 5 years ago. He attributes that to successes in both Argentina and Bolivia.
Argentina
Starting in second half 1995, Vintage made a series of acquisitions in Argentina, where it now has interests in over 1.3 million developed and undeveloped net acres.
The country hosts 40% of Vintage's production and 40% of its reserves.
In 2003, Vintage's $48 million Argentine capital budget envisions drilling 63 net wells and completing 85 net workovers. Vintage operates and has 100% interest in 14 concessions in the southern flank of the San Jorge basin of Santa Cruz province and interests of 40-100% in 4 concessions in the Cujo basin of Mendoza province.
George considers the Argentine operations to be mostly developmental. Vintage has a 95% success rate out of more than 320 wells drilled there.
"The risk profile is pretty low. I don't see that business as much different at all from what we have done in the US. In most instances, it's step-out drilling predicated on 3D seismic surveys," George said.
Vintage halted its drilling program in Argentina in 2002, while the country experienced an economic crisis. The oil and gas industry's plight there was exacerbated by tough downstream natural gas price controls that slashed producers' gas receipts in many cases to less than lifting costs. Now the company is intent on regenerating growth in that country.
"We feel like we have years of running room and growth in Argentina," George said, adding that Vintage has a longstanding familiarity with Argentine President Nestor Kirchner. Previously, Kirchner was governor of Santa Cruz province, where Vintage has most of its Argentine operations.
"I think he understands the plight of the oil companies," George said of Kirchner. "As a result of the new administration, we have a lot of confidence going forward in Argentina. That gave us the confidence to reinitiate our drilling program. At this point, our drilling activity is as robust as it's ever been, having built from one to four [rigs running] this year," George said.
Having a career background with BP PLC predecessor Amoco Corp., George was familiar with Argentina and said he was comfortable when Vintage started doing business there.
"If you are willing to be part of the solution when the tough times come, you can live through those tough times and still reap good rewards. That is what we experienced during this last downturn," George said.
Other operations
Vintage has a $185 million capital budget, excluding acquisitions, for 2003. It is on track to drill 130 net wells and undertake various lower-risk exploitation projects with 70% of the budget. The remaining 30% is allocated to potentially higher-impact exploration programs in the US, Canada, Italy, and the frontier areas of Yemen, Nova Scotia, and the western Black Sea off Bulgaria.
In Canada, Vintage plans exploitation and exploration wells in the Sturgeon Lake and West Central areas of Alberta and in northeastern British Columbia.
"A few years from now, I hope to be able to tell you a similar success story about Canada that I have about Argentina," George said. "After having carved back our assets, we are encouraged about future success there in terms of exploitation, acquisitions, and exploration."
In Italy, Vintage has 70% interest in two exploration blocks in the Po Valley. It operates the Bastiglia and Cento blocks, covering 275,000 gross acres. The process of well permitting is under way, and Vintage plans to begin drilling the first of two exploration wells in early 2004.
"The company has also met with exploration success in Yemen. It has been a very interesting project. I think we will have some good results to report there in the next 12 months. We have some other areas, like Bulgaria, that are newer in the inventory and will take longer to process."
Industry trends
"Most US independents seemingly do not have the same level of interest in projects abroad that they did 5 years ago," George said.
"At this point in time, it seems the investment community has a narrow focus on North American gas. As a result, we see a lot of interest in North American gas fields from an acquisition standpoint. I don't see as much interest [from independents] in international deals.
"That trend might stem, at least partially, from security concerns in the aftermath of the Sept. 11, 2001, terrorist attacks upon the US," he said.
"Our level of interest hasn't changed, although one thing that is of importance to us is that we keep a balance between North American projects and the international projects. Our international successes have allowed us to grow faster abroad than we have in North America."
Having been in the oil and gas industry for more than 25 years, George believes globalization has enabled many independents to enter numerous countries and to have more exploration opportunities than was possible 10-20 years ago.
"Not too many years ago, a company our size could not have participated in South America or Yemen," he said.
George said he continues to be excited about exploration opportunities, and he is enthused about the property acquisition opportunities generated by consolidation among the majors.
"Being able to buy properties from larger companies has contributed significantly to Vintage's track record of growth. We think consolidation is ongoing and will continue. Those properties are the ones that we've really done the best with in terms of reducing operating cost and increasing production. We feel that through exploration and acquisitions with significant exploitation potential, we have a bright future for growth," he said.
S. Craig George has served as Vintage Petroleum Inc. president since September 1995 and as CEO since December 1997. He was chief operating officer from March 1994 through November 1997. He started with Vintage as a senior vice-president in 1991 and has been a director since 1991.
Employment
Previously, George was vice-president of international operations for Santa Fe Minerals Inc. and held various management positions with Amoco Production Co.
Education
George has a BS and professional engineering degrees in mechanical engineering from the University of Missouri-Rolla.
Organizations
George belongs to numerous professional societies, including the Independent Producers Association of America, the Society of Petroleum Engineers, and World Presidents' Organization. He also is a member of an advisory group to the University of Missouri-Rolla and the Academy of Mechanical and Aerospace Engineers.
