Is it better to stick with what you know or strike out and look for something better? Independent producers can succeed with either strategy, as W&T Offshore Inc. and Newfield Exploration Co. have demonstrated.
Both companies started life in the Gulf of Mexico. W&T was founded in 1983 and capitalized with $12,000. The company's market capitalization is about $2.3 billion today. Newfield was founded in 1989 as a Gulf of Mexico Outer Continental Shelf (OCS) player with about $9 million. Its market capitalization is about $6 billion today. While W&T has chosen to remain focused on the Gulf, Newfield has cast a wider net in search of opportunities. So far, they both appear to have been right.
The conventional Shelf is W&T's primary focus, CEO Tracy Krohn told attendees at the Offshore Technology Conference in Houston Wednesday. The company counts the deep Shelf and deep water as its secondary focus areas. Krohn said the company has found "numerous acquisition opportunities" in the Gulf as competitors continue to divest assets. Last year W&T bought OCS interests from Kerr-McGee Corp. for $1.34 billion in cash (see Daily GPI, Jan. 25, 2006). The company has about two million gross acres in the Gulf, Krohn said.
He called the Gulf the largest basin in the United States adjacent to the world's largest consumer of gas and oil. "The trick in the Gulf of Mexico is can you replace reserves," he said. Overall, W&T has enjoyed a 79% success rate on exploration wells and a 90% success rate on development wells, Krohn said. Key to W&T's success is the management of cash flow, and that means that "this company is for sale every day," Krohn said when asked about the company's strategy for jettisoning Gulf assets whose production has declined.
As for looking elsewhere for growth, Krohn said W&T has done that and not found anything better than the Gulf. At one time he said W&T mapped all of Guatemala, looking for opportunities. "We haven't found anything that's a better rate of return than what we're doing," he said.
W&T will be active in upcoming Gulf lease sales, Krohn said, adding that the company has acquired seismic data in the deep water.
Looking farther afield for its growth, Newfield Exploration's strategy includes balancing drilling and acquisitions, focusing on select geographic regions, controlling costs and using advanced technologies where possible, said William Schneider, Newfield vice president, international. The company launched a diversification strategy eight years ago that has taken it from the Gulf to the Midcontinent, the Rocky Mountain region (see Daily GPI, Aug. 31, 2004), the onshore Gulf Coast and internationally to countries such as Malaysia.
Newfield capital spending for 2007 is projected to be $1.9 billion. Of that, 38% will be spent in the Midcontinent; 24% in the Gulf; 19% in the onshore Gulf Coast; 11% internationally and 8% in the Rockies. Where appropriate, Schneider said, Newfield has struck partnerships.
For instance, in South Texas the company is in a joint venture with ExxonMobil Corp. Newfield is involved in a three-rig drilling program on ExxonMobil acreage that has drilled 14 wells to date, he said. Newfield is contributing the capital and people to the joint venture.
"The diversification program we set off on eight years ago has been key to Newfield's growth," Schneider said. "Alliances are an indispensable element in today's E&P environment." This is particularly true when it comes to accessing drilling rigs, he said.
Schneider admitted that the attractiveness of a particular region can change. This is particularly true of the United Kingdom where Newfield has been active for five years. In that time the company has seen taxes on producers hiked twice during a period of declining gas prices and skyrocketing costs. Schneider said it's difficult to justify a program in the United Kingdom today.
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