Tulsa oilman Randy Foutch, who created two Midcontinent-focused exploration and production (E&P) companies that were gobbled up by larger independents, has launched Laredo Petroleum with the backing of long-time financial partner Warburg Pincus.
With an initial line of equity from Warburg for up to $300 million, Laredo’s strategy is to acquire, explore and develop oil and natural gas assets in Texas and Oklahoma. Laredo also arranged a $300 million revolving credit facility with commercial banks.
Foutch’s earlier E&P start-ups, Lariat Petroleum and Latigo Petroleum, also were Warburg portfolio companies. Lariat, founded in 1997, was sold in 2001 to Newfield Exploration Co. for $333 million (see Daily GPI, Jan. 2, 2001). At the time of the sale, Lariat’s properties, 90% based in the Anadarko Basin, produced 60 MMcf/d and had 256 Bcf of reserves.
Latigo, formed in 2002, focused on the West Texas Panhandle. It was sold in 2006 to Pogo Producing Co. for $750 million (see Daily GPI, April 18, 2006). Latigo, 49% weighted to natural gas, had proven reserves of 275 Bcfe on more than 404,000 acres.
Foutch has longer-term plans for Laredo.
“I’ve been telling everybody that I really intend this to be a much longer-term entity,” Foutch said of Laredo. Speaking with NGI, the CEO said he had wanted to take both Lariat and Latigo public, but they received financial offers that were just too good to pass up for the shareholders. With Laredo, however, “Our intention is to have a long-term company. I use the term ‘legacy,’ [but] maybe that’s not exactly right. But I’d like to have a company that lasts maybe long past me being here.”
Laredo “quietly” launched at the beginning of this year, Foutch said.
“It’s been a little bit of a process. We had it structured toward the end of last year, and we were quietly trying to figure out what the business plan was going to be. Before we really got that finalized, we had an opportunity that fit, and…it really evolved over about six months to the current status. We wanted to get all of the funding in place, all of the credit.”
Laredo’s first acquisition is in the Texas Panhandle, located in Hansford County. Laredo paid $75 million to purchase the assets from privately held Jones Energy Ltd. of Austin, TX. There are about 130 producing wells and one rig now in operation; another rig is expected to be in operation by the end of the year.
More acquisitions are expected to follow in the same general area.
“We want to concentrate on the Anadarko Basin, in West Texas and Arkoma [Basin],” said Foutch. “That’s been our core area, our concentrated focus for the other companies. These areas are multi-zoned, and Oklahoma is a good place to do business, Texas is a good place. They lend themselves to more and better stimulations, better 3-D. There’s still a significant amount of exploration to be done.”
COO Jerry Schuyler said the “set of producing properties is in an area with which our team is extremely familiar, and is a good fit for our overall strategy. We believe that this transaction will provide a strong platform from which to pursue additional opportunities throughout the Texas and Oklahoma Panhandle area.”
Laredo also is leasing some land in a “couple of other areas that have exploration possibilities,” but Foutch was reluctant to disclose too many details. “We will be making other acquisitions, and if the exploration model works, we’ll have to staff up with additional people.”
Laredo now has about 25 employees, and in the short term another three or four will be added. Like the previous E&Ps, Laredo will be based in Tulsa, said Foutch.
“We’ve spent a fair amount of time trying to figure out what has made us successful in the past,” Foutch said. “I honestly believe that the critical issues for that success are to hire the best possible people you can hire, up and down the ladder of the company. Everybody will have some degree of ownership in this company. You take that level of employee base, combine it with financial capital, and lots of good things will happen if you stay concentrated and focused.”
Foutch noted that “in the current market environment, there is no shortage of capital available for investment in upstream oil and gas properties. However, Warburg Pincus distinguishes itself as one of the largest, most experienced and most sophisticated private equity investors in the E&P sector, and I believe that Laredo is best positioned for long-term success through this partnership.”
“Our previous investments in Lariat and Latigo were very successful, primarily due to the talents of Randy Foutch and his team,” said Jeffrey A. Harris, a Warburg managing director. He said Warburg was “thrilled to have another opportunity to work with such a talented group of entrepreneurs.”
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