Presidio Petroleum sees an opportunity to stand out among a shrinking number of public U.S. E&Ps.
The Western Anadarko oil and gas producer aims to go public through a reverse merger with EQV Ventures Acquisition Corp., a special purpose acquisition company (SPAC).
Will Ulrich, Presidio’s founder and co-CEO, argues that the public markets need greater access to companies like Presidio.
Presidio isn’t focused on drilling new wells itself. The company acquires long-life, maturing oil and gas wells, with its current portfolio focused on western Oklahoma and the Texas Panhandle.
“We don’t have 35%-declining production and the need for constant reinvestment,” Ulrich said in an interview with Hart Energy. “We’re not comparing where our next best drilling location is, or what acres is better than this acre.”
“We are fully focused on being the most efficient operator of these existing oil and gas wells.”
Fort Worth, Texas-based Presidio operates over 2,000 maturing wells in the Western Anadarko. Net production is expected to average around 26,000 boe/d this year.
Presidio bought its first assets in the basin in 2018 in conjunction with backing from Morgan Stanley Energy Partners. The company followed with a major acquisition from Apache parent company APA Corp. in 2019.
Though Presidio doesn’t drill, it has interesting drilling opportunities at its disposal. The company has executed farm-outs with blue-chip E&Ps like Mewbourne Oil.
And last year, Presidio sold 100,000 acres prospective for the emerging Cherokee play in an accretive cash transaction.
Ulrich spoke with Hart Energy’s Senior Editor of Shale and A&D Chris Mathews in August to discuss the SPAC merger and Presidio’s strategy in the Western Anadarko.
This interview has been edited for length and clarity.
Chris Mathews: What interested Presidio in the Western Anadarko and Texas Panhandle?
Will Ulrich: Basically, our approach to investing and to buying assets is we want to make sure that we are creating several different avenues for winning. And when you look at a basin, the Western Anadarko is a good example of that.
Our strategy is not to go buy acreage and drill wells. We want to go buy existing production. So, it was an area that was scalable. We were able to go buy a starter asset, and we knew there was going to be an expansion opportunity—that we called our “land and expand.” We wanted some place where there was a roll-up story, and we knew that it wasn’t just going to be a one-and-done deal.
We felt like we could really optimize the production and the operating expenses on the wells. The assets had seen incredibly high levels of drilling activity until they were kind of abruptly shut off in 2014 and 2015. Then, there was a shift away from the basin in terms of capital for drilling.
There wasn’t a replacement of people who were focused on the efficient operation of those wells. We were able to bring that differentiated skillset and viewpoint. It was a place that was ripe for getting those optimizations.
Other reasons we like it: It’s got good access to markets. There’s tons of infrastructure nearby. You don’t have to worry about constraints on the gas side.
It’s [a] multi-zone stacked pay, so there’s many different producing horizons. It was what we consider to be option value—as prices increase, some of that acreage turns on.
While we don’t drill [the acreage] ourselves, we do farm it out. We have a few large farm-outs with Mewbourne [Oil], who drills on our acreage.
And we’ve also outright sold acreage. We sold 100,000 acres in the Cherokee last year, which was just a cash transaction and highly accretive. We didn’t pay anything for it in our acquisitions. Then, we were able to sell it for a really attractive price.
So, the basin ticked all of our boxes. It wasn’t the only basin that we looked at, and it’s still not. We needed to look at opportunities in other basins. But that’s kind of our lens.
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CM: Do you manage mostly old verticals, newer horizontals or a mix?
WU: About 50:50. There are the legacy vertical wells. And then also, there was a lot of horizontal Granite Wash and other types of development in the 2010 to 2014 timeframe.
The Cleveland, Marmaton and Red Fork were the other oilier plays that people went for. There are a lot of them. I think there are about 10 stacked pays there.
CM: Is Presidio an acquisition company? Do you grow by basically going out and finding PDP assets to offset your shallow declines?
WU: The way we think about it is we now have this public platform. It’s got an attractive current cash yield from the dividend. But it also has a significant growth wedge that comes from making these acquisitions.
When we look to acquire assets, our model shows that they can be accretive to the dividend. They can be neutral or beneficial to leverage. And they can also generate long-term equity value and growth because of our ability to go in and optimize costs and production.
The combination of those allows us to have a pretty wide-open field, particularly with this public currency. It’s a pretty short list of names out there. I think there’s going to be more than enough asset supply to go around.
CM: What do you think about the role of a small- to mid-cap public company entering this space?
WU: Certainly, our business is unique to the marketplace. We’re not drilling wells. We don’t have 35%-declining production and the need for constant reinvestment. We’re not comparing where our next best drilling location is, or what acre is better than this acre.
We are fully focused on being the most efficient operator of these existing oil and gas wells. We have kind of our Presidio magic and our playbook, and we’ve done a really great job of effectively digitizing a hard asset industry. We have this tech overlay that allows us to be more efficient than our peers.
I think it’s a pretty unique story to bring to the market. I think there is a role for the small- and mid-caps generally in the E&P space. But this, I think, is separated from those names in the sense that Presidio is a very different business model.
My hope is that it’s not a SMID-cap for long. As we grow, I’ll be eager to increase our enterprise value rather quickly.
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CM: Will you consider M&A outside of the Western Anadarko?
WU: We’re not limiting ourselves to the Western Anadarko Basin. You zoom out more broadly to the Anadarko, and then you zoom out more broadly to the Midcontinent. There are a lot of private equity assets.
As we’ve seen with all this consolidation in the publics, there are a lot of assets that are coming to market—like the old Marathon Oil assets. That’s a good example of that in the Anadarko Basin. But I think the real driver, though, is kind of end-of-fund private equity.
I think also the ability to take back equity—public equity—is a strong differentiator for at least the private buyer universe who can just offer cash. We saw that with Mach’s recent Sabinal and IKAV deals. Those sellers took back 100% equity in those transactions.
CM: How long until the combination with the EQV SPAC is completed and Presidio is a public company?
WU: We’re going to have to work through the [Securities and Exchange Commission] process. We have to get our S-4 filed and go back and forth with comments, and then have the vote.
But I think, ideally for us, it’s by the end of the year.
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