New breed of Texan oilmen cash in on shale
Young innovators in the States are shunning Silicon Valley to get rich with the oilfield gas boom, writes Isaac Arnsdorf
Tuesday 27 May 2014
Mark Hiduke has just raised $100m (£59m) to build his three-week-old company. The 27-year-old isn’t a Silicon Valley technology entrepreneur. He’s a Texas oilman.
The oil and gas industry is suddenly brimming with upstart millennials like Mr Hiduke after decades of failing to attract and retain new entrants. Now that a breakthrough in drilling technology has US oil and gas production surging, an ageing workforce is welcoming a new generation of wildcatters, landmen, engineers, investors, entrepreneurs and aspiring oil barons.
“I’ve never seen an industry do what the oil and gas industry has done in the past 10 years,” T Boone Pickens, the 85-year-old billionaire oilman, says. “Ten years ago I could not have made this statement that you have picked the right career.”
Mr Hiduke’s company, Dallas-based PetroCore, received the $100m commitment from a local private equity firm. He and his three partners plan to buy underdeveloped land and drill shale wells. They’ll draw on the expertise of their engineer, who, at 57, is old enough to be his father.
The shale boom has “created a lot of opportunity for young professionals to jump in and be given enormous responsibility,” Mr Hiduke says. “It’s pretty much tech and then energy.”
As oil and gas producers change their focus from grabbing land to drilling, young entrepreneurs are forming companies to trade everything from minerals to leases and wells to equities. They’re competing against, and sometimes collaborating with, industry veterans twice their age.
Since the generational shift coincides with a technological breakthrough, the younger crop knows only the shale boom, and knowledge of conventional drilling might retire with the baby boomers, warns Kimberly Lacher. She studied to be a chemical engineer and was reassigned by her employer to petroleum just as the shale boom was starting.
Now Ms Lacher, 38, and her business partner, Wood Brookshire, 31, head Vendera Resources, which has invested more than $50m in about 1,200 wells. The Dallas-based duo turned their first fund of a few hundred thousand dollars into $4m today.
The new dynamic is on display at the oil patch’s venerable watering holes: members-only, jackets-required institutions such as the Dallas Petroleum Club and the Park City Club. Fresh-faced young professionals gather there to sip bourbon, saw through $49 steaks and swap stories. The rest of the patrons are mostly grey-haired.
This phenomenon is known in the industry as “the great crew change”. About 71 per cent of the oil industry’s workforce is aged 50 and up, according to the Washington-based Independent Petroleum Association of America. At the other end, the ranks of the Dallas chapter of Young Professionals in Energy surged 60 per cent to 4,000 since 2009, most of them under age 37. In between there is a gap from when oil averaged less than $25 a barrel in the years between 1986 and 1999.
Patrick Collins’s father warned him when he was a child to stay away from oil because the US was running out. The 34-year-old Texan went off to New York to study history at Columbia University. He interned in marketing, then went to business school and worked for a hedge fund research firm before deciding to retrace his father’s footsteps.
He became a landman just as the shale boom was getting hot in the mid-2000s. Companies had figured out how to extract oil and gas from shale formations more than a mile deep and previously impermeable by drilling horizontally across the rock layers and cracking them up with blasts of sand, water and chemicals.
That was the breakthrough that BP says is putting the US on course to meet all its own energy needs by 2035. It propelled the US to overtake Russia and Saudi Arabia as the world’s biggest combined producer of oil and gas last year, according to Energy Department projections. Domestic fields are pumping the most oil since 1986 and natural gas output set new highs in each of the past seven years, according to government data.
Mr Collins saw an opening to use his knowledge of the terrain to scoop up neglected properties, sell them to new drillers and keep a stake. In 2008 he founded Cortez Resources in Dallas, which now has sold acreage valued at more than $100m. At one of their first meetings, Mr Collins and his business partner were dealing with two men who were each more than 80 years old.
One of Mr Collins’s friends, Ryan Watts, graduated from the energy management programme at the University of Oklahoma in 2004 when there were about 100 students enrolled. Today the programme has more than 600.
“The shale revolution changed everything,” Mr Watts, 34, says. His Dallas-based company, Addax Minerals, has raised about $35m from wealthy individuals and family investors to buy stakes in potential hot spots, gain a slice of the revenue from drilling and sometimes consolidate and re-sell the positions.
PetroCore’s founding partners have participated in oil and gas transactions valued at more than $6bn. Mr Hiduke, who graduated in 2009 from Southern Methodist University in University Park, Texas, with a degree in finance and economics, was previously a financial analyst at TD Securities and a superviser at Pioneer Natural Resources.
Matt Miller, 30, a former McKinsey consultant, teamed up with former banker Griffin Perry, 30, son of Texas Governor Rick Perry, to start Grey Rock Energy Partners, which buys minority stakes in wells. They brought in Kirk Lazarine, 60, a veteran of Chevron.
“What you had was an industry that went up, went down, there were constantly people getting laid off, and people got to the point where they just didn’t want to be in the oil industry,” Mr Lazarine says. “That’s why you see that 20-year gap, because the industry was so tormented until 2005.”
Their year-old, Dallas-based firm has raised $40m so far. Mr Perry will grow a moustache if they haven’t made it to $200m by August, according to the pledge scrawled on the conference room whiteboard.
“What’s going to happen when the older folks retire, we don’t know,” Mr Miller says. “You’re going to see a lot of volatility. You’re going to see young people making decisions that were handled by predecessors who had more experience.”
© 2014 Bloomberg News
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