Private independents are experts at what they do; so are private capital providers. Success compounds when they leverage their respective talents.

At a recent Denver Petroleum Club breakfast, Adam Boniel, director of stra­tegic planning for private E&P Zavanna LLC, discussed what he’s learned through a partnership with private equity firm GSO Capital Partners.

In 2013, KLR Group, a full-service, energy-focused investment bank, was asked to identify a joint-venture partner for Zavanna’s Williston Basin assets.

The long-time player had utilized slick­water fracks early in the development of the Bakken.

“Zavanna had a track record of drilling the best wells in the Williston,” Boniel said. “Even though slickwater fracks have since been widely adopted, the company’s wells continue to outperform those of off­set operators.”

GSO agreed to invest $200 million and formed portfolio company River Bend Oil & Gas LLC to own nonoperated working interests, primarily in Zavanna’s operated drilling spacing units. Boniel is vice pres­ident of River Bend.

Even though GSO was the “perfect” choice, Boniel said, negotiating docu­ments took several months. Once the deal was completed, River Bend closed some 30 acquisitions in 35 days. GSO funded more than $100 million, and Zavanna put a couple of rigs to work.

In 2014, Boniel joined Zavanna as a direct employee. Quickly, he realized the company needed more robust data-gather­ing and analysis. His team built tools to compare metrics such as well performance against type curves, analyze lease operat­ing expenses across prospect areas through a dashboard and provide comprehensive cash-flow forecasts.

Investors expect constant updates, per­fect cash-flow models and extensive anal­yses, he said.

“The last thing they want to do is oper­ate. They have creative approaches you haven’t thought of; they aren’t confined by the same boxes that E&Ps are. They think very differently.”

For a successful partnership, E&Ps should convey the bad as well as the good news. “The more you communicate, the less heartburn you’ll have,” he said.

“Investors like to hear what’s going on. The most important thing you can tell them is that you will do everything in your power to return their capital and more.”

E&Ps needn’t worry about data over­load. “They will always look at it,” he said. “That’s what they do.”

It’s crucial to tap into financiers’ exper­tise. “GSO invests across the energy space,” Boniel said.

“When we had midstream constraints, for example, they helped us get to the next level in our discussions and analysis. They have connections throughout the industry as well as through portfolio com­panies. When you take a problem to them and they respond with about 1,000 ways to look at it, you’ll be stressed about the workload, but at the end of the day, it will come to a beneficial result.

“Even though they may have a signifi­cant number of portfolio companies, they seem to be actively involved in every one.”

Despite the plentiful capital that is eager to invest in energy currently, this is not an easy time for start-ups. There are few good assets on the market around which to build a company.

An oil price uptick might result in more capital being deployed, but financing will increasingly take the form of structured, asset-level transactions to fund drilling rather than the backing of management teams, Boniel said.

Deals might look like the third-for-a-quarter or drilling structures with reversions such as those done with large companies in 2012 and 2013.

The gap in the E&P/investor approach was clear when Boniel was asked his opinion of the industry’s current focus on individual well results and EURs with minimal producing days.

“My focus is boosting rates of return, not EURs … Thirty days of production is not enough to judge a well’s ultimate performance, because there are so many variables—90 days is okay, but really you should have at least 180 days of data,” Boniel said.

“Your banks will risk back production with less than 180 days of data.”

The everyday question is whether to monetize now and redeploy capital else­where, or wait for a price recovery and accrue the ROR, he said.

It’s a question E&Ps and investors must solve together.

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