Successful management of downturns management of downturns is rooted in how companies manage upturns. Executives from two private and one public E&P spoke at a recent Den¬ver Petroleum Club event about how they’ve thrived despite the crude price crash.

“When times are good, the critical thing to remember is to moderate enthusiasm, because at some point, it [the good times] will reverse,” said Rich Frommer, president and CEO of Great Western Oil & Gas Co., a pure-play, private Denver-Julesburg Basin E&P. “We never got too big, we never made huge commitments to opportunities even when oil was at $100.” The company’s financial hedging program helped insulate it as well.

Great Western produces about 5,000 boe/d and has kept one rig drilling. From¬mer said the company closely monitors G&A expenses relative to cost per boe— typically in the low $4s or less—and its ratio of G&A to capex. It keeps bank lever¬age at or less than 2x annual EBITDAX.

The slowdown has allowed midstream infrastructure to catch up with production in the D-J, Frommer noted, in the process strengthening E&Ps’ social license to operate in the fast-growing Front Range area north and east of Denver. Two crude pipelines nearing completion—one from Lucerne, Colorado, to Cushing, Oklahoma, and another out of the basin to a refinery just north of Denver—will greatly reduce truck traffic. Large horizontal drilling pads and drilling density have helped close the operational loop. And in early September, operators breathed a sigh of relief when two ballot initiatives that would have increased setbacks and local control over drilling fell short on signatures.

Chris Wright, CEO of pressure pumper Liberty Oilfield Services and Riverstone Holdings-backed Liberty Resources II LLC, a Bakken-focused E&P, also discussed expansion. The E&P produces about 7,000 boe/d in the Bakken, while the service pro¬vider, launched in late 2011, had six frack spreads at the start of the downturn and soon will have nine. Its employee count has risen to 900 from 600 at the start of 2015, and Wright expects to hit 1,000 by year-end. The acquisition of Sanjel Corp.’s U.S. assets in mid-June added 150 employees, doubled Liberty’s frack capacity and gives it a pres¬ence in the Permian and Eagle Ford.

Wright said he’s never laid off an employee in his 25-year career in oil and gas. “We’ve been fracking at times for less than what it costs us to buy the diesel, the chemicals and the sand,” he said.

Liberty Oilfield has pushed several initia¬tives during the downcycle. It developed a better way to deliver sand to locations with reduced dust and noise, and more cheaply. It upped big data analysis to define completion levers for specific rocks and locations. And several years ago it launched a project to reduce noise impacts, ultimately developing a sound suppression system to make a conven¬tional frack fleet as quiet as an electrical fleet.

Craig Rasmuson, executive vice presi¬dent of business development at Synergy Resources Corp., said the mid-cap public E&P has “thrived, if you will, during the downturn,” thanks in no small part to the wisdom of its co-founders, industry veterans who had run three private E&Ps previously. “The downturn of 2008 was the fourth they had experienced,” he said.

Caution still guides decisions. “In June 2014 our staff did a detailed evaluation of a small company in the D-J that we wanted to acquire—we saw it as a diamond in the rough,” he recalls. “We took it to the board, and they thought it looked great on paper. But one director sat back and asked, ‘Can you confirm we’re going to be at $90 or above on oil?’ We had built the model at $80. He said, ‘I feel it going to $70.’

“If we had done that deal, our stock would have been 20% on the dollar in 2015. Instead, we’ve sustained solid growth into this year, using equity to do a large acqui¬sition [Noble Energy assets for about $500 million] in June that gives us rock and untapped resources—and acreage held by production—to create value for our share¬holders.” Rasmuson credits the “extensive experience of the present management team in being able to pull off an acquisition of that magnitude.”

Synergy moved its offices to Denver in 2015, taking advantage of talented individu¬als on the market to replace lease or contract positions.

The executives generally declined to call the timing of a recovery, but agreed that $50 can be the new $100. In late 2014, Rasmu¬son said, drilling and completing a one-mile lateral in the D-J cost $4 million; today, it’s $2.2 million.

“That’s efficiency,” he said, “but it’s also the reality of figuring out where the bottom is. We have to find a way to have an IRR that allows us to keep rigs moving and people working, and the service industry employing its people.

“We can make some money at $46 with those efficiencies,” he said. “Oil at $56 would be nicer, and $66 is probably the right number for everybody.”

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