SHREVEPORT, La.—“The biggest East Texas producer you’ve never heard of” has some top-tier private partners that will help it achieve success, according to its president and CEO.

Craig Jarchow with Houston-based Castleton Resources LLC told attendees at Hart Energy’s first DUG Haynesville conference Feb. 21 his firm enjoys “upside that we didn’t pay for” on its East Texas acreage—as well as the ready capital to exploit the resource.

Currently, Castleton produces 253 million cubic feet of gas equivalent per day—72% natural gas—from 2,700 gross wells on 163,000 net acres. Proved reserves at year-end 2017 were 1.5 trillion cubic feet equivalent. The company also has a significant in-house midstream operation with 786 miles of high- and low-pressure gathering pipelines, as well as water handling and gas condensate assets.

In addition to “overperformance” in the Hayesville, including a doubling of its location inventory, Castleton has opportunities to redevelop the conventional Cotton Valley play and other behind-the-pipe reserves, he said.

Financially, the company projects 2018 EBITDA of $220 million, he added.

“If you want to know something about a company, the key is to find out something about their investors,” Jarchow said. Its owners—Castleton Commodities International LLC (CCI) and Tokyo Gas—are major players in the worldwide energy business. CCI, a major international commodities trader, holds a 70% interest and Tokyo Gas.

“Castleton is the former Louis Dreyfus [Energy],” he added, which was taken private in 2012 by a group of 25 “blue chip family offices… It’s long-term, private capital.” Castleton is “trading on virtually every gas pipeline in North America,” Jarchow said.

For its part, Tokyo Gas “is one of the biggest players in LNG and the biggest gas utility in Japan,” he said, noting the firm imports an average the LNG equivalent of 1.8 billion cubic feet of gas per day. It has investments in the Cameron and Cove Point LNG projects, as well as interests in Eagle Ford producers—and Castleton Resources.

“We think we have a real advantage. We think this is the future, not only in the Haynesville but in upstream oil and gas,” he said of the firm’s private investors. He noted there are multiple giant firms that have never gone public, including energy-focused Koch Industries and Hunt Oil; Cargill in food, drink and tobacco; and power-generator Tenaska.

“Why is that? It’s because there’s just a ton of private capital out there and you can grow a company to scale. That’s what we’re doing in the upstream space,” Jarchow added, at a time when the public capital markets have been essentially closed to oil and gas producers.

“Our source of equity is open,” he said. “Access to material, long-dated private capital is no longer a hindrance to building a large independent. Indeed, with the public equity markets closed to upstream companies, access to this capital is an advantage.”

He noted there has been a fundamental change in the New York Stock Exchange (NYSE) and other public markets in recent years as investors have moved to mutual funds, exchange traded funds and other investments vehicles. The bulk of daily volume is program and automate trades. Jarchow estimated that only 10% of the daily volume on the NYSE now comes from active analysts and investors who do research, meet with firms and pick stocks.

“You have to be really big to get their attention,” he added.

The strong private equity backing enabled Castleton to acquire the Carthage acreage formerly held by Anadarko Petroleum Corp. in 2016 for $1 billion through a bank syndicate. “We had $1 billion show up for a $560 million borrowing base, so we were 85% oversubscribed,” he noted.

Paul Hart can be reached at pdhart@hartenergy.com.

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