It might be hard to imagine, but a lot of opportunity still exists during a downturn, according to Jim Manatt, chairman and CEO of Thrust Energy Inc.

“In our lifetime—I think I’ve said this before but I mean it this time—you’re not going to buy leases for less than you can get them right now,” Manatt said during the Summer NAPE business conference Aug. 19.

For Manatt, reward awaits those who are willing to re-emphasize exploration and be the industry’s next trailblazer.

“I know that I’m with the 150 most pathologically optimistic people in the industry right now—we’re all here at Summer NAPE,” he said. “I’m sure you see your glass as half full, and it’s going to get fuller.” The glass, he added, would begin to  ll up if companies broke out of the cookie-cutter model the industry has found itself in.

Ten years ago, the model was shale deals. Today, the trend has shifted toward “cash  ow-neutral” deals, Manatt said. Oil and gas companies in the U.S. have been focusing primarily on “farming operations,” or exploration with minimal risk. The desire for exploration seems to have dried up.

And with the cookie-cutter model comes marginal price economics. “No management seems willing to entertain any risk for future or new reserves,” he said. “The flip is you get to pay the price for the proven acreage and your position on marginal returns.”

However, the reward for being the  rst company to explore in an area can be exponential, as was evident in the early shale deals. Yet not many companies seem to be willing to take that gamble, according to Manatt.

“You’re either replacing your reserves or you’re going out of business, and a lot of us are just slowly going out of business right now,” he said.

For Manatt, there’s no time like now for change.

“It’s time to take maybe 10% to 15% of the operating budgets and allocate them to big-return potentials, and with that comes some risks,” he said.

Manatt acknowledged that the remaining exploration opportunities in the U.S. might be challenging because of the mature oil and gas environment. What’s left is a lot more dif cult to get at than what has already been found, he said.

Developing new technology will open up what would have been a bypassed opportunity. Technology will drive future development, just as it did in the early days of shale, he said.

An example would be the marriage of hydraulic fracturing and horizontal drilling, which was pioneered by George Mitchell. Mitchell’s willingness to accept risk enabled his company, Mitchell Energy & Development Corp., to access natural gas deposits in the Barnett Shale in North Texas in the 1980s and 1990s.

“You have to solve a problem. George solved a big one,” Manatt said. “He spent 20 years and untold millions of dollars knowing that there was a way to get the gas that he knew was in the Barnett.”

After all that time, money and disappointment, Mitchell was  nally rewarded. In 2002, he sold his company to Devon Energy Corp. for $3.1 billion.

Manatt has strived to follow a similar path as Mitchell.

At Thrust Energy, which he founded in 1995, Manatt said the goal is to “recognize what hasn’t been seen before in the subsurface ahead of the competition.” This will create economic value for the company and its shareholders.

Headquartered in Roswell, N.M., Thrust develops and leases within a 458,000-acre liquids-rich shale project in the Permian Basin of New Mexico. The company recently found a ground- oor working-interest partner for the project. Manatt said he could not reveal the partner just yet.

“I will tell you that I’ve been on the street for  five years trying to sell my deal, and I’ve had 150 people slam the door in my face, most of them politely,” he said. “But things are changing.”

Comments