Like the relationship of the pilot fish to the shark, so too can a small exploration and production (E&P) company feed from the remainders of large independents and majors without being consumed itself. Such was the message of Wapiti Energy LLC executive vice president Bob Kirkland and ZaZa Energy Corp. chief compliance officer Scott Gaille at Hart Energy’s recent A&D--The Workshop preceding the A&D Strategies and Opportunities conference.

“I’ve always been a small guy, and I’ve done a number of deals with large public companies,” Kirkland said. Wapiti, a private player, acquired ExxonMobil’s Conroe Field near Houston in the mid-2000s and later sold it to Denbury Resources for $430 million.

In 14 years at Wapiti, Kirkland has engaged in $1.4 billion in transactions--none of which were marketed. “We’ve been able to get sellers to decide to sell them,” he said. “Sometimes it takes a long time, but you can find good assets.”

And Wapiti finds opportunity in the conventional as public companies are running to shales, he said. “The press doesn’t like [conventional], and the stock market doesn’t like it, but it is the bread and butter of our industry. It’s a huge market, and fewer and fewer people are playing it.”

More often than not, conventional assets buried within a large public company are not being marketed for sale. “If you find an asset you’re interested in,” Kirkland said, “go to them. Generally, you can get their attention because they are looking to monetize assets to put more money into shale plays.”

The first fact of life when dealing with large public companies, Kirkland said, is to accept there will be non-negotiable terms on the purchase and sale agreement. “If you say ‘no,’ the deal’s off. They do have the power, and you have to accept that power.”

But they also have the assets, he emphasized, and it’s often well worth walking the long, hard path of negotiation to get them.

Kirkland illustrated his point with a story. While negotiating a contract with a seller, there was one issue he believed had been resolved in his favor until the day of closing six weeks later. “They waited until we got everything buttoned up, then called at 3 p.m. on Friday to say they had a ‘major’ problem, which of course is transferring fear.”

What to do under the circumstances? “Sometimes you just have to gut up and deal with it,” he said, “and decide whether the asset they have--and the upside they’ve left behind--is sufficient to justify that. They have some of the crown jewels of the world, and if you can put up with their terms, you can acquire those assets.”

ZaZa Energy, listed on NASDAQ, was an organic upstart in the early Eagle Ford that partnered with international giant Hess Corp., and later with EOG Resources in the East Texas Eagle Ford (per public disclosures, although EOG remains an unnamed ZaZa partner). ZaZa’s Gaille, a veteran of Occidental Petroleum and the ways of the majors, confirmed smaller companies are at a disadvantage in trying to grasp the nuances of the major company’s voluminous form documents.

Yet smaller companies in an asymmetrical power relationship can tilt the balance, at least a bit, he said.

Gaille initiates the face-to-face negotiation by sliding the presented form document aside and saying, “Let’s talk big picture.” He then goes to the whiteboard and asks, “What are the three commercial goals each of our companies has in this transaction?” and proceeds to write his on the board. Following a brief pause of incredulousness, the large company’s representative usually does the same. The exercise creates a mutual goal.

“Change the start of the relationship,” he said, from being a page-turning exercise in getting to know their documents, to one of the broader commercial principles each is trying to accomplish.

“See if your goals are aligned. When you get to areas of disagreement, seek out compromises on how to accomplish your respective goals. Having a framework of where you’d like to end up as companies enables you to better manipulate the documents. How can you move the pieces around to get back to those goals?”

In contrast to Wapiti’s conventional leanings, ZaZa likes to be a first-mover on prospective unconventional acreage and farm out to a well-capitalized partner. Both companies, however, have limited resources to participate in multiple data rooms for marketed assets in which they have little chance of prevailing at the end of the day.

Gaille’s advice: “If you can identify assets you want--even if they’re not for sale--make a proactive offer outside of the process. That’s what a small company needs to do to grow.”

And why pilot fish are not eaten by sharks.

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