When it comes to doing deals in South Texas, what you know is important, but who you know is absolutely crucial. "There's definitely a clique down there," says Charlie Chambers, executive vice president, corporate development, of Houston-based Rosetta Resources Inc. "You have to be established with service providers, landowners, lease brokers and the legal part of the business. It's a pretty tight community and we're fortunate to have experienced people who have been down there awhile. That's a big part of what it takes to be a successful operator in South Texas." Glenn Hart, chief executive of Houston-based Laredo Energy IV, echoes Chambers. "It's all about the relationships in South Texas," he says. "We've been down there for so long, we know almost every single one of the landowners in the region we work, and more importantly we know all of their attorneys who represent them." Widely considered to be the Barnett shale of its day, South Texas came of age 25 years ago when new frac technology and horizontal drilling made it possible to crack the code of the gas-rich Lobo trend, which is focused primarily in Webb and Zapata counties. M&A activity in the area consists primarily of majors whose appetite for properties with running room is constantly fed by small independents, and small independents that amass a suite of properties that will be attractive to the majors and large independents through leasing. Hart has successfully built and sold four companies focused in South Texas all with private-equity backing of EnCap Investments LP. His first, Michael Petroleum, was sold to Calpine Natural Gas (now Rosetta Resources). This led to the formation of Laredo I and Laredo II, which were both sold to Chesapeake Energy Corp., and Laredo III, which was sold in January to El Paso Corp. For more on this, see the August issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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