Last Friday MDN reported that Encino Energy CEO Hardy Murchison and COO Ray Walker (formerly of Range Resources) spoke at the Ohio Oil & Gas Association (OOGA) 72nd Annual Meeting in Columbus (see Encino Belle of the Ball at OOGA’s 72nd Annual Meeting). We have two more reports on their talk that mentions things not covered in the first report.
In a deal that shocked everyone, last July Encino announced the purchase of all of Chesapeake Energy’s Ohio assets, including their Utica Shale assets, for $2 billion (see Stop Press: Chesapeake Sells ALL of its Ohio Utica Assets for $2B).
Last Friday at the OOGA meeting, Murchison said that whereas Chesapeake was a big spender and piled up big debts, Encino is focused on “proven reserves” and a “healthier balance sheet.” Murchison says he runs his company different than Chesapeake. Encino will be run “profitable, less volatile and therefore better for its shareholders, its employees and the community.” That is, we do it different, and we do it better.
Part of doing it different/better is to drill slow and steady. The company is running two rigs this year and plans to drill 40 new Utica wells with those two rigs. Next year expect more of the same. Slow and steady. Make money. Stop the cycle of “boom and bust” found in other companies.
Murchison told audience members to be patient, that although the transaction with Chesapeake closed in November, Encino is still in the process of taking over from Chessy, and it will take more time to effect a complete transition.
Ray Walker said the Encino is in this for the long-term–they aren’t looking to rapidly build up for a quick sale in three or four years. Which is what drew him to the company out of retirement with Range Resources.
Two more reports about last Thursday’s Encino talk. First up, from the Akron Beacon Journal:
In an industry known for boom-and-bust cycles, Encino Energy plans to follow a strategy of stable development in Ohio’s Utica Shale, President and CEO Hardy Murchison said Friday.
Encino Energy is a partner in Encino Acquisitions Partners, which bought Chesapeake Energy’s assets in Ohio last year for $2 billion, including an office building office in Louisville, drilling rights to 900,000 acres and more than 900 wells.
But where Chesapeake spent freely to explore new areas — and piled up debt — Texas-based Encino Energy has focused on proven reserves and a healthier balance sheet.
“All of that is part of a longer-term strategy to run this as a normal business that needs to be profitable, less volatile and therefore better for its shareholders, its employees and the community,” Murchison told The Canton Repository after he and other members of Encino’s team spoke to the Stark Economic Development Board at Kent State University at Stark.
On Thursday, Murchison and chief operations officer Ray N. Walker Jr. met with Gov. Mike DeWine and other state leaders, and spoke at the Ohio Oil & Gas Association’s annual meeting.
Encino Energy’s partner in Encino Acquisitions Partners is the Canada Pension Plan Investment Board. The pension plan, one of the largest in the world, owns 98 percent of the partnership and Encino Energy operates the assets from its Houston headquarters.
When Encino formed in 2011, shale drilling in the United States was booming, and that made it a bad time to buy assets, Murchison said.
When the industry slumped in 2015, Encino decided to make its move. In 2017, the company brought on the pension plan, which put $1 billion into the partnership and is looking to invest more.
Murchison said Encino looked for the best asset available in the United States, and found a willing seller in Chesapeake, which had run out of capital.
He said the company would probably never reach Chesapeake’s frenetic pace.
“When Aubrey McClendon ran Chesapeake, he was truly a visionary,” Murchison said. “He saw the huge opportunity that was coming in the shale plays and he was determined to capture all of it and there wasn’t enough capital available in the world to enable that, but he tried to do it anyway.”
(McClendon died in a March 2016 highway crash in Oklahoma City.)
Two-thirds of Encino’s workforce is in Louisville. The company kept Chesapeake’s 110 employees in the Utica region, has hired 15 to 20 more workers and is looking for more.
“The team’s coming together really well,” Murchison said.
Encino is running two drilling rigs and plans to drill 40 new Utica wells this year, and maintain that pace for the foreseeable future, Murchison said.
The crews are concentrating on Columbiana, Harrison and Jefferson counties. Part of that is because of the drilling schedule Encino inherited from Chesapeake; the area also happens to be the most productive to target, said Walker, Encino’s chief operations officer. (1)
From NGI’s Shale Daily:
“You have to recognize that we’re in the transition from Chesapeake to Encino and that takes months to accomplish,” Murchison said Thursday at the winter meeting of the Ohio Oil and Gas Association (OOGA) in Columbus. “As we take over, we obviously start to have more and more influence, but to be clear, virtually all of the wells that will go into production in 2019 were planned by Chesapeake when we arrived on scene.”
In his first public address since the acquisition was announced, Murchison said Encino is stabilizing operations and trying to work at a steadier pace. Chesapeake was among the first to develop the Utica, and with a once formidable position across the Appalachian Basin, it earned a reputation for innovation and solid well results. Chesapeake, Murchison said, had regularly been moving crews back and forth between Ohio and Pennsylvania, where it still has a large position in the northeastern part of the state.
“We’re basically focused on putting equal amounts of capital on the dry gas and wet gas of our areas,” He added. “That will fill pipes on both sides of our system.”
Encino COO Ray Walker, who joined the company last year after coming out of retirement from Appalachian heavyweight Range Resources Corp., said the company has plans to “play a big role” given CPPIB’s long-term investment strategy.
“That’s one of the main things that really attracted me to Encino and the whole project, is the ability to look at this over multiple, multiple years, if not decades,” Walker said. “We’re not driven by having to flip this thing in three or four years, or having to worry about what the public markets think right now. It really does allow us to do things the right way for the right reasons.”
For now, Encino is focused on “optimizing” what it inherited from Chesapeake, said the COO. “Maybe we’ll add some lateral length, more proppant per foot, new target levels, things like that…really getting ready for the future.” (2)
No doubt about it, Encino was the Belle of the Ball at last week’s meeting, even though the keynote speaker on Friday was Vice President Mike Pence. Folks don’t go to these meetings to hear politicians pontificate, they go to hear about (and from) the companies doing the drilling. Companies like Encino.
(1) Akron (OH) Beacon Journal (Mar 8, 2019) – Encino Energy shooting for stability in Ohio
(2) NGI’s Shale Daily (Mar 8, 2019) – Encino Plans ‘Big Role’ in Ohio as Work Begins on New Utica Portfolio
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