Prospects’ Charms to be Displayed

An Affair Not to be Missed

Some geologists have a knack for attracting money to their prospects and properties.

Some geologists couldn’t sell a play if they were Shakespeare.

Thousands of hopeful sellers and buyers will gather in Houston for the 15th NAPE Expo on Feb. 1-2.

As always, some prospects will get funding and some will remain, unloved, on the table.

Why do some plays sell and not others?

“I think it’s a function of romance,” said Eric Hanson, president of Hanley Petroleum in Houston and past chair of the NAPE board of directors and past president of the American Association of Petroleum Landmen.

That puts the question in a different light:

What makes a buyer fall in love with an exploration prospect?

The Hot Spot

There’s no perfect answer, said Roger Soape, current NAPE chair.

“In recent years, the market seems to have favored those prospects that are ready to drill, or almost ready to drill,” he noted.

Often, good supporting data will attract industry interest, especially seismic work.

“People are very dependent on 3-D seismic these days. It may be that projects that are not accompanied by 3-D seismic are at a disadvantage in the marketplace,” he said.

Hanson agreed that “you’ll see a lot of 3-D-defined, one-and-two well prospects being offered.”

“There’s a lot of pure geology plays. There’s a lot of trend plays. There’s a lot of close-in, corner-shot deals,” he added.

Most of all, buyers will be looking for the concept of the moment. And sellers will be featuring it.

“There will be lots of shale -- all the shale plays will be hot. It seems like whatever is hot at the moment, that’s what the play is going to be,” Hanson said.

Higher product prices have brought more money to exploration and turned attention back to almost-forgotten domestic prospects.

Some people look at those areas like old flames.

“People say, ‘We put that deal together back in ‘85,’ then they changed jobs and companies, and now they have a chance to revisit a play,” Hanson commented.

If you want to rekindle an exploration romance, NAPE could be just the place to do it.

Soape founded Roger A. Soape Inc., a Houston land services company, in 1980.

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Some geologists have a knack for attracting money to their prospects and properties.

Some geologists couldn’t sell a play if they were Shakespeare.

Thousands of hopeful sellers and buyers will gather in Houston for the 15th NAPE Expo on Feb. 1-2.

As always, some prospects will get funding and some will remain, unloved, on the table.

Why do some plays sell and not others?

“I think it’s a function of romance,” said Eric Hanson, president of Hanley Petroleum in Houston and past chair of the NAPE board of directors and past president of the American Association of Petroleum Landmen.

That puts the question in a different light:

What makes a buyer fall in love with an exploration prospect?

The Hot Spot

There’s no perfect answer, said Roger Soape, current NAPE chair.

“In recent years, the market seems to have favored those prospects that are ready to drill, or almost ready to drill,” he noted.

Often, good supporting data will attract industry interest, especially seismic work.

“People are very dependent on 3-D seismic these days. It may be that projects that are not accompanied by 3-D seismic are at a disadvantage in the marketplace,” he said.

Hanson agreed that “you’ll see a lot of 3-D-defined, one-and-two well prospects being offered.”

“There’s a lot of pure geology plays. There’s a lot of trend plays. There’s a lot of close-in, corner-shot deals,” he added.

Most of all, buyers will be looking for the concept of the moment. And sellers will be featuring it.

“There will be lots of shale -- all the shale plays will be hot. It seems like whatever is hot at the moment, that’s what the play is going to be,” Hanson said.

Higher product prices have brought more money to exploration and turned attention back to almost-forgotten domestic prospects.

Some people look at those areas like old flames.

“People say, ‘We put that deal together back in ‘85,’ then they changed jobs and companies, and now they have a chance to revisit a play,” Hanson commented.

If you want to rekindle an exploration romance, NAPE could be just the place to do it.

Soape founded Roger A. Soape Inc., a Houston land services company, in 1980.

He’s seen the prospect expo grow from a small, barebones meeting in a hotel conference room to today’s major event at the George R. Brown Convention Center.

In the early years, sellers used poster board, butcher paper and fold-up tables to make their prospect pitches, Soape recalled.

“We certainly didn’t have the elaborate and attractive commercial set-up that we have today,” he said.

But it’s the number and variety of prospects and properties, not just the sizzle, that have made NAPE a can’t-miss event.

“You are right there at ground zero where projects are being funded and developed,” Soape explained.

“It has turned out to be the place to be, at least once a year and maybe twice a year, if you are in the oil and gas business,” he added.

Tips of the Trade

Two well-known, recent successes in U.S. exploration had starkly different histories.

Wolverine Gas & Oil Corp. geologist Doug Strickland developed an anticline play in the central Utah fold and thrust belt area (April 2005 EXPLORER).

Famously, Wolverine took the project to two prospect expos and offered it to more than 60 potential industry partners, without finding support.

Wolverine had to turn to small private investors outside the industry to fund its Utah exploration.

In Montana, geologist Dick Findley identified the middle member of the Bakken shale as a potential oil-rich bonanza (June 2006 EXPLORER).

Findley’s company, Prospector Oil, didn’t have the capital to develop the extensive shale play. Based on a recommendation, he took the project to Lyco Energy Corp. in Dallas.

Company chief Bobby Lyle and his staff analyzed the Bakken prospect immediately, and Findley had a deal in less than 48 hours.

Those stories also have famous endings, with the discovery of the Covenant oil field in Utah and prolific Bakken oil production in Montana-North Dakota.

Two highly successful plays.

One got backing, the other struggled.

“Timing is everything,” said Hanson, and luck plays a major part, too.

You can still improve your odds:

♦ Bring a complete package.

Buyers like to see all the bases covered, to the extent possible. NAPE is a place for fully worked-out prospects, not vague possibilities.

♦ Provide all the support you can.

When you have to defend your project, you’ll need as much evidence as possible. True, 3-D seismic is a good thing -- but not absolutely required.

♦ Be ready to run.

The time from show-to-go is shrinking as more money comes into exploration. Think about drilling sooner rather than later.

♦ Numbers matter.

Maps alone won’t do. You might be dealing with some ridiculously over-quantitative people.

♦ Know your customer.

Prospect expos provide an opportunity for multiple seller-buyer interactions. Make sure you tailor your presentation for each potential industry partner or investor.

♦ Make a case for related, nearby production.

This never changes. Prospects sell better when they are close to known production.

Let’s say your play is in western Alaska and the nearest equivalent production is in east Alabama.

Alabama and Alaska.

Absolutely contiguous -- alphabetically.

And the opposite also applies.

Why did Wolverine Oil and Gas have trouble selling a play in central Utah?

Maybe it’s because that area reportedly had seen 58 dry holes and no production in its exploration history.

Rule of thumb: If you’re pitching a prospect in an area with more than 57 dry holes, you might have a challenge. Be prepared.

Reaping the Rewards

Everyone knows the biggest attraction at NAPE this year.

The 2006 run-up in oil and gas prices has given investors and industry partners cash to spare.

“There’s a lot of money chasing plays,” Hanson said.

With plenty of dollars available, organizers expect a hot environment for deals at NAPE 15.

That wasn’t always the case.

“It’s interesting -- NAPE was founded as a spark plug or a generator of activity. It was at a time when exploration was at a very low level,” Soape said.

In the beginning, no one knew if geologists and other prospect generators would be willing to share play details in public, Soape recalled.

“There were a lot of skeptics when it originally started,” he said.

By necessity, prospect specifics have to be closely guarded, even at a forum like NAPE.

“People have been reluctant to share their work product, because so much of it is creative,” Soape said.

“We encourage sellers at NAPE not to share highly confidential or sensitive information publicly,” he added.

Instead, investors and sellers can meet privately away from the expo floor to discuss specifics and negotiate, Soape said.

From a modest beginning, NAPE blossomed into a major success.

Soape said booth sales have been running 10-15 percent above last year’s pace, and he expects a total attendance of about 14,000.

The size and scope of the two-day expo have produced one of the few complaints about NAPE.

Some registrants say two days aren’t enough.

Soape acknowledged the complaints about time limitations, but said he prefers a short timeframe.

“Because it’s such a condensed period of time, it forces everybody to get busy and get things done in those two days,” he explained.

In addition, he said, the NAPE online Web site features an interactive floor plan and exhibitor list for advance scouting.

“A viewer can look at a lot of things online and kind of pre-screen how to spend time,” Soape said.

He won’t make predictions about the kind of prospects that will sell, except for their unpredictability.

“For whatever reason, the types of projects that investors are looking for seem to change over time,” he said.

You can be sure of finding a wide, and even wild, variety of offerings.

“NAPE is a very inclusive event,” Soape said. “And that’s part of the fun.”

NAPE is presented by NAPE Expo LP, comprised of the AAPL, AAPG, Independent Petroleum Association of America and SEG as limited partners.

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