Small independents also have chosen an
acquisitions strategy to achieve steady growth.
Dallas-based Petro-Hunt used acquisition enhancement
as a means for growth during the early- and mid- 1990s. The firm
looked for properties with upside potential that included behind
pipe zones or additional drilling opportunities in shallower, deeper
When the company was started, management built an
investment portfolio based on three criteria:
Utilize company strengths (which at that time were operational).
Provide immediate cash flow.
Contain little or no risk.
"Drilling did not fit into that picture, so acquisitions
became the focus," said Bill Fairhurst, chief geologist and exploration
manager for Petro-Hunt. "Each acquisition was subjected to a rigorous
process from day one that keyed on operational engineering and streamlined
"Our philosophy is that if you can't make an acquisition
more profitable in the first six months you probably made a bad
Fairhurst recently did a study of public companies
and found that large independents and a select group of small and
mid-sized independents are doing the best job of replacing reserves
through exploration and development drilling at low finding and
"These firms have been able to use their organizational
advantages to be successful," Fairhurst said. "They have employed
their resources, expertise, technology and flexibility to rapidly
exploit trends in regions where they formerly had to compete with
multi-nationals and integrated companies.
"Today these companies are reaping the greatest benefit
from these niches left by the major oil companies," he continued.
"We felt we could learn from what other companies were doing."
Fairhurst studied the industry's most successful
companies in the area of reserve replacement. The common denominators
- Enough size to take advantage of the opportunities left behind
- Enough flexibility to move quickly to maximize those opportunities.
"Many of these companies have been so successful
they are becoming attractive acquisition targets of major oil companies
who are attempting to rediscover domestic opportunities," he said.
The Key: Technology
By the mid-1990s Petro-Hunt had grown sufficiently
through its initial strategy that capital was available for a significant
drilling program focused on low risk, infill or development and
By 1997 the company had achieved over 100 percent
production replacement through this low-risk drilling and enhanced
production, and in the late 1990s exploration was added to the firm's
"Through every phase of our growth, technology has
been a key ingredient," Fairhurst said. "Technological considerations
always have been part of the decision process in looking at acquisitions,
drilling targets or exploration opportunities."
He sited several examples in which Petro-Hunt applied
strong operational engineering experience and state-of-the- art
technology to significantly enhance property acquisitions.
One was a property in south Texas that at the time
of its acquisition from an integrated oil company was producing
just under five million cubic feet of gas a day -- but was holding
14,000 net acres.
A 3-D seismic program had been shot over the acreage,
but the previous owner had never interpreted it.
"We applied the best processing and interpretation
technology available at the time to the 3-D seismic and identified
12 new drilling targets," Fairhurst said. "Eleven of those wells
were successful, and today that field is producing 50 million cubic
feet of gas a day -- a tenfold increase from 3-D seismic that already
Mapping Their Way
Computer mapping and geostatistics technology was
the key to another acquisition in the East Texas Basin -- a field,
discovered in 1948, that was producing just 1,500 barrels of oil
a day when Petro-Hunt acquired the property.
"The field had been treated as a simple dome and
a single reservoir unit for the previous 50 years, but our geologists
looked at the data available and felt there were actually seven
genetically related producing units, with sub-facies in each of
those seven units," Fairhurst said.
The firm's geoscientists mapped all those sub-facies
using computer technology and generated a geostatistical model that
eliminated the need for expensive reservoir simulation. The entire
process took less than a month.
As a result, Petro-Hunt drilled several new wells
-- all of which had better production components than the existing
wells. One well came in at 6,000 barrels of oil a day.
Petro-Hunt acquired a four-well field in the Williston
Basin that was producing in a thin, high-porosity but low permeability
"We went into each of the existing well bores and
drilled horizontal legs and drilled one new horizontal well," he
One of the re-entered wells was the first quadrilateral
in North Dakota -- and the longest total length horizontal drilled
at that time. Horizontal technology increased production at the
field 350 percent, and the estimated ultimate recoverable reserves
"Petro-Hunt management has always kept a clear understanding
of the firm's business strategy, and grown the firm within those
parameters," Fairhurst said. "Acquisitions have been a vital part
of the company's growth, but managing the criteria for those acquisitions
and immediately enhancing the operational and accounting aspects
of the new properties was the key to our success."