private capital conference ipaa – new york 2005. company background start-up july 1, 1999...
TRANSCRIPT
Private Capital Conference
IPAA – New York 2005
Company Background
Start-up July 1, 1999
“There is no joy in life greater than starting
with nothing and ending up with something.” - Joe B. Foster
Founding Members include:
Bryan Nelson (Geologist)
Todd Stone (Geologist)
Mike Minarovic (Petroleum Engineer)
Current Staff of Nineteen
Gulf of Mexico Shelf – 1999
4 year average of 12 month strip was $2.21/MMBTU.
Shelf decline rates increased during the 1990’s from 28% to 40%.
3D Boom past peak, but significant opportunities remained.
Ownership transition from larger to mid-cap companies.
Public company all-in-costs of about $1.90/MCFE (15% Margins).
Original Business Plan “Second Mouse Plan”
Generate lower-risk exploitation drilling opportunities.
Focus on the Gulf of Mexico shelf near existing fields.
Grow the company mainly through the drill bit.
Focus on gas. Expect higher prices, but plan on $2.25/MCF.
Operate as soon as possible.
Limit the growth of the company over the long-term.
How Arena Differentiates
Focused strategy in a focused area.
Integrated geological, geophysical, and engineering evaluations.
Thorough understanding of the opportunities that remain on the GOM shelf.
Smaller minimum reserve size required to make a project drillable.
Top-notch operating staff.
Win/Win solutions for existing lease holders.
Strong passion for the work and significant personal investment.
Initial Financing Options“Creating Something from Nothing”
Founder’s Equity
Industry Participants
Private Equity
Financing SolutionsSimplified by Drilling Results and High Prices
Founder’s Equity for Start-up Phase.
Industry Participants for G&A, Seismic Data, and Operations.
Additional Founder’s Equity for Drilling.
Drilled Good Wells & High Prices - Mezzanine Debt (Shell Capital).
Drilled Good Wells & High Prices - Senior Debt (Wells Fargo / Hibernia).
Drilled Good Wells & High Prices - Mezzanine (Wells Fargo Energy Capital).
Drilled Good Wells & High Prices - Senior Debt (Wells Fargo / Hibernia / UBOC).
Current Financing Options
Internal Cash Flow
Senior Bank Debt
Mezzanine Debt
Volumetric Production Payments
Industry Participants
Private Equity
Additional Member Equity
Public Equity
Why Project Debt Workedfor Arena and the Lenders
Initial company equity and reserve value was established.
Firm development program was ready for funding.
G&A and seismic data purchases were funded separately.
High gas prices and successful drilling lead to funding of additional projects.
Lenders have had strong technical understanding of Arena’s business plan.
KEY DISADVANTAGESBootstrap / Project Debt Capitalization
Initial growth significantly limited due to limited capital.
“The Big Deal” was not an option.
No Board of Directors.
Founder’s equity at risk in drilling wells in the Gulf of Mexico.
Reserve based lenders are typically more conservative.
Business plan may not be executed during a sustained period of low commodity prices or by a negative “Act of God”.
KEY ADVANTAGESBootstrap / Project Debt Capitalization
100% of the company’s equity is owned by the employees of the company.
Big decisions can be made quickly.
No obligation to have a short-term exit strategy.
Gulf of Mexico Shelf – 2005
4 year average of 12 month strip is $4.90/MMBTU.
Shelf decline rates have increased to over 50%.
3D Boom way beyond peak, but some limited opportunities remain.
Abandonment liability and high finding costs are key issues.
Public company all-in-costs are about $3.50/MCFE (30% Margins).
Activity level is down significantly relative to gas prices.
12 Month Strip and GOM Jack-up Rig Count
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Gas
Pri
ce (
$/M
MB
TU
)
0
25
50
75
100
125
150
175
200
225
250
275
300
325
350
375
400
GO
M J
ack
-up
Rig
Cou
nt
12 Month Strip
GOM Jack-up Rig Count
PRICE ADJUSTED GOM Jack-up Count
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
GO
M J
ack
-up
Cou
nt
per
$/M
MB
TU
Measuring Results
Bi-Annual Audited Reserve Reports from Ryder Scott.
Quarterly Financials and Annual Audited Financials.
Quarterly detailed budget analysis and planning.
Detailed review of lease operating statements.
AFE versus Actual Cost evaluation.
“The commodity game is a game of margins.” – Danny Weingeist
Arena Results
Recent Capital Invested: 2003 - $65 million2004 - $75 million2005 Budget - $80 million
Successfully drilled 48 of 53 Gulf of Mexico wells (28 operated) with an average working interest exceeding 60%.
Current debt is less than six months of cash flow.
Current production rate exceeds 70 MMCFEPD net.
Acquisition expenditures total less than $20 million.
Joint ventures with Apache, BP, Noble Energy, and Shell and many others.
Diversified reserve and production portfolio. Ownership in 54 GOM leases.
Net MMS royalty payments of more than $40 million through December 31, 2004.
Aggressive drilling program planned for the next 12 months.
“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the Arena.....”
Theodore Roosevelt
Paris, 1910
