Leasing Acreage

In the United States, a particular sort of exploration and production company has been formed (land company) which relies on monitoring industry activity, on rapid response time, and on a sound commercial sense.  Such a “land” company closely monitors industry activity, on a daily and hourly basis, for indications of industry leasing of lands in new areas.  Such a company moves rapidly to buy leases amidst those being accumulated by exploration companies, on the assumption that the leases newly purchased can be re-sold at modest profit to the exploration companies, or that the leasehold can benefit from the forthcoming wildcatting expenditures at little or no cost to the independent land company.  In fortunate cases, the independent land company may find that its randomly obtained acreage, within the general area being explored by the exploration company, may directly offset oil fields found by the explorer.

Many American fortunes have been made in this manner by such “land” companies.  The benefits of a “land” company is that it requires little or no technical expertise, and only a modest amount of cash at risk for leaseholds.  The problem with such investments, however is that you are risking all your money in someone else’s game; you will have no early knowledge as to whether the exploration company who is making the play really wants the acreage you have purchased nearby, and certainly no estimate o whether the exploration effort is at all likely to be successful.  Many of the large independent companies in the United States started as “land” companies, were fortunate, and gradually metamorphosed into exploration and production companies.

Buying Other Companies

An exploration and production company can grow by buying another oil company.  If growth alone is good, it may be attractive to purchase another oil company.  If increased unit profitability is desired, it is unlikely to be achieved by the purchase.  Growing is easy; making a PROFIT by buying another oil company is very, very difficult.  Generally sellers are happy, buyers are losers.

Why is it so difficult to make money buying other oil companies?  A two-fold problem affects almost all such purchases.  When you buy a publicly listed company, its stock valuation reflects the discounted present value the company more highly than anyone else in the marketplace (or you can’t purchase it) and you must be correct in your valuation (or you won’t make money on the purchase.)

When you purchase a company you obtain all the company, assets, liabilities, staff, warts and all.  One of the very substantial problems in purchasing a company involves the future role of the acquired staff.  How do you inculcate your culture, implement your strategy, carry out your plans for efficiencies with a newly acquired wary and passive workforce?  The acquired staff always will have a subsidiary position.  They are vulnerable to being fired, they will have no loyalty to the new owners, and they have large abilities to sabotage and degrade the transfer of assets and goodwill to the purchaser.

In purchases of companies, the dominant force is generally the size of the corporate egos involved, and only rarely, the best interest of the shareholders.  Company purchases delight corporate barons and investment advisers, rarely shareholders.

Purchasing Assets

When you purchase assets, rather than an entire company, you can eliminate the problmes associated with acquiring other companies’ staff.  If you can purcahse assets directly from someone else, without competition, you have a good opportunities to acquire assets at market value.  Generally, that is only possible in those rare cases when your company is the only company able to make use of the assets; say, because your gas pipeline runs near a competitors small gas discovery.  In such settings you can make a “win-win” bid; the property is worth more to you than it is to the owner or anyone else who lacks the benefit of your infrastructure.  Such special opportunities to purchase assets with a bid that is attractive to both parties tend to be samll in size, but such opportunities should be diligently sought.

Most assets are sold in competitive sales.  It’s easy to buy assets in competitive sales; all it takes is money and the desire to be the “winning” bidder.  It’s very hard to make money buying assets in competitivve sales, but it can be done.  Anyone who does so must understand the general theories of compeitivve bidding.  A landmark paper on the subject was producted by Capen et al “Compeitive bidding in high-risk siturations.” Read this paper in its entirety to savor the compxity of the problem.  Indeed, if you haven’t already readit, do so before you enter another lease sale.

If one or two people with similar information bid on an asset, it is quite likely that the “winning” bidder may still have bid at or below true value.  If six people bid on an asset, it is unlikely that the “winning” bidder will have bid below true value.  If you outbid everyone else for a hotly contested asset, almost surely, you paid too much!  The more competitors you have, the more you have to over-bid to “win”.

“Winning” assets in competitive bidding is easy; making money with those purchased assets is very hard.  Being successful in making money from assets acquired in competitive bidding requires three things: a long-range consistant approach to all asset purchasesm at all sales; bids that always reflect real calue; an emphasis on pre-bid acquisition of data that provides unique and pertainent information about the value of the asset.

“Upside potential” as an Excuse for Overbidding

Sometimes the justification for bidding to win an asset is based on the additive value of “up-side potential” to real value.  The phrase “up-side potential” is frequently used to rationalize the gap between calculated worth of an asset, and teh winning bid price for the asset.

Stomp on the casual use of that phrase.  NO value can be assigned to “up-side potential” unless a real plan is in place to turn potential into actual value.  It is possible to make money buying assets in competitive sales, but it cannot be done if the emphasis is on “winning” the asset, instead of correctly valuing the asset.

In parts 2 and 3 of Problems & Opportunities in Making Money, we’ll take a look at Re-Developing international oil and gas fields, and as an exploration option for investment.  Stay tuned.

“In each new venture,” Whaley writes. “he brings a unique combination of technical expertise in chemistry and geology, a lifelong love of learning and a desire to collaborate with the best and the brightest.”

How does one shift from a career path in chemistry to one in geology and the oil and gas industry? For Downey, it began by going to war. “In 1952, the day I graduated with an undergraduate degree in chemistry, I was drafted into the US Army,” he says.  “I spent two years in Korea and the Philippines, after which I was shipped back to the US.”

While convalescing in a Veterans Administration hospital in Lincoln, Nebraska, Downey began graduate studies in chemistry at the University of Nebraska. During this time, he took part in a series of Army-administered IQ and aptitude tests. “These tests indicated that I had particular strengths in spatial visualization, mathematics and physics. They also suggested that these strengths were best suited to the fields of architecture and geology,” he says.

And while Downey was still content with chemistry, his experience in the war had changed his perspective. After spending the past two years sleeping out of doors in squad tents or jungle hammocks, he felt confined by the long hours spent inside the chemistry lab. “As you might imagine, coming back to a non-air conditioned, indoor laboratory setting in the middle of summer in Nebraska made me feel a bit like a caged animal.”

At this time, and with the encouragement of a friend, Downey met with the chairman of the university’s geology department, who was looking for graduate students with an aptitude for math and physics to transfer into geology. “To my astonishment, he offered me a place in the geology graduate program, even though I had never taken a geology course in my life,” Downey says. “I took all my courses in parallel, and accumulated both a BS degree and MS degree in geology, and logged 100 hours of course work towards a PhD degree.”

Download the article, A Tireless Quest for Buried Treasure and read more from Geoexpro.com.
Article by Jane Whaley

The Roxanna Foundation will serve as a charitable entity that will provide matching donations to the charity of choice for Roxanna shareholders and employees so long as it has a 501c3 status.

“The idea is to amplify the donations of our employees and shareholders while still giving back ourselves in a manner that will do the most good,” explains Roxanna Chairman, Marlan Downey.

Karen Mitchell, a Roxanna shareholder herself, was elected unanimously to head up the formation of the new entity as well as oversee all the requests for matching donations.

“I’m thrilled to be a part of this!” Says Mitchell.  “Philanthropy has always been important to me.  The Roxanna Foundation will do a lot to target, encourage and amplify (times two!) shareholder and employee donations.”

Though still in its formative stage, the Roxanna Foundation should be up and running by the third quarter of 2012.

Photo courtesy of Marea Downey Photography.

Some years ago, I was honored to join President Carter in the South American country of Guyana.  Over 40 years of one-party rule had occurred in Guyana and outside and internal pressures had persuaded the President of Guyana that multi-party free elections should be held.

President Carter was asked to provide a team of unbiased observers to assist in arranging the elections and in seeing that they were fairly carried out.  I remember a key turning point in the acrimonious bickering between the numerous contending political parties…

President Carter had gathered the heads of the various parties to a public meeting, and had asked that each leader describe how he thought a fair election should be held.  Each held forth with specific ideas; each trying to provide an advantage for his group.

After hearing everyone at this public forum, President Carter made a masterful summary of what he thought was the sense of the discussion.  He extracted a good idea from each party leader, and lavishly credited it, and he amalgamated all those ideas into a logic of his own that allowed everyone to see that a useful framework for action had been defined, one that was a distillation of the individual good ideas.

Probably none of the leaders perfectly agreed with President Carter’s summary conclusions, but they all had been listened to, all had some portion of their arguments ratified and all recognized the fairness and good intentions of President Carter.  He constructed a wise and useful decision on how to proceed, but before that, he listened.

In my view, the best way to have consistently excellent decisions is to have an organizational process by which ample and proper information is provided to a knowledgeable and empowered group for analysis and decision.  The team itself can provide great benefits if it is composed of members with differing backgrounds, differing areas of knowledge and expertise.  Bob Sneider describes the general steps in organizing the team as: a)  what is the problem; b) who are the team members, and what are the ground rules; c)  define work plan and schedules for accomplishment; and d) get it done!

What sort of organizational process is necessary for analysis and decision-making?  It appears to me to require four steps:

1. Collection of relevant information (carefully sorted as to fact vs opinion)
2. A team review of the properly prepared information
3. The solicitation of opinions from team members and, lastly,
4. The extraction and aggregation of the wisest thoughts of the team by the team leader.

Note that listening skills are particularly required in the reviewing group, and especially of the team leader.  The value of a good public speaker is well-known, but it should be realized that speaking skills are of a lesser use in management than listening skills.  If it were otherwise, or most outstanding decision-makers would be actors and T.V. announcers.

Stay tuned to Roxanna Oil Company’s news section for future posts on “Great Decisions Under Uncertainty.”

Alex has been involved in major GIS mapping projects in Wyoming, Idaho, Utah, Texas, New York, Pennsylvania, West Virginia, Oklahoma, Nevada, and Illinois for some major oil and gas exploration brands.  Now apart of the Roxanna team, he’s looking forward to building on those successes.

Learn more about Alex Downey and the rest of the Roxanna team online.

The guys at JDM explain it best:

“A majority of web hosts put a maximum upload per-file size of around 190MB. That’s frustrating if you commonly upload files TWICE that size. The JDM Labs team pulled out all the stops upgrading our file management portal to handle upload files of more than 2GB each (that’s 2,000MB) for our client, Roxanna.”

Up next? The JDM Labs Team is working on style updates to make the new digital asset mobile-friendly. Bring on your iPad!

Access the new file manager here: files.roxannaoil.com.

Imagine you are about to accept the Sidney Powers Memorial Award, the highest honor AAPG can bestow. The award goes only to those individuals who have made “the most distinguished and outstanding contributions to petroleum geology.”

Would you be:
(a) Reflecting on a successful career, or…
(b) Thinking about urban electricity and the sewers in San Antonio?

There’s no suspense. Everyone is going to choose (a) except Marlan.