JUN 1, 2016 @ 06:00 AM
This story appears in the June 21, 2016 issue of Forbes Magazine.
How online auctioneer EnergyNet helps bring liquidity, and recovery, to America’s busted oil patch.
In the first 18 months of the oil bust, 70 companies have gone bankrupt, defaulting on $40 billion in debt. A trillion dollars of oil company equity has been wiped out. Layoffs top 200,000. With oil holding at around $45 a barrel, more liquidations are on the way. Already the old guys swear this bust is worse than in 1986, when oil dropped below $25 in today’s dollars.
At least one thing is better now: Thanks to the magic of the Internet, it’s easier for cash-strapped oil companies to auction off even their crummiest fields. That might help cushion the blow for near-insolvent outfits praying for higher oil prices to bail them out. “They have no choice but to sell assets to pay off debt,” says Chris Atherton, president of EnergyNet, “and I tell them, ‘We’re going to sell this no matter what.’”
So you want to be an oilman? Bill Britain (left) and Chris Atherton of Amarillo-based EnergyNet have sold 50,000 properties since 2000. (Photo by Justin Clemons, for Forbes.)
EnergyNet, based in Amarillo, Tex., is the biggest online auctioneer and broker of oil-and-gas properties in America. Why sell your oilfield online? Price discovery. It’s like what eBay EBAY -1.73%does for Pez dispensers and Fiestaware: It exposes your junk to more potential buyers than an old open-outcry auction, where you have to show up in person. “It’s a very liquid market now,” Atherton says. “Our deals average 12 bidders, and we have 300 to 400 companies looking at each package even if it’s a dog of a property.” In the past year EnergyNet auctioned or brokered $300 million of sales, on which it made an estimated $15 million in commissions.
Atherton remembers 2014 as the top of the market for American oilfields. And there was one deal in particular: That summer, in an EnergyNet auction, Athlon Energy bought the mineral rights under land in the Permian Basin of Texas for the nosebleed price of $35,000 an acre. “Our eyes were popping out — everything was hitting red,” Atherton says. And then Athlon turned around and sold itself to Calgary-based Encana for $7.1 billion—at an implied valuation of some $37,000 per acre. It’s been downhill since. Today you can buy similar land in the Permian for around $15,000 an acre. “What used to be a $3 million deal 18 months ago is now a $1 million deal.”
Bryan Sheffield, CEO of Parsley Energy, has been taking advantage of the downturn to build on Parsley’s leading position in the Permian Basin. “We monitor everything on EnergyNet, and we have bought some nice assets through them,” Sheffield says. “It’s genius, but you have to do your homework.”
There are plenty of assets for sale that look very cheap relative to a few years ago. Consider the liquidation of publicly traded Dune Energy. It went into bankruptcy with $144 million in debt, and its assets fetched just $20 million at auction. “If you think you got an asset for a bargain, it’s probably a real crummy asset,” says Carl Tricoli, co-president of Houston-based private equity shop Denham Capital, which has invested $8.4 billion in energy companies, including Tall City Exploration and Ursa Resources. He remembers 2015 as the year when oil companies were too racked with fear and loathing to even consider deals. Now they’ve begun to accept their fate and are looking for options. “I would not characterize the mood as desperate. It’s more resigned and pragmatic. The market is rewarding survivability,” says Tricoli, who thinks there’s a pool of more than $50 billion in private equity ready to invest in American oil and gas.
A small fish in that pool of equity is Michael Robinson, president of Houston-based Tigress Energy Partners, which oversees several million dollars in oil field investments. Robinson has sold a handful of packages on EnergyNet. He likes that EnergyNet can turn an oil field into cash in only 30 days and that he can set a reserve price. If no bidder hits the reserve, EnergyNet will come in after the auction and try to negotiate a sale. Robinson is ready to buy now, having sold a number of properties back in the flush markets of 2014: “When I see frothiness, I look to monetize.”
It was the frothiness of Internet 1.0 that in 1999 led Bill Britain, a small independent oil producer in Amarillo, and his investor friends to found EnergyNet. Normally they would redeploy oil-and-gas cash into new wells, but instead they decided to roll the dice on the Internet. They weren’t alone. Early competitors included TheOilAuction.com, Energy-AuctionPlace.com and Weex.com. All are now defunct. “We founded it in 1999, right in the Internet bubble. It burst almost the moment we got started,” Britain says.
But the team was determined to plug on. It used to be that if you wanted to sell your oilfield you’d have to get with your banker and your broker and bring in cardboard boxes of paper files and lay out a “data room” for interested buyers to peruse. Then you’d invite companies to send their best petroleum engineers to come look over your deeds, titles, drilling logs and geology reports. If a company didn’t have time to send someone to your data room, it was unlikely to send somebody to the live auction where the property would be offered up with no reserve. If you were unlucky, the auctioneer wouldn’t get to your property until the end of the day, when most bidders had retreated to the bar. “I got tired of giving properties away,” says Britain.
Some oilfields are prettier than others. EnergyNet sells both. (Photo by Justin Clemons, for Forbes.)
The Web provided an easy way to broaden the pool of buyers. But back in 2002 Britain (then in his mid-50s) needed Internet-savvy sales guys, so he hired Atherton fresh from Enron. EnergyNet offered a new and scary way of conducting an old business. Atherton says he would walk into the offices of 60-year-old oil executives and try to convince them EnergyNet really was going to get forms to migrate from the paper-based data room to the Internet. They would say, “No, you’re not. That’s not how we do things,” says Atherton, now 39. “If you’re the accountant at some company and these young guys come in and say we’re going to TurboTax it, you’re going to be all like, ‘I don’t know about this.’ They were shooting us down left and right.”
But like other obscure survivors of Internet 1.0 (think Stamps.com STMP -1.64% and Coupons.com), EnergyNet prevailed because it started out as simple as possible and worked from there. The skeptics knew that trading oil-and-gas fields can be very complicated. Among the world’s oil giants, only in America do landowners also control the rights to the minerals below the ground. And those rights get sliced, diced and sold. EnergyNet started out just selling basic stuff called nonproducing minerals. That’s simply the legal right to whatever oil and gas might be found under a patch of ground. Step out from that and building an online data room gets more complicated. Once you have wells drilled and oil flowing, ownership becomes tied up in a whole mess of joint operating partners and working interests, Atherton says.
EnergyNet found early on that the best way to deal with the challenge of complex packages of assets is to simplify them into “the smallest strategic unit,” says Britain. That way buyers get precisely what they want and maybe pay a premium for it. Early adopters included Shell Oil andBank of America BAC -4.82%.
Its big break came with Chevron CVX +0.31%, which in 2003 agreed to have EnergyNet auction a big parcel of 220,000 net mineral acres stretching across dozens of counties in multiple states. Chevron wanted to sell this acreage for $80 million. EnergyNet, working on commission, chopped up the packages by county and sold them piecemeal for $120 million.
A key skill is on display at its headquarters, where 12 people work to “ingest” information from sellers and scan it for uploading on a copier-like machine the size of a car. Mom-and-pop operators send in files in cardboard boxes. More tech-savvy companies, like Chevron, provide already-digitized data. A recent Chevron property auctioned on EnergyNet had 19,000 pages.
EnergyNet now has over 75% of the online oil field auction market. Every month 12,000 registered buyers look at their listings, up from 6,500 in 2013. Their biggest growth area: handling mineral leasing for the land offices of states such as Colorado and Texas, as well as the federal Bureau of Land Management. The company does about $30 million in sales annually of government leases. Britain has a pitch for why state land managers should consider it their fiduciary duty to market their land on EnergyNet. He cites as evidence the situation earlier this year when the Bureau of Land Management tried to hold a lease sale at a Reno, Nev. casino. Protesters chanting “Keep it in the ground!” disrupted the action, which ended with no bids.
Chanting won’t disrupt an online auction, but hackers might. EnergyNet has suffered one cyberattack over the years, Britain says, “but we can fend those off.” And if not? It can still do it “old school.” In late February a seller insisted that EnergyNet host an old-fashioned paper-based data room. Up for sale is a complex property, with 700 old wells over thousands of acres of Texas. “Even though it’s all online, this company still wants people to see every piece of paper,” Britain shrugs. Creative destruction can still accommodate old habits, by special request.