“The player that makes the team great is better than a great
player” – John Wooden
Strategic Alliances (SA’s) have been utilized in the oil and gas
industry for many years, out of necessity for survival and/or to
increase efficiency and maximize profits. SA’s are increasingly
necessary for survival of the small independent in this age of
limited opportunities in mature geologic provinces (Continental
US) and intense competition.
The most effective SA’s include diverse disciplines of talented,
creative, hard working people with common goals.
The synergies of a compatible group of experienced professionals
are obvious. Ours is a volume business and many prospects and
acquisition opportunities must be screened in order to locate
viable deals. Once a project is targeted for drilling or acquisition, it
may be impossible to acquire. It’s a simple and frustrating process
and generally follows the fundamental law of quail hunting: More
coveys equal more birds in the pouch.
It is important that the SA be very flexible. A business plan which
focuses on the types of prospects and acquisitions that best fit the
SA’s experience and financial capabilities should be developed;
however, economic opportunities almost anywhere in the world
are fair game for the creative entrepreneurship necessary to
prosper in the current.
The SA should have an exit strategy which may differ for each
project. You cannot have a member of the SA with a one-sided
mentality (“I’m a buyer, not a seller”). A tunnel vision member of
the SA can undermine the opportunity for the SA to take profits
when the timing is right.
An old mentor of mine offered this valuable advice as I embarked
on an independent oil and gas career in 1971: “Never try to take
all the nickels off the table”, which simply means to be fair in all
dealings and attempt to structure deals that are equitable to all
parties. This trait must be prevalent in all members of a successful
SA.
Some SA’s fail because participants won’t or can’t stay focused on
their role, i.e. it is inefficient to have a geologist with talent for
finding oil being distracted from prospecting by unnecessary
involvement in operational matters. The most effective SA’s
involve team players doing what they do best and trusting in the
other member’s ability to pull their weight. Accountability of the
SA members to each other is vital to success, and of course, the
SA must come before egos, personal agendas, etc..
An example of a recent Strategic Alliance consisted of two
petroleum engineers, two landmen and one financial partner. The
SA set out to acquire acreage in a developing horizontal drilling
play in East Texas.
The SA decided, on the fly, to sell some of its acreage in one area
of the play for a cash profit and overriding royalty and proceed
with plans to drill in what was considered to be a less risky area.
As the SA prepared to drill, a large independent company also
working the play made an offer for the remainder of the SA’S
acreage for cash and ORRI which took the SA completely out of
the risk of drilling.
We went from one extreme to the other as the play progressed
and illustrated the absolute necessity that the SA remain flexible.
(Prologue: The play fizzled, and we were very fortunate to have
taken the exit opportunity.)
Our current team of one (1) geologist, one (1) landman, two (2)
petroleum engineers and a field operations manager would like to
discuss how we might pool our talents in a mutually beneficial
Strategic Alliance.
After all, we certainly don’t want to become like old members of a
Zebra herd!
(For more on what this means, ask one of our team for an explanation.)