Midland’s investment firm focuses on conventional assets

Conventional vertical wells built the Permian Basin’s oil and gas industry and, although unconventional shales have dominated the region in recent years, continue to play a role in the industry.

“Vertical wells cannot scale with horizontal wells,” said Barry Portman, managing partner of Lodestone Energy Partners II and chairman and CEO of BCP Resources. “Capital requirements, production rates are different.”

Yet, he said, conventional wells are still profitable and remain a big part of the region. That is why Portman and his team have developed a new conventional well acquisition strategy with plans to develop these assets. Lodestone is the opportunity-focused fund while BCP Resources will serve as the operator.

Earlier this month, Lodestone announced the acquisition of assets from Hibernia Resources II that cover Reagan and Upton counties. The assets contain 85 conventional horizontal wells and 21 legacy horizontal wells that include over 2 million barrels of oil equivalent proven developed producing reserves with 63% liquids.

The acquisition has attracted investment partners including Midland’s AggieTech and Lubbock’s Masked Rider Capital, with credit facility provided by Midland’s Community National Bank.

Portman said he established a relationship with the bank, which liked the focus on traditional assets as well as the fact that the business was local. He also found, in discussions with the bank and investors, that the strategy of focusing on conventional assets is gaining ground.

While conventional vertical wells can’t reach 500,000 barrels of oil equivalent per day, some of the majors are signaling – or researching – Portman sees an opportunity in these wells.

“We want to continue to capture as many verticals as possible in our rollout strategy,” he said, instead of looking for horizontal sinks.

His wife, Cindy, also a Lodestone partner and owner of BCP Resources, said: “There is still a lot of oil to produce.

Citing her husband’s experience as an engineer – he started with Marathon in 1998, working their vertical wells – she said he was able to look at one of the first five wells acquired by the company and realize that an error had been made in completing it. “That’s oil now,” she said.

The Hibernia deal has opened the door to future deals, according to Portman, who said he found the number of investors interested in the proposal was greater than expected.

“To be able to consider larger transactions, we needed a flagship acquisition to prove ourselves,” he explained. “(Size) is always a barrier, but we took a big leap forward with Hibernia. We find this gives us the ability to be able to compete.

In terms of accessing needed services amid supply chain bottlenecks, he said, “We have to think outside the box, be creative, leverage our relationships. The size and scope of our hardware needs allow us to use smaller vendors. We can also reuse the material. We have surplus equipment that the majors cannot use in their horizontal applications.

The company’s top priority will be generating returns for investors, and it will consider any conventional project that meets that priority, Portman said.

Her husband said that in what he calls the Shale Age, some traditional knowledge has been lost. He hopes, by developing the conventional assets acquired by the company, to pass on some of this knowledge to the next generation. He has managed to build an experienced squad, he said, and access to that experience is one of the reasons he plans to stay at Midland.

“I’ve heard people say they felt left out in this horizontal era,” he said.