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STRATEGIES REINVENTING AMERICA
deepwater startup company. “This was the darkest moment for the deepwater Gulf of Mexico,” he says, but he was convinced BP’s disaster was a company problem, not an industry problem. “I wanted in, and wanted in big.” His reasoning: The “permitorium” had prevented drilling new deepwater wells for two years. “With all those pent-up projects, I thought the best would get drilled first.” Reinsborough decided early on that Venari would not operate its own drilling and development projects but rather invest in them alongside partners like Chevron and Anadarko Petroleum. The key would be in choosing the right prospects. Venari’s team relies upon a deep understanding of Gulf geology, bolstered not just by massive computing power but by what he says is a knack for Where U.S. Oil Comes From devising algorithms that can sort patFRACKED “TIGHT” OIL IS NOW THE BIGGEST PART OF terns from noise. This is especially PRODUCTION, BUT OFFSHORE WILL REMAIN CRITICAL. tricky when hunting oilfields below 10 layers of salt, which scramble sound U.S. CRUDE OIL PRODUCTION MILLION BARRELS PER DAY waves. So far 50% of the wells Venari 8 has invested in have been discoveries. TIGHT OIL That beats the one-in-three deep6 water average. “We will never drill 4 stupid wells,” Reinsborough insists. LOWER 48 OFFSHORE Still, a well drilled this summer, ALASKA 2 dubbed Coronado, was disappointOTHER LOWER 48 ONSHORE ing enough that partner ConocoPhil0 lips wrote it off and pulled out of the 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 venture. “The original discovery well SOURCE: U.S. ENERGY INFORMATION ADMINISTRATION. was very encouraging,” said Conoco’s of Mexico became an afterthought during the exploration chief on a recent quarterly conference call. But the second “appraisal” well “was fracking boom. In 2010, as oil gushed from disappointing.” BP’s blown-out Macondo well, the convenYet Reinsborough remains bullish on Corotional wisdom was that deepwater drilling nado and his plan. In a 2013 sale of federal had grown too risky for all but the very bigoffshore drilling leases, Venari was the high gest of balance sheets. bidder on 15 blocks, paying almost $90 million, Reinsborough thought otherwise. He was president of U.S. operations for Calgary-based including $45.5 million for the highest-bid block, a prospect it has dubbed Buddha’s Brew. driller Nexen when BP’s well exploded. Over Nearly five years after the Deepwater Hothe previous decade he had built Nexen’s rizon explosion, the cloud is lifting. Analysts Gulf operation into a top-notch organization at Wood Mackenzie see the Gulf ramping up (China’s Cnooc bought the company for $20 billion in 2012). But when the Obama Admin- to record production levels of 1.9 million baristration imposed a moratorium on Gulf drill- rels per day in 2016. “The silver lining is that the industry is better prepared and safer than ing after the BP spill, Reinsborough got antsy. ever before,” says Reinsborough. “The Gulf is In 2011, with the backing of Warburg, Reinscoming back.” borough decided to exit Nexen and launch a
GO CONSIDER STOP
To be sure, it will be years, and billions more invested in platforms and pipelines, before Venari can turn its 10% to 15% stakes in these fields into cash, but Reinsborough’s investors are patient. “In a short amount of time they’ve done all the right things,” says In Seon Hwang, a Warburg Pincus managing director whose firm chipped in $500 million to get Venari going and helped raise another $1.3 billion for the company this summer. “They had a small window of entry,” says John Snedden, professor of geophysics at the University of Texas. “They knew who to partner with, and they knew what not to get into.” Once the great hope for the future of American oil, the deepest waters of the Gulf
FINAL THOUGHT
“Begin, be bold and venture to be wise.” —HORACE 42 | FORBES DECEMBER 15, 2014
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OIL SHOCK Saudi Arabia’s refusal to cut petroleum production amid a softening world economy is cratering oil prices. That’s good for some, awful for others.
U.S. RETAILERS Merchants could see the best Christmas this decade, thanks to lower gas prices having liberated consumer cash.
BIG OIL Majors like Exxon and Chevron should see revenues decline, but they can withstand it— and will likely take advantage by snapping up some minnows.
MATTHEW LLOYD / GETTY IMAGES
SMALL DRILLERS Oil’s little guys are in trouble unless costs fall enough to keep shale drilling economical. Many stocks—such as Halcón Resources, Swift Energy and Goodrich Petroleum— are off 40% or more as debt loads threaten to crush them.