Meet the ‘Shalen­ni­als:’ Texas’ new oil barons

Austin American-Statesman Sunday - - INSIGHT - By Kevin Crowley

John Sellers and Cody Camp­bell are hold­ing court one hot Au­gust evening in the cor­ner of an oil-themed dive bar in Mid­land, Texas. Af­ter fly­ing in on their pri­vate jet, they’re shak­ing hands, crack­ing jokes and talk­ing deals with as­pir­ing oil­men, con­trac­tors and land traders, al­most all in their early 30s. A life-size, stuffed griz­zly bear stands by a wall wear­ing a base­ball cap em­bossed with: “Make Oil & Gas Great Again.”

It’s not hard to see why Sellers and Camp­bell are in such high de­mand in this hard­scrab­ble city that has be­come the global cen­ter of the shale revo­lu­tion. Over the past decade, they’ve bought and sold tens of thou­sands of oil leases in the Per­mian Basin, mak­ing deals blessed with a hand­shake in din­ers, on the hoods of trucks and in bars such as this.

The co-CEOs of Dou­ble Ea­gle En­ergy III Hold­ings may be the most pro­lific, and rich­est, Texas deal­mak­ers you’ve never heard of. At just 36 years old, they’ve per­son­ally made at least $500 mil­lion com­bined, ac­cord­ing to an anal­y­sis by the Bloomberg Bil­lion­aires In­dex, based on typ­i­cal deals in the sec­tor. They de­clined com­ment on their wealth.

The oil in­dus­try has pro­duced many bil­lion-dol­lar for­tunes, from H.L. Hunt, who rose to fame in the 1930s, to Harold Hamm, who led the in­no­va­tions in shale that be­gan in the 2000s. But while most were made from strik­ing oil, the new game in town is land. Sellers and Camp­bell be­gan as land men, spe­cial­ists in buy­ing and quickly sell­ing drilling rights, which, in Texas, are all pri­vately owned.

“You can have the best drilling en­gi­neer, the best ge­ol­o­gist, the best of every­thing, but if you don’t own an oil and gas lease you can’t drill a well,” Camp­bell said, wear­ing a polo shirt, jeans and cow­boy boots and sip­ping whiskey on the rocks. “The land man was al­ways looked down upon be­cause he wasn’t a sci­en­tist. Not any­more.”

They’re not alone. Dozens of young en­trepreneurs, mostly in their 30s, are run­ning pri­vate-eq-

uity-backed com­pa­nies in the fren­zied boom in West Texas and New Mex­ico that may each be worth bil­lions of dol­lars.

Whether they re­al­ize that kind of cash will de­pend, of course, on the va­garies of the shale in­dus­try, where con­sis­tent prof­its re­main elu­sive. Ris­ing costs and pipe­line short­ages have put the breaks on growth this year. And like any prop­erty boom, an early en­try can make a ca­reer while be­ing late can break one. Many of the young men ad­mire the late Aubrey McClen­don, the founder of Ch­e­sa­peake En­ergy Corp., who be­came a bil­lion­aire leas­ing land for nat­u­ral gas drilling in the 2000s. But he’s a cau­tion­ary tale: He was ousted af­ter he had bor­rowed heav­ily bet­ting on ris­ing gas prices that never came.

The young up­starts are un­per­turbed by all that. With larger ri­vals con­tin­u­ing to bulk up — $30 bil­lion in deals have been an­nounced in just the past six months — they see them­selves as prime takeover tar­gets, and they’re angling for that big pay­day.

Sellers and Camp­bell have been friends since their days in ju­nior high school just south of Amar­illo. They played foot­ball to­gether, first in high school and then at Texas Tech Univer­sity. Sellers was a de­fen­sive line­man and Camp­bell an of­fen­sive line­man who’d go on to have a brief NFL ca­reer be­fore a pec­toral in­jury drove him out of the game.

They had got­ten into real es­tate while in col­lege, but busi­ness stalled in 2008 due to the fi­nan­cial cri­sis. So, on the ad­vice of friends, they put what­ever they had left into a lease in the Hay­nesville shale play in East Texas. They were able to quickly sell it to an op­er­a­tor who was look­ing to drill and made a profit.

For the next four years they per­fected the play, ex­pand­ing to the Ea­gle Ford in South Texas and the Per­mian to the west. “It was all in, all in, all in, every time,” Sellers said.

Their model at first was to simply flip leases quickly and then to par­tic­i­pate as a non-op­er­at­ing part­ner in drilling. But they soon saw that the fast-grow­ing world of frack­ing opened up a mas­sive op­por­tu­nity, one that fit per­fectly with their back­grounds in real es­tate.

His­tor­i­cally, Per­mian wells were all ver­ti­cal, mean­ing there was no in­cen­tive to find ad­join­ing land. But since the late 1990s, when frack­ing be­gan, shale pro­duc­tion has meant drilling side­ways, pump­ing wa­ter, sand and chem­i­cals at high pres­sure to cre­ate cracks in rock deep in the ground to re­lease oil or nat­u­ral gas.

As op­er­a­tors be­came more so­phis­ti­cated, they drilled wells longer, run­ning hor­i­zon­tally for two, some­times three miles. That meant they needed to line up mul­ti­ple, con­nected land leases. The shale game be­came less about find­ing oil and more about patch­ing to­gether the land needed to drill long wells. That’s what Sellers and Camp­bell do — put the jig­saw puzzle to­gether.

And, of course, sev­eral con­tigu­ous leases that en­able two miles of hor­i­zon­tal drilling are worth ex­po­nen­tially more than by them­selves.

“In cer­tain ar­eas we’re in now, it’s thou­sands of peo­ple who could own units you think can be drilled,” Camp­bell said.

In 2013, pri­vate eq­uity came knock­ing. With the shale revo­lu­tion well un­der­way, Apollo Global Man­age­ment backed Sellers and Camp­bell in an Ok­la­homa deal in which they more than quadru­pled the orig­i­nal in­vest­ment in a year, they said.

Their big­gest pay­out to date came last year, when they sold about 70,000 acres to Pars­ley En­ergy Inc. for $2.8 bil­lion. Since then they’ve raised more money from Apollo, as­sem­bled an even larger po­si­tion of 80,000 acres and started a drilling com­pany. Based on re­cent sales prices, their cur­rent hold­ings could be worth as much as $6 bil­lion. They de­clined com­ment on that es­ti­mate.

The two have a rep­u­ta­tion for be­ing ag­gres­sive buy­ers, freely pay­ing bro­ker com­mis­sions, a prac­tice that of­ten held up deals in the past.

“If some­one brings us a deal, they’re go­ing to be well-com­pen­sated,” Sellers said, as he fin­ished a chicken salad, washed down with Tito’s, a Texas-made vodka, mixed with soda. “Our phi­los­o­phy is we don’t care what other peo­ple make as long as we’re OK with the price.”

Here are pro­files of other young Per­mian ex­ec­u­tives.

Sit­ting by a frack pond in West Texas next to a dirt road one hot Au­gust af­ter­noon, Will Hickey, 31, swipes through an app on his phone. It shows the re­sults from a re­cently drilled well: 2,400 bar­rels of oil a day. “We’re mak­ing a lot of oil, baby!” he says, bump­ing fists with his busi­ness part­ner James Wal­ter, 30.

Hickey and Wal­ter were work­ing at Pioneer Nat­u­ral Re­sources Co. and Den­ham Cap­i­tal, re­spec­tively, when, in 2015, they de­cided to go into the oil busi­ness to­gether. They moved to Mid­land and soon spot­ted an op­por­tu­nity around the city of Pe­cos in the Delaware Basin. They raised $75 mil­lion from pri­vate eq­uity firms Pearl En­ergy In­vest­ment and NGP to start their com­pany, Col­gate En­ergy.

They bought small leases in this less-de­vel­oped part of the Per­mian and bet they could buy oth­ers nearby or swap with larger com­pa­nies, Hickey said.

Three years on, they have won $450 mil­lion of in­vest­ment from pri­vate eq­uity back­ers, own rights to 30,000 acres of land and moved into drilling, op­er­at­ing two rigs.

Of their 30 em­ploy­ees, all but one are un­der 35 years old.

“It’s so fast-paced out here, the land deals, the data, the tech­nol­ogy - it’s be­come more and more a young man’s game,” said Wal­ter. “Our of­fice feels more like Google than Exxon Mo­bil.”

Mark Hiduke, 31, had al­ways aimed to be an in­vest­ment banker, but the 2008 fi­nan­cial cri­sis lim­ited his op­por­tu­ni­ties as a new grad­u­ate of South­ern Methodist Univer­sity. He soon joined Pioneer as part of a seven-mem­ber team in charge of buy­ing and sell­ing as­sets.

He no­ticed that many deals crossed his desk that were too small for large com­pa­nies to con­sider. “Leases were sell­ing for $5,000 an acre,” he said. “I thought, ‘This is crazy, the val­u­a­tion should be five or six times this.’ ”

With fund­ing ob­tained from NGP, he started PCORE and bought small, over­looked leases and sold them just 18 months later. The deal made his in­vestors three times their money de­spite a 68 per­cent drop in oil prices, he said.

He be­gan a sec­ond com­pany, called PCORE II, in 2016, leas­ing land in the south­ern part of the Delaware Basin, which was cheaper at the time than the Mid­land Basin.

While run­ning land and min­eral own­er­ship searches for Devon En­ergy Corp. af­ter grad­u­at­ing from Tar­leton State Univer­sity, Tyler Glover, 33, kept com­ing across an odd name: Texas Pa­cific Land Trust.

Cre­ated to pay back cred­i­tors of the bank­rupt Texas Pa­cific rail­way in the 1880s, the trust owns large swaths of land and min­eral roy­al­ties in West Texas. Af­ter more than 100 years of sell­ing off land, the trust was left with ar­eas in Lov­ing, Reeves and Cul­ber­son coun­ties that no one wanted to buy.

It just so hap­pened that this was the core of the Delaware Basin, the western part of the Per­mian and one of the cen­ters of the shale revo­lu­tion.

Glover joined Texas Pa­cific as a land man in 2011, the youngest per­son at the com­pany by at least 15 years, he said. Texas Pa­cific had a mar­ket value then of just over $1 bil­lion.

As the mar­ket woke up to the size of the com­pany’s land hold­ings (a 1 mil­lion acre mix of sur­face and roy­alty rights), its value has surged to $6.4 bil­lion to make it the best-per­form­ing ma­jor U.S. oil stock never to have pumped a bar­rel of crude. Glover is the chief ex­ec­u­tive of­fi­cer, his­tor­i­cally an ad­min­is­tra­tive role.

“There is no way any­one could re-cre­ate an as­set base like this to­day,” he said. “Be­cause of the value of the land and re­sources we sit on now, more ac­tive man­age­ment of Texas Pa­cific is a ne­ces­sity.”

Af­ter ob­serv­ing his fam­ily’s coal busi­ness as a child, Ken­tucky-born Rhett Ben­nett, 37, didn’t want to get into min­ing af­ter grad­u­at­ing from the Univer­sity of Ge­or­gia in 2004. So he jumped into the en­ergy in­dus­try and, af­ter a few twists and turns, wound up right back in the min­ing busi­ness.

Not min­ing for coal, though — min­ing for sand, the grit that makes frack­ing pos­si­ble.

Ben­nett first moved to Texas back in 2004. He learned about oil leases from friends and started flip­ping them. In 2015, he bought a big po­si­tion in south­east New Mex­ico and sold it 16 months later to Marathon Oil Corp. for $700 mil­lion, mak­ing five times the orig­i­nal in­vest­ment for him­self and his in­vestors, he said.

Ben­nett then got into sup­ply­ing sand for frack­ers af­ter he no­ticed that most of the sand used for wells was be­ing trans­ported by train hun­dreds of miles, from Wis­con­sin. He opened Black Moun­tain Sand in West Texas, join­ing scores of other en­trepreneurs try­ing to mus­cle out the Wis­con­sin crowd. He be­lieves his com­pany would be worth about $2 bil­lion on pub­lic mar­kets.

“If you’ve been around the last 10 years, you’re as ex­pe­ri­enced as any­body else,” he said.

CALLAGHAN O’HARE / BLOOMBERG

John Sellers, co-CEO and co-founder of Dou­ble Ea­gle En­ergy III Hold­ings, in Mid­land, Texas. Sellers and his busi­ness part­ner, Cody Camp­bell are part of a new breed of young en­trepreneurs who’ve jumped into Texas’ shale revo­lu­tion and made mil­lions.

CALLAGHAN O’HARE / BLOOMBERG

Cody Camp­bell, co-CEO and co-founder of Dou­ble Ea­gle En­ergy Hold­ings, at the com­pany’s of­fice in Mid­land, Texas. Dou­ble Ea­gle buys and sells oil-drilling rights.

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