Jaime Kammerzell

How a Small Independent Aims to Make it Big

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by  Jaime Kammerzell
Rigzone Staff

Friday, May 06, 2011

 

 
One in a Million: How a Small Independent Aims to Make it Big

While the odds of a small independent player making it to our billionaire list may be one in a million, not all small independent operators aspire to be the next Harold Hamm.

Meet Adam Standiford, a small independent based in North Central Montana. His company, Brainstorm Energy, is not one you’ve heard of.

Standiford, 34, holds 14 total wells — 12 gas and two oil — spread over 20,000 acres on the Sweet Grass Arch where commercial hydrocarbons have been discovered in Mississippian carbonates and in Jurassic and Cretaceous sands.

Life as a small independent has its obvious advantages, like freedom and no clock punching. However, Standiford works 60 hours per week, 7 days a week and money is a constant concern.

He also wears a lot of hats. In a single week, not only is Standiford the CEO, but he’s also the bookkeeper, office manager, land man, geologist, engineer and roughneck. It takes dedication and hard work to keep his small company running.

“There’s satisfaction that the dirtier I get my hands, the more it pays off for me,” Standiford explains. “The harder I work, the more I study, the more I read, the more I know. Long-term that translates into higher profits.”

However, the high profits Standiford speaks of are difficult to obtain, especially in the last few years.

“I had plans to expand through acquisitions or drilling in late 2008 and 2009. But acquiring existing production was very expensive at the time, Standiford explained. “In January 2009, we were getting $18/bbl. I had a meeting with my bankers and the first thing I had to do was lay off my staff. That was the time I wasn’t sure if we were going to make it.”

To add to the struggle to expand, Standiford explains that small independents have a tough time gaining financing. Oil and gas loans call for quick pay offs for small independents. Banks want five-year pay-outs, which means small independents have aggressive monthly payments to make.

“If I had a longer-term loan, I’d have a lot more flexibility,” Standiford said. “I found a bank willing to do a seven-year term, which helped a lot. A 15-year loan would be perfect. It would allow me to expand.”

Though the financial crisis has started to improve, Standiford still has no money to drill. He is trying to expand through small acquisitions; anything he can do to increase his portfolio.

“I’m still not really out of that tailspin. I’ve kept my head above water, but it’s been a tough couple of years. The key is it to take advantage of what I have at fixed cost in place, which is my Rudyard natural gas compressor. If I can help production there or do it on someone else’s nickel, I can increase revenues,” Standiford said. “I’m proud to still be in the game.”

Taking Risks

The Rudyard natural gas compressor Standiford referred to is on the Sweet Grass Arch, which is separated by the Sweet Grass Hills. On the West Flank, where the Alberta Bakken Basin lies, Standiford holds about 7,000 acres. But the majority of his acreage is on the East Flank, where his Rudyard field is currently producing 27 boepd. However, Standiford “dreams of growing [the] company to a net production of 200 boepd.”

Standiford purchased his initial 10,000 acres, which included his Rudyard field, from his father in 2006. Ray Standiford had been a farmer, but sold his land and bought the Rudyard field in 1991. Adam worked the field throughout high school in the summers. He helped maintain well sites, painted equipment, and “basically handed my dad tools,” Standiford said.

One in a Million: How a Small Independent Aims to Make it Big

Standiford had no intention of following in his father’s footsteps. When Standiford, who grew up in Chester, Mont., set off for the University of Montana in Missoula, he wanted to be a stock broker; but after several classes, he realized he did not want to be an investment counselor.

“I didn’t believe in advising people to invest conservatively,” Standiford said. “I wanted to take large risks. I believe in high risk, high return.” So, he switched his focus to finance with an emphasis in management.

Out of college, Standiford spent some time at Boeing as an industrial engineer, but soon started his own marketing company, which he ran for four years before returning to Chester and the oilfields.

“My dad called and said he received an offer from a Canadian company to buy his Rudyard field. He asked me if I wanted to buy it. I returned to Chester to work for my dad in 2006 and bought majority control of the company in February 2008.

With Standiford in more a leadership role this time around, he started actively working over wells. He studied everything he could get his hands on — logs, completion reports, shut-in pressures and drill stem tests. He even called a few Texaco people and made his way through Chevron trying to learn anything that could help him squeeze more production out of his wells.

“In our Eagle formation, we have water production,” Standiford explained. “Often times we perforated multiple sands in the Eagle. I found out through studying sands A-D that we perforated, the C sand was always wet. It showed up great on logs and we always perforated it, but it ended up being a very wet sand that would curtail production. We put bridge plugs in a few wells to shut off lower sands, and had minimal water production and nice flowing Eagle gas wells.”

One in a Million: How a Small Independent Aims to Make it Big

Standiford also tried acidizing to stimulate the Sawtooth formation, which worked well on one of his five wells.

“It was not super successful,” Standiford admitted. “That was just the beginning of Adam throwing money down the hole,” he said good-naturedly.

Game Plan

Though Standiford admits he has not done well with his drilling, he loves geology and has worked with geologists to help him find his well locations. However, as wells become tougher to find, he is looking toward seismic and gravity in the future.

“Seismic is expensive,” Standiford said. “If you aren’t using seismic, gravity and magnetics, you aren’t going to do very well. 3D seismic on land up here is about $30,000 per square mile, which is a lot of money for me, and I need more than a mile to get accurate show.”

In the future, Standiford plans to use more 2D and 3D seismic, and expand more into the West Flank Alberta Bakken play. He just acquired some acreage in that promising area with partner Faith Drilling who has a 15% interest in Standiford’s Rudyard field in return for 15% of Faith Drilling’s Alberta Bakken land. The partners are willing to give up 70% to allow investors, and Standiford is hard at work putting together a joint venture proposal to attract investors.

He’s also planning to drill his first horizontal oil well on the Alberta Bakken land in 2011.

“We plan to begin drilling in July, Standiford said. “We’ll have enough money to do a couple of wells, but we’re shooting to do six. We are working on farm-out JV agreements right now. This is my first one. JVs are not nearly as simple as running my own mom and pop oil and gas company. There’s a lot of formality to it. I have to impress a lot of people, so I have to put together a report to convince them that I have a play that’s worth putting their money into.”

With the JV presentation on the horizon, Standiford said he’s working harder than ever.

“This is my favorite time of the game. And this time around, I’ll have investor money to share the risk,” Standiford said.

Though the Alberta Bakken area is known for its shale plays, Standiford is not involved in shale.

“It is something for players with more money and more experience,” Standiford explained. “Shale wells are $4 million wells. The wells we are drilling are about $175,000. We don’t have the resources for shale.”

In fact, Standiford said, “I hate shale because it has changed the price structure of natural gas for years. And I’m predominantly natural gas. I bought the company assuming a natural gas floor price of $4.00, and at one point in 2009 it was 30% below that. I was counting on higher prices to help me expand.”

 

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Remember Adam Standiford? He’s the CEO of a small independent based in north central Montana who aimed to make it big while trying to keep his head above water. Today he not only has investors, but he also has his eye on expanding his personal assets.

In the summer of 2011, Bo Sears, of Weil Group Resources, LLC, contacted Standiford. Sears had his eye on Standiford’s Rudyard field for some time. He knew it had tested positive for helium in the past, but could not track down the owner until he read about Standiford in Rigzone in May 2011.

“He contacted me right away,” Standiford said, “and was able to get a deal structured quickly on my lower helium-bearing horizons.”

Weil Group expressed interest in investing in Standiford’s Rudyard field in late 2011, which resulted in a tour of a helium processing facility in Kansas and ultimately a well being drilled on Standiford’s field shortly thereafter. Standiford farmed out the lower formation rights to his field for the purpose of helium exploitation and production.

“Under the terms of our agreement, we were able to get a test well drilled immediately, which was completed with good results,” Standiford revealed. “The formations flowed strongly and experienced good pressure recovery between flow periods.”

DOWN HOME

In a small rural town like Rudyard and the surrounding small towns along Highway 2, known as the Hi-Line, any drilling activity is fodder for talk at the local garage or bar. In Standiford’s case, many locals are calling his small (but significant to him) drilling activity a giant find along the Bakken, which is not true. There is only 4 feet of Bakken in the Rudyard Field, which is not enough to facilitate a resource play. In fact, Standiford and his strategic partners are drilling the Devonian and Ordovician Souris River and Red River formations for a fractional resource of helium within a large stream of nitrogen.

“The high level of activity in Eastern Montana and North Dakota has everyone around here in a frenzy and absolutely convinced the boom will make its way here,” Standiford said.

Success Story: Entrepreneur Adapts to Partnership to Survive
Rig #5 drills Standiford’s Rudyard field. Source: Brainstorm Energy

Nevertheless, it makes him chuckle when the rumors get back to him. Though Standiford has not hit paydirt with his partners, he is pleased with his strategic partnership with Weil Group as provided him some additional income and renewed confidence in moving forward with his business over the past year.

Low natural gas prices had forced Standiford to lay off his staff in January 2009 and he wasn’t sure if his little-company-that-could, Brainstorm Energy, was going to make it. Today, he has an office manager on staff that takes care of the books, bills, and royalties. His father, who is a 10 percent shareholder of Brainstorm, remains on staff as well.

“My father has been helping quite a bit along the way by running heavy equipment to support the drilling and completion process,” Standiford said. “When I get stumped, he is the first person I ask for help. His wealth of knowledge in the operations of oil and gas fields has proven to be an invaluable asset.”

Between the contributions of his father and his office manager, Standiford said, “I don’t think I could have done this without them. One person can only do so much and having the help allows me to focus on more revenue-growth opportunities. My deal with Weil Group was a step in the right direction for my company,”

“We have very similar objectives making our working arrangement rather seamless.”

Standiford’s partnership with Weil Group breathed new life into the Rudyard Field and in his bank account.

“Now when we are drilling under the strategic partnership, it benefits my bottom line,” Standiford explained. “I now work with my partners via consulting and services, which is far more satisfying than spending my own drilling dollars.”

STORYBOOK ENDING

Standiford says he wishes his story was more like a fairytale with him putting his last dollar down and hitting a major well, but this is not that story. Standiford has opted for a more conservative approach to reaching production goals.

“I’ve learned to compromise. I preferred more risk in the past, but I had to change my tune,” he said. “I’m having a great time now taking my business through one deal at a time. As long as I keep pushing forward on a daily basis, I am genuinely optimistic about the growth potential of my company.”

Getting back in the game, according to Standiford, means expansion.

Success Story: Entrepreneur Adapts to Partnership to Survive
To get ahead, Standiford knows he has to be hand-on in his business. Source: Brainstorm Energy

“I’m making some offers on gas wells right now,” Standiford said. “The strategic partnership covers growth by the drill bit and allows me to place greater concentration on small acquisitions.”

Standiford’s strategy is to identify larger companies and sift through their well holdings to see if they have two to five small wells close together that are producing, but are not part of the company’s core assets.

“I try to get the wells at a good price,” he explained. “The industry is so fixated on oil right now it is a good time to acquire gas wells. I’m looking at three little wells in northwest Montana that combined produce about 100,000 cubic feet per day providing a net income of about $54,000 per year. I’m trying to grow as best I can without going out and building a plethora of strategic partnerships. So far I’ve been rejected nine times. I haven’t had a single offer accepted. But I will not give up.”

It is this confident attitude that is transforming Standiford from a pay check-to-pay check independent into a true oilman.

“I hope to someday use my education and experience in the industry,” Standiford said, “to land a board or advisory or strategy position with a junior or medium size [exploration and production] company while still entertaining my entrepreneurial spirit. This is an exciting time for me, my family and our business, and I’m both confident and optimistic of the things to come.”

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