Whether it makes the front-page news with names you know or it’s happening behind the scenes, oil and gas assets are always being bought and sold. The reasons vary. The oil industry is volatile and always has been. Every year companies will examine many factors and try to make predictions on what the future of the market will be for the upcoming year. I’m not sure anyone was able to accurately predict or prepare themselves for the roller coaster the last year brought.
According to Deloitte’s article from October 2020, “The Future of Work in Oil, Gas and Chemicals – Opportunity in the Time of Change,” the oil industry is in a “great compression.” This is where companies’ room to maneuver is restricted by multidecade-long low prices, unforeseen demand destruction, and changes in end-use consumption due to mass telecommuting, mounting debt loads, and a renewed focus on health from COVID-19. This downturn is truly like no other…and a big opportunity for repositioning.
Josh Robbins, Founder of Beachwood, has been a reoccurring contributor to OILMAN Magazine in the past concerning acquisition and divestitures. Robbins started Beachwood over five years ago as a contract business development service that uncovers oil and gas deals by outright calling oil and gas operators. They make phone calls to potential sellers, who then provide their off-market deal specifics to the Beachwood team. Phone conferences are set up for both buyers and sellers to talk to one another, removing all the back and forth that happens when there is a middleman. As an exclusive buyer in a specific area, the client will get to see everything: deals, information about marketed deals and useful data from the field.
Companies and employees are fearful right now. Given how the previous year has transpired, some would consider this a scary industry to be in. To truly decipher the impact that 2020 had on an industry in which many people are desperate to keep their livelihoods, Robbins’ business seems like the perfect resource to obtain information on what kind of wreckage we’re looking at post-2020.
Sarah Skinner: The pandemic has impacted every industry and oil and gas are definitely no exception. I can imagine the seller’s market has grown exponentially during this time. What effect has the pandemic had on your business and what changes and trends are you seeing now that weren’t happening a year or two ago?
Josh Robbins: I think it is a fair assessment to say that the pandemic affected every business, regardless of industry (unless you were in the business of making face masks).
At Beachwood, we were no different. First, I had to figure out what, exactly, was an essential worker? We all work to pay for the essentials, so I think the first three months of the pandemic put everyone at home. I am on the road for forty-plus weeks a year, and when the pandemic hit, everything came to a screeching halt. I started driving to my office to work because getting anything done while at home is so difficult. I realized that I was driving 35 minutes one-way, so I could sit in an office built in 1972.
I looked at the headlines and commercial real estate was collapsing. Renters were disappearing, so many landlords started offering discounted rates for their office space. I realized I could save a significant amount of money, as well as a significant amount of time, by moving closer to home. So, we packed everything up and moved offices.
In the meantime, I had picked up some excellent clients. People that understood that when everyone is going one way, you go the other. We were able to close six deals during the pandemic. Some companies didn’t have six operated deals to list in 2020.
Everyone thought that properties were going to be sold at a discount in 2015. Everyone in the industry said that the properties should be sold at a discount. They said it all the way [through] 2015 and into 2016. Then, in 2017, when people could have sold at a high point in the market, they decided to wait it out. After the price drop in 2018, the talks started up again – things are about to sell at a discount! But nothing sold, and people kept talking about how there should be deals on the market, and they kept talking about it through all of 2018, all of 2019 and into the first two months of 2020. Then COVID-19 hit and was the single most destructive factor that the entire industry has ever seen.
The trends are a direct reflection of that destruction. Future oil and gas companies have to run extremely thin but, to everyone’s surprise, you can run thinner companies when everyone works from home. The industry had immediate buy-in from every large and mid-size company because they knew they had to do something to survive.
“Work from home” became its own acronym (WFH), and it became completely acceptable, literally overnight, to have kids running through your conference calls. Again, serious adjustment time.
Through that time period, the industry lost a ton of talent. Wave after wave of emails outlining the layoffs continued to hit the LinkedIn pages. So, when we see trends, they will be from companies and people who have made it through the pandemic. Those people are going to be cautious, the rigs they put in the ground (if they put rigs in the ground) will be checked (and quadruple checked) [to ensure] that the well will make money in this environment.
You won’t see any large land grabs or huge lease amounts. You will see disciplined teams working on common sense deals that will increase the amount of production they have for the least out-of-pocket cost. I think you will start to see a sell off of assets that can bring in cash and remove liability.
SK: Is this a lucrative business to be in at this time or is it the opposite?
JR: I honestly believe that the oil and gas business is the best and most lucrative business that exists. A close second would be space exploration. Oil and gas are the cornerstone of our world. Plastic and fuel are in every corner of the world. Everyone will need oil and gas for the rest of eternity. If that isn’t a winning investment strategy, I don’t know what is.
SK: What changes has Beachwood had to implement during this time and how have you adapted?
JR: We have moved offices [and] replaced travel with phone conferences. I celebrate every time I can actually meet someone for coffee. We have to change and adapt in order to survive. Things are different now, and people will want to hold onto their old ways as hard as they can. But, in a post-COVID world, most people won’t have a choice; they will have to change and adapt.
We have worked with sellers more closely. Everyone is looking for help during this time, [whether it’s] with understanding the market, the future of the asset [or] the employee head count.
I built this company to help oil and gas companies. I don’t care about the dollar amount or the size of the tank battery; I care about the people that are trying to build companies. I care about building local businesses and transforming communities.
Oil and gas are always first on the list of donors or where people go to try to get donations. And we always help. But we are always the first industry people slander. We help our hometowns, our small towns and our community downtowns. All of those communities need our help even more, and I want to help build the companies that will be that lifeline.
SK: What do you think the future looks like for acquisition and divestiture (A&D) and where, in your opinion, is the oil and gas market headed?
JR: People will start selling. For one reason or another, the more calls we make, the more people are willing to part with assets that no longer fit into their company. The life of a well will be redefined and companies will target straight line decline over years instead of what they have been looking for, which was immediate pay-out, and a complete disregard for how to produce the well in the later years of its life.
I think gas assets are the first step in that asset buying phase. People want low decline and stable pricing, and natural gas provides that. I think if the LNG market moves away from the Henry Hub, we could be looking at another boom, but that is nowhere close to the current environment we are in. For now, people will concentrate buying efforts on natural gas in oil-friendly states. I think the investment world will stay out of Colorado until sureties can be given from the state that oil and gas are, in fact, essential to their economy.
Oil assets are going to be tough to move. People are going to expect top-tier pricing, but with so many other people looking to sell, the market will be filled with sub-par oil assets that need new homes. Unless the sellers are willing to take a real look at the current market, there will be disappointment after 40 offers are made and none are even close to what they perceive the value to be. With that being said, COVID-19 made “buying local” a term that is being picked back up in the oilfield. It makes so much sense to sell an asset to an operator that works in the same area you do. We manage to connect people every day, and sometimes the companies know each other. They drink coffee at the same breakfast place. But they never reach out about buying a well or selling a well that no longer makes sense for them to own.
This business is fascinating. Every single day I do something new. I meet new people, interesting and intelligent people. I help companies grow. I help them sell for whatever reason they want to. Building Beachwood was the best way to get involved with every company in the industry and help them out. On our website, that is a key quote: “Our success is driven by the client.” When companies are building, growing and making sound decisions, we have a healthy industry.
Here’s to a healthy industry for the rest of the 2020s!
Everything Robbins says about the industry is not only insightful, but hopeful. He is not sugar-coating the situation. He made clear that, “COVID-19 was the single most destructive factor that the entire industry has ever seen.” However, it’s not all doom and gloom. Assets are coming and going, but we’re gaining more than assets, we’re gaining knowledge – the ultimate source of power. What we’re losing and whether we’re really losing anything here is a matter of perspective. There has been, and there will continue to be, adaptability among companies and employees. Day by day, we’re all learning how to familiarize ourselves with this now, not so strange, environment.
This industry is resilient. Buying and selling will occur as needs change, but one thing remains constant. Oil and gas aren’t going anywhere. We, as an industry, will find a way to grow from this. It’s one heck of a learning curve and probably the biggest transition we’ll make in our lifetime, but we will come out of it better than before. With some of the most intelligent individuals and the most advanced technology across the globe, confidence is high and we have nowhere to go but up.
Photos courtesy of Beachwood