Shale Dream Team: American Know-how, European Management Skill

In 1992 at the Olympic games in Barcelona the US National Basketball Association lined up its best players, including Michael Jordan, to take on the world’s best basketball teams.

Dubbed the “Dream Team, ” they won the gold, handily.

Now, one E&P has assembled a top-notch, international team to help Europe deliver on the promise, not of basketball success, but of shale gas.

The UK’s Hutton Energy (formerly the Australian BasGas) is banking on the technical know-how of its founders having successfully tapped into North American shale plays, coupled with significant operational E&P experience on the continent from a management team comprised of Europeans, who bear invaluable knowledge of drilling operations management and fundraising, among others.

Hutton’s diverse asset portfolio of conventional and unconventional natural gas opportunities, located in various European countries, doesn’t look too shabby either.

With over 25 years’ experience in the international E&P business, CEO Keith Lough recently joined Hutton. Not long ago, he and his colleagues at Composite Energy, which was focused on coal bed methane drilling in Europe, were able to sell the company for $64 million.

Hutton bolstered its resources further by adding to its senior management team with the appointments of Tom Pickering as COO and Colin Bousfield as CFO. All three worked together in the recent past at Composite.

That success, no doubt, prompted the telephone call from the American contingent of the Hutton Energy team.

Mr. Lough recalled how Hutton’s three founders came to Europe.

“Frank Maio, Craig Burton and Charlie Morgan are individuals who got into some of the key basins in the US fairly early on. Frank is a longstanding geologist with conventional and unconventional background who led the other entrepreneurs to the Marcellus shale; they acquired some of the first acreage there in 2004.”

They still retained substantial acreage in many of the key basins in the US, he said.

“And about two and a half years ago they thought that perhaps they could do in Europe what they’d done in the States. Led by Frank Maio, they applied their understanding and knowledge of shale to looking at what’s available in Europe, high graded what they were after and two and a half years later we have a portfolio of assets that we do, which is pretty substantial, indeed one of the biggest portfolios held by an independent company.”

While Hutton has limited piece of CBM in the Ukraine, Lough said the company was very much focused on shale oil and gas in Europe, with activity in Poland, Czech Republic, France, Spain and the Netherlands as well.

It has been steadily and swiftly building its portfolio. For one, Hutton recently won two more concessions in Poland, bringing its total acreage there to 1.1 million acres. Part of the company’s activities there involves a joint venture farm-in with ExxonMobil.

“It’s worth saying that in the process that was evolving around BasGas that the Podlasie basin was identified by Frank Maio as one of the key targets for the company and an application was made a couple of years ago. In the end, the acreage went to ExxonMobil, so that’s always been an area that we’ve liked and has been a key target,” explained Lough.

“Exxon, obviously for its own portfolio reasons, wanted to farm down in the Lublin and Podlasie basins, so we as a company were extremely interested in getting in.”

He said that that because Hutton had continuing exposure to the US, and was in touch with current thinking about all aspects of shale, that it would be an active participant, able to share its knowledge with Exxon. “It’s not just us getting into a joint venture in which we will passively participate.”

Lough continued: “We think we have real things to say about the rocks and in the management team we have drilled wells in the south-east Poland, so we have experience of what you might call surface management issues. So we see ourselves – understanding that we’re a small company – as having real experience to bring to bear on the partnership.

“Exxon is a great company,” he added. “They haven’t become great by failing to listen and learn, and we think they’re very supportive of that. It’s early days for us, but we’re really pleased to be in the Podlasie and working with Exxon.”

He said that because shale in Europe was clearly at a very early stage the experience in North America pointed towards working a number of different play types. “So what Hutton has done is to pursue different plays in different countries basically to minimize the risk involved in some of them not working, because today what we’re seeing in Poland is very encouraging, but no one knows which plays will work best.”

Hutton’s strategy, he explained, was deliberate to try and give investors a shot at different play types, all of which had some analogue in the US. “We like the portfolio of assets that we’ve got, not just in Poland but in the Czech Republic, Holland, France and potentially Spain, so we’ve got hard assets and a number in the pipeline and we think that’s all pretty attractive for investors.”

“At this point we’re near the end of getting together our own target portfolio that’s all been deliberately put together for the balance of geological and political risk, if you like. So the next phase is, other than the activity in Poland’s Podlasie basin, where the first well has been drilled and will be fracked in the autumn, we will then be drilling our own well in the Baltic basin in 2012 and we’ve got a number of big seismic programs to de risk two or three of the other plays.

Mr. Lough said Hutton would likely make an IPO in 2012.

“The rationale for that is we will raise initial pre IPO capital to move the assets that we have on to the next stage, and then we anticipate, given the portfolio that we have, that we will be raising further capital – and it really makes sense to have a public listing for that,” he said.