The new year is off to a promising start for Ian Atkinson.
Newly flush with $10 million raised in an AIM listing, Southern Energy Corporation, where Atkinson is president and chief executive, has just launched a three-well drilling campaign in the Gwinville area of central Mississippi, a longtime gas-producing asset set amid rolling hills north of the Gulf of Mexico.
The batch drilling programme is a crucial step in Southern’s aim to boost its production to 25,000 barrels of oil equivalent per day from legacy US fields with conventional reservoirs.
“We’ve been focused on the Gulf Coast area of the US for more than seven years,” says Atkinson, the first four as a private equity-backed company he co-founded, Gulf Pine Energy Partners, which Southern acquired in 2018.
“We like this area because there’s a whole bunch of legacy fields, with vertical wells, typically, and conventional reservoirs.”
Regional shale plays such as the Haynesville, which straddles Louisiana and eastern Texas, have seen a lot of activity in recent decades. “But I think the forgotten gems are those old fields that haven’t been touched since the 80s or 90s,” he says.
What has changed in the ensuing years is technology, chiefly the development of horizontal drilling techniques that have enabled much more extensive subsurface reach.
Southern’s Gwinville assets were once owned by EOG Resources, which had drilled hundreds of vertical wells there and, with Penn Virginia, about 20 to 30 first-generation horizontal wells in central Mississippi early in the 2000s.
Southern’s core assets in the state were producing about 2200 barrels of oil equivalent per day late last year, according to a report in November.
“A lot of these are older wells with stable declines, but they are in an underdeveloped reservoir,” Atkinson says. He expects the new work to significantly boost output.
Some key investors agree. A public company in Canada, Southern has backing close to home but saw opportunity in the London Stock Exchange sub-market.
“That was a big piece of business for us,” he says of the AIM listing.
Southern will use the money to bring “a more modern approach” to drilling and completions.
The horizontal wells drilled in the last decade used “technology of the day” and typically produced around 5 million cubic feet per day of natural gas during their initial 30 days, Atkinson says.
The wells Southern is drilling are some 50% longer, and while AIM rules prevent him from giving estimates, the company is expecting “significant improvement” on those results.
With each well taking 10 to 12 days to drill, Atkinson says he expects results soon and adds that EOG’s extensive field infrastructure will make them easy to tie in, “which is also an interesting attribute for classic resource development compared with shale”, he says.
In developing the latter, “with each new pad, you have to develop another road, more pipeline infrastructure. You never get those half-cycle economics kicking in. Shale is expensive and that’s why we don’t like it.”
At Gwinville, Southern is “redeveloping zones within the confines of owned infrastructure, so it should be the most capital-efficient natural gas development in the area”.
Southern is also bringing a more data-driven approach to the region. For the past several years the company has been gathering well and geological data that had been recorded on paper and converting it to digital for more accurate technical evaluation — a somewhat painstaking but valuable process.
“We’ve really created something that’s proprietary,” Atkinson says. “And that’s been driving our business here in the Gulf Coast area, with doing the right acquisitions, being in the right areas, focusing our positions in the right geologic trends.
“We have over 25,000 wells in our proprietary digital library, we’ve added in completion and testing data, and we think it gives us that competitive edge we need to be successful here.”
A serial entrepreneur, Atkinson grew up on a farm in Saskatchewan, “where if you weren’t growing wheat, you were growing wellheads”, he says. “So it was natural for me to get into the oil industry.”
Atkinson earned a Master of Science in Engineering and worked with big companies “in the technical world” in the early 1990s before striking out on his own, co-founding a natural gas company, Morpheus, that sold for $92 million three years after a $20 million launch.
He started a second company, Athabasca Oil Corporation, with $100 million in capital, and grew it with an initial public offering in Canada that raised $8 billion and a joint venture with PetroChina valued at $3 billion.
“I was there almost nine years,” he says. “I don’t jump around a lot.”
Gulf Pine followed in 2014 and Atkinson retained his role as president and chief executive when the company merged with Southern in a $24.4 million deal at the end of 2018.
“A lot has changed since I’ve been in the business,” he says. “Ten years ago, it was hard to get ideas but easy to get money. Now I’ve found that with our workflows, our access to data and our business plan, we have a lot of good ideas. But it is hard to find capital.”
The recent fundraising was a validation of the company’s strategy, he says.
“There’s a lot of interest in our story from the natural gas perspective. We’re 90 miles [144 kilometres] from Henry Hub, which feeds the LNG export business out of the Gulf of Mexico. The US is aggressively building that out to gain market share.”
The marketing of natural gas as a transition fuel has also helped convince investors but Atkinson gives more credit to Southern’s business plan and the quality of its assets. “It’s all wrapped up into a very easy story to communicate to new investors,” he says.
The first quarter of 2022 is a turning point but far from the end of the story, he says.
“This isn’t a three-well programme, and then stop. This is our catalyst to self-funded growth.”