Lessons on how to sell your start-up
Terrex’s Kim Davies writes about strategies that can win over fickle investors
Looking for money for start-up oil and gas companies is a challenging and interesting process. I remember in the spring of 2007, at the start of Marten Head Oil & Gas, heading out to New York and Boston looking for investors for our tight oil resource play concept in Saskatchewan. When I walked in the door of various fund managers they often perked up when they heard I was from Canada. “Any oil sands leases?” was a common query. When I responded that wasn’t our niche, there was often a visible flicker of disinterest in their eyes. The oil sands was the flavor of the day for many back then. Different oil and gas trends cycle through the investment community. Fortunately, tight oil resource plays had just begun to attract attention – and it’s huge now – so I was successful.
Daniel Yergin, the author of The Prize, the defining book on the history of oil, has just published a new tome, The Quest. The book describes how the oil industry functions in today’s changed world. He writes (paraphrased) “that the current stop and go investment style of the capital markets for the oil and gas sector is completely out of sync with today’s energy world. The technology necessary for shale gas development took 25 years. The actual large scale development of the oil sands is less than 15 years old, aided by increasing oil prices but also tax reform and lessening government intervention.” What Yergin is saying here is the easier cheaper stuff has been found and investors need to realize funding this new age of oil requires commitment. So how does one find support for these necessary, but harder to develop, new hydrocarbons?
One such example of a great new trend that I view as up and coming is enhanced oil recovery (EOR). It is the use of specific technologies to unlock significant new reserves from large old oil pools which are nearly played out using conventional production techniques. We formed Terrex last year to pursue this game plan, and EOR is being increasingly applied in many other parts of the world today.
But while EOR holds great promise, it’s something investors are not that familiar with. So the question has been how to sell it. One of the people that I was working with when I started Terrex was Judith Romanchuk of Leede Financial Markets Inc. Judith has done a lot of deals in her day and I will always recall her saying “If you have green balls and they want red balls, paint those green balls red.” Translated, it means that to be successful raising money, you have to be mindful of what the market wants. Otherwise, you are rowing a boat against a strong current which might not be successful. Another tip when you’re trying to woo investors: the start-up company has to inspire them to believe in the management team, its vision for the business concept and in its skills to implement the plan.
Terrex is a non-exploratory oil story with a technology application, like many of the new world hydrocarbon trends. The EOR reserve potential is significant and the decline in production is low when properly applied. The full implementation of any one project usually takes a couple of years, but with the ongoing addition of new projects, there is a more stable production base than a typical drill program.
This is a saleable concept that many investors are interested in. However, as a small company in the current volatile economic market, we have to be creative with financing options to grow the company while we are gaining momentum on the equity markets. A company has to find the right type of investor and investment vehicle (and it may not just be equity) for its story. And once it’s done that, the company must implement the program well and be adaptive to changing conditions.