Pure Exploration Companies versus Exploration AND Production Companies - A discussion......
Cove Energy started in 2009 as a £1 million shell company; a little more than three years later, in 2012, Thailand’s national oil company, PTT Exploration and Production, bought Cove Energy for £1.2 billion.
In the wake of that success, in 2012, Cove Directors - Michael Blaha and John Craven - started Discover Exploration, a privately owned oil-and-gas-exploration company with deepwater assets in the Comoros and New Zealand.
McKinsey: Why did you decide to start Cove?
Michael Blaha: John Craven and I met in 2008; we realized that international exploration-and-production [E&P] companies struggled with new-business development, specifically in exploration.
So we came up with a simple strategy: build a small team to find high-quality exploration opportunities, add value, and then divest.
We didn’t want a five-story office filled with secretaries and bureaucracy.
The idea was to keep it small and to leverage our knowledge and network.In May 2009, we convinced a few institutional investors in London to invest £4 million, enough to keep us going.
We found an opportunity to buy minority interests in exploration concessions in Kenya, Mozambique, and Tanzania from the Artumas Group.
When John looked at the 3-D seismic—the sound-wave technology that produces 3-D images of the subsurface—of Artumas’s deepwater Mozambique concession, he immediately recognized the same geological features as the Jubilee field offshore Ghana, one of the largest oil fields in West Africa.
He said we had to do this.
It was a five-minute decision.
We thought, “No guts, no glory: let’s go for it.”
John Craven: The acquisition of the Artumas assets was risky.
It was an unproven oil-and-gas frontier with a commitment to drill five expensive deepwater wells.
In September 2009, we raised £42 million; we did two more rounds of financing in 2010, raising an additional £136 million.
So at that point, we had the money, and serious assets.
A month later, we started drilling onshore in Mozambique; it was a failure.
Then we went for the offshore concession.
We were nervous.
Off the coast of East Africa, most reservoirs are small and sliced up because of tectonic movements.
We call it “sliced bread” because it looks exactly like that.
So we decided to drill farther away from shore, into the deeper waters, where the geology is less disturbed.
Michael Blaha: It was a nightmare. We had one problem after another.
Then, one Sunday in February 2010, we hit the jackpot.
The well drilled through a gas accumulation, known today as the giant Prosperidade field.
That morning, I spent hours in my study looking at the live data on my laptop.
It was a beautiful thing, like the birth of a child.
McKinsey: It was only a little more than a year later you put Cove up for sale. What was your thinking?
John Craven: We had always told our shareholders and joint-venture partners that our strategy was to come in early and then divest after a discovery.
We didn’t see any value in participating in the development or production of a field.
We were a pure exploration company.
The same applies today to Discover.
We decided to sell Cove in March 2011, but the sale didn’t close until the third quarter of 2012.
It always takes longer than you think. Our share of Prosperidade was only 8.5 percent, but the interest was phenomenal—I think we had the entire oil-and-gas industry in our data room.
We went to Bangkok, Hong Kong, Kuala Lumpur, Seoul, Singapore, and Tokyo to meet the main players there and make sure there would be enough competitive tension.
Looking back, I don’t think we could have sold Cove at a better moment........
https://www.mckinsey.com/industries/oil-and-gas/our-insights/a-new-approach-to-oil-and-gas-exploration#/
