- New management team and highly significant oil & gas portfolio through game-changing joint venture.
- Rango could exit the year at 300-400 boe/day (net to company), roughly $10 million (after royalties) of annual revenue for a company with a market cap of $10 million.
- Attractive mix of low and high risk, conventional & unconventional and short & long-term projects.
- Initial production this year, aggressive growth from 2015 on.
Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
The following is an updated version of a recent interview of Robert (Bob) Harrell, newly appointed Chairman & CEO of Rango Energy, (RAGO). Rango has completely reinvented itself with new management (including new Independent Board members in coming months), a blockbuster JV with privately-owned INNEX California, Inc. earn-in opportunities (through INNEX) with Hess Corporation (NYSE:HES) and Occidental Petroleum (NYSE:OXY) and a world-class Technical Advisory Board. Rango's JV with INNEX gives access to a diversified U.S. portfolio of low & high risk, near & long-term, conventional & unconventional projects in California and Oklahoma-- without equity dilution or the use of debt. The new Rango Energy expects to be in production this year, with the goal of very significant production growth from 2015 on. Rango has a market cap of approximately $10 million and remains debt-free. [Please see latest Corporate Presentation here].
Disclosure: I own Rango Energy shares. I have not previously, and am not currently, being paid by Rango Energy.
Bob, could you give readers a few highlights of your career and explain why you are well suited to lead Rango Energy?
Bob: I'd be happy to. I'm a 35-year veteran of the Oil & Gas industry with vast experience in both Exploration & Production. I spent twenty years with the, "Mobil" part of Exxon Mobil (XOM) and with Superior Oil, where my duties included technical engineering, operational, supervisory and executive management roles. I co-founded a successful acquisition & divestiture transaction advisory firm that worked with well-recognized companies such as Texaco, ConocoPhillips, (NYSE:COP) Chevron (NYSE:CVX), Hess, Newfield, Denbury, XTO and many others. I've looked at, worked on or closed thousands of oil & gas deals worth billions of dollars.
Like the good people at INNEX, I left the world of the Majors to do my own thing. That's why I can truly appreciate and am quite impressed with what Jere Jay, Heiko Mueller, Tom O'Brien and Stan Pittman have accomplished. The new Rango Energy bridges an outstanding technical, discovery and development focused INNEX team with Rango's public company experience. With my help, the help of select advisors and a few credentialed Board members joining relatively soon, Rango offers capital market expertise, strong company-building experience and a large and growing number of financial and industry contacts.
Please describe the importance of Rango's newly formed JV with INNEX
Bob: Rango's JV with INNEX is a game-changer for both companies. I was approached to replace Harp Sangha as Chairman & CEO due to my history with INNEX and my deal-making experience. I watched this team make important and innovative breakthroughs in the understanding of both conventional and unconventional resources. I'm amazed they have been able to retain highly significant working interests in such a large, (roughly 50k gross acres) high-quality portfolio. Instead of monetizing assets along the way, INNEX has been building, advancing and reinvesting year after year. Rango is taking the JV portfolio to the next level by raising capital and forging strategic relationships to begin monetizing assets, while allowing the innovators at INNEX to do what they do best...discover, enhance and develop projects. I'm happy to report that the response by strategic players and investors alike to the Rango-INNEX portfolio has been very encouraging.
If INNEX's portfolio is as strong as you believe, why hasn't it already been developed?
Bob: That's a great question, one that I investigated at length. I did an enormous amount of due diligence before accepting the role of CEO (and subsequently Chairman). As mentioned, I knew the INNEX team and was already familiar with some of their assets. I believe this team contains truly superb technical people, some of the best in the industry. However, raising capital, going public and answering to equity analysts is not something that most technical people enjoy or excel at. Further, ceding too much control to a Major, (or selling out entirely) would have meant giving up control of a portfolio that the INNEX team deserves credit and financial reward for painstakingly assembling. That's why the status quo was to keep growing and advancing the portfolio projects as opposed to monetizing them.
Your [Link to: Corporate Presentation] mentions a JV with Hess, can you elaborate?
Bob: Yes, INNEX has a very promising JV with Hess as well as a joint development opportunity with OXY. In both cases, Rango can earn into 50% of INNEX's positions. In looking at the assets in the San Joaquin Basin of California, INNEX and Hess identified some highly attractive targets from a comprehensive geologic and 3-D seismic study, (exclusively owned by Hess/INNEX). While I can't get into too much detail, I can say that INNEX is quite excited about the opportunities already identified.
Having said that, there remains a lot of interpretation and follow up work to be done, so this is probably not this year's business for us. INNEX is rightfully proud to have identified the exploration thesis for the JV and has played an integral role in the implementation of this major initiative. While it's still early days, this JV interest could generate some high profile projects for Rango-INNEX.
Our joint development efforts with OXY could be an important near-term avenue to production, but we are waiting for OXY to throw the switch on the project. OXY is currently evaluating the drilling of some Kreyenhagan wells in California's San Joaquin Basin. These are relatively low-risk wells that we would love to sink our teeth into.
How will Rango fund the new opportunities it has with INNEX?
Bob: An essential part of the new Rango story is that our newly formed JV has a number of drill-ready projects. A key strength of the JV is that it controls large working interests. So there's room for outside, project-level investment. The goal is to minimize equity dilution to Rango shareholders and enhance the universe of prospective partners. My 35 years of industry experience and Harp Sangha's vast network of investment contacts have already netted us a significant number of meetings and conference calls with strategic and financial investors.
What are Rango's top priorities for 2014-15? Will we see production this year?
Bob: We are in the midst of working through our operating plan with INNEX and speaking with strategic partners. Our goal is certainly to see production this year. Our intention is to go after low-hanging fruit, projects with paybacks of less than 12 months. We have a handful of targets in California & Oklahoma that are likely to be drilled in the next 3-12 months. These are lower-risk wells with very strong economics. If we tackle some of those, we could exit 2014 with production of perhaps 300-400 boe/day, (net to Rango). That would provide solid cash flow heading into 2015 to help fund additional opportunities and mitigate the need for large capital raises down the road.
Rango recently established a Technical Advisory Board, please explain its significance?
Bob: You beat me to the punch, I was just going to tell you about our newly formed Technical Advisory Board comprised of INNEX Founders Jere Jay, Heiko Mueller, Tom O'Brien and Stan Pittman, who's the Head of the Board. Having access to these industry heavyweights greatly leverages Rango's operational and managerial capabilities while minimizing corporate overhead. Rango is saving hundreds of thousands of dollars per quarter in salaries / benefits by having these gentlemen in advisory roles as opposed to employing them. This is incredibly important for a small cap company like Rango.
Mr. Pittman is a proven leader in geoscience with over 40 years of industry, business, management and professional expertise, including 33 years working for Hunt Oil Company. At Hunt Oil he worked his way up to Exploration Manager and was responsible for geoscience evaluation and lease negotiations in the drilling of over 70 projects throughout the U.S. His efforts resulted in numerous discoveries and added significant production to Hunt Oil.
We are thrilled to also have Jere Jay, Heiko Mueller and Tom O'Brien on our Advisory Board. We are going to rely heavily on their experience in thoughtfully developing the Rango-INNEX portfolio. Jere Jay is an exceptional, innovative explorationist with an ability to develop opportunities with his creative geoscience expertise. Heiko is a superb geophysicist and manager with success discovering oil and gas around the world.
Tom O'Brien is an excellent geoscientist with a knack for project and portfolio management. With Jere, Heiko and Tom, alongside Stan, Rango now has a tremendous exploration and production team. Rango has already developed a solid relationship with these seasoned professionals and look forward to working closely with them.
Switching gears a bit, what are you saying to shareholders who suffered through a disappointing 2013?
Bob: Both INNEX & Rango got bogged down by a private company that ran into difficulties. Last summer, Rango's most important asset was a few specific projects within the INNEX portfolio in the San Joaquin basin of California, where a deep, non-Rango operated well was drilled. That well failed to reach the targeted depth. It got stuck and is currently suspended.
Fast forward six months, Rango is in a much stronger position with JV access to half of roughly 50,000 gross acres, a team of industry experts and what we hope is a stronger ability to attract strategic funding and institutional investors in Rango shares. Of course, the bad news is that the well got stuck at 8,000 feet, but the good news is that Rango's market cap reached about $40 million on anticipation of a successful well. We can drill a new hole right next to the suspended well with less risk (we have more information) and a greater chance of success. Most important, Rango would own 50% instead of 25% of the well.
Rango's market cap, roughly a quarter of what it was, could be an attractive risk-adjusted investment opportunity. A handful of higher risk/higher return projects are available, in many cases with significant working interests, and Rango now has near-term, lower-risk projects to boot. This recent diversification of risk is positive for the company.
Rango Energy sounds interesting, but what makes it different from dozens of U.S. peers?
Bob: Rango offers a compelling combination of near-term, lower-risk opportunities, highly prospective longer-term and higher risk/higher return projects. The portfolio is not static, numerous projects are being developed and new ideas continually hatched and tested. The bulk of the assets are in California, a State the Majors are attracted to and increasingly re-entering. Through our JV, Rango is tapping into a portfolio of projects that could, over time, be worth hundreds of millions. Yet, Rango's market cap stands at about $10 million. The 300-400 boe/day, (net to Rango) exit rate I mentioned could generate annual net revenue (after royalties) of about $10 million. Importantly, this year is just the tip of the iceberg in terms of monetizing our JV portfolio. The INNEX projects provide very compelling short-term returns with exceptional upside and scope for long-term investment.
You mentioned that the Majors are returning to California... please explain...
Bob: Actually, the California energy renaissance dovetails nicely with the INNEX story. Until a few years ago, oil production from California was in steady decline, down about 50% from 1985 to 2011. The Majors departed California for more exotic opportunities around the world and emerging unconventional plays in North America. California was a tough place to do business, (and still is, but other jurisdictions have gotten tougher as well). However, INNEX stuck to its knitting, recognizing correctly that the majors were leaving behind highly attractive risk-adjusted opportunities.
INNEX spent the past fifteen years picking up under-developed and overlooked properties located near existing infrastructure. Properties in and near proven, producing fields. In the last few years, the Majors have started returning to California. Our JV properties are just the kind of opportunities the Majors are looking for, perfectly situated in the heart of this amazing producing province.
Thank you and good luck in your new role at Rango Energy. Do you have any parting thoughts?
Bob: Thank you, I think we covered a lot of ground. In coming weeks Rango will have more to say on this year's operating program. I hope to hold an investor conference call in late March or early April to update the market on our progress. I guess to sum up, I've been very impressed with Rango's efforts, lead by Sangha, (and some really good advisors) in making the JV deal with INNEX happen. I want to reiterate that I took a considerable amount of time to conduct detailed due diligence. At this stage of my career I don't need to be working so hard, but the opportunity was too good to pass up. I'm really excited to be on board. There are simply too many good assets for the Rango-INNEX JV to fail. The only question in my mind is how big a winner Rango might become.
Disclosure: I am long RAGO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.