Oct 18 Double Eagle Energy Permian LLC is a
unicorn roaming the barren landscape of West Texas.
Founded by a retired NFL player and his high school buddy -
with land deals signed on the hood of a pickup - the Fort Worth
oil and gas company is now worth nearly $3 billion, according to
a half dozen bankers who have examined its value.
That's triple the $1 billion threshold for a so-called
unicorn, the moniker most often used in Silicon Valley for
high-value private companies. An IPO would be a crowning
achievement for John Sellers and Cody Campbell, who cofounded
predecessor companies starting in early 2009.
The valuation is based on prices paid for mineral rights in
the Permian Basin, where the duo has leased more than 65,000 net
acres of oil-rich land in the past two years. Demand has soared
here because of new drilling techniques that can extract crude
at a profit despite low oil prices.
The success of any Double Eagle IPO would depend on whether
the oil price recovery holds, but that uncertainty doesn't
bother the Texans - so far, they have made a fortune off the
"Had it not been for the turndown," Sellers said, "we would
never have seen as many opportunities to put together so much
Until now, most energy companies have been bought out before
going public, but the successful IPO this month of Extraction
Oil & Gas - the first stock market debut of a U.S. oil
and gas explorer in more than two years - could pave the way for
The Double Eagle business model is not new. Dale Operating,
a private company in Dallas, has leased and sold 17 portfolios
of assets since 1982. It is a high-risk endeavor because leases
can run out before drilling succeeds.
"It's possible to be directionally right, but lose if it
does not happen in time," said Larry Dale, the president of Dale
Now, Double Eagle is ramping up the risk by becoming a
drilling company, competing against established Permian Basin
players such as RSP Permian Inc and Callon Petroleum Co
BUGS CRAWLING THE WALLS
Sellers and Campbell got into the oil business after the
2008 U.S. housing crash ended their separate careers as real
estate developers. Sellers had gone into real estate after
college, and Campbell had done so in 2006 after a pectoral
muscle tear cut short his 17-month career as an offensive
lineman with the Indianapolis Colts of the National Football
Nearly broke, Sellers and Campbell relied on bank loans and
help from friends and family to get started.
Unlike larger competitors, who outsource the search for
lease rights to local agents, the two men searched land
registers themselves for mineral deeds, then followed up
personally with the landowners, usually small farmers in Texas
They often sealed deals for lease options on 200 or 500
acres at a time with handshakes outside the local grain
elevator. The goal was to sell groups of leases to drillers such
as Chesapeake Energy Corp or Devon Energy Corp.
In the early days, they worked out of an old Texaco field
office in rural Texas. Bugs crawled the walls. The two men,
still in their twenties, shot cans out back for fun.
"Every deal was critical," Sellers said in an interview at
Double Eagle's more upmarket current headquarters in Fort Worth.
"If they didn't sell, we were done."
During a particularly cash-strapped moment, they bought one
landowner a round-trip, first-class ticket to London - spending
$9,800 on a credit card with a $10,000 limit - as a form of
payment to extend their lease option on his land. The lease on
that land was eventually sold, to Endeavor Energy Resources LP,
one day in January 2009 - an hour before the option expired - in
a hotel lobby in Tyler, Texas.
The landowner wept when he got a check for $5.5 million for
his mineral rights. Sellers and Campbell made enough to pay off
their debts and went on to secure more than ten thousand leases
covering more than a million acres, selling them off in bundles.
By 2012, with the price of oil at about $100 per barrel,
Double Eagle's success caught the ear of Wall Street. Greg
Beard, Head of Natural Resources at private equity firm Apollo
Global Management LLC, recalled thinking after he first met them
in Ft. Worth: "We have to work with these guys."
Apollo invested, and less than two years later, in November
2014, Sellers and Campbell sold one of their many business
entities, Double Eagle Energy Oklahoma LLC, for $251 million to
Aubrey McClendon's American Energy Partners L.P. Apollo reaped a
four-fold return from its early investment on acreage in the
Oklahoma formation known as the SCOOP, which is now crowded with
The sale couldn't have come at a better time. The price of
oil had already peaked and was heading toward a 12-year low of
about $28 per barrel.
Apollo's investment in Double Eagle represents a new tack by
private equity firms - backing modern wildcatters to gradually
build portfolios of mineral rights.
The move comes after some spectacular failures in
traditional leveraged buyouts of energy companies. KKR & Co LP's
$7.2 billion acquisition of Samson Resources Corp, for
instance, ended in bankruptcy last year when shale drilling
became more expensive than the debt-laden company could handle.
Apollo's EP Energy Corp, also purchased in a leveraged
buyout, has lost four-fifths of its stock value in the oil
market rout since the exploration and production company went
public in January 2014 at a valuation of more than $5 billion.
Sellers and Campbell sensed opportunity as the price headed
south. They focused on the Midland Basin, a rocky area of the
Permian basin where technological advances had made it
profitable to drill even with prices at $35 a barrel.
They deployed the same model - searching land registers and
dealing with landowners directly - but this time with a staff of
more than 50. Deals still get done on the hoods of trucks.
Apollo has again teamed up with them and, together with
Campbell and Sellers, have invested more than $500 million.
Starting next month, Double Eagle will drill on their leased
land instead of flipping the mineral rights. It has hired a
well-completion expert to prepare for drilling, and in August
brought on a chief financial officer with public company
experience to prep for an IPO. In October, the company merged
with Veritas Energy - increasing its leased acreage by about a
third - and created Double Eagle Energy Permian LLC.
The timing again looks fortuitous, with oil prices up more
than 10 percent this month on prospects that the Organization of
the Petroleum Exporting Countries (OPEC) and other major
producers will agree a sizeable output cut or freeze.
Sellers and Campbell are counting on their West Texas
location to help them hedge against the additional risks of
"Even if the rest of the industry crumbles, that basin is
going to stand on its own," Campbell said. "It has the best
economics of any North American basin."
(Editing by Carmel Crimmins and Brian Thevenot)