Wednesday, December 2, 2009

Ellora Considers Options

News came out recently that Ellora Energy, a privately held, Boulder, CO based company that leases acreage in east Texas and northwest Louisiana, is considering its "strategic alternatives."  That is finance-speak that the company likely is looking for a liquidity event for its shareholders.  There is a chance they might raise additional capital for growth, but it smells more like they are looking for an exit.  Two years ago, the company filed papers to go public but didn't follow through with the plan.  Given that Ellora is backed by a private equity company (Yorktown Partners), my money is on a sale.

Ellora's main activities are in E Texas/NW Louisiana and the Hugoton area of Kansas. Because the company is not publicly traded, it is not obligated to disclose much information to the public.  The map below from its web site shows general areas where the company leases land in the Haynesville Shale area.  The company seems to focus on James Lime, where it has drilled 58 wells, but it believes 53,000 acres of its 77,000 regional acres (gross) are prospective for the Haynesville Play. 

The company doesn't indicate if the leases allow Ellora to hold the acreage by production by virtue of its James Lime activity or if the clock is ticking on the deep portions of the leases.  At a cursory glance, the land's location in southwest DeSoto/northwest Sabine/east Shelby should be attractive to neighboring producers.

With 75 employees, Ellora is not exactly a "mom and pop" independent. But given the current market conditions, I've been wondering if the days of the small independent gas E&P companies are numbered.  I hope not, but if the game is shifting to one of high capital investment for big returns, companies are going to need to be big to compete.  In a shale play, even if they hit 100% of their wells, it's hard for small companies to front the capital and provide the expertise on a sustainable basis to repeat the process.

[UPDATE 12/3/09: Here is another take on this.]
[UPDATE 12/4/09: And another one suggesting a possible bidding war.]

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