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Opportunistic Acquirer

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Colter Cookson

May 2023

"Alvarado Minerals LLC is finding opportunities in Oklahoma and Texas that pay back the investment within two years and deliver respectable returns. In addition to developing the Hoxbar Marchand, the company says it is building a position in the Eagle Ford Shale."


Opportunistic Acquirer

Public companies’ emphasis on fiscal discipline and returning cash to shareholders will create opportunities for smaller players, suggests Robert L. Lynd, president of Alvarado 2014 LLC, the operating subsidiary of Alvarado Minerals LLC, a privately-held company that aims to grow distributions for its owners. “With large public companies focusing less on production growth, drilling and development activity is materially lower than it was just three years ago,” he observes. “Given many plays’ high initial decline rates, the reduced investment eventually will shrink supplies enough to increase prices.”

To take advantage of the anticipated price increase, Lynd says Alvarado plans to “be as aggressive as we can be to get long on the commodity.” Even so, he says the company is selective about where it puts capital. “To invest, we need to expect a 30% rate of return across the life of the well and get our money back within two years,” he details. “Ideally, we like to double our investment on any opportunity we pursue.”

Finding such attractive opportunities can be tough, but Lynd predicts bright days ahead. “I would not be in this business if I was not bullish on long-term commodity prices,” he remarks. “We make most of our investments with the expectation they may not be developed in a year or two, which means they will benefit from a different commodity price environment.”



The company’s search focuses on Oklahoma and Texas. “Both are business-friendly states that have supported oil and gas for more than a century. They have a mix of opportunities that are under development and legacy horizons that have yet to be pursued with modern technology, so we are confident we can make money in them,” he explains.

“But we do have to consider the cost of entry,” he allows. “It would be tough for a company of our size to do a deal in the Midland or Delaware basins because they are the hottest plays in the country and potentially the world. We have been far more successful building positions in areas that are not the flavor of the month.”

Despite Alvarado’s penchant for stepping off the beaten path, success requires patience, Lynd notes. He points to the Hoxbar as an example. “In late 2015 and early 2016, we were hunting for opportunities in the Verden Field area of the Hoxbar trend outside the town of Chickasha, Ok.,” he recalls. “Unfortunately, the core of the play is small at only about 20,000 acres, which meant competition was fierce. We were able to participate in the play, but only through a small nonop position with the two larger operators who dominated leasing.

“But we kept our eye on it and waited,” he continues. “The returns in the Hoxbar are attractive, but because it’s a conventional play with a small footprint, many operators eventually decided to chase acreage elsewhere. By 2019, we were able to secure leases in an undeveloped area, a donut hole surrounded by successful wells. Since then, we have expanded our position through a trade. Our most recent well was in the area, and it has been our most successful operated well to date.”

The well used a mile-and-a-half lateral to unlock a Lower Marchand tight oil sand within the Hoxbar, Lynd describes. “We restricted production to maintain pressure and maximize the well’s long-term potential, so the initial production is not inspiring. But look at the first three months: It’s a very, very strong well relative to the offsets,” he enthuses.


Eagle Ford Appeal

Alvarado’s budget for the year initially included another well within the Hoxbar trend targeting the Medrano, a gas sand above the Marchand oil sand. “Since we put that well in our budget late last year, gas prices have dropped significantly,” he notes. “We are evaluating our options to drill an oil well instead.”

That well may be in the Eagle Ford. “I have had an interest in the trend for a long time, but until recently, the cost of entry was too high for it to make sense for Alvarado,” Lynd comments. “However, we had an opportunity last year to buy producing wells in Atascosa County, Tx., that were originally drilled by Marathon. We have done some leasing since then that we hope will let us drill a multiwell pad. That could happen as early as August.”

Lynd mentions that the company is looking at other acquisition opportunities, including one that will provide several years of drilling inventory. As in the Hoxbar, Alvarado is playing the long game. “Some areas of the Eagle Ford, especially the southern part, are much gassier. In today’s price environment, we see an opportunity to build a position that we can develop when gas prices get back above $4.”

The leases the company pursues often require extra work, such as unraveling complex titles, Lynd relates. “Given our size, we can spend time on a single drilling opportunity in an attractive area because it will be meaningful to us,” he reflects.

As it leases, Alvarado evaluates nearby properties with limited activity or other signs of potential upside. “If we think they might be worth acquiring, we will reach out to the operator. As a show of seriousness, I send our estimate of the property’s reserve value, assuming they own 100% and a lease net revenue interest common for the area. That helps us get behind the curtains under confidentiality agreements and see the lease operating statements and revenue statements so we can tighten our valuation.”

According to Lynd, closing deals tends to be difficult. “When prices are low or modest, as they are now, it’s tough to find motivated sellers because they are comparing the bid to one they could get when prices are high,” he explains. “To compensate for that, I tend to make more aggressive offers than I would in a high-price environment.”

When prices are strong, the company may only meet its investment criteria if its offer discounts the present value of the producing asset by 20%, Lynd illustrates. “In a low-price environment, we can give more consideration to the intrinsic value of the producing asset at the time, using a discount of 15% or less and making a bet on the commodity,” he contrasts. “Sometimes that helps get deals done, but nine times out of 10, we are unsuccessful.”

Over time, Lynd assures, the work pays off. “Rarely does Alvarado enter a basin at a cost of entry greater than $1,000 an acre,” he comments. “In many cases, we get into areas for hundreds of dollars an acre that later require thousands.”

As an example, Lynd recounts that the company picked up nonoperating interest in the Midland Basin around 2013, when the Wolfberry was being developed vertically. “We signed or acquired leases in that trend with the expectation that it would be developed horizontally,” he says. “We paid about a twentieth the cost we would today, and we have an override.”






Alvarado Minerals LLC. Alvarado 2014 LLC

4550 Post Oak Dr., Suite 200

Houston, TX  77027

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General Information: (832) 742-7760

Accounts Payable & Interest Owner Relations: (832) 742-7760

Fax: (832) 742-7757

Email: info@alvaradominerals.com

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