Willard “Will” G. McAndrew III, chief operating officer and director of Torchlight Energy Resources, Inc
Willard “Will” G. McAndrew III, chief operating officer and director of Torchlight Energy Resources, Inc., talks with Opportunist’s Managing Editor Leslie Stone about the company’s oil projects in three states and why he believes it has an opportunity to make oil and gas history in Texas.
Will McAndrew grew up in Louisiana and, like his father and his father’s father and great-grandfather before him, went to work in the oil and gas industry. “My family has been in the business for four generations,” he says. “All of us worked at Exxon—from my great-grandfather on down to my cousins, uncles, aunts, nieces, nephews and myself. My godfather gave me my first job in the business when I was 16. He was the CEO of Hercules Oil & Drilling Co.”
Apart from attending Louisiana State University, followed by serving in the U.S. Marine Corps, McAndrew has spent five decades of his life in oil and gas, serving as president and owner of several small companies involved in all phases of the business, from drilling, reworking and completion to buying and selling leases. Prior to joining Torchlight, he was most recently chairman and CEO of Xtreme Oil & Gas, Inc. for seven years, and he held a similar position with Energy & Engine Technology Corp. during the early 2000s. Since 1990, he has consulted to various companies and been responsible for the structure, formation and marketing of partnerships and energy financing.
In September 2013, McAndrew became chief operating officer of Torchlight Energy Resources, Inc. (NASDAQ: TRCH). A high-growth oil and gas exploration and production (E&P) company based in Plano-Texas, Torchlight’s primary focus is on acquisition and development of highly profitable domestic oil fields. The company’s interests are in Texas, Oklahoma and Kansas, where its targets are established oil and gas plays such as the Eagle Ford, Hunton, Mississippian and Permian Basin formations.
Opportunist: How many wells is Torchlight involved in and what kind of drilling does the company do?
Will McAndrew: Some of our projects are vertical, some are horizontal, some are fracked—or stimulated—and some are not fracked. We uplifted to the NASDAQ on Dec. 16, 2013 and we have successfully drilled and are participating in over 33 wells. In one year, our production has gone from 75 barrels a day to over 400 barrels a day. And our in-ground reserves have doubled. We own free and clear over 190,000 acres in the company today, and we still have a very active drilling program in Oklahoma right now even with these prices. We are a licensed, bonded and insured operator in three states. We treat people right and fair. They are our partners to some degree and in different ways, and we try to take the extra steps to ensure we are on the same page. That doesn’t mean we are perfect but right now that seems to be working for us.
We exploit fields that have been produced before and apply the latest techniques. This has allowed the older fields to be highly productive again. We now have the technology to exploit those rich reserves.
Opportunist:How has technology transformed the oil and gas industry?
Will McAndrew:The resurgence of daily production in the United States is due to the fact that it’s a tech-driven play. Everybody knew where these formations were around the country, but technology has allowed us to drill horizontally and stimulate those formations successfully and basically see a production increase of four to five million barrels per day. We will see more and more of that happening because it’s a tech-driven play. We will also see more reuse of water and there will be less excess to get rid of. When you stimulate a well, there will be more natural gas liquid stimulations and you’re putting that natural gas back into a gas line and selling that product. We will see more and more new technology being applied, which is going to reduce costs.
Opportunist: Can you tell us about some of your projects?
Will McAndrew: We have a Central Oklahoma play with an operator that has had 71 successful drills over the last few years. In Southwest Kansas we have a play in which we are 50-50 partners with an NYSE-traded company. In South Texas we own 75 percent of a 1,000-acre play surrounded by Hunt Oil Co. and Exxon. On 172,000 acres in the Permian Basin in West Texas we will start our first well before the end of March. It’s very large in scope and size, and we own it all. Nobody can push the cost of acreage up. We only have to drill one well every six months to hold all of our leases. On our first three to five wells we will be spending an extra 30 to 40 percent to do the science. While this has additional cost associated with the first few wells we will learn and confirm so much. This is what I mean by applying today’s technology. Our geologist on that project, Rich Masterson, just received a lifetime achievement award for his work in the Midland Basin. One of the major reasons he has had such tremendous success in the Permian Basin is he takes his time and does the science. Since we own the entire basin, we have the luxury to take our time and do it right.
The NYSE company that we are working with in Southwest Kansas has created billions of dollars from scratch and sold it. Now they are doing it again. Our project in Oklahoma is having great success because they did the science first. Our project out in West Texas is huge in scope and a company maker. The company today has fully paid-for assets and thousands of wells we can drill. Even at 100 wells drilled a year we have five, 10, 15 years of drilling inventory that we own already.
The fact that we are a NASDAQ-listed company gives our partners comfort in knowing that we have to comply with all SEC rules and get third-party engineer, audited financials that comply with the Sarbanes–Oxley Act [of 2002]. Although we are smaller, we are on our way. We do have the mental process, and this is repeatable performance—in singles and doubles. We make a well and do it right and become a good partner with everybody in the deal and make oil and gas every time we do it. That’s our goal.
Opportunist: Are you concerned that oil prices keep falling?
Will McAndrew: We have been in the business long enough to know it’s cyclical. At Torchlight we can only control three things in this industry. First is to keep our overhead low. There are only six of us in the company. We don’t have a bunch of employees who are on our books. We use consultants; when they are through with our job they go home. The vendors we use have special knowledge of our projects. Every well is different and every project is different, so we use local expertise focused on those particular formations.
Second, we didn’t go out and buy when oil fields were thousands of dollars an acre. We only paid $20 an acre for our biggest project. We have been very careful to keep our cost of entry down.
Third, we also keep our finding and lifting costs, the costs to drill, complete, and lift our hydrocarbons out of the ground for sale, low. Prices are very cyclical and when prices drop as they did in the 1980s and 1990s and also in 2008, the labor, the rig time and all other associated costs come down with it as well It takes about six months to catch up. The drilling contractors we sat with last week came in with a 35 percent discount. Our finding and lifting costs are now down to around $30 per barrel. So if oil stays at $50 we aren’t making as much money per barrel but we are still making money on each and every barrel of oil we produce and sell. We got into the projects right. We didn’t pay an exorbitant amount for our leases. We go out and look for repeatable performance. We aren’t looking for grand scale home runs or to knock it out the park; we are looking for singles and doubles to get on base.
Like Warren Buffet said, ‘You don’t make money when you sell, you make money when you buy—if you bought it right.’
We look for infrastructure and data and information that we can key off of, and before we go in to drill we do the research. We also apply new technology to these older fields. We watch our overhead, do low-hanging fruit for repeatable performance and we don’t go chase the grand plays. We go in and find something that makes sense in terms of the economics.
Opportunist: Just last week Saudi Prince Alwaleed bin Talal said we will never see $100-a-barrel oil prices again. Do you agree?
Will McAndrew:I personally believe a lot of it is political. Saudi Arabia cut production and they lost market share during the last oil bubble. They don’t’ want to lose market share again, and they’ve built up a huge war chest of capital, so to speak. There have been low finding and lifting costs in Saudi Arabia. What will help the world economy get better? Lower energy costs. Transportation, travel, vacations, manufacturing—all of those business segments—will benefit from lower energy. It helps the world economy. America is one of the major recipients of those benefits, but Europe and China and so forth will also benefit from lower energy costs.
Then there are the issues of Russia and Ukraine. Iran won’t come to the table and sign a nuclear pact and ISIS has oil in the black market. Lower the prices and these economies so dependent on oil—ISIS, Russia, Venezuela—are forced to sell at lower costs. They need to keep their entire social and welfare programs funded so they don’t experience an Arab Spring with such high unemployment and low standard of living. They need oil at $120 to $130 a barrel to keep their programs going.
It’s more than just an oversupply of oil and natural gas in the world. Look what America did with technology and natural gas. It trades around $3 to $4 now. America is a tech-driven play. Yes we have seen the price of oil drop but we will also see the cost to produce that same barrel drop significantly, which is evident right now, today. Even if we don’t see $100-a-barrel oil, it will be cheaper to drill wells and cost even less to go in and produce.
Opportunist: What is Torchlight’s competitive advantage?
Will McAndrew: I think we are nimble. We get involved in a project correctly. We don’t have to drill monster wells to be successful. Dollars are precious to us, whether oil is priced at $100 a barrel or when it’s $47 a barrel or whatever it is today.
Our South Texas project is surrounded by major oil companies such as Hunt Oil and we have drilled three successful wells in a row.
Our 172,000-acre project in West Texas is our biggest single-drilling unit and we only paid $20 an acre for it. So we aren’t upside down on the property from day one. In the course of doing due diligence for several months, we ran our economics at $50 a barrel even though the price of oil was higher. If the individual wells produce 100 barrels of oil per day and we only receive $50 a barrel over 18 to 24 months, the wells will pay off not even counting the tax advantages.
Our holdings in the Permian Basin have the opportunity to make oil and gas history. Also, our management team has more than 200 years of industry experience and 100 years of experience in the capital markets for public companies.
Opportunist: What are the company’s objectives for 2015?
Will McAndrew:To continue drilling in Oklahoma, Kansas and Texas. Depending on how things stay, we may be able to drill 20 wells on those three projects this year. We will go out and get our first three R&D wells, and drill next to existing wells. We can do the science and confirm what we believe is there and what we think they will look like and then drill another five to 10 more wells. This keeps our cost of entry down. With prices coming down, and applying new technology, we believe we can make a lot of money at $50-a-barrel oil.
Opportunist: Would you like to say to anything to potential investors?
Will McAndrew: We’ve got a great business model. We’re keeping costs down, we get into the right projects and we have the right partners. We have repeatable performance and I think we’ve been able to prove we can be successful in different environments. We started our company when oil was $35 to $55 a barrel and it’s in that range today. We never lost that mindset—even when oil was $100 a barrel—to go chase something. When the price of oil goes up, everybody thinks let’s go get in the play. But we haven’t done that. We look at it similar to buying stock. If you buy something at $1 and it goes to $5 or $7, you hope it’s going to continue climbing but it may drop back to $1. You cannot change these things.
We have good contacts due to the way we run our business. Everything we do is relationships driven. The owner of the project we are involved with in Oklahoma is a personal friend of mine. The NYSE-traded company is a personal friend of our CEO. The project in West Texas is a personal friend of both the CEO and me. We have received no complaints with our partners because we try to go the extra mile to be a good partner. We are here for the long term.
We have been able to stay focused and not lose our way through the ups and downs of the industry, and I think that has a lot to do with our management and our mindset. All the small cap public oil and gas company stocks have been pounded—unless you’re an Exxon, a Shell or Chevron that is vertically integrated. Then you produce at the well and sell at the gas station, and when the price of oil goes down you’re making better refinery profits.
We are in the exploitation and production business, and we go to older fields with lots of science and data behind them. Then we apply new technology that eliminates the guesswork from what we are doing. That is what helps us enjoy all the success we have had over the last four years.
Opportunist: What do you consider the most rewarding aspect of your work?
Will McAndrew: I love my industry. I’ve done it all my life, and I think it’s an exciting industry to be in. You do all the science and put it together, bring in the capital, go out and bring in a rig and drill down a couple miles looking for something. Then, when you find it, it’s rewarding because you know you’ve done it right.
Opportunist: Where do you see Torchlight headed during the next few years?
Will McAndrew: I believe Torchlight has the opportunity to make Texas oil and gas history. We may have acquired one of the last huge plays in the Permian Basin.
Finally, I just want to say that I am a Marine and I want to thank all branches of the U.S. military for their service to our country. God Bless America!
Leslie Stone is an award-winning writer, editor and journalist with more than two decades of experience covering business, finance, real estate and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides between Florida and Michigan. Follow Leslie on Twitter: @lescstone.
The author, Leslie Stone, was paid by the subject company for writing this article. Neither the author nor Opportunist Magazine are shareholders of the subject company.