Shale “Powerhouse” in Europe
Former CEO reflects on Realm-San Leon deal
According to the former CEO of Realm Energy there’s only one phrase appropriate to the newer, bigger San Leon Energy following its pending acquisition of Realm Energy: “shale powerhouse.”
In the wake of the deal, which was announced on 26th August and formally closed November 10th, James Elston, former CEO of Realm commented: “San Leon effectively becomes a shale powerhouse in Europe. The combined San Leon-Realm is so big in so many different plays that in my mind it’s almost got a ‘can’t fail’ sticker on it”
Mr. Elston, now Director of Palladian Energy Advisory, said that the broader shouldered San Leon had the likelihood of some good assets in the Paris Basin, a lot of good assets in Spain and interesting things in Morocco - that they already had - as well.
“If you combine that with San Leon’s acreage in Poland, and the fact that they’re in two plays in Poland: on one they have their JV with Talisman Energy Inc., which was the best farm out deal anyone had achieved at the time, and I think it still ranks pretty highly – San Leon got a good deal in getting Talisman in, and Talisman are brilliant shale players, so they’ve got a brilliant partner in Talisman.
“With Realm they’ve got a lot of un-farmed out acreage close by,” he continued. “So if you like Talisman are effectively going to de risk quite a lot of the combined San Leon-Realm acreage position, while San Leon keeps 100% of that – they keep the upside there and don’t need to spend that much money at the moment.
“It builds real scale in Poland,” said Elston.
On top of that, he added, San Leon had a million acres in Poland’s Carboniferous shale play.
“What’s interesting about the carboniferous is that there are lots of successful carboniferous shale plays – the Barnett, the Fayetteville and the Woodford are all Carboniferous, so the great thing about it is you know that the tiny fossil animals have formed the right kind of pore structures in the shale. You know that that’s going to work.”
In slight contrast, he said that what one might not know with the Silurian or Cambrian shale plays – like that which had been drilled in eastern Poland - is whether or not the tiny fossils in the rock provided the right kind of pore structure for shale. “That’s one of the things that we’re waiting to see with all the testing taking place,” stated Mr. Elston.
He summed up: “In Poland, San Leon now has two massive opportunities in different shale plays and it’s really augmented that with Realm.
“But in terms of what Realm brings to San Leon, there’s this JV with applications in the Paris Basin, which is the play closest to my heart. San Leon will acquire ConocoPhillips as a partner there for when they get license awards in Paris for the future time when I believe that fracking will be allowed again.”
In August, he believed that in other places Realm had made massive moves. In fact, on 21 September Realm was awarded two out of the 10 permits it applied for in Spain, with a likelihood of a further six 100% awards for concessions comprising over 1.7 million acres.
“Despite the market collapse after the deal was announced, effectively Realm shareholders who took San Leon stock or exchangeable shares will hopefully get the chance to see the rise in value over the coming months with the security at a greater scale that there is in working with the San Leon team for whom there’s a tremendous set of opportunities to exploit. They’ve got the capital, staff and systems – it’s a operationally much bigger company than Realm; they’ve got 15 people just working in Warsaw on the Polish plays.”
“For former Realm shareholders who took San Leon stock or exchangeable shares you’ve got the chance, to actually follow that through and see the upside,” he explained. “This wasn’t a cash deal that capped the upside for the Realm shareholders, it’s the opportunity to really see the growth through San Leon shares into the future, so it’s a ‘win-win’ situation.”
Regarding James Elston’s relationship with Realm, he recalled he was lucky enough to meet a gentleman called Craig Steinke (Realm Energy International’s Executive Chairman) at a conference in London in late 2008.
“We started talking, which ended up in the formation of Realm Energy, which I think was really timely because we were able very rapidly to get up the learning curve on shale in Europe, with Halliburton’s help, and quickly build a business at a time when things were getting immensely competitive. The Majors had woken up and you were up against them in a lot of jurisdictions, you had to move very rapidly.”
“In North America, with his previous vehicles he’s been an early mover in basins where coal bed methane (CBM) and to a degree shale gas have been developed” he explained of Mr. Steinke. “So he’s made his first fortunes from those plays, which was the attraction to me to get it together with him. We basically got together with another angel investor, started the company and then reversed it onto the Toronto Stock Exchange.”
Elston recalled, “I was CEO for the first year, but with the movement towards rapidly getting more operational on the ground, particularly in France (Pre the frack ban surfacing), and just bigger in general, there was a need for someone operationally more experienced in the senior management team than me. So it was the right time to move on.”
He explained Karl DeMong, Realm’s new VP of Operations, who is well versed in operating very complex shale drilling and fracking operations in Canada, was from large E&P Apache Corporation. Recently Realm strengthened their team further adding Lindell Bridges, the eminent shale geoscientist, as VP Exploration. Mr. Bridges has helped large US E&Ps EQT, EOG Resources, Inc. and Chesapeake Energy Corporation crack the shale codes in the Marcellus, Barnett and Fayetteville respectively in leading their geoscience teams in those plays. Elston added “Lindell is probably the most renowned shale geoscientist working in Europe at the moment.”
Meanwhile, Mr. Elston said he had a mixed initial reaction to San Leon’s pending purchase of Realm Energy.
“The team at Realm was strengthened tremendously in second quarter, and I think they really had the ability to take things forward themselves. I thought Craig and the team could’ve done a lot more on their own. The two main shareholders in Realm, (one of which is Quantum, a George Soros vehicle) are also shareholders in San Leon, so I think it was shareholder driven consolidation really,” Elston explained of the merger.
“I would’ve liked to have seen Realm go on for a bit longer on its own. C’est la vie.”
Without the merger, he contended that Realm was not going to have any “drilling newsflow” for some time, but that San Leon had plans to drill a lot of wells in Poland.
As Director of Palladian Energy Advisory, James Elston now spends his time helping small energy companies raise money by working with small investment banks and private equity firms. Elston is working on several startups, as well as giving sermons as a “rational evangelist” on shale gas.