Synergy Resources having banner year in 2011

PLATTEVILLE – For Ed Holloway and little start-up Synergy Resources in Platteville, the oil-and-gas business is truly booming.

The three-year-old company, which has only a dozen employees, is riding high.

Last month Synergy reported enviable fiscal third-quarter results, including a 412 percent increase in revenues and a 213 percent increase in oil and gas production.

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The company also enlarged its drilling targets during the quarter, acquiring interests in 88 oil and natural gas leases in the core Wattenberg Field of the hydrocarbon-rich Denver-Julesburg Basin.

And most important for its shareholders, Synergy posted a positive equity of $45.1 million compared to a negative $1 million just a year ago.

“Fiscal year 2011 is rapidly shaping up to be our company’s best year since inception,” CEO Holloway said in his third-quarter report. “Accelerated drilling on our core Wattenberg projects has improved our production rates and continues to drive our strong revenue growth.”

While the numbers are impressive, Holloway plays down their long-term significance in an interview.

“Part of it is just executing our business plan,” he says of the company he co-founded with Bill Scaff Jr., who now serves as Synergy’s vice president, secretary and treasurer.

“When you’re a startup, you can have those kinds of growth numbers in the beginning. We’re still going to be growing at a rapid pace, but to keep on a track like that is going to be totally impossible.”

Industry veteran

Holloway should know. He’s been in the oil-and-gas industry since 1981, when he began buying and selling leases in Weld County. In 1983, he founded Cache Exploration, an oil and gas exploration company that drilled more than 350 wells.

“We decided to stop selling leases and do our own drilling, because every lease we sold was hitting a well,” he recalled.

In 1987, he sold Cache’s assets to LYCO Energy Corp., but rebuilt Cache and sold the entire company 10 years later to Southwest Energy.

In 1997, Holloway co-founded Petroleum Management LLC and four years later co-founded Petroleum Exploration and Management.

Those were relatively good years, but nothing like what he’s seen since 2004, Holloway said. “That’s when we started seeing things really changing,” he said. “In 2006-07 oil moved over $50 a barrel. We’d never seen that before.”

Earlier this summer, crude oil was selling for more than $100 a barrel but recently fell to below $90.

Generally rising prices for oil, coupled with advances in technology like horizontal drilling that allows operators to drill multiple wells from one rig, have made the oil-and-gas business more lucrative than ever – but also more financially risky.

Holloway notes that a conventional, vertical well costs about $650,000 to drill while the new horizontal wells cost about $4 million to $5 million to drill.

And the spike in oil prices seen over the last three years has increased the competition and costs.

“When we got to over $100 a barrel, everyone was getting out there at breakneck speed and costs began spiraling,” he said.

Little can be good

Going up against oil giants like Anadarko and Chesapeake is tough, Holloway admits, but a small company can have its own advantages.

“We’re in with a bunch of 800-pound gorillas out there,” he said. “But we’re finding our niche here and there and we’re beating out the big boys on some of them,” he said. “We’re winning more than we’re losing.”

One tactic that Synergy is using is drilling on smaller, more confined sites in towns like Windsor, Mead and Greeley, where the company is drilling 15 wells on the Aims Community College campus.

Synergy is also getting in on the Niobrara strike in northern Weld County, where some monster wells have been drilled in the last couple years.

Holloway said Weld County remains a very good place to drill for oil and natural gas. “The low-hanging fruit is gone, but now the cost of technology is coming down so it’s more affordable,” he said. “There’s still a lot to be discovered.”

Investment interest continues in Synergy, which completed an $18 million private placement offering last year. Traded over the counter until recently, late last month Synergy’s common stock began trading on the New York Stock Exchange under the symbol SYRG.

The NYSE listing should help Synergy attract even more investment for its operations, Holloway said.

Currently, the company has 129 wells and Holloway said he expects Synergy will end the calendar year with between 150 and 160 wells. That should grow to about 200-plus wells a year from now, he said.

That’s not that fast, considering the current boom, but Holloway said that’s the way Synergy is proceeding, given the industry’s unpredictability.

“We’re very cautious, tiptoeing forward on our expansion plan,” he said. “We’ve already had a boom-bust-boom in our three-year history, which is almost unheard of.”

Still, Holloway says it’s a good time to be a driller.

“We’re really in a renaissance in the oil business, with new technology and young talent coming out of school where you can really reduce your risk in this industry, and that’s basically where we are now,” he said.