How a rich land position and doing the reservoir homework has created a successful joint-venture incubator

Graham Chandler

Bounty Developments Ltd. is hardly a household name on the oilsands circuit, but despite being small, quiet and relatively new to bitumen, this family-run start-up incubator has helped build promising emerging players in the industry. The strategy—not exclusive to the oilsands—is about building land position, doing the reservoir homework and finding the right partner to execute the project. Bounty’s current partners include Southern Pacific Resource Corp., Grizzly Oil Sands ULC, Surmont Energy Ltd. and Oak Point Energy Ltd.

Thirty-eight years ago when veteran geologist Bill Clark wanted to start his own company, he faced a dilemma. “First of all, I had a very small amount of money and didn’t want to go public,” recalls the affable and energetic president of Bounty Developments Ltd. “And I didn’t want to borrow any money from the bank.” He soon figured out a formula that’s unchanged to this day: “I would look for one or two really good oil wells and pay, if necessary, through the nose to get them. But they were fairly safe, one of those dream deals—try and get low risk, high reserve.”

Then Clark would look for a joint-venture partner who was prepared to give him his money back and risk the drilling capital.

“I lived off the money that I got from finding oil wells and gas wells and just started to drill bigger and bigger; no bank debt to pay or anything,” he says. He soon hired a geologist and his retired father as secretary. At first he wisely stuck to plays he knew from his days working for Texaco in Saskatchewan, but then concentrated primarily in Alberta and got a few Leduc, Alta., oil wells under his belt.

For 30 years it was all conventional oil and gas plays. “We concentrated primarily on oil, and [then] gas, if it happened.” It had to be good oil “where the pay was thick and the productivity was high,” he says. “Around existing fields, that was the main thrust.” After three “really good” Nisku, Alta., wells, which were extensions to existing good oil production, they’ve never looked back.

But they’ve always looked at new ideas, and one of those in the mid-2000s was oilsands—a play Bounty hadn’t really considered before. “Most people, including myself, thought the oilsands were too big a thing for smaller companies; you always thought of mining projects: capital, a lot of money,” says Clark.

Over the years, he had been gradually bringing family members to the team. One was his son Jon, a geologist, who was the oilsands spark.

“He was the main impetus in getting us into the oilsands. With Jon we decided to go into it, so we went in kind of like a guy testing the water with his toes.”

Turned out the timing was right too. “It was about the same time the Alberta government was doing its royalty review,” relates Paul Clark, Bounty’s land manager and another of Bill’s sons, noting that there seemed to be a misunderstanding of the real nature of the resource. “There’s kind of a stereotype that the oilsands is just this homogeneous blob of heavy oil. But, in fact, the geology is quite complicated.”

In 2006, Bounty jumped in following some serious geological homework. Clark says they capitalized on the availability of land, something they couldn’t do as easily today.

“It wasn’t too late then. The smaller companies could get in and it hadn’t caught on yet. So I told [Paul] to get all the acreage we can afford because this is going to have a short life expectancy.

All the main acreages are going to be gone by 2007.” He was right: they were.

The Bounty team would keep the old formula—maintain an interest in the production. In the early days, Clark would often keep 50 per cent or earn his money back, then keep another 35 or 50 per cent.

“The model hasn’t changed,” says Paul. “Where we do all our work is on the geology of identification of play. We risk our money on the land and then we look for a JV [joint-venture] partner who’sprepared to give us our money back and risk the drilling capital.”

That’s what they’ve applied to oilsands too.

It works. “The reason people do business with us is they think we have high-quality prospects, because we’ve really done our homework,” says Paul. They’ve been able to get some of the best available land, near the major players. They often attract start-up or smaller companies because of their intense diligence in both geology and reservoir engineering. Bounty’s work includes filing exploration plans, environmental plans, caribou protection plans and varied consulting. It’s much more than just work maps.

“We can offer all that to our partners over the next couple of years until they’re staffed up,” says Paul.

The critical start, however, has to be the geology expertise, which can lead to properties getting snatched up quickly by prospective partners.

Paul relates how it took Surmont Energy just 15 minutes recently to accept the Golden Birch project, for which a regulatory application is currently being developed. “That was Jon’s geology,” he says. “It’s that geological sleuthing, that ability to visualize.”

Indeed, of Bounty’s 13 staff, five are geologists. “We’ve got my dad here, Julie [Atkins] is my sister; she’s a geologist,” says Paul. “We have two other geologists too: Terry Buchanan, who came from 35 years at Imperial Oil [Limited], and his daughter.”

Even nephew Tyler works with the family here. “He’s in university studying astrophysics, but on the side he takes all these petrophysics courses and learns how to use software,” says Paul. “So it’s kind of a three-generation thing here.”

But the non-family members are also key to the company’s operations, such as drilling and operations coordinator Kelly Adams, who “gets things done in the field.” Adams says, “We spend a lot of time up front before we spend time in the field, researching how to do things, initially all the geology, geophysics, geosciences, all that. Then, once they are put together, we do the cost, the access, how we are going to do it.”

Oilsands successes for Bounty include the Hangingstone acreage that moved from a joint venture with Excelsior Energy Ltd. to a property owned by Athabasca Oil Corporation (formerly Athabasca Oil Sands Corp.) through a $144-million corporate acquisition in 2010. A key point of pride for the team at Bounty is the STP-McKay project, a 12,000-barrel-per-day installation that owner Southern Pacific Resource Corp. will commission imminently. Bounty sold its 20 per cent interest in the project to Southern Pacific in 2011, but the magnitude of realizing operations at this project, which Bounty initiated, is still palpable.

Paul says the STP-McKay project is an example of how the different components of the company all combine. “Jon did all the geological background and we farmed it out to Southern Pacific. Kelly did all the operating engineering for the first year, doing all the drilling, and she was special project manager for Southern Pacific when they made their successful SAGD [steam assisted gravity drainage] application. Everybody in the company contributed on this one.”

Southern Pacific president and chief executive officer Byron Lutes says without the McKay farm-in, the company wouldn’t exist in the oilsands today. Prior to the deal, he says that Southern Pacific was a shell company with essentially “no skills inside.”

“For the first winter, Bounty did most of the exploration work and that allowed us to accumulate some staff, and then the second winter it was more of a shared role.” When SAGD construction was ready to start, Bounty sold its remaining interest to Southern Pacific.

Lutes thinks Bounty’s model works. “They are very strong technically and I think they have limitless creativity. They are not greedy, they leverage their big ideas with other people’s capital; it’s a great way to do it.” And the relationships tend to endure: “Jon Clark is still on our board,” says Lutes.

“He has been a valuable member for technical guidance.”

Looking ahead, Paul says their Oak Point Energy joint venture has been one of their proudest successes. With Oak Point, Bounty entered into farmout and related agreements on over 200 sections of oilsands leases. Oak Point will be using new modular SAGD technology to develop projects on the acreage.

Ken James, co-president and co–chief executive officer for Oak Point, admires the Bounty model. “They do their homework, they get out in front and they buy the land early, and therefore cheap. They buy good land, they stay disciplined and basically put the risk on the farmees. They don’t spend a lot of time doing exploration and development. They’ve been great people to learn from.”