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Tourmaline CEO keeps investors interested

Mike Rose may be the oil patch's savviest company-builder, but he is also a romantic about rocks. Whenever possible, the 53-year-old geologist names his companies after minerals, and it's been a winning formula. That's underlined by the highly successful public offering late last year of gas-producer Tourmaline Oil , the third public company he has founded in 17 years. His first two, Berkley Petroleum and Duvernay Oil, were sold to industry giants for a cumulative $7.5-billion, making Mr. Rose's reputation as the go-to guy for energy investors. He gives his views on the prospects for natural gas, building businesses and, yes, the joy of rocks

Why the name Tourmaline?

First, it's a mineral. Tourmaline is usually coloured green or black and oil is green or black – and I just liked the name. In fact, it was the name of my own private company when I left Shell Canada and founded Berkley in 1993. With Berkley, I had hooked up with a fellow called John Woods who was the money guy and I was the technical guy. So [Mr. Woods] named Berkley and I named the next company Duvernay. We like to do a lot of deeper [drilling] and the Duvernay formation is the source of Devonian hydrocarbons [the underpinning of the Western Canadian Sedimentary Basin].

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When it came to naming our next company, I didn't have any good source rocks left. So we thought about a bunch of geological names, I ran Tourmaline by everybody and they went, "Oh yeah, I like that" so I thought "Okay, I'll give it up."

It's a hit-and-miss IPO market. So why did Tourmaline get such a good response?

Part of it is the track record. We are a gas intermediate [company] but investors will look at you if you are not over-leveraged. So you keep your debt down, your cost structure is good, and there are investors who believe gas will recover somewhat in price in the future.

Do you have a crystal ball on that recovery?

I wish I did. We're conducting our business on the basis that it's 12 to 24 months away, although it could happen sooner. So you don't use the balance sheet heavily, if at all, [to raise money] until it becomes a lot clearer when prices are going to recover. I believe prices do have to recover on a full-cycle basis.

It's not different this time. It will come back up. Maybe it doesn't go to $8 U.S. [per 1,000 cubic feet] again but it will be something in the $5-$6 range. [Gas traded last week at about $4.50.]

So why did your IPO succeed in the face of such bad natural-gas fundamentals?

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We're a good-sized company. When I started Tourmaline, I knew things had changed a little. You need to be big, you need to have scale, you need to have inventory and then the larger funds will look at you. It's a lot tougher than when we started Duvernay – that daily gas production range of 3,000 to 5,000 BOE [barrels of oil equivalent] is a lot tougher game now.

With Tourmaline, we had an internal goal of 20,000 BOE a day. We got there and we were fortunate about our timing. We were well capitalized and there were some good assets for sale in areas we like.

If someone young were starting up today, like you did 20 years ago, can they achieve what you did?

I think so. We still have a really good business environment in Canada, despite increasing numbers of regulations. And you can't get turned off by the last two years with the economic meltdown of 2008 and tight credit. If it had stayed like that forever then, yes, it would be tougher but I think the basin here has lots of opportunities left. And there are lots of investors interested in it. If young people are starting out in energy, the world needs it – the population is growing and the economy's maturing. The world needs more of all kinds of energy, even the bad stuff.

People like you are contributing to the over-supply by unlocking tight gas and shale gas. Will the fundamentals catch up to this new supply?

Yeah, I think so. We're not in the pure shale plays on purpose. There are some risks on decline [in daily shale-gas production] and so forth. That's why we're in [Alberta's] Deep Basin which is a hybrid formation; B.C.'s Montenay field is a hybrid too. We've got up to a dozen different sands we can play in the basin.

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The shale play has been good and it has really helped North American supply but, like everything else, it's probably overdone. That's the case in the U.S. especially. They have spent a fortune on land and that's why we make the comment that you need $6 gas in the long run. When they roll in their land costs, it's tough to be profitable on a full-cycle basis.

You've never sought fame. Is that just your personality, or did you feel you never needed to?

Probably all of the above. Also, I don't think it's great for the kids [three sons] that the parents are always kind of out in the public domain. We try to keep it pretty low key in town here [Calgary]. I guess over time people kind of figure it out, but we don't need to broadcast it.

But doesn't your wife, Sue Riddell Rose, have a fairly high profile?

She wasn't seeking it either – it was just a series of events, with the [controversies over] shut-in gas and the energy trusts. She kind of got thrust into it and had to deal with it and that was tough. You do what you've got to do.

Does gas need a game-changing application?

I think it's the answer to just about everything. In the short term, you could get rid of coal – or at least, not expand coal use. Even in Alberta, most of our electricity is coal, which is nuts. They shouldn't build another coal-fired station. To me, gas is a great bailout for the governments on their ever-changing environmental plans. It's a nice bridge fuel. It means 30 to 50 per cent less carbon dioxide than other fossil fuels – although I'm not an expert on the numbers. There's lots of it and there is the foreign oil-demand thing. Gas just seems logical.

What is the Mike Rose touch?

You start with a really good staff and you recognize what they can do and let them do it; you keep them well capitalized and keep your eye on the ball on costs, balance sheet and reserves. And I'm heavily involved technically. I keep logs on every well that comes in. I get the twice-a-day completion [rates] on every well – whether I'm in the office or on the BlackBerry. So we communicate as a group regularly and continuously.

You've worked with many of the same people going back to your Shell days. Any tips on how to build and keep a team?

We're all very good friends and we've been working together for a long time, which is a big attraction. We haven't gone outside to hire very senior people – although we've got a number of people with eight to 15 years' experience that we've picked up over the last three or four years. We're grooming a successor team for somewhere down the road – young guys who are real keen and they're learning the ropes and all sides of the business. It's small enough inside that they can see the whole pie.

So in five years where do you think you're going to be?

Hopefully, at Tourmaline.

But if you got to a certain scale and a major company offered good money, you wouldn't pass on that?

No, all options are open. It's obviously way too early in the life of Tourmaline because we need to invest more and prove the value of those inventories. We know it's there, and bidders would know it's there, but it's too early.

Not even to think about that?

We never were thinking about it with either of the previous two companies – it's just that's what happened. And then you respond to what happens.


Mike Rose, Chairman, president and CEO, Tourmaline Oil Corp., Calgary

Born: Montreal, 53 years old

Education: Bachelor of science in geology, Queen's University, 1979

Career highlights: After university, joined Shell Canada as geologist in Western Canada In 1993, co-founded Berkley Petroleum.

2001: Berkley sold to Anadarko Petroleum for $1.6-billion; Duvernay Oil founded.

2008: Duvernay sold to Royal Dutch Shell for $5.9-billion.

2008: Tourmaline Oil founded.

November, 2010: Took Tourmaline public in $228-million share offering

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About the Author
Senior Writer, Report on Business

Gordon Pitts is an author, public speaker and business journalist, with a focus on management, strategy, and leadership. He was the 2009 winner of Canada's National Business Book Award for his fifth book, Stampede: The Rise of the West and Canada's New Power Elite. More


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