Editor's Note: This article is an unabridged version of one that appeared in the November issue of Oil and Gas Investor.

The boiler-plate text citing Petrohawk Energy Corp.'s assets in its earnings reports changed often. The company, which was sold in August to Australian conglomerate BHP Billiton Ltd., had been in plays ranging from the conventional, vertical Hunton in Oklahoma to coalbed methane in western Arkansas to the Gulf of Mexico.

Floyd Wilson, founder, chairman and chief executive officer, was a strict guardian who didn't fall too much in love with any of the company's assets. "I used the 80/20 rule always," he says. That is, 20% of assets make 80% of the money. And, thus, a chameleon property set. "The shales have changed this old rule of thumb."

At times, Petrohawk entered basins—such as the Permian and South Texas—as a result of an acquisition of a larger package of properties, sold these and later bought back in.

Finally, it settled into three core areas: the Haynesville shale-gas play in northwestern Louisiana and northeastern Texas; the Eagle Ford gas and liquids play in South Texas; and the emerging Bone Spring and Wolfcamp liquids-rich plays in the Permian Basin.

And, the team did fall in love with these—so much that all of the company's currency was being put into them by year-end 2010 and that another key asset, its large Fayetteville shale property set, was let go to feed its monster drilling obligations on more than 1 million other net acres.

BHP was equally attracted in taking operatorship of three world-class unconventional-resource plays and in gaining Petrohawk’s hundreds of employees who knew how to drill, complete, operate and monetize them. New to the U.S. unconventional-resource scene, BHP had just entered in March with the $4.75-billion purchase of Chesapeake Energy Corp.’s Fayetteville shale properties, and the deal included operations support services from Chesapeake for up to one year.

In July, it offered $15 billion in cash, consisting of $12.1 billion for outstanding shares and $3 billion in debt assumption, for Petrohawk, paying $38.75 a share or 69% more than the pre-announcement trading price. Proved reserves included were 3.4 trillion cubic feet equivalent (Tcfe); with probables and possible, total risked reserves were 35 Tcfe at year-end 2010.

Tudor, Pickering, Holt & Co. Securities Inc. equity analysts bid adieu to Petrohawk and its founders on August 25 with this: "The great ride finally comes to an end with an excellent return for shareholders, plus excellent assets and people for BHP. We wish Floyd…and the rest of the crew at Petrohawk the best."

To demonstrate their confidence in Wilson and the team, they added, "We're getting a jump start on the 'next Petrohawk' and considering initiating coverage with a 'Buy.'"

Wilson says "team" is spot on. "I was fortunate to be able to co-found Petrohawk with several of our industry’s leaders. And they continue to build our staff into the technical and operational powerhouse that we became."

From the beginning

The story started in 1970 when Wilson began his oil and gas career as a completions engineer in Houston. In 1976, he packed up for Wichita, Kansas, and the Midcontinent's huge gas fields, starting several private oil and gas companies that, with Prudential Capital backing, culminated with founding Hugoton Energy Corp. in 1987 during what was eventually determined to be the bottom of the 1980s oil-price bust.

He took Hugoton public in 1994 and sold it and its 246 billion cubic feet equivalent (Bcfe) of proved reserves in 1998 to Chesapeake, a mid-cap E&P at the time and taking it to its first Tcfe of proved reserves, for $326 million in stock and debt assumption.

Days later, he founded W/E Energy Co. LLC in Dallas with $20 million of equity backing by EnCap Investments LP and management and accessed public capital again, rolling W/E into tiny, publicly held Middle Bay Oil Co. that emerged as 3Tec Energy Corp. in 1999.

"I built Hugoton bit by bit with bank financing and sweat equity," he said at the time. "This time, I arranged for the equity with EnCap first. Partners with cash are the best."

The W/E Energy partnership had been 12-year-old EnCap's first investment in a start-up E&P; its focus had previously been on project finance. David Miller, EnCap managing director and co-founder, said at the time, "Floyd built a $350-million company before selling it, so we felt he had the skills to grow a half-billion-dollar company."

And, he did. Wilson soon moved 3Tec to Houston, built it to 49 million barrels of oil equivalent of proved reserves and sold it to Plains Exploration & Production Co., which was in its formative years, for $450 million in June 2003, doubling Plains’ mass.

Again days later, Wilson formed Petrohawk Energy LLC with $54 million of equity commitments by EnCap and mutual fund Liberty Energy Holdings LLC and another $6 million from himself and fellow members of management, including Dick Stoneburner, who came from the Hugoton days, and Steve Herod, who joined Wilson and Stoneburner later at 3Tec.

Wilson rolled the $60 million into a controlling interest in publicly held micro-cap Beta Oil & Gas Inc., again opening access to public-capital markets. The deal was closed in May 2004. The newly named Petrohawk Energy Corp. held 33 Bcfe of proved reserves in conventional oil and gas fields in Oklahoma, Kansas and South Louisiana.

Beta's second-half 2003 drilling budget was a mere $4 million for 7.3 net wells. Its production averaged 7 million cubic feet equivalent a day.

It was a platform for grander plans. Soon after—for $425 million or nearly as much as he had just sold 3Tec—Wilson bought 200 Bcfe of onshore U.S. proved reserves from privately held Wynn-Crosby Energy Inc., with whose founder, Ron Crosby, he had initiated a conversation months earlier.

Wilson and the small Petrohawk team—Herod, Stoneburner and Shane Bayless, chief financial officer at the time—went on a 10-day, 20-city road show hosted by FBR Capital Markets, raising $200 million from 73 institutions for 8% convertible preferred shares. Wilson also brought in $155 million of bank credit-facility debt and a $50-million second-lien note. "We were advantaged in that almost everyone we saw on the road show knew us from prior endeavors or had heard of us. They knew we had had success in the past."

Crosby had already put hedges on the production to support Petrohawk's financing at closing. Wilson said, as the acquisition was named Oil and Gas Investor's M&A Deal of the Year for 2004, "These were hedges Ron would have to live with if the deal didn't work out. Something like that isn't done without a great deal of mutual trust."

The deal closed in November 2004. Crosby said, presciently, at the time, “If I were starting a company, our property base would be a great one to start with.”

2005: Mission Resources

From there, a meaningfully sized independent E&P with 233 Bcfe of proved reserves and 57 million cubic feet equivalent of daily production emerged, gaining a position on E&P equity analysts' coverage lists. For Wilson at the time, the typical private-equity-backed, start-up E&P exit was on the horizon: three to five years.

"We were in the consolidation business," Wilson says of Petrohawk's initial acquire-and-exploit strategy. "These were multiple, conventional fields with proved reserves that were generally mature and we built a drilling program around that."

From Wynn-Crosby, it gained producing properties in South Texas, East Texas, the Permian Basin and elsewhere onshore the U.S. It also picked up 75,000 net undeveloped acres in the Arkoma Basin in Arkansas.

Because the assets were managed for cash distributions to investors, much upside potential remained for exploitation: the transaction included more than 100 Bcfe of probable and possible reserves. “You don’t find too many deals like this.” Wilson said.

The properties were very familiar to Wilson and the Petrohawk team as well. “The property set we’re developing here looks just like the map we had at 3Tec. It’s the same basins. We’ve always been there.”

Petrohawk continued to buy bolt-on and other properties to build mass and create more cash flow. And, it made its first of many divestments too: Almost immediately, Wilson sold royalty interests that came with the Wynn-Crosby properties to Noble Royalties Inc. for $80 million, involving 26 Bcfe of proved.

Within the next month, Wilson acquired Proton Oil & Gas Corp. for $53 million, gaining 28 Bcfe proved and a small amount of shallow-depth production in South Texas and South Louisiana from underdeveloped properties.

Soon, a cash-flowing well, Alliance Trust #45, from the Proton package came online at Gueydan Field in South Louisiana, making 268 barrels of oil a day. Wilson announced, "Our strategy to accelerate the development of our properties, divest non-core assets, and add proved reserves and upside potential through additional acquisitions is well under way."

For 2005, drilling capex was set for $70 million.

A month later, Wilson had another deal in hand: for publicly held, small-cap Mission Resources Corp. for $138 million in cash and 19.6 million common shares. Closing this in the summer of 2005, Petrohawk brought in more South Texas and Permian properties and gained 226 Bcfe proved and 68 million cubic feet equivalent of daily production.

Its reserves and production doubled to 446 Bcfe and 125 million. By now, Petrohawk was only a year-old. During the year, it had bought 258 Bcfe, added 65 Bcfe by the drillbit and sold 54 Bcfe. Also, it now had assets in East Texas and the Gulf of Mexico in its portfolio as well.

Still having his site set on the exit, Wilson said, "We will continue to attempt to increase shareholder value as we build the company for eventual sale or merger."

But the U.S. E&P business had begun to change drastically on the way to the exit. At the time, the Barnett shale-gas play was well under way. Its founder, Mitchell Energy & Development Corp., had exited to Devon Energy Corp. three years earlier. The Fayetteville shale play in Arkansas was just discovered by its founder, Southwestern Energy Corp., and the Woodford shale play in Oklahoma was in the works by play-opener Newfield Exploration Co.

Smaller E&Ps were mostly sticking to buying and exploiting long-known, conventional-resource formations, leaving the high-price, big-capex, wildcat, unconventional-resource plays to the big, heavily capitalized E&Ps.

Unknown in late 2005 to Petrohawk, its next big deal would change the company’s course, putting it smack in the middle of the Haynesville shale play that was still more than two years away.

2006: North Louisiana

In early 2006, Wilson picked up Winwell Resources Inc., gaining 106 Bcfe proved in the giant Elm Grove and adjoining Caspiana gas fields in northwestern Louisiana for $262 million, gaining 20 million equivalent of daily production. His target was the Cotton Valley formation and commingling production from it with new Hosston production in Bossier, Caddo and Webster parishes.

Wilson said of the deal, "Instead of drilling 20 wells and waiting 15 years until the Cotton Valley is depleted, we can add Hosston production today."

Funding was from a $140-million equity placement and some bank-facility borrowing. Proved reserves to Petrohawk became 551 Bcfe; daily production, 150 million equivalent. Now, it had more than 2,000 potential drilling locations on its books.

In keeping with his mantra of growth "without trashing the balance sheet," Wilson put to auction some 7 Bcfe proved that was making a small amount of production from some 1,500 nonoperated wells in various basins. He also sold virtually all of Petrohawk's Gulf of Mexico properties, involving 25 Bcfe proved and making 10 million equivalent a day for $52.5 million.

The proceeds went to bank debt. And, Wilson had another deal under way.

In April 2006, in less than two years after gaining control of Beta for $60 million, Wilson announced plans to merge with KCS Energy Inc. for $1.9 billion in cash and stock. While the Wynn-Crosby and Mission deals put it on the ticker, this one would take it to 1 Tcfe of proved reserves and net production to 305 million equivalent per day. The surviving entity, Petrohawk’s enterprise value would become $3.7 billion.

A few days after closing the Winwell deal, Wilson was talking to Jim Christmas, KCS chairman and chief executive. Winwell and KCS held the two largest positions in Elm Grove Field. Wilson saw the field as a massive anchor property for Petrohawk. He didn't know yet just how massive it would become: The Haynesville shale play sat beneath all this Cotton Valley and Hosston gas.

"The Haynesville play had not been developed yet," Wilson says. "This was in 2006. No one knew of a Haynesville play yet."

On his way to closing on KCS, Wilson paid off $124 million of 9.875% senior notes due 2011 that it had picked up from Mission. Upon closing, Petrohawk would have $360 million outstanding on its $700-million bank revolver that had just been increased from $385 million. It assumed or issued $775 million of 9.125% senior notes and $275 million of 7.125% senior notes.

The company now had some 300 employees, up from four just two years earlier. Its plans were for 250 wells in second-half 2006 compared with the 7.3 net planned by Beta in second-half 2003. Elm Grove/Caspiana represented some 40% of its reserves and production. On the acreage, fewer than 400 wells had been drilled.

"On 40-acre spacing there is room for more than 1,000 wells," Wilson said, and, if the area went to 20-acre spacing, which was highly likely, the potential was for 2,500 wells.

Wilson immediately sold KCS’ interests in Wyoming, Michigan and California that were making 15 million equivalent a day for $135 million. Petrohawk’s stock moved from Nasdaq to the NYSE. The goal upon exiting 2006: low-risk drilling, including high-quality exploration; greater predictability; and cash flow to fund growth.

2007: Start-up no more

Wilson says that, when entering 2007, "it became obvious we would outpace any company our own size and our own style and that, would there be an exit transaction, we would certainly be involved with a larger company.

"It wasn't the original thought when we started out, but, of course, things changed."

Its highlighted news at the time was of Gulf Coast Smackover oil discoveries in Mississippi and it was still looking at Gueydan Field, which it had acquired in early 2005 from Proton Energy, for deeper pay. It also had Vicksburg and Frio discoveries in South Texas—two years before it would look at the region for Eagle Ford shale-gas and -liquids potential. And, it was picking up acreage in the Fayetteville.

Wilson put Petrohawk's South Texas assets for sale along with the rest of its Gulf Coast portfolio to focus on its low-risk, high-margin assets north: the Cotton Valley, James Lime in East Texas, Fayetteville and Woodford where it already held a combined 663 Bcfe proved.

In a small deal, Wilson added leasehold in Lincoln Parish, Louisiana, to its Terryville Field, which it picked up from KCS, taking it to 68,000 net. There, Petrohawk was making Cotton Valley gas and also testing potential from the Gray sand as well as the Bossier shale and the Hosston.

Wilson sold the Gulf Coast division and its 204 Bcfe of proved for $825 million, parting with 100 million equivalent of daily production. In the next 60 days, with these proceeds in escrow for a nontaxable like-kind exchange, Wilson added 24,000 net Fayetteville acres for $343 million from Alta Resources LLC, Contango Oil & Gas Co. and others, picking up 60 Bcfe proved.

From a private seller, he bought another 18,500 net over Fayetteville for $222.5 million that included a gathering system and 50 Bcfe proved, bringing Petrohawk's leasehold over the shale to 150,000 net.

And in another deal, Wilson added more leasehold to its Elm Grove Field position for $169 million from private sellers, including 83 Bcfe proved. Petrohawk now held interests in more than 150 square miles of the field.

The Haynesville shale, which lay beneath, was just a few months away from hitting the Street.

2008-09, Part I: Haynesville

In early 2008, Petrohawk was well within its three- to five-year exit window. It now had a bank borrowing base of $1 billion, up from $675 million. Proved reserves were 1.062 Tcfe. Assets were primarily in North Louisiana, Arkansas and the Permian Basin. 2007 production averaged 319 million equivalent a day. Its drilling budget was $800 million. Drilling locations in its inventory now totaled 10,500.

Wilson went to the Street, selling an oversubscribed 20.7 million shares for $15 each.

Soon, talk of the Haynesville play began to surface.Cabot Oil & Gas Corp. had mentioned it in late 2007 and early 2008. Goodrich Petroleum Inc. named it in an earnings call in early March. An equity-analyst report in late March showed early indications of the economics of horizontal Haynesville wells.

Petrohawk dropped its Haynesville bomb on April 8, announcing it had 70,000 net acres prospective for the shale's gas, including approximately 30,000 in Elm Grove Field within the heart of the play. "Our location was fortunate," Wilson says.

Its break-out visit with research analysts at the IPAA's annual OGIS meeting in New York that month was standing room only. Gas prices had pushed past $10 on Nymex. Gas was hot. The play was on, and so was Petrohawk stock, shooting past $26 from $15. Further leasing soon brought its exposure to Haynesville to 275,000 net acres.

Leasehold in the Haynesville peaked at some $30,000 an acre in just a few months. To fund leasing and keep up its drilling program, Wilson made another secondary-share offering—25 million at $26.39—and sold $500 million of 7.875% senior notes due 2015.

Its Haynesville horizontal Elm Grove Plantation #63 in Bossier Parish came on at 16.8 million equivalent a day—alone, more than double net company production just four years earlier.

"We weren't the first to drill a Haynesville well. We were the first to drill a headline, economic, horizontal, multi-stage-fractured Haynesville well and release the information," Wilson says. "We knew from our research that the footprint of the Haynesville was extensive. We spent about $1.5 billion during 2008 buying more land. We had spent $1 billion before we even produced an Mcf of Haynesville gas."

Sell Petrohawk now or further develop the Haynesville position? Proved reserves fetch more on the market than undeveloped acreage and Petrohawk had 50 years of drilling locations left to exploit. It also already had technical staff with shale-drilling experience in the house.

He said at the time, when named Oil and Gas Investor's Executive of the Year for 2008, "We got into a couple of such awesome plays that we wanted to exploit them." The company pushed further away from its conventional-resource beginnings. "We became a different sort of company, both internally and externally."

Petrohawk would continue on. Wilson made another trip to the capital market, selling 25 million shares at $26.53 each. Lehman Brothers and Merrill Lynch & Co. were joint book-running managers of the offering. A month later, on September 15, 2008, neither would exist.

2008-09, Part II: Capital Markets

In the midst of the capital-markets disarray that began that day, E&Ps and other enterprises across the U.S. and elsewhere were trapped between capital demands and withdrawn sources. The Petrohawk board put in a shareholder-rights plan to protect the company from a take-over on the cheap.

Wilson cut Petrohawk's 2008 capex budget from $1.5 billion to $1 billion, dedicating the balance to its highest rate-of-return and reserve-growth projects: the Haynesville and Fayetteville shales.

He drew $450 million from the new $1.1-billion credit facility that had been put in place on September 10 and put the cash in short-term securities. And, having just raised $1.8 billion in stock and senior-notes offerings, Petrohawk had no need to access outside capital at the time.

Meanwhile, as capital markets remained in hiding, gas prices, which had begun to soften a few months earlier, fell to some $5.60 and less-economic shale wells depended on a $6-or-better gas price. Oil, which had peaked at nearly $150 in July, had fallen to $44.

Petrohawk had a third to two-thirds of its production hedged for 12 to 36 months at pre-collapse prices, though. Wilson said, "The good news is that we're not in a…bind." He added, about the state of financial markets, "It's hard to be worried about a fact."

Petrohawk exited 2008 at 1.4 Tcfe of proved reserves—80% of this in North Louisiana and Arkansas—and 400 million equivalent of daily production. It took a pre-tax, non-cash impairment expense of some $1.1 billion, based on lower year-end 2008 commodity prices.

It had invested $1.5 billion in Haynesville leases that would expire in the coming three years unless drilled. Wilson went to the high-yield debt market that reopened for select candidates and sold $600 million of 10.5% senior notes due August 2014 at 91.279% of the face value to yield 12.75% to maturity.

At least the investor appetite was whet: The offering amount was oversubscribed and increased from $300 million. With the proceeds, Wilson zeroed Petrohawk's bank debt, and the borrowing base was reduced to $950 million.

Petrohawk was in good shape. The company's debt to book capitalization was approximately 41%. Estimated ultimate recovery (EUR) for its Haynesville wells had grown to 7.5 Bcfe each based on its first 14 completed. Its total resource potential in the shale was now 13.7 Tcfe.

By February 2009, Wilson was able to tap equity-capital markets again, albeit at a much-reduced stock price, selling 22 million shares at $17.50 each to further fund capex, potential acquisitions and infrastructure expansion.

Wilson said of the late-2008 double hit of collapsing oil and gas prices and closed capital markets, "It was my job to cut the budget and maintain some discipline around cash flow, but it was also my job to make sure we kept those great fields on track and didn’t let them languish.

"Some of the best times to create opportunity are when people are pessimistic. I believed this may be one of those times."

2008-09, Part III: Eagle Ford

It was easy to think during 2008 that all of Petrohawk's $1-billion capex budget was being spent on leasing and drilling in the Haynesville and Fayetteville as shales are capital-intensive plays.

But, in October 2008, investors—and the oil and gas industry worldwide—discovered a story even bigger than the Haynesville: Petrohawk had discovered the Eagle Ford shale-gas and -liquids play in South Texas and had been amassing leasehold. Its position now totaled more than 100,000 acres.

In early 2008, Wilson had tasked the Petrohawk team with finding another Haynesville. The Eagle Ford emerged. "It had the reservoir attributes we were looking for and we were able to go in there quietly. The first 150,000 acres we bought were at about $200 an acre."

Petrohawk had held South Texas acreage in the past, but it—like any other operator—hadn't looked at the deeper Eagle Ford formation that sits between the Edwards and Sligo reef trends. It had had zero acreage there anymore.

"It was totally a grassroots effort," Wilson says of the new play. The team found three old wellbores 70 miles apart that had penetrated Eagle Ford. "That was it."

It then applied seismic mapping, geochemical analysis and petrophysical principles. The results suggested the shale had varying amounts of dry gas, condensate and oil deposits and that it was highly faulted.

"It was a great exploration feat by our group to discern, identify and then convince ourselves, based on our research, that we should put together a large acreage position there."

In La Salle County, Texas, in the field Petrohawk named Hawkville, a discovery well, STS #241-1H, was drilled 11,300 feet vertically and 3,200 feet laterally. It was completed with 10 frac stages and more than 2 million pounds of sand. It went on production at 9.1 million equivalent, including 250 barrels of condensate, a day.

It was liquids-rich in a U.S. oil and gas marketplace awash with dry gas, but oil prices were tumbling too with little good global economic news anywhere on the horizon yet to rescue it. Investor sentiment was cold to new oil and gas news. The attitude on the Street: "Just what we need: More oil and shale gas." What would become a Top 3 liquids play in North America met with "ho hum."

Petrohawk put one rig at work in Eagle Ford continuously and continued leasing.

Meanwhile, the capital storm—at least for oil and gas companies—subsided; instead, the industry came to emerge as one of the few that investors would put money in as hard assets became gold again.

In June 2009, Petrohawk terminated the shareholder-rights plan it put in effect the previous October and, in August, sold another 25 million common shares, this time at $22.86 each—roughly the year-earlier stock price—to fund drilling and pay bank debt.

In September, it sold its Permian Basin portfolio for $376 million, letting go of 177 Bcfe of proved that was producing 30 million equivalent a day.

2010: Securing acreage

Petrohawk entered 2010 with 2.75 Tcfe of proved reserves, 98% gas, up from 1.5 Tcfe at year-end 2008, adding 1.45 Tcfe from the Haynesville alone. Daily production grew to 600 million equivalent. The new capex budget was $1.15 billion. Risked resource potential was 31 Tcfe; the reserve life, 15.9 years.

It exited the 2008-09 maelstrom with $203 million drawn on its now $1.2-billion credit facility and net debt to book capitalization of 44%.

It now held 360,000 net acres over Eagle Ford where the average initial-production (IP) rate became 9.7 million equivalent a day and EUR per well was looking like 5.5 Bcfe. It was pushing laterals out to 5,500 feet and looking at trying 6,000 feet or more.

Of its leasehold, 225,000 net were in the liquids-rich window. A well there, Lanik #1H in its new Black Hawk Field, IP’ed 2.7 million cubic feet of gas and 930 barrels of oil and condensate on a restricted choke. Estimates are that Petrohawk's acreage may host as many as 15,000 wells.

In the Haynesville, it now held 360,000 net acres as well and the average IP has grown to 17.2 million equivalent per day. The company has come to within one year of securing most of its Haynesville leasehold by production. A majority of capex would now be focused on Eagle Ford.

To fund this, Wilson evoked the 80/20 rule and began to sell. The property-divestment market that had been stuttering over falling commodity prices and restricted access to capital had come back. First, he let go of 23 Bcfe proved in the old money-maker oil field, the West Edmond Hunton Lime Unit (Wehlu) in Oklahoma, to a private company for $155 million. The property was the last of interests it still held from Beta.

Wilson then sold some additional Midcontinent and miscellaneous properties for $161 million and let go of 110 Bcfe proved in Terryville Field for $320 million. Except for Elm Grove, Terryville was the last property it still held from KCS; it wasn't prospective for Haynesville.

Next, he sold 50% interest in Petrohawk's Haynesville gas-gathering and -treating system to Kinder Morgan Energy Partners LP for $875 million. And, by year-end, he let go of its Fayetteville assets to ExxonMobil Corp. for $725 million involving 299 Bcfe proved. Shortly after, he sold Petrohawk's Fayetteville midstream assets to ExxonMobil for $75 million.

In all, Wilson cut 500 Bcfe of proved reserves making 113 million equivalent per day, plus some of its midstream interests, for $2.1 billion. By now, among all of the properties Petrohawk had purchased in the prior six years, its only retained interests would be in Elm Grove Field.

"We had sold pretty much everything. We started out selling 80% of everything we bought because that was the value equation of these large property groups—that 80% of your value would come out of 20% of your properties.

"So we were always divesting and we were happy to let things go. If we left a dollar or two on the table, it was justified by the velocity Steve (Herod, Petrohawk's M&A go-to director) was able to accomplish with all of this activity."

While re-grading the portfolio in early 2010, Wilson was working on the debt side of Petrohawk’s profile, selling $825 million of 7.25% senior notes due 2018 and paying off its $769 million of 9.125% senior notes due 2013.

With that, Petrohawk's borrowing base was increased to $1.75 billion on its E&P assets and it had only $129 million drawn. Its 2010 capex budget was pushed to $2.55 billion.

By year-end 2010, it had 15 rigs at work in the Eagle Ford and 1,900 net liquids-rich locations to drill in just half of its acreage—the Hawkville and Black Hawk fields. It had 12 rigs working on Haynesville, winding down from 16 earlier in the year and expecting to finish securing its leasehold by mid-2011.

To further push its reserves into the proved column, it completed a Lower Bossier shale test, Whitney Corp. 19H #1, that IP'ed 7.6 million cubic feet of gas on a restricted choke. Upon capturing the Haynesville leasehold, Wilson was planning to go after that shale.

Drilling and completion efficiencies set in. Days to drill a Haynesville well declined from 70 to 42. Petrohawk's cost per foot drilled fell from $357 to $271. Its cost was pushed down a further $1 million per well by using a lower-pressure-pumping completion design and fewer frac stages.

In the Eagle Ford, it was testing Schlumberger Ltd.’s new MP7 (HiWAY) flow-channel fracturing technology. Early indications were that production increased an average of 37% from gas and gas-liquids wells and 32% from condensate-rich wells. The tests were further suggesting that EUR per well was between 25% and 90% higher using the pilot frac method.

2011: Money knocks

By Petrohawk standards, 2011 began unextraordinarily. It averaged 562 million equivalent of daily production in 2010. Proved reserves were 3.4 Tcfe (92% gas; 1.2 Tcfe proved developed producing). Some 1.4 proved Tcfe was added in 2010 by the drillbit alone. Its oil and gas-liquids production was growing. The new capex budget was $1.8 billion.

Continuing on fiscal matters, Wilson sold $400 million of 7.25% senior notes due 2018 to redeem 7.25% senior notes that were due in 2012. Petrohawk's earliest senior-notes maturity would now be 2014.

As interest rates continued to fall, Wilson sold $600 million of 6.25% senior notes due 2019 and paid off outstanding bank debt.

"In second-half 2008 and early 2009, although we did equity deals at ever-lower prices and debt deals at ever-higher interest rates, we were comfortable that the use of these funds would be far more durable than the recession. As it turned out, we were, fortunately, right."

In June 2011, production was 943 million equivalent per day, 89% gas. Leasing was under way in the Permian Basin, where it had already spent $239 million on acreage and had four rigs targeting horizontal Bone Spring shale-oil and commingled Bone Spring and Wolfcamp vertical production.

In the Haynesville, it was cutting completion cost per well further by reducing frac stages and as prices for proppant declined. In its Black Hawk Field in the Eagle Ford, it was now netting 73 million equivalent a day—62% condensate and 16% gas liquids.

It sold its remaining 50% interest in the Haynesville midstream system and a 25% interest in EagleHawk Field Services LLC to Kinder Morgan for approximately $836 million.

Oil and gas producers began citing the Eagle Ford among the Top 3 plays they're in—or would like to be in. Midstream operators and end-users were scrambling to build infrastructure to put the play’s massive forecasted amount of crude oil and gas liquids to work in the refining and petrochemical industries.

On June 1, Marathon Oil Corp. announced plans to buy interests in 141,000 net Eagle Ford acres for $3.5 billion in cash from Hilcorp Resources Holdings LP, a venture started only a year earlier with $600 million in cash and $400 million of existing conventional-resource leasehold and production. Major E&Ps based abroad had already bought into the play for billions as well: China's CNOOC Ltd. for $2.2 billion; Korea's KNOC for $1.55 billion; India's Reliance Industries Ltd. for $1.15 billion; and Canada's Talisman Energy and Norway's Statoil ASA for a combined $1.55 billion.

On July 6, FBR Capital Markets research analyst Rehan Rashid reported that the Eagle Ford play's production potential could be worth at least $85 billion and likely more than $200 billion.

Wilson says, “It turned into something even much larger than we envisioned. We knew it was going to be good, but we didn’t realize how good it was going to be and how much areal extent it would have.”

On July 14, Wilson had 35-Tcfe-risked-resource-rich, seven-year-old Petrohawk sold.

"We didn't market the company per se," he says of the deal with BHP. Throughout the Wynn-Crosby, Mission and KCS deals, Wilson emphasized initiating transactions privately.

"I certainly kept my conversations current with the larger companies around the world during the past few years." Wilson's past start-ups were sold to what would become large-cap E&Ps; this start-up, instead, became a large-cap E&P. "We had become large enough that only the largest companies could get their hands around the size Petrohawk had become."

When learning that BHP was looking to enter the onshore U.S. unconventional-resource business, Wilson contacted the group through a banker, offering a tutorial on U.S. shales. "They took us up on it. I felt like they were a potential partner. I knew they were looking for an entry spot and Petrohawk would be a good one for them.

"So it wasn't marketed; I reached out to them and they were looking. It was 'right place, right time' for both companies."

Beyond 2011

The extension on the exit strategy paid off. As of this spring, Wilson, 64, held 4.08 million or 1.34% of outstanding Petrohawk shares. All executive officers and directors held 4.22% or 12.81 million shares. Exit packages for five members of management, including Wilson, totaled more than $24 million.

What are Wilson's plans now? "I have some service yet with BHP. At the appropriate time, I plan to continue to try to be a company builder in the oil and gas business. Who knows how I'll do, but I'm not ready to play golf every day."

Where will his next start-up focus? Certainly on the U.S., he says. "This is the best place in the world to work, the place with the least political risk. I won't say we have none, but it's far less than any place else in the world."

Within the U.S., he would build again on assets in energy-friendly regions, such as Texas, "areas that know we strive to be clean and responsible operators, making jobs and economies for people who support the oil and gas business. I wouldn't put together acreage in New York State, for example."

The Eagle Ford remains intriguing. "You could probably still put a large leasehold together there, but it would cost more than $10,000 an acre." And, Kansas has been a good friend to Wilson as well, but he won't say in which plays he'll land next: "I hope to not be the last guy in the door in a new play."

Founded on conventional resources, Petrohawk became a leader in the horizontal drilling and multi-stage fracing revolution. Wilson is impressed by how technology is creating new plays as well as making old plays new again.

"The boom has been well identified over the past five years in natural gas and that's going to continue to grow for a while. It's just the beginning now of a new boom in oil. My prediction is that, going forward, we are going to produce a huge amount of the oil we consume in the U.S. out of these North American shale plays.

"That's going to have a real impact on our economy and on the world price of oil. I was reading just the other day that the U.S. will become the largest producer of crude in the world again in 10 or so years and this is all due to these shales and redevelopment of even some conventional reservoirs with horizontal wells.

"They won't all be prospective for this new activity but many of them will."

Petrohawk Energy Corp. Timeline

2003-04

  • Nov. 18, 2003. Agrees to invest $60MM in Beta Oil & Gas Inc. (Nasdaq: BETA).
  • May 25, 2004. Gains controlling interest in Beta. Has 33 Bcfe/proved and 7 MMcfe/d onshore Lower 48.
  • July 15, 2004. Becomes Petrohawk Energy Corp. (Nasdaq: HAWK).
  • Nov. 23, 2004. Buys Winn-Crosby Energy Inc. for $425MM. Adds 200 Bcfe/proved.
  • December 2004. Exits 2004 with 219 Bcfe/proved.

2005

  • January 2005. Sells 25 Bcfe/proved of royalty interests for $80MM.
  • February 25, 2005. Buys Proton Oil & Gas Corp., adding 28 Bcfe/proved, for $53MM.
  • July 28, 2005. Buys Mission Resources Corp. for $138MM in cash and 19.6MM HAWK shares. Adds 226 Bcfe/proved.
  • Dec. 31, 2005. Exits 2005 with 437 Bcfe/proved.

2006

  • Jan. 27, 2006. Buys Winwell Resources Inc. for $262MM, gaining 106 Bcfe/proved. Enters Elm Grove Field, North Louisiana.
  • April 4, 2006. Sells 25 Bcfe/proved in the Gulf of Mexico for $52.5MM
  • July 12, 2006. Merges with KCS Energy Inc. for $1.9B in cash and stock. Adds 463 Bcfe/proved.
  • 4Q 2006. Sells Wyoming, Michigan, California and other properties for $135MM.
  • Dec. 31, 2006. Exits 2006 with 1.08 Tcfe/proved.

2007

  • March 13, 2007. Moves to NYSE as HK.
  • June 25, 2007. Reports it has 43,500 net acres over Fayetteville.
  • June 25, 2007. Plans to MLP some long-life Permian and Arkoma properties. Posts Gulf Coast properties for sale. Announces plan to focus on resource-style assets, a key strategic change.
  • Nov. 30, 2007. Sells 204 Bcfe/proved in Gulf Coast division for $825MM.
  • Dec. 21, 2007. Buys 24,000 net Fayetteville acres from Alta Resources LLC, Contango Oil & Gas Co. et al. for $343MM, adding 60 Bcfe/proved.
  • Dec. 31, 2007. Exits 2007 with 1.06 Tcfe/proved.

2008

  • January 2008. Bolts on 83 Bcfe/proved in Elm Grove Field for $169MM. Now owns interests in >150 square miles in the field.
  • Jan. 8, 2008. Buys another 18,500 net Fayetteville acres for $222.5MM, adding 50 Bcfe/proved. Leasehold is now 150,000 net.
  • Jan. 25, 2008. Bank base increased to $1B. Withdraws MLP plan. Est. gross drilling locations: 10,500.
  • Jan. 30, 2008. Sells 20.7MM shares for $15 each.
  • March 12, 2008. Reveals the Haynesville is a prospective shale play. Other producers report similar findings. The greatest land rush in industry history begins.
  • April 8, 2008. Reveals it holds 70,000 net Haynesville acres.
  • May 9, 2008. Sells 25MM shares for $26.39 each.
  • May 9, 2008. Sells $500MM of senior notes.
  • June 30, 2008. Now holds 275,000 net Haynesville acres. Elm Grove (Haynesville) Plantation #63 IP’s 16.8 MMcfe/d.
  • Aug. 12, 2008. Sells 25MM shares at $26.53 each.
  • Sept. 10, 2008. Bank facility increased to $1.1B. Zero drawn.
  • Sept. 15, 2008. Financial markets collapse.
  • Oct. 1, 2008. Cuts 2008 capex budget from $1.5B to $1B. Cites its Permian Basin properties as among candidates for possible sale.
  • Oct. 6, 2008. Draws $450MM from credit facility; puts it in short-term securities.
  • Oct. 15, 2008. Issues a stockholder-rights plan.
  • Oct. 21, 2008. Announces discovery of the Eagle Ford shale in South Texas. STS #241-1H IP’s 7.6 MMcf/d and 250 bbl/condensate/d. Reveals it holds more than 100,000 acres over the shale.
  • Dec. 31, 2008. Exits 2008 with 1.42 Tcfe/proved. To take impairment expense of $1.1B on deflated oil and gas prices.

2009

  • Jan. 23, 2009. Sells $600MM of senior notes. Pays off bank debt. Borrowing base is reduced to $950MM. Debt to book capitalization is 41%.
  • Feb. 27, 2009. Sells 22MM shares at $17.50 each.
  • June 11, 2009. Terminates shareholder-rights plan.
  • Aug. 5, 2009. Sells 25MM shares at $22.86 each.
  • Oct. 30, 2009. Sells 177 Bcfe/proved in Permian Basin for $376MM.
  • Dec. 31, 2009. Exits 2009 with 2.75 Tcfe/proved.

2010

  • March 1, 2010. Sells 23 Bcfe/proved in Wehlu Field, Oklahoma, for $155MM. Sells other Midcontinent proved for $123MM and miscellaneous properties for $38MM.
  • April 13, 2010. Reveals it now holds 360,000 net acres over Haynesville and Eagle Ford, each. Lanik #1H IP’s 2.7 MMcf/d and 930 bbl/d on restricted choke in Eagle Ford play expansion, Black Hawk Field.
  • May 24, 2010. Sells 50% of Haynesville midstream assets to Kinder Morgan Energy Partners LP for $875MM.
  • May 24, 2010. Sells 110 Bcfe/proved in Terryville Field for $320MM.
  • Aug. 4, 2010. Sells $825MM of 7.25% senior notes.
  • Aug. 17, 2010. Redeems $769MM of 9.125% senior notes.
  • October 2010. Sells miscellaneous Midcontinent properties for $123 million.
  • Nov. 1, 2010. Borrowing base on E&P assets increased to $1.75B; $129MM is drawn.
  • Dec. 23, 2010. Divests Fayetteville E&P (299 Bcfe/proved) to ExxonMobil Corp. for $725MM.
  • Dec. 31, 2010. Exits 2010 with 3.4 Tcfe/proved; 1.2 Tcfe PDP. Reveals it has built a Permian leasehold for Bone Spring and Wolfcamp prospects.

2011

  • Jan. 14, 2011. Divests Fayetteville midstream assets to ExxonMobil for $75MM.
  • Jan. 14, 2011. Sells $400MM of 7.25% senior notes due 2018. Redeems 7.25% senior notes due 2012. Earliest maturity is now 2014.
  • May 17, 2011. Sells $600MM of 6.25% senior notes.
  • June 30, 2011. Has most of Haynesville leasehold held now by production.
  • June 30, 2011. Second-quarter production averaged 943 MMcfe/d.
  • July 1, 2011. Sells rest of Haynesville midstream and 25% of Eagle Ford midstream assets to Kinder Morgan for $820MM.
  • Aug. 22, 2011. Has >1MM acres in Texas and Louisiana, 3.4 Tcfe/proved, 35 Tcfe 3P of Haynesville, Eagle Ford and Permian reserves. Sells company to BHP Billiton Ltd. for $15.1B: $38.75/share (69% premium to prior-day closing price) and $3B of debt assumption.

Contact the author, Nissa Darbonne, at ndarbonne@hartenergy.com.