Mr. Craft: We formed Approach in 2002 and have historically focused on West Texas tight gas. Approach was funded through private equity, Yorktown Energy Partners. They funded the previous company that I co-founded as well. We have focused our efforts in West Texas, where we know the reservoirs, and where we feel there is less risk involved. In 2007, because we had put together quite a few different geological prospects outside of West Texas, we decided to take the company public. Private equity funds, after a certain period of time, prefer to monetize their investment. When that time came for Approach, we did not believe that monetization of the company would be profitable for us because the other areas - large acreage holdings - would have no value placed on them. So we took Approach public and began trading on the Nasdaq on Nov. 8, 2007.
TWST: How successful have you been against your own goals over the past year or two, against the backdrop of your overall industry?
Mr. Craft: We started this company with zero production in 2002. We really didn't get cracking until 2004, when we farmed into a large block of acreage, Ozona Northeast, located in Ozona, Texas. Since that time, we have drilled close to 332 wells in Ozona Northeast, Cinco Terry and East Texas. We currently own interests in 473 producing wells. I think we've been pretty successful. We've also increased our reserve base from zero to 211 Bcfe of proved reserves.
The last half of 2008 and 2009 have been very challenging, as it has been for all E&P companies, based on the collapse of commodity prices. However, we were in a different position than a lot of other companies in that we had the ability, when prices collapsed, to shut down our drilling machine. We were not bound by lease expirations or drilling rig commitments; we weren't bound by anything other than good common sense and business sense. There was no reason for Approach to continue drilling in the low price environment, especially since we didn't have lease obligations. As a result, we elected to release our remaining drilling rigs in April 2009.
Since then we've let the fields decline naturally. In October 2009, we deployed two rigs to Cinco Terry and now have our drilling program back on stream. I think that releasing the rigs until October 2009 served Approach well and allowed us to pay down debt. We didn't have a lot of debt in the first place; I think our debt-to-equity ratio was around 17%, and that's now down to about 14%.
We currently are trading at a discount to our peer group based on enterprise value per thousand cubic feet of proved reserves. This may be due to the type of assets we have in the Permian Basin. Other reasons for the discount may be, one, we still have a very large institutional holder, Yorktown, who owns 32% of our outstanding shares - the float is quite limited right now. And two, we're not in any major shale plays. The analysts prefer the shale plays, like the Marcellus, Eagle Ford or other shale plays. We do have an acreage position in British Columbia in the Montney tight gas formation, but we have a small, non-operated interest in those properties. So I think that's one of the challenges we face. But at the same time, my philosophy on doing business is a little bit different. We're going to do what we do best, and that is reduce our risk in anything we do - look at projects and determine how the project is going to add value to Approach while not taking on a large amount of debt. Therefore, we will continue to look for low-risk properties in the Permian Basin. This plan combined with our engineering expertise will grow the company's value. Once we grow a little bit more, then we can step out and take a risk by possibly investing in these shale plays.
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