Bill Barrett Corporation Business Information, Profile, and History

Company Perspectives:

We expect to generate long-term reserve and production growth predominantly through our drilling activities.

History of Bill Barrett Corporation

Bill Barrett Corporation is a publicly traded, independent oil and gas exploration and development company, concentrating its efforts on five major Rocky Mountain sites: the Wind River Basin, the Uinta Basin, the Piceance Basin, the Powder River Basin, and the Williston Basin. All told, Barrett's portfolio includes more than 450 producing wells and 820,000 net undeveloped acres in nine oil and gas basins in the Rocky Mountains. The Denver, Colorado-based company is headed by legendary wildcatter William J. Barrett, lured out of retirement by his sons.

Founder's Career Launch in the 1950s

Along with nine brothers and sisters, Bill Barrett grew up on a Kansas farm, and then in the 1950s enrolled at Kansas State University. After two years, however, when his father suffered a stroke, he was forced to return home to take over the family poultry business. Because of the Korean War, Barrett was drafted, although an eye problem kept him stateside. Following his stint in the Army, he returned to the poultry business, but it was obvious that it was too small to allow both him and his brother an adequate living while supporting their parents. Instead, he took advantage of the GI Bill and resumed his studies at Kansas State, ultimately receiving a master's degree in geology in 1957. He then went to work as a stratigrapher, studying rock strata for El Paso Natural Gas, thereby beginning his long association with Rocky Mountain oil and gas exploration, due to El Paso's discovery of the Desert Springs Field in the Green River Basin area of southwestern Wyoming.

Barrett left El Paso for Pan-American Petroleum Corp. in 1963, and then four years later became chief geologist for Wolf Exploration Co., where he made his reputation as an exceptional "oil finder." As described by a 1993 Denver Business Journal article, "Finding oil is like fitting together a jigsaw puzzle. The geologist combines as many pieces of information as possible, such as seismic data or well histories, and then produces a solution after lots of tedious work." According to Barrett, "A lot of hard work probably helps improve the luck factor." Barrett's first major discovery for Wolf in the mid-1960s was the 24-mile-long, 15-mile-wide Highlight field in Wyoming. He then discovered an even larger field, the Madden field in the state's Wind River Basin.

When Wolf elected to relocate from Denver to Houston, Barrett decided to stay in the Rockies while also shifting gears and becoming an entrepreneur. In 1969 he joined forces with Chuck Shear to form BNC Exploration (BNC referring to "Bill 'n Chuck"), for which he served as vice-president of exploration. Two years later BNC merged with Rainbow Resources, a company that enjoyed success in the Rockies and further solidified Barrett's reputation. The Williams Companies bought Rainbow for $40 million in 1978, a deal that required Barrett to sign a three-year noncompete agreement. After sitting on the sidelines during this period, Barrett emerged in 1981, using his share of the Williams money to launch a sole proprietorship operating under the corporate umbrella of Aeon Energy, before becoming an independent entity, Barrett Energy Company. He took the company public in 1983 by way of a reverse merger with AIMEXCO Inc., renaming it Barrett Resources.

Over the next 20 years Barrett Resources grew into one of the largest energy companies in Colorado, despite less than favorable conditions. In the early 1980s major oil companies began to pull out of the region, but Barrett, sensing opportunity, remained and was able to secure several important leases from the majors. At the same time, he was a disciplined businessman who refused to take on debt, unlike many competitors who became overly aggressive in the early 1980s. Instead, Barrett Resources sold interests in the wells it discovered, initially retaining about 12.5 percent. As the company established itself, it increased its ownership position to 25 percent, until finally it was strong enough to own projects in their entirety. This conservative approach to risk management served the company well during the oil and gas crash of the mid-1980s, allowing Barrett Resources to survive while many other energy companies fell by the wayside. The company was also well positioned to prosper in the 1990s after the market rebounded. In 1994 Barrett Resources drilled a discovery well that led to the discovery of the Cave Gulch Field, one of the largest discoveries in the Rockies in many years.

In and Out of Retirement: Late 1990s and Early 2000s

Bill Barrett retired in July 1997, but less than a year later, as an energy recession began to take hold, he returned as chief executive officer to lead the company, which he feared had begun to drift off course during the short time he was absent. He told the Rocky Mountain News in a 1999 interview, "After working primarily in the Rocky Mountains, we had gotten involved in exploration in the Gulf of Mexico and in Peru. We wound up overspending our cash flow and taking on more debt than I was comfortable with." Barrett was able to shore up the company, so that it was in a position to enjoy another growth spurt after commodity prices rebounded.

In March 2000 Barrett retired again. The company he built now became a takeover target for a major oil company, Royal Dutch/Shell Group, which in March 2001 made an unsolicited bid of $1.8 billion. Barrett Resources resisted the overture, instead putting itself up for sale in the hope of attracting a better deal from a "white knight" bidder. Another buyer soon emerged in the familiar form of the Williams Companies, which had bought out Bill Barrett's Rainbow venture 25 years earlier. Although Shell upped its offer for Barrett Resources, Williams offered more, nearly $2.8 billion in cash and stock, driving Shell from the field.

Some of Barrett's sons had worked for Barrett Resources, but after it was sold to Williams, they were at loose ends. In October 2001, Fred and Terry Barrett, both trained geologists, approached their 73-year-old father and urged him to join them, along with a number of like-minded Barrett Resources employees, to launch a new Barrett energy company based in Denver. Bill Barrett, who had not lost his love for geology, was won over by his sons' enthusiasm and agreed to serve as CEO and chairman of the new venture, which traded on his sterling reputation as an oil finder by adopting the name Bill Barrett Corporation. His stature was such that the new company was able to lure away the entire management team from his previous venture, all of whom had worked together for 15 to 20 years and were expert at locating oil and gas in the Rocky Mountains.

As a result of assembling such an experienced team, Barrett had no difficulty in raising seed money. An initial investment of $27.5 million came from members of the management team as well as family members. The first round of outside financing lasted just two months, with a number of investors having to be turned away. The company raised $107.5 million from Warburg Pincus, Goldman Sachs Capital Partners, and JP Morgan Partners. In addition, the company supplemented its war chest with another $175 million in credit. Another important factor in the company's ability to raise money was fortuitous timing: In the early months of 2002, gas prices began increasing steadily and there was a perception in the marketplace that gas prices would continue to climb. Barrett also wasted little time in its effort to acquire desirable assets. In March 2002 the company paid $73 million for gas properties in Wyoming's Wind River Basin. A month later it spent another $8 million for gas properties in the Uinta Basin in Utah. The company also signed a deal with the Apsaalooke Crow Native American tribe to drill for coalbed methane on tribal lands in Montana. Barrett closed 2002 with the $62 million purchase of properties in Wyoming's Powder River Basin, the Cooper Reservoir field, and oil properties in the Williston Basin of North Dakota. As a result, at the end of 2002 Barrett owned 119 billion cubic feet equivalent (Bcfe) of natural gas and crude oil and liquid gas. For the year 2002, Barrett posted revenues of $16 million and a net loss of $3.8 million. Most of the sales came from the Wind River properties acquired in March and developed late in the year. They were to provide an even greater payoff in 2003.

Barrett acquired more Powder River Basin properties in March 2003, paying $35 million. By the end of the year the company's proved reserves grew to 204 Bcfe. Due to an increase in the company's production activity, as well as a rise in oil and natural gas prices, Barrett's balance sheet showed a marked improvement over the previous year. In 2003 the company recorded operating revenues of $75.3 million, resulting in a net loss on the year of approximately $500,000, overall an excellent performance for a start-up venture.

Going Public in 2004

From the outset, Barrett hoped to make an initial public offering (IPO) of stock after 18 months to two years. In the spring of 2004, Barrett took the necessary steps to make its IPO and waited for the right market conditions before pulling the trigger. Again, the Bill Barrett name carried great weight with Wall Street investors, who were well familiar with his career and impressed with his experienced team. Although the asking price was high, given the young company's asset value and project cash flow, investors lined up to become involved in the offering, which was reportedly oversubscribed two or three times. With Goldman, Sachs & Co. acting as the lead underwriter and the involvement of JP Morgan, Lehman Brothers Inc., Credit Suisse First Boston LLC, Morgan Stanley & Co. Incorporated, Petrie Parkman & Co., Inc., and First Albany Capital Inc., the IPO was conducted in December 2004. Barrett sold nearly 15 million shares, netting $347 million. After the offering, Barrett's institutional backers--Warburg Pincus, Goldman Sachs, and JP Morgan--continued to own more than a 50 percent interest in the company. Listed on the New York Stock Exchange, the shares quickly rose in value, from the initial price of $25 per share to a high of $35, before settling around $30 early in 2005 because of softening in natural gas prices.

While it devoted much of 2004 preparing for its IPO, Barrett continued to grow its portfolio of oil and gas properties. For the year, it invested $347 million, including $138 million to purchase Gibson Gulch properties located in northwest Colorado's Piceance Basin. The company also drilled 285 wells during the year, experiencing an impressive success rate in excess of 95 percent. Barrett finished the year with 292.3 Bcfe, a 43 percent increase over the previous year. Moreover, the company posted total revenues for the year of nearly $170 million. Although it lost $5.3 million in 2004, Barrett had increased its exploration expenses from $6.1 million in 2003 to $36.2 million in 2004, an investment that resulted in a sizable improvement in discretionary cash flow and helped to position the company for long-term growth.

Bill Barrett indicated that despite his age he planned to continue serving as the company's CEO for several more years. Waiting in the wings to succeed him were sons Fred Barrett, president of the company, and Terry Barrett, vice-president.

Principal Divisions: Northern Division; Southern Division.

Principal Competitors: Double Eagle Petroleum Co.; KCS Energy, Inc.

Chronology

• Key Dates:
• 1958: William J. Barrett launches an energy career as a geologist.
• 1981: Barrett forms Barrett Energy Company.
• 1983: Barrett Energy becomes publicly traded Barrett Resources.
• 2001: Barrett Resources is sold to the Williams Companies.
• 2002: Bill Barrett and sons start Bill Barrett Corporation.
• 2004: The company goes public.