Stephen Hollis keeps a 1924 Double Eagle in his pocket. He often rubs this valuable gold coin, perhaps out of nervousness or maybe just for luck.
“I don’t go to Las Vegas,” he said. “This is enough gambling for me right here.”
Nearly every 15 minutes, Hollis checks the latest data on his one big bet: a drilling project in northeast Utah. The data comes via satellite to his office located on the 22nd floor of one of Denver’s World Trade Center buildings. He’s after a big strike, perhaps as much as 3 trillion cubic feet of natural gas. This would be enough gas to supply more than 10 percent of the U.S. market for a year.
Hollis, 56, has already had a good run as CEO of Double Eagle Petroleum Co. by making small, conservative bets in the proven fields of southwestern Wyoming. When Hollis took the helm as CEO in 1994, the tiny exploration and production company’s stock traded for 37.5 cents. It now trades for $21.50.
Today, Hollis is wildcatting in a pristine wilderness area known as Christmas Meadows, about 75 miles north of the Park City, Utah, ski resort.
“Just this one project … could catapult Double Eagle’s value up to five or ten times,” he said. Or it could turn out to be a $20 million dry hole. Hollis has waited more than 10 years to find out.
In 1982, Amoco laid plans to drill in Christmas Meadows, which is on federal government land near the High Uinta Mountain Wilderness Area. Amoco battled environmentalists and bureaucrats until 1986, when oil prices collapsed. Then came Chevron, which carried on the fight, but eventually gave up as well.
Enter Hollis. It took him several years to deal with concerns about habitats for hawks and black-footed ferrets. He succeeded where majors failed. “We were under the radar,” he said. “Maybe it’s not as much fun to beat up a little, local company than a Chevron.”
Hollis slowly acquired all the leases he needed from the government to drill at Christmas Meadows. Then it cost $2.5 million just to build a road to the site.
“It took Hollis’ tenacity,” said independent oilman Patrick O’Brien, CEO of Denver-based American Oil and Gas. “When you find that one rare project that works, it makes it all worthwhile. … And the potential upside on this is huge.”
Drilling began on Sept. 8. The formations where Hollis hopes to find gas are more than 14,000 feet below the surface.
Drilling a well this deep is an enormous undertaking for a tiny company. Double Eagle has only 18 employees and about $20 million in annual revenues. Its market cap is about $200 million. Yet it’s involved in drilling a hole that may cost $20 million and has a 19 out of 20 chance of producing nothing.
Hollis took on partners to share this risk. Double Eagle will spend up to $5 million on the project and maintain about a 25 percent interest. Another partner is Denver-based Basic Earth Science Systems Inc., which has a 2 percent interest.
“It’s an operational success, even if there’s nothing down there,” said Ray Singleton, Basic Earth Science’s president.
Imagine a 3-mile length of pipe, rotating into the rocky earth. Imagine how often this pipe might break, blocking the hole like a broken key in a lock. So far, drilling has gone smoothly.
The drilling rig already has surpassed 14,000 feet. Hollis, who has geology degrees from the University of Pennsylvania and Bryn Mawr College, had hoped to find at least some gas at this depth.
“We have seen some encouraging signs,” he said, “but we don’t see anything we can make money off of yet.”
He’s now considering whether a well planned for 16,000 feet should be extended to 18,000 feet, which is about the limit for the drilling rig. Just because gas is lacking in the upper formations doesn’t mean it won’t be found lower. “It’s another flip of the coin,” said Singleton.
Hollis wants to flip: “You don’t get many shots like this,” he said. “This is probably the best one I’ve seen.”
And what if it’s a $20 million dry hole?
“We gave our shareholders some exposure to the possibility that overnight this company could be worth five or ten times more,” said Hollis. “This is basically a lottery ticket.”
Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to Lewis at denverpostbloghouse.com/lewis, 303-954-1967 or alewis@denverpost.com.
