The BBC’s weekly The Boss series features different business leaders from around the world. This week we’re speaking with Rusty Hutson Jr, founder and CEO of the US energy company Diversified Gas & Oil (DGO).
In the end, Rusty Hutson Jr could not escape the call of the family business.
Born and raised in a blue-collar home in the West Virginia oil and gas fields, his father, grandfather and great-grandfather all made a living in the energy business.
They worked at wells and pipelines, doing hard manual labor, day after day, year after year, to support their families.
During his summer vacation in high school and then college, Rusty went to work with his father.
But when he became the first Hutson to graduate from college in 1991, he decided he wanted to do something completely different with his life.
“I decided that getting into oil and gas was the last thing I wanted to do,” he says. “I didn’t want it when I got out. It’s really hard work. “
Then armed with a degree in accounting from Fairmont State University in West Virginia, he embarked on a successful banking career over the next decade, ending in Birmingham, Alabama.
But over the years, Rusty says he started pestering him that he hadn’t followed his father into the family business.
“West Virginia was a difficult state when I was growing up. It still is, “he says. “And there were two types of people – either you worked in coal, or you worked in oil and gas. It was a generational thing – if your father and grandfather did it for a living, then you did it.
“And over the years, I felt more and more drawn to this world. I also wanted to build something, to do something entrepreneurial. “
In 2001, at 32, Rusty bought an old gas well in West Virginia for $ 250,000 (£ 200,000). He collected money by taking money home.
“It was a small old well, it had been in production for years, but it was like gold to me,” he said. “I spent the next four years working at the bank as well, but every spare time I could, I flew to West Virginia to work alongside the one I had well back then. “
Today, Rusty’s company, DGO, now owns more than 60,000 oil and gas wells in West Virginia, Pennsylvania, Ohio, Kentucky, Virginia, and Tennessee, a region called Appalachia. Employing 925 people, it generates annual revenues of more than $ 500 million. About 90% of its exploitation is natural gas, with 10% of petroleum.
The company’s business model is very specific – it does no drilling to find new oil and gas reserves. Instead, it buys old oil and gas wells that the big producers no longer want, because the large initial flows fell to low volumes.
“They don’t want these old wells, but the average remaining life of most of these wells is 50 years,” he says. “So we can come in, manage them very efficiently and make money.”
Rusty says DGO has been greatly helped by the so-called “shale draw” in the United States over the past decade, where oil and gas companies have abandoned traditional oil and gas wells to move on hydraulic fracturing.
In very simple terms, unlike traditional wells where oil and gas are drawn, hydraulic fracturing first involves injecting a high pressure mixture of water, sand and chemicals into shale rock. This fractures the rock and removes large amounts of oil and gas that were previously unavailable.
According to Rusty, the move to industry-wide fracturing and higher production volumes have allowed DGO to purchase thousands of old but still productive traditional wells at lower cost and to grow the business quickly.
To help raise funds to continue its expansion, the company decided in 2017 to become a public company and to sell its shares on the stock market. In an unusual move for an American company, Rusty chose the London Stock Exchange (LSE) alternative investment market.
“We weren’t big enough then to float in the United States,” he said. “And I didn’t want to go the private equity route because I didn’t want to work for someone else and try to recoup some of the percentage. “
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DGO is now entering the main LSE market.
Energy industry analyst James McCormack of Cenkos Securities said that DGO’s strategy of “acquiring low cost, long life and low decline [oil and gas] production “is” a practically unique proposition “.
He adds: “Under Rusty’s leadership, DGO has experienced rapid growth since its IPO in February 2017, increasing production 20 times and reserves 23 times. “
Another energy analyst, Carlos Gomes of Edison, says that DGO is now the largest conventional gas producer in the Appalachian region. “The company has long-lived, low-cost, mature and productive assets that generate very stable cash flows,” he adds.
DGO’s long-term plan is to continue buying wells to replace those that will eventually come to the end of production, and Rusty says the company is now looking to expand into other areas, such as Texas.
For the time being, he says he is relaxed about the sharp drops in oil and gas prices since the start of the coronavirus pandemic, both because he has long-term “blankets” or agreements in place on the price at which he sells his production. for, and because its business operates more efficiently than its largest competitors.
He can also turn to his father for help and advice. Her father, Rusty Sr, is the company’s operations supervisor in northern West Virginia.
“He is 72 and he loves it,” says Rusty. “Is he trying to tell me what to do? Oh, absolutely. “