Mike Rose: positioned to profit from the great recession
I blogged a couple of weeks ago about the entrepreneurial thinking of money manager, Tye Bousada in my post, How entrepreneurs -- and smart investors - really succeed. I was inspired by a New Yorker article written by Malcolm Gladwell, entitled The Sure Thing.
The premise of the article being that successful entrepreneurs are not really risk takers, as the conventional view suggests. Rather, an entrepreneur's strength is in "occupying a ‘structural hole'”, a niche that gives him a unique perspective on a particular market” and acting decisively to take advantage of it.
Here’s a related story of a seasoned entrepreneur who stands to profit from this great recession – not in spite of challenging economic times, but rather because of the turmoil and his ability to take advantage of it.
His name is Mike Rose and his company is Tourmaline Oil Corp., a private investment we hold in our Canadian equity fund.
Mike Rose is a serial entrepreneur whose past successes include Berkley Petroleum (which he founded in 1993 and sold in 2001 to Anadarko Petroleum for $1.6 billion) and Duvernay Oil Corp. (started in 2001 and sold to Shell Canada for $5.9 billion in 2008).
Tourmaline Oil Corp is his latest venture. A private oil and gas company that he and his former management team founded after they’d sold Duvernay in 2008 – a time when, you’ll remember, stock prices were sinking and capital for new ventures was scarce.
Yet, Rose and his team invested $150 million and were able to raise a further $150 million of seed capital amid the market shock waves of October 2008.
Where Rose is poised to profit, as Gladwell’s premise suggests, is through his unique positioning in a particular market:
1. The entrepreneur and his management team have an extraordinary track record;
2. They have re-entered an industry they know well and, in fact, a geographic area very close to where they operated in their previous successful ventures;
3. Because of their track record, they have been able to access financing at a time when capital has been seriously constrained for many of their competitors. Assets and capital flow to the most efficient operator;
4. Well supplied with capital, they have been able to acquire approximately 700,000 gross acres of property in the Western Sedimentary Basin in just over a year, at a time when values for these assets were reduced. Rose is viewed as one of the top explorationists in the oil patch and with many junior exploration and production companies in financial distress, he was able to exploit his advantage in a buyer’s market. Thus adding to Tourmaline’s asset base efficiently.
While it’s still early days, clearly what Rose and his team have achieved to date has been impressive. Today, they have $1 billion invested - including $250 million of their own money - have made five acquisitions since start up, now have 1950 drilling locations and are on a path for continued growth just as oil patch activity is increasing and capital markets have opened up.
As Gladwell’s article would suggest, this is the fortuitous combination of skill and analysis, capital availability and market timing – which is of course the advantage of the successful entrepreneur. And among Canada's oil patch entrepreneurs, Mike Rose is among the best. We look forward to watching the rest of this story unfold.
Late 2008 and early 2009, financial markets were in crisis and the world was in deep economic recession. 
