HOUSTON – The man who founded and led Black Elk Energy, a Houston firm battered by a fatal 2012 explosion at one of its Gulf of Mexico production platforms, quietly left the company weeks ago to try his hand at pumping oil on dry land.
Former Black Elk CEO John Hoffman said in an interview with Fuelfix on Thursday that he and several other Black Elk executives departed to start a new company, P3 Petroleum. They’re leaving at a time when Black Elk is in the midst of civil lawsuits and a Department of Justice investigation into one of the Gulf’s deadliest disasters.
Hoffman and his colleagues left Black Elk soon after the Houston company’s sale last month of Gulf assets to Renaissance Offshore, a $149.2 million deal that Hoffman said is the most recent in a string of transactions that have pared down Black Elk by 80 percent over the past year as it pays off debt in the wake of the explosion two years ago that killed three welders and injured others on its West Delta 32 production platform in the Gulf.
“When you sell off 80 percent of your assets, you’re at a crossroads,” Hoffman said. “Many of us decided to step out into onshore.”
Hoffman’s business plan is to buy and refurbish low-return oil-producing assets in a new area for the former Black Elk management team — onshore U.S. conventional plays left behind in the rush for shale reservoirs in Texas, North Dakota and Pennsylvania. The firm would also look for deals in state waters in the Gulf of Mexico and in unconventional plays, Hoffman said.
“We’re a specialist in non-core assets,” Hoffman said, adding P3 will buy and sell undeveloped assets that bigger companies likely wouldn’t invest in but that could move the needle for smaller firms. “We play an important role in the U.S. energy market. It’s really important for developing all of America’s resources.”
Black Elk’s future is up to its new management and its financial backers, Hoffman said, but he added the company at the time he left it was producing 3,000 to 4,000 barrels of oil equivalent a day and had sufficient cash.
In an interview, Black Elk’s new president and CEO Jeff Shulse, who had served as chief financial officer before Hoffman and the others departed, declined to give details about the state of the company, but said he will give investors an update in regulatory filings and a conference call later this month.
“We wish John the best in his next endeavor,” Shulse said. “There is a path forward for Black Elk Energy.”
In an audio recording posted to its website on Aug. 20, Shulse said costs are down and cash flow has increased as the company “continues to focus on deleveraging” and paying vendors.
“Liquidity remains a short-term challenge, but we are confident we can continue to manage the timing of capital expenditures and plugging and abandonment projects,” Shulse said.
Last year, federal investigators concluded that on Nov. 16, 2012, workers aboard Black Elk’s platform failed to purge pipelines on oil tanks of flammable vapors before contractors began welding to attach a flange onto the piping — what the industry calls “hot work.”
Vapors reached the hot work area and ignited, and a flame moved between three oil tanks and caused a series of explosions and a fire. Oil from the tanks spilled into the Gulf. The contractors killed that day were Ellroy Corporal, Jerome Malagapo and Avelino Tajonera.
In a report on the investigation, conducted by the U.S. Coast Guard and the Bureau of Safety and Environmental Enforcement, investigators said Black Elk and its contractors “did not adhere to welding and burning regulations” and “did not follow Black Elk’s hot work plan.” Specifically, the report said, contractors didn’t inspect the hot work area for hazards and there was “a lack of supervision” among Black Elk and its contractors.
“These failures reflect a disregard for the safety of workers on the platform and are the antithesis of safety culture that should guide the decision-making in all offshore oil and gas operations,” safety bureau director Brian Salerno said in a written statement on the report.
Shulse said on the recording that Black Elk received a letter from the bureau in May that said it had completed all elements in a safety improvement plan.
Black Elk, Hoffman said, is dealing with civil lawsuits from people affected by the West Delta incident, including some who were injured in the accident, though he said he could not comment further on the ongoing suits.
“I will say that I’m going to make myself fully available and completely cooperate with the various situations that are ongoing,” Hoffman said.
He said he was aware of an ongoing investigation into the accident by the Department of Justice but did not know its status. The Justice Department did not immediately respond to a request for comment.
Hoffman said the financial challenges following the explosion led Black Elk to sell off assets, a process that has been going on for more than a year.
“Clearly there was a financial impact of tens of millions of dollars that we had to deal with,” Hoffman said. Costs included paying for the response to the explosion, “which I believe we did in a professional and thorough way. I constantly thank the team for responding to the incident.”
Black Elk’s drilling program, Hoffman said, had accrued debt while the company built out its operations in recent years, “and while we reap the benefits of higher production, we have an obligation to retire that debt, and we did that by selling properties at a much higher price than we bought.”
As for Hoffman’s new venture, he said P3 Petroleum plans for now to remain a private company and focus on attracting geologists and others with expertise at finding geological locations to drill for oil on land. It’ll offer a tempting lure – equity in the company.
When the company gets rolling, its main job will be “identifying those oil and gas fields that have upside potential,” he said. “It would be more of a conveyor system,” buying assets for $100 million to $400 million and then reselling them to small independent oil producers. Many of those assets would take three to five years to spruce up and sell, he said.
P3, he said, stands for people, planet — and profit.
“I think in the next five years, our vision is to have a strong presence in the Gulf Coast and perhaps other regions in the lower 48,” he said.
So why doesn’t Hoffman ride off into the sunset?
“It seemed a shame to not keep that team together and build something new,” Hoffman said.