10-12-2006

10-12-2006 - Tracy Krohn and Colin in Forbes Magazine Online

Tracy Krohn is putting the "wild" back in wildcatting.

By the fifth hour of racing, Tracy Krohn, pouring it on in a 500hp Ford (nyse: F - news - people ) Riley, was down by a couple of laps. It was clear he wasn't going to win the Sahlen's Six Hours of the Glen. But Krohn--at 52, the oldest full-time driver on the Grand-Am circuit--was doing what he could to help his team. Fellow driver Jorg Bergmeister had just battled his way into the lead. "I made my car as wide as possible, within the rules," says Krohn, trying to keep competitors from passing him, zipping through a series of S curves over slick asphalt that had already triggered eight accidents that day. Bergmeister won the race by 3.4 seconds. Krohn Racing ended the 14-race season in second place.

Krohn has had a pretty good run at his other job, too, as chief executive of W&T Offshore (nyse: WTI - news - people ), which drills for oil and gas in the Gulf of Mexico. The company has scored in 25 of 28 wells drilled this year, a remarkable record. In many cases W&T took 100% stakes in its deepwater properties instead of spreading the risk, as most operators do. Earlier this year Krohn placed the biggest bet of his career, spending $1 billion for the gulf assets of Kerr-McGee (nyse: KMG - news - people ) (which itself was recently acquired by Anadarko Petroleum Corp. (nyse: APC - news - people )). The deal doubled the size of W&T and will help the company end 2006 with net income of $250 million on revenue of $750 million.

With its shares trading at a recent $28, 9 times trailing earnings, W&T looks cheap. But who wants to invest in a company run by someone who tears around a racetrack at 150mph? "What makes Tracy different is that he's an engineer who is also an optimist," says W. Reid Lea, Krohn's longtime friend and a W&T executive vice president. "He believes good things are going to happen."

That was hardly a consensus view 30 years ago. Krohn was a bad teenager who bounced in and out of four Houston high schools. "I didn't have much interest in going to college," he recalls. When he was 18 he bummed around Europe for a summer and on his way home stopped by New Orleans, where his mother was working for Patrick Taylor, the late oilman and Forbes 400 member. Krohn took a job working on a rig out in the gulf--just as a storm was brewing. He found himself among 40 other guys in various states of sobriety as they made their way to the platform, a 14-hour journey by boat in 12-foot seas. Krohn passed out in the first bed he found. "It wasn't long before the door opened and I saw before me the single largest man ever, who yelled at me, 'What the hell are you doing in my bunk?'" Krohn was first put to work scraping paint on the deck, then cleaning out the sewage system. "After a week out there I realized that I wanted to go to college after all," Krohn says.

He ended up at Louisiana State University, where he was told he should major in English because he didn't have the grades for petroleum engineering. Krohn showed them, getting his engineering degree and going to work for Mobil, where as a drilling engineer he supervised work on 40 offshore wells. After a couple of years he headed over to Taylor Energy, working as a landman--finding and acquiring promising acreage in the gulf. But he grew antsy. "Pat Taylor was a mentor, but he was tough to work for," Krohn recalls. "Neither one of us could tolerate the other for long." (Taylor's widow, Phyllis, now runs the company.)

In 1983 Krohn quit, determined to start his own company. With $12,000, his life savings, he began scouting coastal Louisiana for promising assets. He needed more capital to sink a well. So he dropped in on Reid Lea at Hibernia Bank in New Orleans. Krohn knew Lea's wife because she worked in Taylor's land department. Good thing he had that kind of introduction, because Krohn had nothing to offer in the way of collateral except a barge. Still, Lea decided to bite. "I had a feeling that this guy was probably going to do something big, and the $499,999 he needed was well below the $15 million loan targets I had at the time." That half a million bought a handful of oil and gas wells throwing off $30,000 or so a month but in need of new pumps and hardware. It was 1985; oil was at $25 but set to fall to $9 in the months ahead.

On Christmas Day 1985 Krohn got word of a leak in one of his gas pipelines in the coastal marshes of Louisiana. He drove out there, put on his wet suit and dove down a murky 10 feet to find the problem. It had to be patched quickly or W&T would soon lose most of its production. Fixing it the traditional way--bringing in a barge, pulling up the line and replacing it--would take weeks, starting with the permits. Krohn, who had gotten certified in scuba diving a year earlier, spent the holiday in his machine shop, fashioning a new stretch of pipe small enough to be inserted into the leaky line and seal it up.

Over the next decade W&T grew slowly, plowing its earnings into new drilling projects. In 1996 Krohn bumped into a big opportunity. Playing in a golf event with the chief of Hunt Petroleum, James Parker, Krohn recalls being at a dogleg par 5, where the flag sat on an island green surrounded by water hazards. Feeling feisty, Krohn picked a driver and crushed the ball onto the green, finishing with an eagle. Parker was so impressed, Krohn recalls, that he mentioned an asset Hunt was looking at called Columbia Gas, a unit of freshly bankrupt United Gas. Parker thought the asking price too high. Krohn took a look and said that if W&T were big enough, he'd buy the whole thing. The two went in as 50-50 partners, acquiring Columbia for $195 million. Krohn had to mortgage W&T to the hilt, raising $25 million and using bank loans for the rest. They named the new company Aviara Energy, after the golf course. With Krohn in charge, they began finding more oil. Hunt bought Krohn's half for twice what Krohn had invested just nine months earlier--enough to pay off all W&T's debt and boost existing drilling projects.

Krohn's most critical gamble, though, was chasing offshore properties of Kerr-McGee, the first company to drill a well beyond the sight of land, 60 years ago. W&T had already quadrupled its size in the five years through 2004 by acquiring sizable acreage from the likes of Burlington Resources and EEX, a struggling exploration company. Nabbing Kerr-McGee's 242 blocks, a perfect complement to W&T's mostly onshore acreage, would take a lot more coin than Krohn had on hand. So he took W&T public in January 2005, raising $200 million. (Krohn sold $50 million worth; his remaining 55% makes him worth, on paper, $1.4 billion.)

Not so fast. "We were quick to offer the first bid but got rejected," says Krohn. Then Katrina arrived, knocking 90% of W&T's production offline and ended up costing $100 million to repair. Krohn had to find room in Houston for his New Orleans staff of 100. Then came Hurricane Rita. Krohn chartered a Boeing (nyse: BA - news - people ) 757 to fly 50 employees and their families and pets to Kansas City, where the Hyatt had agreed to take them all. "We called the plane the Ark," he laughs.

By no means had he forgotten about Kerr-McGee. "We bid again and got rejected again," says Krohn. "But I'm persistent." And the storms helped soften up the market. On its third attempt W&T won Kerr's 1 million acres, 100 producing fields and 88 undeveloped blocks for $1 billion--$270 million in cash from the equity sale, the rest in bank loans at 8% interest. The deal turned W&T into the third-largest leaseholder in the shallow waters of the gulf after Apache (nyse: APA - news - people ) and Chevron (nyse: CVX - news - people ). By year's end W&T will be producing 475 million cubic feet of natural gas a day (the energy equivalent of 80,000 barrels of oil). Those fields weren't cheap--W&T paid $3.88 per thousand cubic feet equivalent of reserves, seven times the price tag of the previous five deals. But that shouldn't cramp the company: It expects earnings before interest and taxes of $550 million a year, more than enough for annual debt service of $35 million or so.

And don't bet against Krohn Racing, created in 2002. It's a passion the wildcatter gave in to in 1999, inspired by the Porsche 911 his father once owned. A year ago Krohn hired the circuit's youngest driver, Colin Braun, who had just turned 17. Bold move, but justified, says Krohn, because Braun had been racing since age 5 and had won a junior championship at 15. Braun soon became the youngest pro driver to win a big car-racing event in America and, weeks later, with co-driver Bergmeister, he won again. Yet Braun missed three races because as a minor he was barred from competing in events with tobacco sponsors (Philip Morris (nyse: MO - news - people ) supports rival team Penske). Krohn sued to get around the rule, set as a condition of the government's settlement with tobacco companies. When that didn't work, he tried and failed to get rival team Penske to cover over the Marlboro decals on its cars and gear. "So we put 'No Smoking' logos on all our cars," says Krohn. And got the teenager behind the wheel.