J .C. Anderson hopes to spend a good time – but not necessarily a long time – with his new oil and gas company.

“It’s not a written-down exit strategy, but we’re looking at an exit strategy down the road, when the time is right, so our shareholders can capitalize on what we hope to be our success,” said Anderson, chairman of Anderson Energy.

“So that might entail going public, it might entail selling the company, it might entail a lot of things.”

Anderson, 72, who operated his former company, Anderson Exploration for three decades, is one of many big players who are rising from the ashes of a $69-billion implosion in the oil and gas industry.

After watching their former companies disappear almost overnight in multi-billion-dollar American takeovers or mergers with large Canadian companies, the wily veterans have spurred a start-up boom.

New, almost unheard of companies like Anderson Energy, Ice Energy, Temple, and Duvernay are being run by the management teams of former household names like Anderson Exploration, Avalanche, Berkeley, and Canadian Hunter.

“They’re being started up by guys who were in the business and, all of a sudden, weren’t in the business anymore,” said Anderson.

Kevin Olson, fund manager for EnergyOne Equity Inc., said at least 40 private companies have started up, raising $800 million in the last year.

“I can’t even think of five privates that have started up since 1997 or ’98,” said Olson, adding the number of private start-ups matches the number of public startups in the early 1990s.

EnergyOne, a spinoff of First Energy Financial Corporation, formed a year ago as the veteran players started to get back in the game. Olson has dedicated half of his fund, $20 million out of $40 million, to 12 of the new firms, including Anderson Energy.

“There’s about $1 billion remaining to go into these new entities,” estimated Olson, predicting the start-up trend will continue for at least another year.

So far, said Olson, Anderson has raised more than any other new company – $80 million – while Duvernay is a close second at $70 million.

“Now, we’re just starting to see new management teams that the investing public hasn’t seen together before,” said Olson. “We’re starting to see that wave of financing happen, because the established teams with a track record have pretty much all raised capital either publicly or privately.”

Greg Stringham, vice- president of the Canadian Association of Petroleum Producers, said the startups signal that the oil and gas industry is going through “a digestion phase” following the “consolidation phase” that occurred during the mergers and acquisitions.

“It’s not something atypical, but it’s something that we watch closely,” said Stringham. “The new part of this is that there have been a lot of royalty trust conversions. Companies have been selling their development prospects into royalty trusts and then coming back and focusing on the smaller sector.”

Royalty trusts are usually public funds that distribute the majority of cash flow – petroleum sale profits after expenses – to investors. Like Anderson, many startup operators hope the royalty trusts will help them sell their companies, sooner rather than later. “Our timeline is five years,” said Larry Evans, president of Ice Energy.

After starting up with $11 million, Evans’ former company, Avalanche Energy, sold for $250 million. This time, he’s expecting smaller results as he attempts to secure good assets before the right buyer comes along.

Most startup operators think the same way, said Jim Barclay, vice-president of Southview Resources Limited, a company that started up in September after raising $6 million.

“They want to grow to be a medium-sized company,” said Barclay, including himself in the group. “They just want to grow big enough to be purchased by somebody else, because that’s where the leverage is. That’s quite a different business strategy than 10 years ago. People would start a company and try to make it grow forever.”

But Jim Gray, chairman of Temple Exploration, said the startups should plan on being around for a while.

“My only regret is that some of them are thinking about getting 500 BOEs, 1,000 BOEs or 2,000 BOEs (barrels of oil equivalent) and then flipping,” said Gray, the former president and CEO of Canadian Hunter.

Jim Gray

“I would rather that they started thinking about building companies rather than just trying to build a little bit of value and then trying to do it again and again,” said Gray. “Have patience. Have commitment – and a longer-term commitment. To build some value. To build some real, meaningful companies.”

Most of the new companies are private. Their executives would rather spend more time drilling and less being grilled by shareholders in the public arena. Investors are showing confidence in the new firms, because the management teams have invested large amounts of their own money.

Of the $800 million raised so far, said EnergyOne’s Olson, the management teams have injected $150 million. But the emphasis on private companies is not expected to last forever.

“What the next phase will be is that some of these companies will be taken to the public markets, because all of a sudden they’ll have over-inflated multiples,” said Ice’s Evans.

Olson said he expects a third of the new privates to go public in the next year, and he expects half to go public within five years. Of the 40 new firms, five have already gone public and seen their share prices increase 50 per cent on average.

The only reason private companies have stayed private, said Olson, is because of the large availability of capital.

“As companies raise more capital, larger amounts, they’ll need to go to the public market,” said Olson. “It’s not easy to raise large amounts of capital as a private company.”

(According to provincial securities regulations, only so-called sophisticated investors, who must meet minimum asset requirements, founders and their families, and directors can invest in private startups.)

With oil reserves depleting, it’s not easy to make a profit, either. CAPP’s Stringham said the new juniors are looking mostly at exploration.

“I can really see a surge of that happening over the next year or so, especially if we go into this winter season with strong expected drilling seasons, especially on the natural gas side,” said Stringham.

“A lot of these smaller companies will pop up and start to make their presence known as we go through this winter.”

Many of the new companies are expected to lower their risk by drilling on land in Western Canada once owned by their founders’ former companies.

After acquiring the parcels of land as part of a takeover or a merger, the larger companies don’t want to develop them because they are considered too small or not profitable enough.

“It will lower their risk, because they’re farming in on plays that they have access to again, that they had familiarity with before,” said Olson.

In return for giving the land back to the juniors, the large companies receive a small share of the production profits.

“They don’t have the tender loving care, time and capability that little guys have,” said Temple’s Gray. “Small ones complement the big ones. The big companies can’t look for 10 or 20 (billion cubic feet), but the little ones can look for two or three or four BCF . . . “It’s just like chickens in the barnyard. They’re running around looking at individual grains.

“(But) if you’re a great big cow, looking for individual grains doesn’t get you very far.”

Some of the big companies won’t proceed very far with their plans until they know how the Kyoto Accord will play out. Kyoto calls for Canada to reduce its greenhouse gas emissions to six per cent below 1990 levels by 2010.

But the smaller companies are not showing any fear of the controversial accord.

“The potential for doing well is diminished somewhat, but it won’t put us out of business,” said Anderson, a strong opponent of Kyoto.

Anderson suggested royalty trusts may ultimately dictate the success of small privates.

“The royalty trusts are trading at reasonable multiples, but nobody else is,” said Anderson.

“They just buy the properties, operate the properties and that’s it. They pay out the cash flow to investors and don’t re-invest it.

“I think it’s OK . . . but they’re not going to find any oil and gas. They don’t take the risk, so they’re just going to keep acquiring properties from other people to service their payouts. . . . They’ve got to keep going.”

Meanwhile, Anderson is keeping most of his $80 million in the bank, rather than acquiring companies as he had expected. Since the firm’s management team considers the prices of takeover targets to be too high, Anderson Energy is examining new exploration opportunities.

In other words, the start-up game has changed considerably since J.C. founded Anderson Exploration in 1968.

“It’s different,” said Anderson. “Very different.”