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Don Burdick - Partnering With Private Equity: My Three Stories

Moneymakers Business Forum | 2019 Oklahoma City

Moneymakers Business Forum | 2019 Oklahoma City


Partnering With Private Equity: My Three Stories. A Moneymaker Forum talk given by Don Burdick, Olifant Energy in Oklahoma City, Oklahoma on 4 April, 2019.

Over the last 10 years, Donald Burdick has partnered with three different private equity firms to help build and sell three different E&P companies. He will tell stories and offer lessons learned through each of those journey's! Come prepared to ask questions as this presentation hopes to offer an honest, direct conversation about the many opportunities and challenges that go hand-in-hand with this type of oil company.

Full Transcript

Like many of the others today, I'm going to look at my career and just tell you stories, things that I've learned, things that I've experienced. And if it's got any value to you, great. I'll try to think of what I perceive as valuable comments to make as we go through it.

But this is kind of my personal career with the price of oil plotted over it. So I came out of OU grad school in the fall of 1984. So I consider myself a bust baby.

I'm a geologist. I started with Marathon in Midland, Texas. And moments after I arrived, the crash of '86 occurs. There's layoffs. I'm thinking, all right, I'm going to go back to North Carolina and be a carpenter-- that's where I grew up-- a carpenter. Obviously, the oil business isn't going to work.

Little did I realize when the layoffs fell that, oh, I was the last guy in and probably the cheapest guy on the payroll and also, as a young, year and a half, inexperienced idiot, I at least still had promise. I hadn't proven myself to be a waste of investment. So that's probably why I survived.

There were three more layoffs after that during my time at Marathon, so a 10-year run. In the fourth one, it was voluntary. We haven't experienced that yet, I don't think. We may, as an industry, again.

But that was the voluntary severance package. Everybody who says that you'll get-- everybody got a piece of paper. This is what your severance would be worth if you quit. We know it's destroyed morale. So if you quit, this is what you'll get, and you can go do something else.

And so that's when I quit and went, huh. Had a buddy at Samson up in Tulsa. And he said, why don't you come up to Samson? We'll do some things.

So I took the package, entered into the smaller world of the independent oil and gas producer, moved to Tulsa in '94, and I haven't left since. I actually like the town, I like the people. And that began this quest to stay alive and figure out a way to make it work in Tulsa. So that's '94.

On this slide, the first 2/3 of my career, I'm a technical guy. Didn't really understand the business. I'm a geologist. I wanted to be a good geologist. I was still learning what a log meant. I'm trying to map things well.

The business side was just-- that's for the engineers and the finance guys. I just want to make sure I'm finding where oil and gas are, and I want to be really good at that. And I'm mixing my career opportunities, working 3D workstations, chasing different plays.

Part of that experience, though, after Samson was a vintage petroleum. And I see Marty's still here, so holy crap, that was a fun ride. It was a 7 and 1/2 year run in an A&D group. And with Marty and the team there, I was the first geo, I guess, permanently hired in that group.

And we searched for opportunities around the world. And it's kind of a three-week lifespan. You get introduced to a new asset. You try to figure it out and quickly come up to a value and make a bid, win or lose. Regardless of the outcome, you'll probably take a day off, refresh yourself, and then go off to the next deal.

One day, it's Bogota, Colombia. Next day, it's Cook Inlet. After that, you're working the Anadarko Basin.

As I look back and think about that team and that experience, it's not that dissimilar from our private equity-based world. It was very much about existing value of an asset and the way to create more value with that asset, whatever it is. So that experience, I think-- again, I think, looking back, it translates into being able to get into the private equity world.

The other thing I put on this that I think is very relevant is those bottom bars-- the unconventional gas play cycle, CBM, unconventional oil play cycle. I think those plays, those play concepts, the ability to kind of turn ourselves into manufacturers, is another reason for the private equity explosion that we've experienced recently. And the maturation of those plays is a contributor to why we're in the difficult times that we're in now, as well.

All right. Let's-- whoops-- try this button. Wrong button. Got it. Quick slide here. The explosion of private equity firms.

I've only shown logos for 28 of them. There's over 100. Storm was talking about that a little bit earlier. Some of the classics that formed in those mid to late '80s, some of the new ones that have emerged many of you may be partnered with.

Curious. How many are in a private equity-backed shop now, if you don't mind raising your hand? So half the room. How many are in a public company right now? About a third of the room. So the rest are somewhere else in between. OK. Good enough. Thank you.

Keep hitting the wrong button. Anyway, that's the explosion. The impact. This is a real quick-- here's the slide.

So 2019, the impact of private equity. How many horizontal wells were spud by private companies in 2018 only? Those are shown in the purple dots, and you can see the scatter of basins. How many were spud by public companies? About twice that amount.

So a third of all the horizontal spuds were private equity-backed enterprises. Goes to tell you, if that goes away, there goes a third of the new drilling, I think, potentially. I mean, it is what it is. So what it means, we can all talk about.

Let's look at just even the active rigs. Kind of a similar situation. As of January of this year, there were 325 private company drilling rigs operating, 544 public. Same basins.

Again, you kind of look, though. The dark purple being the privates, they're the ones who are slipping out and trying some new things. I do think that model of-- even though we know equity product hates the word "exploration" now, it's the small companies that are getting out there and testing new concepts. Because that's really how we create the biggest value. Just food for thought.

Laredo. So I'm going to go through three of my private equity-backed company experiences.

I came as just a technical guy and then quickly turned into the A&D manager at Laredo. Randy Foutch, I will forever be grateful for-- he said, OK, Don, here's your job. I want you to be aware of any deal in kind of the parameters that we're looking for. And so make sure that we know about a deal, particularly the ones that aren't being publicly marketed. Second, get the name Laredo out. And other than that, go invent your job.

Cool. So, I mean, I started out in Tulsa in that time period. We did a billion dollar acquisition-- Don Edwards over there, who was at Broad Oak.

I guess Broad Oak went through an attempted sale. It didn't work. They're a Warburg Pincus company. Laredo is a Warburg Pincus company. Both privates.

And then I think the discussion ensued such that, huh, Laredo could pay this billion dollars to buy Broad Oak and then IPO and actually cover the cost, is something I think Storm and some others were showing, the uptick that used to happen with an IPO, and create value and be able to do that deal.

And so that was done. The blending of the companies occurred. I was fortunate enough to come down into the Broad Oak office for a period of time and learned very eye opening ways. Like, holy crap. These guys made a bucket load of money being the acquired. Maybe it's better to be the acquired than the acquiree.

But I had an opportunity with somebody who said, hey, you want to come into a private equity shop and be in a startup? Well, OK, so what's the pay check?

And then I get these C shares. And what's that worth? Well, nothing. But if you do something, it might be worth something.

And then a public company says, yeah, but I can give you a sign-on bonus, stock that you can look at The Wall Street Journal every day and see what it's worth. And we're a secure company.

I went, yeah, OK, that makes more sense. I mean, my dad was a college professor. He got hired out of school with one university and stayed there till he retired. So this jumping around businesses was pretty foreign to my DNA.

So it scared me until I started opening my eyes a little bit more and then thought, hm, so Laredo does this big acquisition. We do an IPO. We sell off some assets and decided to be a focused, efficient producer.

And I looked at myself and thought, well, I'm sort of an explorer. I'm getting better at the A&D thing. I'm a geo. I'm not an efficient, focused, do-this-well kind of guy. I'm always looking for something new. Maybe I don't belong at Laredo. Maybe it's time to start a startup to explore this a little bit more.

So here's where the story gets fun, I hope. How much time? I'm probably chewing up all my time.

OK. So for those of you who aren't yet, give me some signs. Those of you who aren't in a private equity, you might be thinking about this. That's part of why you're here. You want to hear from the speakers today.

So how do you do it? And thinking back a little bit, I think I've got a slide. Oh, yeah. How's it work? These funding commitments, I think we've heard some of that. But even more importantly, who do you partner with? And how does that all come to be?

So it's funny. When you start thinking about yourself as an employee or a co-worker, there's one mindset. When you start thinking about yourself as, I'm going to partner with some other guys, your metrics for evaluating who you partner with change a little bit. Not just a guy I like going out to grab a beer with or whatever, it's more, hey, how competent are they in their particular discipline? Do they have a business mindset?

I love to talk about, for each of us-- I may be a geologist, but I want to think of myself as a business man who happens to know geology. If we have an engineer and she thinks of herself as a business woman who knows engineering, that mindset. You have a discipline you bring, but it's all about the business.

So we had a group of guys. There were six of us who thought, hey, let's spin out and explore this a little bit. So we did. We talked to the different private equity guys. And this is 2013, to set the timing stage.

Started asking, what's an A, B, and a C share? Didn't really know if people use some different terms. But if you call the A shares, that's the investor class from the private equity. The B shares is the investor pool from the management team. And the C shares are those profit shares that you get if you hit those multiples we've talked about earlier.

The pitch book. I think we heard Dick Stoneburner talk about, yeah, it's good to have a business plan, your pitch book. But what they're really looking for is this integrated team that can work together.

So if I'm throwing advice out there, depending on where you are, particularly if you're younger in your professional career, be that individual who does work hard, who does try to solve problems, who shows respect, learns from his or her peers. Be that person that other people say, yeah, I want them on my team. Because one day, that investment of your character probably puts you on a list for somebody that says, yeah, I'd like to partner with you to start a new business.

So that's what we went through. We had six of us. We had that Sunday afternoon meeting, where two geos-- no, three geos, a land man, a finance guy, and a super engineer had enough conversation with private equity, they thought, I think we're going to get funded. OK, guys. Let's get together. Are we all ready to do this?

Because every all this courtship phase we've been going through, it's probably going to be harder than we thought. So we'd better be ready for those down days in case they come.

So with three geos, one of the geos said, guys, I'm a EVP where I'm at right now. My stock bonuses are awesome. My paycheck is awesome. I have two young kids. My wife is really nervous about us leaving that to come into something that we don't know. Love you guys, I'm out.

OK. All right. We can handle that. The super engineer, he goes, I'm still in, but I was really hoping this geo was a part of that team. Don't worry, though. I'm not backing out. Yeah, I'm still in.

And then I got really nervous. And when-- I about cussed. I don't think we're ready. I think we're too scared. And we all, all of us, we're well-paid and had good positions and all that. We're not ready to do it together as a team.

We like each other. Let's hit the pause button and come back again later. By the way, though, if somebody is ready to go now, no hard feelings if somebody wants to try something.

So the third geo, he said, well, I am fed up where I'm at, and I am going out. So hope you guys join me, but I'm going. OK. So off he went.

That's when the door opened to Panther Energy for me. And so I had some friends there. I met Barry, sat down with Barry and Roy-- I mean, Roy Grossman. You'll never meet him, because he does not do these things unless you're a drilling engineer. But he's just not Mr. Glad hander Fred, rush boy, or whatever.

But he is so fun. So I sat down across the table from him and did exactly what you don't do in an interview. We're talking a little bit, and he says, Don, if we bring you on board, your job is to build the geo team. And if you do and get us into the right place, you'll be well rewarded. Here's what we could offer you. If you don't, your head will be the first to roll.

That's pretty honest, and I accept those terms. Well, here's my deal, Roy. I've kind of done a bunch of things and kind of have my hands in the community in a lot of deals, different things here and there. I still want to do that. I still want to not just be a geo, and I want to do a lot of BD.

By the way, and this is really what you never do, but this is what I did. His name's Roy Grossman from New York. Roy, I'm involved in the political arena. I'm just going to tell you. I'm pretty conservative in my politics. And if that's an issue for you, let's get it out right now. I mean, I don't care where you are if you don't care where I'm at, but if that's a problem, let's just flush that thing out and figure it outright.

Because I was kind of expecting him to be on the other side of the aisle. Well, turns out, he said, no, I'm pretty conservative, although I don't get involved that much. They're all a bunch of crooks.

So you do whatever you want. Let's just make sure if you do it on your own, it's under your name, not Panther's name. But I don't really care what you do there. I went, OK, good.

So that got established early. So from the standpoint of for any of us, we all have our outside things. If it's maybe going to conflict with work, I took the chance of flushing it out early.

So anyway, so off we went. So as Barry told you, we went from zero. I went on the tour with Kayne Anderson, NGP, some others. We partnered with Kayne.

We had no assets. We built our US onshore game board every play. Mac Blackford, who's in the room, was a part of that first geo team. And we had some guy.

We're going through spreadsheets. We're downloading data. And OK, here's our top 50 ideas and 20 and 10 and 3 and 5. The Delaware Basin was in that top three.

The funny thing was, truth be told, cost of entry seemed high, then, that 2,000 or 3,000 an acre. Man, that was expensive. So we looked at a couple of other areas. Said, oh, let's go there first.

And then we came back after we deployed a little capital. And we wanted to have two or three plays running. And said, you know, it may be a higher cost of entry, but the exit is a big multiple on top of that. Where could we go?

So we worked the petrophysics, figured out that there were some sweet spots still remaining and some sweet spots unrecognized-- at least, we believed, based on the petrophysics-- and dove right in. So boom.

My Panther story with oil price on the green curve there, we figured out-- we partner with Kayne, we pick up a lease, all in this $100 oil environment. That's the green, horizontal line there.

We get so much acreage so fast and deploy so much capital, Kayne got a little nervous about that and said, hey, do you want to maybe get a non-op partner to drill your first well? Oh, no, we don't want to sell down.

Then we drill the first well. We go ahead and get the partner. We drill the first well. Have some cost overruns. Whew, glad we had a non-op partner.

And then price collapses. So here you go. A company that starts in $100 oil, we exit in $50 oil. And yet we turned, as Barry said-- we turned, I think, all in, counting the partnership money, 250 into 863 because of the just world-class attractive nature and reserves of the Delaware Basin.

So not easy. Went through hard times. I remember putting on my desk-- I think it was $24-- was it $24? It was. It was $24.60 a barrel. I wrote that on my desk one day and went, damn, we're screwed. I mean, no, this is not going to work.

And then it turned around, and our wells performed. We still have some great wells out there. WPX, I think, is very happy.

And so that happens. We sell. Press release comes out January of '17. And that day, in kind of talking with the team and talking with Roy and Barry, frankly, about, hey, do I do a Panther 3? Or do we spin out and do something new?

I got seven minutes? Wow. Cool. So in talking with the geo team, the engineering team, and then there were a few others-- Andy Drury, who's here in the room, a geologist and petrophysicist, that I tried to recruit out of grad school at OSU.

And she said, I'm not working for you, you loser. And she went to-- actually, she joined the company, just not in my group. So there you go. She's pretty smart.

Then went to ConocoPhillips, mastered some additional petrophysical skills. We somehow lured her back. I think it's because we have a guy named Bill Crabtree, who's a 35-year genius petrophysicist. And she said, hey, I can learn from him in spite of you. So she joined the team.

We are kind of committed to that. But as we were assembling this group of people with the blessing of Roy and Barry, this is January of '17. I thought, I don't know if we can raise money. It was getting a little tighter then, not like it is today. But give me till June, see if we can make something work.

So that journey began-- I guess I can put this on there now. Oil is in the 40s. And here's something some others have said. I think because of the fact that the geoengineering team had had success at Panther, we got the benefit of that track record. We added some new folks to our team.

And we were able to partner with EnCap for a pretty attractive-- we had the $300 million starter kit with EnCap and said, yeah, we're going to go back to the basin we know. But we're also going to look at some other areas. And so we did.

So June of '17, we're in shorts and t-shirts painting our individual offices in this new space we picked up for cheap. August, we took our first swing at trying to acquire some acreage in the Delaware. We failed.

September, we tried again. We succeeded. We got a 2,000-acre position at a university lands lease sale. We negotiated our way to double that position. We spud a well in November of 2017.

So September, our acreage acquisition, well drilling in November. So we knew time was not our friend. And we thought, let's-- we weren't so smart. We were just trying to do it the old-fashioned way of lease, drill, and flip. And that's what we were going after aggressively.

Three wells in, we've now got-- they are all producers. I got five whole minutes. And we're pleased with the results.

And so we went out to market here just recently. And I'm actually on the market live as we speak. And what I guess we're doing for you guys is being a test case of, does lease and drill and flip still work? Or will I get slapped in the face, and we'll all say, OK, how to live lower for longer?

I don't know yet. I can't give you that answer. But it's happening live. You'll know it here in a month. I promise you that.

But here's the bottom line, and here's maybe the most important and fun thing about all of this and why I have zero regrets about going down this adventure. You get to choose who you partner with. We have 15 total people at this point at Olifant.

In a real way, there's no boss-employee relationship. It's a partnership. Different people have different roles. We get that.

But we all need each other, or this doesn't succeed. And not only that, we got to choose each other and say, these are people we want to work with to try to create value.

That, in and of itself, I think, is a absolutely wonderful experience. So I encourage that. No matter how hard this market is, there's always going to be opportunities for people who are entrepreneurial, who are creative, who are passionate.

You get to create your culture. And everybody's culture is a little different. These poor folks at Olifant have to deal with my nuttiness. And, I mean, I started an Irish festival. And if you haven't been a funder for that, I'll talk to you later. I'd love to have your contribution.

A story just came out on the local channel 2 station. Rose is the security guard in our building, and she paints. And so we commissioned her to do a piece of art for Olifant.

Her husband was struggling through terminal cancer. He has since passed. But this was a skill Rose had that she'd sort of shelved in her life and was struggling with more important things.

But we asked her to do this painting for us. And she has told us it kind of helped get her through some hard times. And now, Whiptail Midstream, they've got a painting that was commissioned and Rose has done. And the local TV station, we were telling them about her.

So they just did a human interest story on Rose and showed it last night. Why do I say something silly like that? It's because when we're in these little organizations, if we just own our opportunities and act on them, we can do some pretty fun things.

I don't know if it'll always make money, but you can't take it with you anyway. I think we'll always enjoy the ride. I encourage others to investigate that, and you'll be that good worker.

You guys already know this. You're here. But your friends and the people you care about who maybe weren't, encourage them to come out, network, get to know other folks. Be creative. Take some risks. Embrace the rich highs and lows of life. Laugh and cry.

And I think we do it better when we're in these little small shops. And so maybe that's my closing thoughts. I'm upbeat. Even if we just get trashed by the market, I'm still upbeat. We're going to find a way. So thank you.

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