How many knows-- how many out here actually knows where powerhouse is? Do
you know what a powerhouse is? Wow.
I was raised-- my dad ran two powerhouses, and a powerhouse, that's the most
efficient way they used to drill-- they used to pump shallow wells. It would
have had a giant engine with about a foot diameter piston. And then it had this
huge belt. It was a foot wide, and it ran down on this big-- it looked like a
bicycle wheel on its side, and it was about 30 feet across and the belt went
around that. It was an offset cam on the bottom.
And so the way it popped is it went around. It would make this horizontal
movement, and these rod lines went out, and they pumped the wells. So it's like
amazing feat of mankind, all the moving parts on it. Well, the way you started
that, the way you started that is you would-- they had these two six foot cast
iron flywheels, and they had six spokes on them. And you would jump up as high
as you can, put your foot down in about halfway, and you throw it backwards,
and get all, and it would backfire. It would go, boom, and take off.
And so what was the hardest part of that? Getting off. Getting off in time.
And so that's kind of what I'm talking about today a little bit, but I remember
one time we went out there, and my dad, he's a big, big guy. And we were in a
hurry. It's wet, and he jumped up on that flywheel, brought it down, and his
foot slipped and went right through spoke. And I remember watching I think come
Above it was one. It was going to kick, and it didn't, fortunately. And he
looked at me, and he says, that was close. And it was close.
So a lot of these timing, all these things are close. And what I want to
talk to you today about is just some-- what we've learned from experience. This
the first time, I think, I've done a slideshow without any figures. So mainly
just give you some of it.
And this is not based just on my experience. We have over 40 private
equities in Tulsa, I think, maybe the highest in the States. And we talk a lot,
and so a lot of these are experiences that we've had in developing.
And I know we've talked about-- Storm talked about the model is gone, but
I'm also-- you see a lot of cyclicity going. And a lot of these rules and so on
are, that I'll talk to you about, are still valid, and even if you're doing
more of a type of build and develop.
Everybody's talked about these current conditions and the problems that they
bring. I just mentioned the last thing the, parent-child reunion. And as I said
before, in some areas, this has become a bigger issue. A lot of us knew this
anyway within the industry. We were surprised that these high amounts of 30 to
40 wells per section were being touted. And like Anadarko and then the Permian.
And so now instead of 30, 40 wells per section, you're looking at 8 to 15,
maybe. And so that's part of what Storm was talking about, the people looking
at stock and so on for the oil and gas. They're saying, well, whoa, you've got
you've changed your EUR significantly. So, and I think this is something we
have to really face.
There's solutions, yeah. You do, just drill all your density wells up front,
but usually you need a little more money than private equity likes to do that.
There's new technologies and so on that will help with this. And so we have a
lot to learn in that parent-child relationship, but that's something to keep
your eye on. So
Let's talk about teams. And Dick Stoneberg talked about this a little bit.
You tend to have to type of teams, and then you have different teams in between
that, but a grassroots team, and that was really our team that we started out
at the Council Oak. And whereas your dominated, and then you have the in play
engineering dominated teams. And those actually make up most of the teams where
you're looking. You're really looking at packages and so on.
And then the members-- so who do you think is the most important member on
these teams? Anybody want to say?
The geologists. Yes, thank you. But yeah, well, I'm not sure that's right.
They're all very important. Actually, the answer is the team is the most
important. So, but the financier you usually have and the team builder is very
important because they're the ones putting the group together in the first
place. So they're very, very important.
I actually think one of the most important people are is the BD guru, and
this is often an engineer. This is often-- or a land man, as you have to have
somebody constantly looking for opportunities. If you don't have that, it's
very hard to move. And so that is a-- BD, I think, is critical.
One, another really key individual is to have a good petrophysicist within a
geology group, and because it's really funny when you look at conventional
versus unconventional. In the conventional plays, you used to look broadly, and
then you come down to a finite point on a structure or a strat trap, and that's
what you would go after, and you'd be very concentrated with your drilling.
With resource plays, you're really starting out very, very small. You're
looking at the rock, as Chris Carson was talking about. You've got to look at
the rock. You've got to understand the rock. So you're starting out very small,
and then you interpolate that out to a much bigger area they can drill a lot of
wells. So it's a different-- it's really a different approach. You need all
I like a risk weighted reservoir engineer who gives you ranges as far as
what you're looking at as far as your type curves and reserves. A finance guy
is critical. And then if you're operating, you've got to operate the best.
You've got to really be efficient with operation, and I'm sure I'm leaving some
off. And so as some have already mentioned, who pays what.
So, I mean, a funny story. So we were bringing our team together, and we had
one guy who was a geophysicist. And he really, a top person. And so, he wanted
to be part of the team and what we're doing. And so at the end, we go, now this
is how we-- we each have to invest as much. And he goes, what? I have to invest
money? You mean they're not going to give me money? And I go, no. So he backed
out right away. So that's an important key, is who pays.
Like I say, we were kind of broad at Council Oak, but there's some, but
there's one or two that take most of that. But that's a very important
conversation you have.
So business models. We've already talked about the short term makes a flip,
that that's, of course Don's trying it here. We'll see how he does. And like I
say, I think these things tend to be cycling, as when you stop drilling, then
you don't make as many reserves, and boy, you all know the story. And so the
price comes up later when your supply is down.
The mid long term buy and develop, what we've heard about, and we're going
to hear from a couple of minerals and royalty people. And that's another good
Financial partners. These are a few. We just draw out an insurance company,
but there's high net worth individuals. So some people are trying to go around
private equity and go straight to some of the sources. So, which is a very
difficult thing to do, and not many people have managed that yet.
So here's the main part of the talk, and I'm going through this real fast to
try to catch up, but we'll-- and y'all can ask me some question later. But
really, some of this seems-- I know some of this stuff's going to seem really,
Understand market conditions. Make sure you understand early on how these
private equities work. The model that Storm put together, he's going to let us
have that talk. Look at that. Look at that. Look at that, kind of the history
of how this works. Make sure you understand how this might work for you in the
Know your competition. When we got into it, we really had no idea that the
private equity we had had several other teams in the area that were coming on
top of us. And so you need to know that. And there's these Chinese walls in
that, but do your research and make sure you know who you're competing with.
And so it's a very, very important part of that.
Go to the best geology. Well, duh. Yeah, you do that. But don't-- you can
kind of cheat. And the next one is, and I'll untie this, but first, wells must
be good, all right? Mike Kuykendall with Felix told me that. He said, when we
started, he said, whatever you do, make sure the first wells are good.
OK. Now, so, as geologist explorations, we said well, you can always do
that. But I got to thinking about it, and we tried. We tried that. We weren't
willing to pay up, because we you know we knew where the good ground was
already. We were trying to get to the fringe of it, but we already knew where a
lot of the good ground was, and we knew how much it was. And at that time, you
could buy it for $5,000, $5,500 an acre. But our-- just our group wasn't
necessarily willing to pay up to that price.
And, in retrospect, if you have to pay market on those first, those first
areas you get, do it, do it. Make sure those first three, four, or five wells
are good, because it sets the tone for the investment. Now this is one of the
most important things I can tell you, is it's not necessarily that hard to find
that best ground. You just gotta be willing to pay for it, and then you can go
out and maybe expand into more grass roots, but that's key. And that's what I'm
saying. Pay up to buy that strategic acreage.
And always block up . Sometimes we made-- we had a great technical team, and
they were great at mapping, and we mapped large areas. And you could see where
similar plays were, but always stay blocked up. Stay within your boundaries.
Don't get too spread out. We got into our coma and we really got spread out
there. Bought a lot of acreage, but we got spread out.
Look for drill call partners early is another thing if you're in this model.
Private equity doesn't like to drill a lot of wells, and so look for the partners
early. It would helped us if we had really started talking to drill
compartments early on instead of getting to the point that we realized we just
had to have that. So do that early.
Don't use expensive money to drill. In other words, that, the money that
you're getting from private equity, it's really expensive money. So don't use
that to drill. When you see it, it looks like a great play out here, but nobody
else is in it. Don't do it. It's really tempting as a geologist to see a nice
thick section of Woodford somewhere, and well, let's go out there and spend our
money. Make sure you've got enough money to do that.
Do not have the highest G&A burn rate of your peers, all right? And you
can figure that out, just the people around you. But don't-- you don't want you
have your head sticking up above the water too high, OK? Make sure you keep
It's tough to do, because you've got people that you've hired, that you've
promise C shares and so on. And at some point, you may have too many people,
but you've got to keep the G&A burn rate reasonable. Don't be the top one.
Buy producing properties when it makes sense. So now, if you're in one of
these type of groups that you're buying packages anyway, often you're doing
that, and what I mean by this is that when you are buying fresh leases, and a
lot of land men, that's what they want to do. They really, a lot of land men
don't like buying producing properties. They like to get their brokers out
there, buy land, buy leases. And that, it sounds great.
You've built this up, but the three years down the road, when you start--
wind up having to chase expirations, it's bad. And so I would recommend 50% of
your properties be HBP. And so that's an important part of that. Don't let ex--
and don't let expirations ever drive your drilling. Sometimes you cannot help
it, but don't do that.
Do not shy away from merger. What I mean by this is sometimes the private
equity wants to you to roll in another company, and you may not like their
acreage, and you might think, well, there's nothing there. But look at it
closely. Sometimes there's a lot of gems in that merger.
But here's the second thing is, if you go ahead and do that, you become a
favorite son. And so if you're a favorite son, you're going to give better
consideration over time with that private equity. So don't hesitate to do that,
or at least look at it very closely.
Now I'm talking about something I don't know much about. I wish I knew more
about. As the CEO, I was always watching over our operations, but operate
smart. Don't assume anything about the drilling. I love the 3D that Marty had
on that their team were doing.
Know that 10 foot zone. You've got to know this early. Get in and make sure
you're really aware of the operations, and especially on drilling, because
that's making money they right there. That can kill you if you have high DSE
Frac designs. Know what's going on, what's being put in the well. And it's
not that hard to find out. There is a lot. I see Halliburton's here. You can
ask them to help you you. I don't if it's any Schlumbergers or Nassers here,
but they'll help.
There's a lot of people to help, but also just talk to companies. We were
always-- our technical a good group always shared, and that's one of the things
I'd say always, always share information. To me, if you're small, to--
And so we took some core, we shared the core, and it gave back a lot to us.
But like frac designs, know what the chemistry is. I'm still not sure of-- one
of the best, couple of best wells in our area was drilled by a company who
didn't put a lot of money into the frac. And so they actually cut out the
surfactants on it. And those are the best wells, as far as our IPs is in our
So we talked a lot about, you've got basically, an oil wet system, and you
put a surfactant on it, and you make-- you change the frac face to water-wet.
So that doesn't work too good. So think about what's in the ground.
Drill out and flow back, they can easily add just a little bit of percentage
to make or break you. We were dealing with a retrograde condensate, and so you
really had to slow back that. And then control your cost, especially water
costs. They'll kill you. Always your bottom line, and they just have a-- you
got to have a good financial person. Work on that. Know what's going on. Know
what the money is. And hedge when you can. Really, we have great guys'
experience of hedging.
And then the final thing here is don't get greedy. There was a time in our
program, and I see in other programs, where you actually have a two to one, 1
and 1/2 or two to one, and if you're this is your first time around, take it.
Go ahead and make the sale if the opportunity is right. Don't wait too long,
OK, because that opportunity may go.
And so timing's everything. And I know that's hard to do sometimes, to think
this is so valuable. It's going to be a lot more worth later. And so a year
goes by, and you're actually being off-- can get a good return, take it.
So, just conclusions. Communication is so important, communication with your
private equity, communication with your team, your group. And make sure you do
that. Make sure you're transparent, and it's real important.
And then embrace innovation. So we had a high technical team. We used a lot
of new log suites and so on. We took core, and we did some new analysis with
the core that was available. And innovation is incredibly important in this
game, and especially when you're trying to figure out landings and so on.
And then teamwork. You've got to have good chemistry, as others have said.
And you have to have really good teamwork, and that's important. That's it.
Direct name or marker, entering a position. What would you say for folks who
are considering going into something like this? What would you look for in
somebody on your team? And what kind of communication skills, soft skills would
you really look for?
Well, like I say, the model has changed. The model has changed so much now
that really, you're looking more at buying and developing. And so if you're
going to do that, you're going to have to develop more for long term. You're
going to have to have somebody with money on your team to start out with. And
so you need to associate with people that have money or whatever if you're
going to try to get involved with that, because you're going to need that. To
get private equity interested, you've got to have some financiers as part of
your team, and that's number one. And then you just gotta look at the current
model and see if you're interested in that and building that type of team.