I'm going to talk about something a little different. Though most of what I
was going to say has already been in the previous talks. So much of it is true.
But you're getting started. And a lot of you know I started out coming out
of Schlumberger back in 2004 and started with started with zero. And for
everybody getting started you have to evaluate your core competency. And create
a business plan.
The third point here, finding complementary skills. I think that's what so
many have talked about previous. We see so often a good geologist partners with
some other good geologists. Or a great engineer partners with another engineer
or two. It's really find complementary skills.
That's kind of the way to do it. You know you go out and find a great land
man. The finance guy, et cetera, the BD guy. Whatever is not in your skill set,
find that. As well as the chemistry as we've heard before has to work.
And then there's that endless paperwork. It seems that everything you do
these days is more and more paperwork each year. And you have to learn that
hey, instead of using my skill set I'm out here playing paperwork.
And figure your end game out. What is the end game? You have to find the
right deal. And there's something that's been said about the right deal, like we
just heard from Rick. Paying more for better acreage.
We had to start small. We didn't have a choice. Start small, which was
frugal. And then grow from there. One of the things that we believed in was
having operations. And operations were two things.
They were number one, control. You timed the deployment of the capital. And
you also could build value. When you go to sell a position, I know for a while
non-op interests were very liquid. But right now, and I think is for the bulk
of time in the oil patch, if you have control that's worth more particularly at
the point when you're selling.
So the idea is that if you can flip, and grow, and have the choice of the
timing of that then do that. And again and again. Only do deals-- we felt we
only were going to do deals that worked from the production. We wanted to go
out and say, hey we're going to make money on the production.
We're not making money because we think that this acreage is going to be
worth more. Or we're going to put in x millions and flip it for 2x. Matter of
fact, if you're flipping for 2x to 3x my mind, you're just swapping dollars. If
you're going to flip it needs to be worthwhile.
And if it's sitting there producing making money and is HBP'd, you don't
have to sell. You should choose to sell if it's right. And I'll tell a real
quick story that I was personally struggling at one point was with an offer on
some property that I didn't think was worthwhile. And I went to visit with the
principal, the CEO of one of our larger participants in that deal.
And he looked at me and he says, you know, when I first got out of school is
I worked in Houston. And I said, really? I didn't know that. And he says, yeah.
He says, and you know they used to tell me that River Oaks is filled with
people who sold too soon.
And I had to think about that. It's so true. It is so true. You're better
off, if you've got a good deal then take it and move on to the next. Don't sit
there being greedy, as I think one of the other slides called it. The greed
factor, don't be greedy in there.
So the new deal is you can make money from the production. Buy acreage that
you're not afraid to drill. Man alive, we've all seen people go out and buy
goat pasture or fringe or whatever. And they go, yeah, but that's all right
because I'm buying this cheap. It's going to add to the portfolio, et cetera.
No, just do what you know you can make money at, which is to drill, and
complete, and produce wells.
Some deals don't make money. As a matter of fact I'll venture to say that
probably 70%, 75% of all wells. I mean, certainly we see that today in
horizontals. But if you go look at a map, a base map, there's a lot of dry
holes. A lot of vertical wells that made 6,000, 8,000 barrels.
A majority of deals, the majority of wells don't make money in themselves.
But the ones that do-- maybe not the majority of the deals, but the ones that
make the money, they've got to make up for all that and then some. So that's
The funding, getting started. I put borrow from self. Sometimes you don't
realize the equity you had. I started out, I had an airplane that was paid for.
And I went and had a credit line on it. So I used that credit line to buy the
And then when I'd had that acreage divvied out to our participants I'd pay
that back down. I sought out professional oil and gas participants. There's a
lot of old oil and gas families, companies that they were looking for deals.
We tried not to. And one time I violated this cardinal rule. And I'm still
paying today with it. But try not to let anybody have a majority of a deal or a
situation. Because then they start controlling what you're doing. They start
telling you, oh, you're not going to do this or that. When you're like, wait a
minute. This is why we went in to do this, right?
So that kind of let out the private equity funders. And we did talk to some
at one point when we had some participants that wanted to roll out of a deal
that we really liked. And we went and talked to some private equity funders.
And some of them will do project based deals.
Most of them wanted to have your whole company. And we kind of got to a
stumbling block on something they said at that time. This is going back
probably 14, 15, or so. How much percentage you guys plan to keep. And we're
like hey, we already got 10 ourselves. And we want to up that, maybe keep 15
internally or more.
And they're like, no. We don't want our teams having that much in the deal.
Well, of course now that's totally flipped. It's different. But that worked
And kind of the note on that was that one particular deal that we did shop
the private equity funders. It turned out that within a little over a year we
sold that one at a 10x, you know 10 to 1. So it worked out real, real well for
There's drilling funds. And at that time we did an awful lot. Going back to
the $100 oil days, we did an awful lot with groups of drilling funds that would
raise money. And again we tried not to let any of them have more than around
10% to 20% of a deal. And they'd roll in and out of different deals.
Banks, actually the first producing properties we bought were funded by a
local bank. And they've been a great asset. Again, it allows leverage. And we
now use that same bank. And I'll shamelessly plug them, Prosperity Bank. Jeff
Russell there, the Oklahoma CEO, they fund our real estate program right now.
And drill cos, we looked at that. And almost did a deal with one, never had.
No, I left off family and friends. Not a good idea. Don't get family and close
friends that don't know anything about the industry involved. No matter how
much they beg.
Though I did let one doctor in finally after hounded me forever. But he's
been a great participant. Let's make a deal, this is the slide that I borrowed
from another talk that I gave.
And there's so many ways to do it, I won't spend time in this about
generating internally or buying externally. We've done it all. We do like to
get out lease and drill new.
We like to acquire existing wells. I think last year, 18. We probably bought
four small packages. And we try to look for things that maybe has upside, where
there's pay behind pipe or up hole. And those worked out real well.
Because you can have a 100% of the deal for a small amount of money. Maybe
you have $100,000 or $200,000 in a vertical rework at the most. Some of them,
we've had less than that in there. So they don't all have to be horizontal two
mile laterals in there.
But a diverse mix. Certainly mostly low risk. But we like some higher risk
stuff. We've got one right now that we're going to go to market with. I call it
high risk. But it's keyed off an old log. And mud log, great shows.
It's a Mississippian age zone. But the great part is, if this thing works
it's going to cover half a township. So we'll cut our losses real quick. But
the note to self, the majority of Wildcats don't work. So I know a lot of the
people that comment with this great idea to drill this huge structure for
something or another.
And I think we stumbled into more of those types of plays by accident than
actually intended to drill form. The worst part is everyone becomes a wildcat,
as we've found. So you got to find the right deal. You got to be a leader. It
sounds so obvious, right?
Not the not the follower. And I'm quoting Joel Alberts, who's not here
today. But he's one that had asked me about speaking. Get ahead of the
thundering herd. And in fact Joel says sometimes you've got to be ahead of the
bugle player, leading the thundering herd.
And you've got to used the latest technology in everything you do. We've
seen so much about that. And the GNG, whether it's the latest geo cam, latest
drilling techniques, completion techniques, and production techniques.
I mean, there's a lot going on and production right now that is just
absolute amazing. Particularly in some of these high rate, high volume annular
gas lift systems. I mean, some things that just are incredible and why we're
getting such great production in such really horrible rock.
Discretion being the better part of value. You don't want to educate your
competitors. And we'll oftentimes have tens of thousands of acres of leases.
And we don't put them of record. And I get the land guys hounding me like,
somebody could file before us and what not.
I go, you know, we lose a few acres so be it. It's part of the cost of doing
business. But we don't want to educate our competitors or let them know exactly
where we are until we're ready. And then we file. So actually this week, I
think we're filing about 6,000 acres in Texas.
So you've got to do that. Mitigate your risk. Again, about the wildcatting,
you do find more oil in oil fields. So there's sometimes people look at maps,
myself included, all these dots. I don't want to go there. But wait a minute.
All those dots are shallow wells. And there could be production deeper. And
that certainly has worked. People drilling a Sycamore, Woodford, et cetera
underneath where there'd been pen production.
Talked about becoming an operator. I think that is very important. And I
won't go through this, but again, having a good banker, insurance company, oil
and gas attorney. The maze of paperwork and regulatory agencies, but that's an
important step to be there.
The growth strategy, just real briefly-- you know, first big deal we did, it
turned out we started buying wildcat acreage that we thought was cheap. And
geologists I have a lot of respect for convinced me that this was a huge gassy
Woodford area. And of course we were one of the first ones in there. And
everybody else started coming in just after that.
And we sold out for quite a big multiple, never drilled a well. Probably
like about a 20x to a company we'll call C2 that never was able to make a well.
They shot a 3D and couldn't make a well. They drilled six well, six
horizontals, couldn't get it to work. It was over mature. It was cooked.
We then did, of course, do a lot of other prospects that were very good. And
we'd built a good relationship with C2. And we sold them probably a half a
dozen things that ranged from Miss up in Northern Oklahoma to some things that
were Cleveland and Tonkawa and Granite Wash. We-- later we're drilling some
more prospects and another company, I'll call them C1, came in.
And we did several-- multiple deals, thee or four deals with C1. And in some
of these sales, we segmented acreage rights. So we'd sell acreage, say, in one
zone and then later go back sell acreage in the other. So that helped up the
end price. And a friend of mine who has another operating company, he was the
master of this. And he, out in kind of the STACK Merge area, was able to sell
sometimes you know rights to three and four different companies, different
companies. We always did it do the same company.
We sold some acreage that turned out to be really good to company-- to a
company E. Timing was such that we didn't get as much as we wanted out of it. I
mean, we made money. But we got a pretty fair sized override. But this company
E is again, a master of production and developing it. And so it's working out
real, real well.
But we mainly were taking that money to invest in the properties that we put
together. So by this point, we'd probably sold, I don't know, 30,000 different
acreage positions. Well the one to company E was 12, 14 sections. But the
acreage we were trying to put a block together which we ultimately put together
about 60,000 acres that comprised control of around 112 or 114 sections, that
we sold to company B.
And so that was what we were doing-- taking our cash flow, putting that in
there. The-- of course the mechanism on making the deal, we lacked for all of
our group to have the override. Obviously, the prospect originators we're
getting a larger part of that. But then everybody who is in there putting up money
getting part of the override.
There's carriers to tanks and casing points, and on horizontals it's a
little different than a vertical, because you know you're going to complete the
well. Of course, you know, you can mark up on acreage and so forth. What we do
internally with our internal participants here in these larger deals, I'll tell
you, is that we work them like you're a partner with us, and you are. You're a
participant with us.
And so what we do is we take a piece and we pay ourselves a management fee.
And everybody pays a management fee on the front end. So it's generally a per
acre fee. So every time we're leasing an acre, then each month we show how many
acres we leased and you get your share of the bill. You got 10% or 20%, you get
that percentage of the bill. Plus you get so much per acre management fee.
And then on the tail end, if we can perform, you'll pay a marketing fee back
to us to get out there, market and sell it. We don't like the back ends. Try to
avoid them like the plague. And at one point, when I worked for Schlumberger, I
had several clients that were involved in lawsuits. And they were all over back
ends. So don't know what that means.
Selling the deal, pretty obvious. You're keeping it short. 30 minutes,
you've lost them. One page-- we heard about the 200 some odd page deal and
whatnot. And that's really an exception. Because I know some of our meetings
with PE funders, we get in about slide 3 and they'd be going, just show us the
type curve and what your well costs are.
So it was-- that you've got to just be quick. And again, the positive
nature, upbeat them. If you don't believe in your deal, nobody else is going
to, right? And it has to tell a compelling story. Everybody loves a good
analogs, you know and the money side has to work. That's been the issue today.
Why you see this leading, the equity, not just private equity but in general
that the funding has left.
It's because you have to have a profit motive. And the money side has to
work. And just, again, keeping it short and simple. E-brochures and so forth.
The-- making the best use of your time. As I always said, the deal a day
consumes-- your time's the most valuable asset you have, right, we all know
that. So that's what we had to do. And checking everything out, making sure
that these were drillable plays, again, lease availability, the surface issues,
you know you're not going to-- a lot of people have found when they went to try
to drill some areas that were getting developed, and we're working in one right
now that's having that happen.
And the water and the infrastructure on the lines-- because all that takes
time. It can all be done, but it all takes time. And it costs money in there.
We'll start summarizing some rules of thumb that any deal can be a money pit.
So you've got to watch that, right? Any deal can be a barn burner. If we knew
which ones were the barn burners, as I tell some of our participants, we'd only
do those. And we'd take big pieces ourselves of that.
It sounds trite in that third one, he who drills the most finds the most,
but that is so true. The statistics are not in your favor if you're only doing
one well a year or one deal every three years. You're going to get killed by
those statistics. Again, be ahead of the thundering herd. Think outside the
box, though not too far outside, right? You get too far outside the box,
I have to tell a real quick story though, that in the bad days of the oil
patch, when I was doing-- I was actually doing airplane buying for a friend of
mine up in the Northeast. And he had a big flight school and university
contract. So he would tell me, he goes Joe, go to the auction and tell me
what's not there. Call me and tell me what's not there.
And at first, I thought, what is he talking about? So I call him, I go well,
Ed, I don't see any Cessna 210s. He goes, oh man, they're hot. They're hot.
Well, Those of you that have walked around with us at NAPE, they know, you know
we go to NAPE, we go, let's look at what's not there. I'll tell you, I don't
see much for California deals, and maybe that tells you something.
You don't you don't see many people that are trying to sell out of
California deals unless there's a huge premium. Then they get a premium on
their oil. But boy I could tell you, I saw more Powder River Basin deals at
this last NAPE than I ever thought was possible to have in one place. So not
sure what that means, but again, it's been being ahead of the herd and thinking
outside the box, but not too far.
It's got to be fun and profitable. And again about treating others and no
deal's the last deal in there. When we were doing the Who Wants to Be an
Independent class, I'd had this slide up on readings that I felt affected me in
the oil patch. So I had so many calls, nobody wanted to talk about anything
else, but they'd call or email me and go, Joe, can you send me that list that I
said, OK, I'm going to put this list up.
The first one is really a real estate book, but it applies to all business
and it's online. Winning Through intimidation, Robert Ringer, about just doing
business deals. We all know about The Prize, Daniel Yergin. The Greatest
Gambler was published by Ruth Sheldon Knowles, OU Press, and I believe that is
also online on the internet for free now. And The Big Rich, it's about the four
wealthy Texas oil families.
And it's motivating reading because all of these early searches for oil,
they were broke at least once, sometimes more than once. And then of course,
hit it big and might have been broke again and then even bigger. This is not
the end, it's the beginning. So if we have a minute or two--
One minute. Questions for one minute. That's good. Thanks.