Chuck Yates Needs A Job

0:25 I appreciate the intro. I can't imagine the committee meeting when they're discussing possible speakers and that opens up with, Why don't we have the guy that misspelled masturbate yesterday on

0:37 Twitter come talk to our group? It's you are, by the way. I didn't know that.

0:45 So, no, in all seriousness, it was interesting. Got the call. And so why don't you come speak? At it's a group, we have Haas Engineering, we have Weaver, the accountants, we have Holland and

0:57 Knight, HK, if you're in the know, some lawyers, and I am an insurance folks. And so they say when you give a speech, you always need to start with a joke. So I was talking with Sean. I lost a

1:11 bet. Sean, what joke do you want to hear? Which one are the groups? The engineers. All right. So we'll start with an engineering joke

1:20 Back in the mid-1800s, so call it 1850. There was a railroad boom in England. And railroads were being built everywhere. It was one of the bubbles. And literally, this is a great stat. 90 of

1:36 all the railroad tracks in England today were actually laid in the 1850s. There was a calculation done by one of the newspapers that said, literally everyone on this island has to ride a train 22

1:54 hours a day for all of these projects just to get their money back. And so it is reported that one of the Rothschilds actually said, There are three paths to ruin in this world. Wine, women, and

2:11 engineers. The first two are more fun, but the last one's the most certain So,

2:20 sorry, engineers. Okay, so what I thought I would do today. And this is kind of what the kids do. So they do this thing on social media, AMA, ask me anything. Usually involves alcohol, I'm

2:33 sober today, I promise I'm only on coffee. But I figured I would do that 'cause I get reached out to through Twitter, LinkedIn, people send questions, say this and that. So what I did is kind of

2:45 a thought experiment is went to my assistant, said, Why don't you do this? Go through my Twitter messages, my LinkedIn messages, and Instagram, Facebook. Pick questions that people wanna know.

2:59 Write them on note cards, and I'll just get up and read 'em and answer the questions. I may have seen some of these 'cause I get through my messages from time to time, but I'm not really sure

3:10 what's here. So I figured I'll just jump in. If you have a question, feel free to ask it. But I'm just jumping in. So let's do this. All right, question number one. What's the most undervalued

3:24 asset in oil?

3:28 The thing I can't figure out right now is the strip. 'Cause if you think about it, the strip's never right. We in the oil business know that. It's always wrong. I mean, we could make a fortune

3:40 if you just bet opposite the strip. That would have been the best performing asset of the last decade if we would have done that. But anyway, so when I look at the strip today, let's oil today,

3:50 110, something like that. If you look out calendar 25, you can buy a barrel of oil for 70, 72, something like that. And so just huge steep backwardation right now. And I don't understand that.

4:09 And so I actually spent a little time calling around asking traders that, and with traders you always get the answer of, Oh, supply demand, all that The one answer I got. that seemed to make a

4:21 lot of sense to me, was generally speaking, the strip is the consensus. Doesn't mean it's gonna be right, but there are buyers and sellers on both sides. We have tons of sellers today. If you

4:36 own oil and gas assets and you're producing oil and you see 110, you wanna hedge all day long. I mean, after what we went through two years ago, minus 37, so you obviously have a lot of selling,

4:49 hedging on it, historically, what is the buying side of that? Well, it's always been transportation, right? I mean, it's the airlines. They were the biggest buyers, sometimes refiners are

5:01 buying, but it's generally tied back to transportation. I mean, think of who is still in the doldrums post COVID. It's the airlines, right? I mean, they're at what, 85 of where they were pre

5:15 and they all have crappy balance sheets. even though they got bailed out somewhat by the government. But you look at it, so there's not a buyer right now for oil two, three, four, five years out.

5:29 So I think that's why you have the steep backwardation of the curve right now. So I can't see a world in which four years from now, oil, you're not happy that you don't own oil at 70 or 72 a barrel.

5:49 And so to me, that looks undervalued. And to me, I think the challenge oil and gas folks in this room have is how do we deal with that phenomenon? 'Cause we all use the curve, right? We're all

6:03 in different, we buy, we sell off the curve, we budget off the curve. And so I think the challenge for you guys as you go through planning cycles, should we drill? Should we make this

6:15 acquisition? is you're gonna have to make a call on oil four and five years out. I think if you sit there and say oil's gonna be higher than 72, and you lean into that, you're gonna be glad you

6:27 did it. But that's kind of the answer I'd give right now. What's up, Juan - What's up, what's up, what are your thoughts on gas? Do you think you're gonna have to support a lot of gas? Do you

6:43 have enough faculty gas? What else would you call - Yeah, no, so I've never understood gas, natural gas. I am, and one of the biggest lessons I learned in this business is when you look back

6:54 kind of mid 2000s, natural gas was hitting, I think the high was 14 in M, something like that,

7:01 it was July of 2007, 'cause we sold Obenco, and I remember having a discussion with Marty Phillips of NCAP, 'cause we were co-invested in that, Marty and I were gonna go back and renegotiate,

7:15 retrade the buyer on that. and demand more money. And literally we held our ground just sold at the price we had agreed to, even though we thought we were royally getting screwed. And two years

7:28 later, Marty and I were going, Man, that's the smartest thing we ever did is getting rid of that piece of crap. But, so short answer is I don't know. I totally missed, I missed two things. One,

7:38 so, natural gas was at 14, and it basically plunged for a decade, right? But the strip was always in Contango. So we ran a lot of economics with the strip in Contango, even if we were using 75

7:53 of the strip. And you know what we figured out, and this is from the camp of, well, no duh, but we figured out that we would pay for a location in three years because the price was higher and

8:04 we'd drill it then, but we wouldn't drill it today. And we overpaid for a lot of natural gas back in the mid 2000s because of that So I totally missed the claps. And then I totally missed all the

8:17 associated natural gas that came along with the oil, and in effect rendered gas worthless. So whatever I say about natural gas, do the opposite. I do think LNG

8:30 is the lifeline that gets us out of

8:35 this. It's interesting, last week the United States and the European Union announced the deal, whereby we're gonna send them more LNG. I think we're targeting, the details are sketchy, like most

8:49 government things, but it sounds like we're gonna send them 15 BCF by the end of 2022.

8:56 And it just occurred to me reading that, why can't we just run a pipeline from the Marcellus, the Utica, into Massachusetts? I mean, they've got the Everett terminal there, The only importing

9:13 LNG terminal. in the United States, did you know the three years pre-COVID? They imported 50 to 55 bees a year of natural gas when literally that pipeline would take us what, four to six months to

9:27 build, put the regulatory stuff aside. So I mean, we could literally be exporting 50 bees of, 'cause we get all the Everett LNG intake comes from Trinidad basically. Every once in a while they

9:41 take a Russian tanker and people, you know, rabble rouse about that, but it's really coming from Trinidad. We could literally be exporting 50 bees right now to Europe to alleviate that, but

9:56 instead we need to heat Senator Warren's house while she bitches about us as an industry. So anyway, I don't know about natural gas.

10:06 Okay.

10:14 But basically what this question is saying, someone wrote in, so few people are

10:20 educated about energy, that there's a lot of misunderstanding, it allows the environmentalists to kind of win the argument, we do a lot of good for people, should we care now that we're kind of

10:36 back on top? And the person used an naughty word than this, I'll just say screw 'em, or should we just say screw 'em? That's an interesting point. And I'll say this, there's a meme out on

10:49 Twitter that says, name the three fastest animals

10:57 on the planet. And it says, the cheetah, the hummingbird, and chuckiates with a microphone running towards somebody that hates the oil and gas business. And I don't get that, I think I'm pro-oil

11:05 and gas, but I will call things out on the podcast that I see that just aren't right So what happens with that? is folks from the other side, the environmentalists will actually reach out to me,

11:19 hey, can we talk? You can't tell anyone we're talking. And this has been really fascinating is they do not hate us because we're burning hydrocarbons. I mean, they all drive suburbans. They all

11:33 drive big cars. One lady's like, yeah, I couldn't deal with my six kids except for my SUV. That's actually not the problem The problem is they don't fundamentally trust us as actors. They think

11:46 we're bad actors. They think we pollute. They think we have knowledge about climate change, that we hide, et cetera. They fundamentally just don't trust us. And to be honest, we kind of have

11:59 done some shitty things. I mean, I hate to admit that, but we really have. And so they feel like they need to scare the public, say 10 years the world's gonna end. They feel morally justified in

12:13 doing this because they think we're bad actors and we can't be trusted. And so I say all that because we have clearly lost the narrative. I mean, we just have.

12:30 My three kids who have lived the greatest life on the planet, I wanna be adopted and come back as one of my kids because it's a great life. If you ask any one of the three of them, you said, Hey,

12:42 what do you think we should do about oil? They'd all say, Well, we should get rid of it, Dad. You're polluting the environment.

12:48 I always tell my kids, Hey, I know how to get rid of oil. And they go, How's that, Dad? And I go, Don't buy it. Don't use it. They'll go out of business. But we've clearly lost the narrative.

12:57 And so I've actually spent a lot of time thinking of how do we get the narrative back? 'Cause I think what we do in energy advocacy today is sit around in an echo chamber. and say all this stuff,

13:14 and we all cheer each other, and we walk out the door and we haven't changed anyone's mind outside our own sphere. And why is that one? I mean, we're kind of beaten down as an industry, and so

13:26 we're pissed off. I get that. We wanna lash out at people that took our jobs, et cetera. So I get that too, no offense to the engineers, but I feel like I'm piling on, sorry, but we're a

13:38 business run by a bunch of engineers, and engineers just aren't marketers. They really are, so it's harder to tell a story. But I kind of lay this out because if we don't get the narrative back,

13:52 I mean, we're gonna be regulated out of business. I mean, we've seen from the Biden administration, they have absolutely no shame in terms of buying oil from Venezuela and all these other places

14:04 while they just regulate us out of business. be rate us out of business, call us greedy and the like. And so I don't have a good answer for the narrative, but I have posted that I do think it

14:19 matters. I don't think we can tell people to screw off. That's not going to help us. I think historically, we have told people to screw off, and we're kind of paying for those sounds. I mean,

14:30 everybody remembers the bumper sticker, right? Freezy Yankee I mean, funny, but at the same time didn't win us any friends. So I think it's imperative that we win the narrative back. And looking

14:43 at the psychological studies of how you change people's mind, there are three ways you can do it. One, fully asked questions, kind of the Socratic method. I don't know how effective that can

14:55 really be. Two, you make people laugh I always say that kids today are way more liberal than even normal young people. are because of John Stewart. I mean, I watched The Daily Show all the time.

15:10 The guy was hysterical. I didn't agree with him on politics, but I always laughed. And then the third thing is you can scare him. And clearly that's what the environmentalists have done with most

15:22 of the population. I don't know that's for us coming back. So I

15:28 don't have a good answer. I've killed a lot of brain cells trying to think about this 'cause I would like to get outside

15:35 the echo chamber and be able to promote our industry. The one thing I will say would behoove us is, you know, when there are high energy prices, people suffer. I mean, people literally die. I

15:47 mean, there's a single mom out there right now putting 10 in her car because that's all she's got is 10 and she's trying to get to her job. So I do think it's incumbent upon us with oil at 110 that

16:02 we show some empathy. It's interesting I said that out on Twitter and kind of get eviscerated about, we should raise an army and go shoot down the environmentalist. But that's not what I'm saying.

16:14 I'm not saying we need to go make friends with the environmentalists and that. There's just real people suffer. So I think a little bit of empathy, a little bit of humility,

16:26 if you're making 110 oil and things are good, it doesn't hurt you to fill up somebody's gas tank that's next to you And I think it'll go a long way if we show that because I think we forget as an

16:39 industry that historically when things are good for us, high energy prices almost always led to a recession and the rest of the world was hurting while we were doing well. And that's unfortunate

16:53 'cause I think with Elon Musk or Steve Jobs, any of these tech entrepreneurs, they're celebrated, right? And that's because when they're doing well, Usually the rest of the economy is doing.

17:04 Well, so I'll get off my soapbox about that, but I really do think it's important we win this narrative back. If I figure out a way to do it, I'll put it out there and y'all can all make fun of me

17:14 about it, but anyway.

17:24 Okay, here's interesting. Why do you have pronouns by your name? So on my social media, Chuck Gates, hehim, just in case you were curious, but yeah. So little thoughts on that. One, someone

17:40 very close to me is transgender. And it's always a lot easier to show empathy when someone's close to you, you understand things Here's some facts I learned. And if you ever doubt divine

17:55 intervention, this is just an example that God does exist because this person came out to me, call it nine months ago, 12 months ago, and literally a month before I was thrown into a situation

18:10 where I hung out with a transgender person for 48 hours I was out on tour with country music singer, Lindsay L.

18:19 When you're out being a rodee on tour, you're with the entourage. Whoever else is there, you're just there and you hang out, because the band's always doing something, right? They gotta go sound

18:30 check, they gotta do this. You just hang out with the entourage, and one of the members of the entourage was transgender, so we hung out for 48 hours. So I learned all these facts. 90 of people

18:41 that are transgender that can't reveal themselves to the folks they love try to commit suicide And a lot of them are successful. The other thing I learned is one in 500 to maybe one in 1, 000 males

18:56 are actually XXY.

19:01 So I mean, literally have the chromosomes for both a female and a male. The - a lot of - you don't normally test for that. And a lot of times, you only find out later in life is when you have

19:14 infertility problems, 'cause that can be a side effect of being XXY. And

19:22 so, when that person revealed themselves to me, I was actually in a really good spot of kind of understanding and being able to be empathetic and it was a great thing 'cause the person's really

19:36 close to me.

19:38 So that was a good thing. But the reason I put pronouns on is because, one, I wanted to show support for my loved one, but also, I've got a little bit of a celebrity status, at least in my own

19:53 mind. And I

19:57 got into this argument with a friend of mine, they're like, Oh yeah, but this is a, so I'm like, Come on, man. That's old white guys who've had it pretty freaking good, dude. And if we have

20:07 to put pronouns by our name, who cares? I mean, does it really cost you anything? And they went on kind of a political random, But this, this, this, this, this, and my answer was. Really,

20:20 you're telling me the world's a less better place because we have more boobs out there? Kind of won the argument on that. So I put them there to show support for a loved one as well as if a kid sees

20:33 that and decides to go get a beer with a friend on Friday night instead of doing something stupid, it's worth it and it doesn't hurt anything.

20:44 Next question

20:49 What do you expect larger private equity players to, do you expect larger private equity players to move back into EMP and to midstream?

21:00 Short answer there is we had two problems as an industry over, let's call it

21:09 the last decade. We had two problems. We had the green problem, the environmental problem. The environmentalist had kind of won the argument. I think that all roots back to, we should have told

21:23 people it was in frack fluid. At least in my lifetime, that feels like the big wedge, the environmentalist, God, is, we said it was secret sauce, and we wouldn't tell people it was in it 'cause

21:34 it was proprietary and all that, it's water. I mean, sand, you know.

21:39 We should have told that, but anyway, so we clearly lost the argument, so we had the green problem I think the green problem is a minor annoyance to all of us in this room, if we didn't have the

21:51 red problem. We just lost a ton of money. I mean, we need to face up to it. We raised tons of public equity, we raised tons of private equity, and if you look at the returns over that decade,

22:03 we squandered a ton of it. And so it became really easy as a chief investment officer dealing with a board to just say, We're not gonna do oil and gas anymore. They blamed it on the green problem,

22:17 but it was the red problem. So what I have said, kind of pre-the war in Russia, I have said the only way we get meaningful capital back into this industry is if a CIO feels like if they don't have

22:34 exposure to energy, they will become a former CIO. Meaning you have to be meaningful enough of a portfolio so that the portfolios returns don't beat an index of some sort because you don't have

22:51 exposure to energy. And when you're two and 3 of

22:57 the SP 500, it's easy. If you want energy exposure, you go by Exxon, Chevron, whoever, maybe Dablon Pioneer Diamondback, or you just leave it alone. And so I don't think, so I don't think we

23:12 see meaningful money come back until there's that tension Um So I actually said it's two years of underperforming an index before money would come back to energy. I do think the war, Europe's

23:28 dependent on Russian energy, has at least changed somewhat the narrative. It'd be interesting the private equity guys in here, how many more inbounds are you getting? Educate me about energy. I

23:40 don't know how many checks are being cut yet. So I think it's -

23:49 Have you played the energy - Probably Yes.

23:56 I don't think my parking is getting validated today -

24:01 No, actually, you know what?

24:05 I will give the engineers credit because early on in the shale revolution, the really good engineers that I knew said, this stuff won't work

24:17 And almost. in this kind of selection bias, it was the optimist who said, Man, if we triple the sand, we double the water in the frack. Lo and behold, this will work. And it did work, at

24:33 least early on. And so that allowed the people that were optimistic, not thoughtful to get the most amount of money, right? Because they had been successful And the engineers actually did a really

24:48 good job, kind of post that in terms of, it became the age of the engineer. You'd tweak things, you'd measure. They did a really good job. The problem was you had kind of death by water torture

25:03 in terms of, well, we paid 300 million for acreage. It's probably not worth that. But let's go ahead and drill and complete the wells because we'll at least make a return there And so you go drill

25:14 the wells and you go, wow, it's probably not worth drilling. but we have all these ducks, we might as well complete them. And so once you start that treadmill, it's impossible to get off. But

25:26 the engineers did much better. I'm gonna think of three nice things to say about engineers before the end of this Um

25:37 Okay. All right. These are my listeners. Tell a dirty joke that's actually clean

25:48 All right. Give it to me. Give it to me. Oh, I'm so wet. I don't care how much she gripes. I'm not giving her the umbrella. Oh, come on.

25:60 All right. Never mind.

26:06 All right. This is Wands because this is not my assistant's handwriting. Tell me what's the best and worst deals you got done while and energy what are the lessons. Clearly, the best deal I did

26:18 was Silver Hill.

26:20 The anyone that's talked to me for more than 30 seconds has heard that I did the Silver Hill deal. So you know what was interesting? So some interesting things about Silver Hill is, one, when the

26:33 management team - and I don't know how many of y'all know Kyle Miller, but Kyle put together a great team - that came in to meet with us.

26:44 And my business partner, Mike Hines, is about seven years older than I was. And Mike wasn't there one day. So I'm sitting in the meeting and all the Silver Hill management team were young 30s. It

26:58 was the first time in my life I was the oldest guy in the meeting. So I became the old guy on that day, which I'd never been before. So that was interesting. The other neat thing about the Silver

27:10 Hill deal is we originally got into the Delaware Basin because we bought the shallow rights from Clayton Williams. We were gonna co-mingle the Canyon sands like a Wolfberry well, and we drilled the

27:24 seven finest water wells out in West Texas. I mean, we were producing thousands of barrels of water, maybe skimming some oil off the top. And so we were seriously kind of faced with, okay, we're

27:36 gonna lose 25 or 30 million bucks here. What do we get to do? Clayton Williams needed money. We saw what was going on with the Wolf Camp.

27:47 And anyway, they came to us and said, hey, if you can close in two weeks, we'll sell you the Wolf Camp at this price. It made sense. We bought it. We actually spent 100 million buying Wolf Camp

27:60 acreage. And that was the largest acreage check can it ever cut. And I remember going home and looking at pictures around Pecos, Texas, realizing I just bet my career on literally a dust bowl,

28:18 West Texas. But an interesting lesson about that, because we had bought Silver Hill, Juan the acreage. It was from Clayton Williams. It was checkerboarded with

28:33 Anadarko, I believe. And we were drilling horizontals. We were doing best practices on the frack. And we were drilling really good wells oil plunge, we were able to buy from concho the offsetting

28:47 acreage that literally had the ability to drill long ladders. And so

28:56 I remember signing the purchase of the PSA on that. And it was interesting because our model showed, if we just got the same economics as drilling our horizontals on their acreage, we'd make a 20

29:10 rate of return If we saw an uplift by drilling long ladders, kind of got 2x reserves for 13 the price, we'd make 30. And if we found another zone, we'd make a 50 rate of return. And concho had

29:27 left us three well-bores. And we said, don't complete them. We want to do it. So two of them were long ladders in the wolf camp. So we literally got out there within the first 30 days, fracked

29:37 both in 90 days later, they were on the type. for 2X and everybody felt really good about that.

29:45 The third well bore they left us was in the Avalon. Whole new zone, hadn't looked at it. We fracked that within the first 45 days, 90 days later, it had made more oil than any other well in the

29:58 field. Now it was shallower, so ultimately it wouldn't have had the EUR, but we did that. And so we kind of knew within 90 to 120 days that we had hit a home run with that the funny thing about

30:12 all that is it was literally, everything in the model was predicated on 40 oil and the day we signed the purchase sale agreement, 28 a barrel. And so I say that the lesson learned is, you can do

30:29 all of the micro alpha type stuff you want to do and study the wells and all that. Beta plays such a whole huge role in this business that you've got to have a forecast for what you. think's gonna

30:41 happen and lean into that and believe yourself.

30:46 Let me do this. So the worst deal I did, we'd be here all day.

30:52 Things I learned about worst deals is when people reveal themselves to you, actually believe them. I mean,

31:02 the other thing I talked about earlier is don't use a Contango price deck for drilling programs 'cause if you wanna go bet on higher prices, just go out to the NIMEX and do it that way. You don't

31:14 need to drill wells. The other thing I've learned in terms of worst deals that I've done is, if you

31:28 can sell and make a profit, just go ahead and take it. We lost so much money holding out. We go, oh, we're gonna get 18 times our money We need a 2X. And we didn't do it. And we would wind up

31:43 being wiped out on various things. There's nothing, you know, we say this about river oaks in Houston. I'm sure the same's true of Highland Park. It's full of people that sold too early. So feel

31:55 free not to do that. I was told, I was getting the hook soon. So I'll go, I'll go two more questions. And then I'm happy to take any,

32:13 either in your business or from your podcast, who considers you their mortal enemy? If I told this to a friend the other day, if I die mysteriously, it's one of three things. Please go

32:24 investigate my ex-wife. Please go investigate Chevron. Or three, it's because I had to get boosted because I went to France, they required the boost

32:39 I don't know if anyone saw my podcast I did about Chevron, but I'll just go ahead and call them out again. There's a landowner out in West Texas, just North Amana hands, Ashley Watts, she has a

32:51 ranch and to kind of cut to the chase, it's a lease that Chevron's literally had since 1924 through Gulf and they've been operating the whole time and it's just an old dirty oil field, right? And

33:06 Ashley has had problems with blowouts on PA, wells, et cetera, she thinks that Chevron has polluted the aquifer out there, killed her mother because of cancer. So I've done a podcast or I did a

33:21 couple of podcasts about that and to me it was just an old oil field, right? I mean, that's kind of, if any malfeasance was done, it was done 30 years ago by someone that not only doesn't work

33:36 for Chevron today is probably dead, right? And we all do things better today than we did 30 years ago, right? And so I didn't think much of it, but she wanted me to come out. I came out there

33:46 with a camera crew and as we were driving around, we were on one well site that she said, okay, this well had a blow out, produced water. My forming couldn't drive this truck across here because

33:60 it was so wet and muddy. And you could look down and 300 yards down there was obviously a pooling and all these dead mesquite trees. There was another branch of the road off this way, same thing,

34:12 a pooling. And she got ahold of the well file somehow. And in there, Chevron said they couldn't cross trucks through this area because it was so muddy for two days. And I was like, okay,

34:27 whatever. And this was kind of the offhand remark she made. She said, yeah, and when I asked them how much water was spilled, they said 316 6-9 barrels.

34:39 And I was just like, 3169 barrels? I mean, that would evaporate before it hits the ground in West Texas. I mean, how are they not driving trucks across there? In '69, really? I mean, you're

34:52 going to troll a landowner with a '69 joke. And so anyway, we wound up hiring a freshwater truck to come out and dump 3169 barrels of water on the ground just to film and see what happens And anyway,

35:08 we were kind of mocking of it. But I point that out because it was funny, she and I were talking later and she said, that's your breaking point. They polluted my aquifer and all this. And 3169 is

35:22 your breaking point. But my whole reason for making that the thing about the podcast is that's just wrong. I mean, Chevron knows that it was more than 3169 barrels And the fact they would report

35:37 that to a landowner.

35:40 It is just plain wrong. And so anyway, we mocked Chevron throughout the podcast. It's actually pretty funny.

35:49 'Cause we ran the experiment. It took about 30 minutes to spill the 3169 barrels and it took about 15 seconds for it all to evaporate. But if I'm found missing, I'm not suicidal. Please

36:02 investigate Chevron too. All right, so.

36:12 Last.

36:16 Okay. So last question, then I'm happy to take any of yours or you can go get coffee and leave. But this just goes to say who listens to my podcast. So there are a series of questions. One, who

36:31 killed Jeffrey Epstein? Thanks. Number two, would you rather fight a hundred duck-sized horses or one horse-sized duck? And the guy says, I would rather fight a horse-sized duck because my my

36:47 shins are very sensitive and I think the hundred duck-sized horses would hurt me. Yes, those are my listeners. So if you got any questions, I'm happy to take them. If you're bored to tears, feel

37:01 free to leave

37:16 Yeah. I'm glad you asked that question because that's actually one of the questions. What's the biggest opportunity you see out there? What's the biggest threat you see out there?

37:29 Here's what I see as a big opportunity is

37:37 Bitcoin mining and I'll step back. Bitcoin is just a digital currency. Basically, it is a setup whereby you have a decentralized network, creates Bitcoin There is a ledger that shows the ownership

37:56 of that Bitcoin all

37:60 the way back to time zero. So imagine if you got a dollar bill at one, I give you a dollar. And along with that dollar, it literally says, wannons it now, chuck owned it, all the way back in

38:10 time. It's

38:13 really interesting if you study it, it may be a perfect currency. But the way you keep that ledger, because that ledger requires a lot of computing power, ie. a lot of energy to keep that ledger

38:26 is by miners. And so it's called a proof of work. You basically have a lot of computers that compete to crack a code. And when they crack a code, a block is entered into that chain. Everybody

38:41 confirms the block, and that person gets a Bitcoin for doing this. And that's sort of the self-sustaining thing. So Bitcoin mining takes a lot of power. But what's interesting about it is it can

38:56 happen anywhere. And so what I've been telling oil and gas folks, because I had a Bitcoin mining guy on the podcast about a year and a half ago, and I would call all my private equity brethren and

39:08 I'd say, Man, Bitcoin mining is really fascinating. It's in effect a way to store energy because you can generate power, mine a Bitcoin, monetize it later. And people said, Hey, what? Don't

39:19 care. About six months later, people were like, Okay, we're interested in listening to that, but only if we kind of have some flared gas that we're not using, maybe we'll mine Bitcoin with that.

39:30 It's gotten to the point now where people are talking about, Hey, I should go mine Bitcoin and I'm gonna partner with a Bitcoin miner. I am here to tell every oil and gas person take a half

39:42 intelligent engineer and say, here's two weeks. Go figure out how to mine Bitcoin because it's literally as simple as plugging computers into the wall socket. Yeah, you need to keep

39:55 American-ditioned Yeah, there's some computer maintenance to keep

40:01 it going. But the way I look at it is if you have a molecule of natural gas, you have a BTU. What do you do every day? You run it through a plant, right? And you decide whether to strip out the

40:13 liquids. Do we strip out the liquids, sell the ethane separately? You should be doing the same thing with Bitcoin mining because literally on site, on the well site, you know how to generate

40:25 power, right? Every well site has power to it in some way, shape, or form. You know how to get a generator there You know how to create electricity out of it. You should look at it every day

40:36 because if you look back over time,

40:41 taking the MCF of gas and if it was selling for 300 an M, if you actually went and mined the Bitcoin at various Bitcoin prices, you're selling that same

40:54 MCF for 40, 45 an M. If you look back over the last couple of years, So what I tell everybody is. is you need to go study this and don't just take, well, we can't do it because of this, really

41:08 go throw some time at it. It's not that hard to figure out. And you can figure what will happen is run it just like running through the plant, potentially generate power, potentially mine your

41:22 Bitcoin. The nice thing is, is your Bitcoin every night, you can turn it to cash. No more selling MCF, a gas down the line, maybe getting paid by the midstream company 30, 60 days later. And

41:33 so it's just a huge opportunity right now if you have natural gas and every company needs a strategy about it. Your strategy may be, no, we're not gonna do this. But if you're not seriously

41:44 devoting some resources to thinking through it,

41:49 you really should. We're actually at digital wildcatters doing a conference. We're doing a conference starting tomorrow down in Houston that we're calling empower. and it's the convergence of

42:01 energy and Bitcoin mining. 'Cause at the end of the day, all of the Bitcoin miners are ultimately gonna be oil and gas companies. You literally don't have to partner with somebody to figure this

42:13 out. There's no reason to give those profits away. And what's been really interesting it is because mining Bitcoin was outlawed China taking too much

42:23 power. So you've seen a shift of kind of the computing power on the network and it's figuring out where it wants to go. And if you look at where it should go and you run through the attributes of

42:36 what you need, you need cheap power, you need a good regulatory environment, et cetera, it's West Texas. I mean, there are tons of renewables. What is there? 35 gigawatts of power out there

42:48 and only 12 gigawatts of transmission to the rest of us in Texas. It's a lot of cheap power and the like. And the weirdest thing through Twitter. I get direct messages all the time from Prague,

43:01 Czechoslovakia, various places in China. Hey, we're considering moving our Bitcoin mining operation somewhere, please tell us about West Texas. And so it's happening and it's gonna be a big

43:14 opportunity. And if you haven't, as an oil and gas person, you really do need to study it and get a strategy.

43:27 All the energy that is mining is consuming and pushed back against it. I'm seeing that it's one of the driving forces for quantum computers, which have a whole different energy signature. It starts

43:40 taking over the mining of this point I mean, I mean much information or comments on it.

43:50 So the question is basically to do all this money, it takes a lot of power. There's a lot of push back there, obviously using more power. If you talk to the true devotees of Bitcoin mining, they

44:03 actually say that Bitcoin mining enables power generation because if a solar facility out in West Texas doesn't have enough in the way of clients, if you can mine Bitcoin off that power,

44:18 the solar panels can be built because you have an economic use for it. So they will talk about Bitcoin mining folks will say, We're actually making energy more efficient. I don't know how well that

44:31 argument is going to hold up because at the end of the day, more power is more power

44:36 So the question was, do you kind of see changes in computing and what you're seeing there to be more efficient on the power front? I think what Bitcoin folks, and I'm not an expert on this, but I

44:52 think what Bitcoin folks will tell you is that the computing power and where they call them A6, those are the miners, where A6 are, I don't wanna say they've topped out 'cause you always get better

45:06 over time. But if you look at the history of Bitcoin mining, Bitcoin was started in

45:14 2009 Here's my Bitcoin story, 2011, my eldest child is Bitcoin mining on the home computer, unbeknownst to mother and me, right? The oldest child accumulates nine Bitcoins, which, I mean,

45:32 they're 50, 000 a pop these days, right? So nine Bitcoins, the eldest child buys a fake pair of Yeezy tennis shoes out of China with those nine Bitcoins.

45:46 Kanye West brand with Adidas, gets the easy tennis shoes in, puts them on, steps in a puddle, they disintegrate. That today would be worth almost half a million dollars. So that is our Bitcoin

45:58 mining story in the Yates family. But if you look at the history, I mean, you literally used to be able to Bitcoin mine on a home computer, the

46:06 computing

46:09 and the A6 have gotten better and better and better. They probably doubled in capacity each year, but they flattened off. So I think what Bitcoin miners folks tell you is for the most part, the

46:22 ASIC miners needed to perform the computations to solve the riddle and get the block added to the ledger have peaked. As soon as you say that, of course, something will happen that'll be

46:35 revolutionary, but that's at least kind of what I've heard from that.

46:58 So the question is basically if you're going to mine

47:02 Bitcoin, how do you treat the royalty old holders? And my answer to that is however you decide to do that you're going to get sued. We don't have really legislation on that front. We actually

47:17 don't have a lot of court cases on that front. I'll tell you what I'm seeing how people have decided to deal with it is I've seen people create independent subsidiaries where they transfer price

47:34 literally Literally at whatever the spot is. If we're selling to this pipeline and we get WTI, we just transfer it WTI. We go mine and. and we keep the uplift. I've seen that. I have seen some

47:48 folks say, we were having to flare that gas anyway.

47:54 So we're just gonna take the gas for free-minded and keep all the uplift. I'm not sure that's gonna play over really well, but that's a struggle right now thinking through exactly how you treat the

48:06 landowners. I ultimately think consensus is gonna be something around transfer pricing 'cause I do think the EMP operator has a fair response to the landowners is, hey, take your gas and kind and

48:21 go mine it yourself. I'm paying for computers here to mine. That's real Cap X and it's a separate business. When I sell to the electric company and they sell electricity for more than they paid for

48:36 it, you don't get that uplift in it. So, but you've hit the nail on the head that's gonna be a mass which. I tell you because every time you're negotiating a lease going forward, you need to

48:48 address it in your lease. Every time you're negotiating a marketing contract, you need to address it in your marketing agreement. I mean, you have percent of proceeds and things like that and your

49:02 gas gathering and processing. You need to address Bitcoin mining in it. And I've actually heard of an EP company going out They've got a really competitive area and they're sending their gas out and

49:14 they're demanding as part of their gathering and processing contract that the midstream company provide Bitcoin mining and they're working on a pop contract for it. So it's something you need to be

49:28 mindful of and address.

49:34 Or a curiosity personal question. Uh-oh.

49:40 Uh-oh. So, your knowledgeable guy in oil gas, you'd have a podcast, sounds like you're an act of dead. You have a really interesting style. I think you speak several times. I'm just curious,

49:51 where are you going with everything? So, question is, where am I going with everything? That kind of sounded like, Chuck, have you just given up?

50:04 No, it's interesting. I think I've figured out a few things about myself, because

50:10 at the end of the day, I've kind of owned getting fired. But at the same time, it sucks. I mean, you're sitting on a Zoom call and you hear, well, performance has been poor, you're fired or we

50:25 need to go a different direction I'm like, I didn't make oil go to minus 37. I really didn't, that wouldn't be.

50:34 But anyway, so I figured out a couple of things. One, my mom had a hip replacement surgery, call it 10 years ago. And I went and saw her the next day and I said, Hey mom, how you doing? She

50:47 goes, Well, of course I hurt 'cause my body was splayed open, but this long-term arthritis I had, this pain I was in every day because of my hip is gone And I totally didn't appreciate how much

51:04 pain I was in every day because of that until now, now that's gone. I'll go rehab and I'll be better. I think the same was true as stress. I literally had no idea how much stress I was under every

51:20 day until the next morning I woke up and I went, All right, be anywhere, I don't have any responsibilities. And I'll go ahead and just fast up to this The next morning woke up. got in the shower

51:35 and on my iPhone, I actually videoed myself recreating the opening scene from Ferris Bueller's Day Off. Remember when he did the shampoo off? And I don't know, I hadn't felt that good in 25 years.

51:49 And so one that was really good. I figured out I like the toys. I don't need the toys, you know? So mental health, feeling good every day, way more important. The biggest regret I had is I felt

52:06 so good doing something stupid as recreating Ferris Bueller that two years earlier, one of my children's victories of something, I didn't feel that good about. And just was racked with kind of

52:19 horrible regrets about that. And so, yeah, now I think, and the other thing I figured out about myself is I am fundamentally the laziest person I've ever met. So sitting on the couch watching

52:32 Oprah eating bonbons is actually a really good day for me. So I told my parents the other day, that I would move back in with them before I get another job. So

52:44 the short answer is I don't know where I'm going with any of this. It's fun doing the podcast. I get to say whatever I wanna say. I get to tell some stories. I've actually figured out I really

52:56 like telling stories, go in, dig something out, maybe look at something a different way than a kind of public perception. I would really like to figure out how to get outside the echo chamber and

53:10 make energy okay for the rest of the world, but I haven't figured that out yet. So

53:18 with that, why don't y'all go to work? 'Cause it sucks and I don't have to do that. Thanks for having me.