Chuck Yates Needs A Job

0:20 this morning, I woke up and I got a email from Southwest saying, you know, flights as low as49. I'm like, you know, I haven't booked the world woman's poker tournament flights yet. So I went

0:33 and booked my flights. And as I was typing, I got, oh, yeah, I got a podcast with that bastard. Not knocked me out late in the game. What did you, what did you have? Cause I

0:50 remember having two pair and I remember firing at you and you kept calling, which I knew was a bad sign because people usually, you know, people usually have it. Nobody's out bluffing at the world

1:02 of all of its poker tournament. I'm like, I'm an idiot, but the pool was kind of calling. And I had a small enough staff. It was late enough. I mean, he had to kind of, if you just ran, he

1:14 wouldn't have gotten anywhere, right? Yeah. I think the, you know, so what we used to do is,

1:22 is back, back when I was jokingly rich and had my plane is we would stop and pick up kind of everybody in the portfolio. So we would fly to Dallas, and then we'd fly to Tulsa, get Barry Mullen,

1:40 and then we'd stop in Denver. And nobody mind that it was eight hours because we had great wine on the plane We just had fun. It was a cocktail party all the way there. So when we were flying, I

1:51 forget what year this was, I looked at Britain's Sickie because Carl's the best poker player. Oh yeah. And go, Carl, what's wrong with me? You know, I always bust out early and he goes, Chuck,

2:01 you pay way too much to see flops. He goes, I don't want you to play a hand unless you're willing to raise it this year. And so that year, I wound up playing 14 hands. I won 12 of them and I made

2:14 the final table. Wow.

2:17 pretty good advice. Yeah. And so, you know, it's playing good poker, boring poker. Are you going back this year? Yep. Cool. Yeah. Yeah.

2:27 So where did you start off in the business?

2:31 I graduated in 76 from UT and through the interview process back then, companies were coming to campus and very aggressively hiring. And that again, because I don't ever remember It really was.

2:45 You know, that was early days, you know, not that far after the gold, you know, the Arab war and the embargo and all that. And that's when I got into geology. And so I wanted to work with Texas

2:59 oil and gas, which you remember them? I don't. They were, they ended up getting bought by US Steel, which ended up by, you know, them becoming marathon Okay, but they were a really, really

3:10 successful kind of an EOG model with independent districts. all around, call it the five state area. And so that's who I really wanted to work for. And they offered me a job and said, We're gonna

3:24 offer you a job in Wichita, Kansas.

3:28 And you know, being young and hungry, and he said, If you're gonna offer me15, 000 a year in a company car, I'll go anywhere. And at that time, that was a pretty good salary and a pretty good

3:38 opportunity. So I went readily, stayed there for six years. That's where I met Floyd Wilson I worked with TxO, that was what their acronym was, for a couple of years, and actually went and got

3:49 my master's degree at Wichita State University. And after I got through with that, that's when I went to work with Floyd, 'cause one of the head geologists at TxO had gone to work for Floyd. Floyd

3:60 had a, you know, it was a bucket shop, okay? It would be quite honest. He was a pseudo-engineer. I mean, he had an engineering degree, but he really wasn't a practicing engineer And then he

4:12 had a partner who was just a moderator, you know, yeah guys in the back room calling doctors and lawyers and Indian chiefs and raising money for individual prospects. And then was it called

4:22 Huguetun back then? It was before Huguetun. That was before Huguetun. That was called Kansas Oil Corporation. Then it came regional corporation. He sold that in

4:33 1985, October 85. And that's what sent me on the unemployment line. But then he started Huguetun in early 90s. And I did I'm kind of jumping around. But I ended up going back to work with him in

4:47 96 with Huguetun.

4:51 He sold that two years later to Chesapeake. Chesapeake's first public acquisition of another company or another public company. Right. And

5:04 I got250 million transaction, something like that, all stock. Right. Floyd's locked up price 1998 price It all goes to 10 bucks. He's going through a divorce. Oh. And so here's this great

5:18 transaction for Floyd turned out to be not so great a transaction for Floyd. And he was going to use that money to bankroll this new company called 3TEC. Okay, yeah. We started 3TEC right after

5:30 Huguetun. It was me and Floyd and a couple other guys. Steve Herod. Steve won there yet. Steve won there yet. Steve came by virtue of our first reverse merger. Oh, that was Bay Shore, right?

5:41 Something like that? Yeah, well, I might throw on a blank on it, something Bay. Alabama, it was an Alabama-based company. Middle Bay. Middle Bay, that's right, yeah. Middle Bay, that's

5:51 right, yeah. So anyway, he, you know, he were acting like we were, you know, doing something, but he didn't have any money. And so he talks in-cap and in-cap had never invested in a public

6:02 vehicle or with the intent to fund a

6:08 company that wants to go public. Right and Floyd conjured up. million dollars worth assets. And I mean, he was sitting here right now, he'd laugh and he'd say the same thing. And they were just

6:21 bogus, you know, sure, you know, behind pipe here and a putt over there and a little bit of production here. And so that was a million dollars from Floyd and5 million from NCAP. I'm talking five,

6:34 not 50, not five, five, five. And David Miller was in the same office building that we were in in Dallas. And he convinced NCAP to put in5 million of equity capital in 1999. And we started three

6:48 tech. And three years later, we sold it for350

6:55 million. That's one of the things I don't think the young folks appreciate that you literally could go start a company for5 million. And you could buy a little bit of PDP, complete some behind

7:06 pipes, you know, and then start doing acquisitions. It was really just a It was a starter kit to be able to convince somebody like Middle Bay, there was a struggling company, public company. So

7:18 that was, it's a great model. I mean, I get credit to Floyd for kind of coming up with a model, find somebody who needs money. We got a little bit of money. We'll throw it into the pot. You

7:30 contribute your assets. You keep some equity and he cut the deal, drawing a blank on the principles of Middle Bay. Nice guy, I'll think about it in a minute But regardless, Steve came from Middle

7:43 Bay. And so Steve joined, I don't think there were anybody else's consequence that came from that entity. But that's what we did. We took over the public company. We're changing the aim and

7:56 domiciled and Delaware and off to the races. And then made a bunch of acquisitions.

8:01 So Steve and I played basketball every day, down at the Houston Metropolitan Racquet Club. So I know it's Steve forever and his daughter and my daughter. have gone to Episcopal High School together

8:14 and both graduated and were really good friends. And so, Nen, Steve,

8:20 kind of for a long time, always like, like Steve, yeah. Great guy. So what was the game like back then? You say make acquisitions, walk me through something that was kind of typical of what you

8:31 did, even if you're making it up, just - Yeah, no, I think the one that was the most notable and it was early was probably our first one at Three Tech It's a company called Floyd Oil, and I

8:43 forget the guy's name, last name was Floyd, out in North Carolina, and he had a private company that was just a dog's breakfast of assets, by and large. You know, just all over the place. He

8:59 had acquired him, you know, kind of randomly over the years, but I say they're dog's breakfast, but they actually had some pretty material components within it, but it was. everywhere and had

9:13 eight or 10 different investment groups in it. And it was a kind of acquisition that unless you are just, you know, really diligent like Steve is and like Floyd is aggressive to convince this guy,

9:26 Mr. Floyd, whatever his name was, to sell nobody would have taken on that. Right. That effort, you know, it's not going to work, not going to work. Oh, it did. We, I was a hundred million

9:38 dollars if I'm not mistaken And we acquired float oil. Uh, we then acquired wind Crosby, um, which is another private company out of Dallas, um, drawing the blank on his name as well. Um, last

9:50 name was Crosby, I think. But again, that was 200 and some odd million dollar acquisitions. So we made these, uh, not really market, uh, marketed, uh, transactions, things that people that

10:04 were just dealmakers Um, Mike, Mike, somebody.

10:11 too old to remember all these details. Guy out of Dallas, he's just a private, call it a broker. And he brought the deal to Floyd and both, maybe the Floyd oil deal too, but definitely went

10:22 across me. And so we did those type of off-market, negotiated transactions, what you could do back then. Today, probably not so much. Everybody's gonna wanna bring a banker in and test the

10:35 market. Forces and auction, too many, I always joke that it was too many private equity-backed guys driving a fancy Mercedes around for the general manager at Exxon or whoever that sold a

10:50 negotiated deal to them, that saw it once too often and just like, No, we're not doing this. No, they should take that risk. Yeah, but these little private companies, again, that was, I

11:00 think that's the best answer to your question. And they came with a lot of drilling opportunity I mean, East Texas feels that we're being down space, you know, gas field, big. Oakhill Field

11:12 Rosewood Field and Petrohawk live it was Elm Grove Field that ended up being the Haynesville you're buying these assets that had solid PDP but also had down space virtually no restoring its reserve

11:28 risk right you can drill a dry hole yeah a lot like shale meters poking holes in cot valley sand fields that are used to be on six forties and they went to one sixties and they went to forties though

11:39 we did a lot of that and it was very successful in terms of your building production through acquisition and and through the drove it as well and and we dismiss exploration are we not with my

11:52 expertise per Se I did manage it but we are some really good exploration geologist we did one deal I three tech that was one of these ER En caP mandated transactions They had a - I was on the

12:09 receiving end of one of David Miller's mandated transfer. Wow, this was one of those. Yeah. They had

12:16 a20 million investment. I think the guy was, name was Glenn Burke. Okay. Famous Wildcat or Burke in the day. And his company was called Magellan. And it was private equity sponsored by NCAP,

12:29 but they were underwater. Win Snoots, who came up managing directorate at NCAP was managing the sale process, if you will, of this asset. And it didn't, you know, it had one 20 million dollar

12:46 pod offshore, up dip from two feet of supposed oil. The writer Scott, I guarantee you, they would not book, you know, a zillion barrels of oil on two feet, up dip from water and offshore is a

13:00 pod. Yeah. Well, NCAP thought it was a pod They made us think it was a part. And so anyway, we did this acquisition and had to. Yeah. But the irony of it is, and this is, if you don't play,

13:13 you don't win.

13:15 We ended up with a ton of opportunity in this Bretton Sound area of shallow water Louisiana, which is where this little pod was. But it would turned out there were lightning bugs all over the place

13:27 in pressure, thick sands, and we drilled probably a dozen in a row of really, really good wells That's just, you know, again, if you're not playing, you're not winning. Yeah, no, I remember

13:40 our kind of version of that at Kane Anderson was TMR to Texas Murray. Oh, actually. And resources. And we had, I'm gonna make this up 'cause I can't remember. It was the same thing. We were

13:52 going up depth. It was 150 BCF pod of some sort. I think I remember that project. And we drilled the greatest water well. I mean, literally, I think it was half the company's book. reserves.

14:07 And, and I've got what was the CEO's name of TMR? I can't remember his name. I think I got it on multiple choice, but I don't remember. Yeah, yeah, I don't remember his name, but it was

14:19 something like, Oh, yeah, another one, so I thought the fault ran here and we're like, what? We drove, we drilled it anyway. But, but yeah, anyway, the, it was crazy. But then, then we

14:31 wound up as part of that. There were all these little bright spots that we wound up drilling it. We just crushed it and stock price tripled. Well, the pod we drilled it and we lost 25 million

14:43 dollars. Yeah, it wasn't there. We just had all kinds of drilling issues and side tracks and this, that and the other. So that wasn't just the same story that you were saying. Yeah. You drill

14:52 that one in its total garbage. And then there's a half a dozen or a dozen more opportunities once you start digging into the data and, you know, prospecting, right? Instead of just saying, okay,

15:03 that's that one deal right there. I mean it was just crazy what a game changer three D seismic was I mean particularly on the Gulf coast just being able to see these all things can never see again

15:15 now that was a we were a little late to that party probably a founder member the the companies that were at anyway there were a ton of companies that played the hackberry they played all that

15:30 southeast Texas South Louisiana your bright spot and that was their gig and man which we were in that window a four or five ten years of when you had that data and it was just like shooting fish in a

15:41 barrel Yeah but he didn't did a lot of that with Contango Yeah kind of an and and and wound up hitting that really big Offshore well and everybody saw that structure at some point nobody thought it

15:56 was real because it was just so big and he finally got it up and drilled it and Yeah it was amazing it was it was And that's, I've done a lot of conversation. When I was at Pine Brook and talking to

16:11 investors and talking about kind of the history, remember one of our investor annual meetings? Yeah, I'm sure you had the same thing where you had a big dog and pony show in front of all the

16:20 investors. And so I did one that was basically kind of looking at the business historically and with a timeline. And to think that in the early '80s, I've only been in the business for maybe five

16:35 years. And you know what the max rig count was in the early '80s before everything went to shit? Did it hit 4, 000? 4, 500. Oh, okay. 4, 500 ballpark. And we're running what, 800 now? Yeah.

16:49 Like that. We couldn't grow production. We're 4, 500 rigs. And why? We just weren't very good at it. We really weren't. We didn't have 3D seismic we didn't have shale obviously We didn't have

17:04 the technology horizontal drilling you know it was kind of there but not really all the things that that we did in the late seventies early eighties was just

17:18 high risk exploration or corner shooting know and it doesn't grow production

17:26 so it's it's amazing how bad we were you know at that point in time we as an industry Yeah cause when I look back and kind of have the same type discussions always say the thing I've seen that

17:37 happened in my career because I joined Stevens I guess in the fall or summer fall of ninety four so that's kind of when I started is just the amount of science that kind of took over the industry

17:52 cause the I always give the example do you remember Brock Exploration do you Remember Bucky Brock at a New Orleans Yeah I think so so so We've We One of the first deals I ever worked on in rock

18:06 exploration sold to Mick Morelli, a key production, which I guess ultimately wound up as Simmer X and whatever their name is now. But anyway, Bucky was in his 80s. He was cleaning up as a state.

18:21 So the small little public company. And the story on Bucky is he was fundraising in the 70s. He's in a hotel room in Washington, DC. Lady on the front row raises her hand and says, Mr. Brock,

18:33 is this risky? And Bucky goes, Yes ma'am, that's why I want to do it with your money and not mine. You know, you just do it. Brutally honest. Brutally honest. And the lady actually said, I

18:45 appreciate that. I'll invest with you. But it felt like early in my career, when I first started, it was the people that could raise the money. So you at least had a shot at it, but you were

18:56 kind of swinging it. The pinata felt like, you know and then to see. 3D seismic pop-up and real science come, and then the Shell Revolution, now we have geeky engineers that run companies instead

19:13 of slick money racers.

19:18 Floyd was kind of that guy, and he was good at it, and he was really good at bringing investors in,

19:27 and building a good company, I've kind of said some stories that may be seamless flattering of Floyd, but man, he was a risk taker, but he wouldn't take exorbitant risk. He was in that range of,

19:43 let's do that, let's pay up for this, I know something's there. There's too many people, I think, today, when you look at the spreadsheet math, that's only a 14 rate of return, I can't do that,

19:57 or there's only a 25 rate of return, I can't stay risky.

20:01 voided was a lot more of an intuitive investor I think or or manager of of a an asset and collect away between Us and Steven Boyden and we had a good group that I think understood risk but and could

20:17 convey that risk but people accepted it right that makes Sense Yeah I think goes a time that you know I I I always bristle when people say oh everybody is burn money in the early Shield Asian two

20:31 thousand eight nine ten eleven twelve Yeah we did we we were always the one negative cash flow but you know why we were doing it because that's what the market told us to do Yeah Eyes I always say

20:45 that about it's not like all the CEOS became Great overnight I mean market incentive strange I mean there was there was a growth story there it was that I was legitimate it had to be you had all these

20:60 It got 300, 000 acres in the Haynesville, and 300, 000 acres in the Eagleford, and you got three year terms. What do you do about it? You know, let it expire, 'cause I can't do, you know,

21:11 negative spending, if you will. No, you kind of had to, and the market embraced that and said, now, if you, I remember one time, you know, in the Haynesville, we went to the market to get

21:23 more money in late, you know, summer of 2008 to buy more acreage And the analysts would say, hey, you've already got

21:32 300, 000 acres. This acres is the tail of your dog that's not going to get drilled for another 30 years. Quit spending my money on acreage. And we got it. Said, OK, I get that. You know,

21:41 we've got enough acreage. But we still have to use, you know, the capital provided from the markets to drill at a pace that's going to outrun cash flow. But we created an asset that in our case

21:55 was worth15 billion, at least to Mr. BHB built Yeah.

22:01 That's what we were there for and it worked. So how did that go with Petrohawk? Y'all sold three tech and started Petrohawk and was it in cat-backed? How did that happen? It was a continuation of

22:15 the same basic investment group, same basic founders, if you will. It was a broader group 'cause we had built a pretty substantial base of

22:29 friends and peers. At three techs, a lot of those came with us. But yeah, instead of5 million from NCAP, we had60 million

22:38 of which about 45 was in-cap, 10 was Liberty, the predecessor to O Ironsides. So they were in

22:46 for plus or minus 10 and there was about five of management group, mainly Floyd, but a number of us threw in some money as well There was still just 60 million bucks in 2003. Yeah not exactly a war

22:59 chest and but we did the same thing did the exact same thing we took over a beta was the name of the company that We Luca acquired and and changed the name and return assault into delaware that was a

23:14 Tulsa company OCA and I had a string of average ASs but it's just reserve base you know to get you know get started with and it'd be able to then start acquiring so it was the same model we did that

23:28 for five years L O three to US really two O six that's kind of the seminal point and and we did a merger with Casey S resources and Jim Christmas yet Ceo They'd come out of bankruptcy and they were

23:44 they were truly yo yo on Desk bed and they came back they were North Louisiana and they were on the Gulf Coast it was a a D another one a deal of floyd's you know all we can make this work Yeah I'm

23:59 going to make it work he convinced German the in and their board to merge what we call a merger of equals we both had North Louisiana assets we both had Gulf coast assets we merge these together you

24:11 know merge the management teams and creative a bigger and better company a pretty accurate but then we got lucky because a or in north Louisiana SS were sitting on right on top of the Haynesville Yeah

24:25 this this is a great story because when we when we merged with casey as they had some about forty thousand acres in the Fayetteville this is two thousand and six but had no production there was barely

24:35 any infrastructure at the time southwestern had their infrastructure but none in proximity to where Ah and I think Cassius had him completed a while they drove a couple of walls and so we don't give

24:47 it any value we don't pay any attention to it and then we start drilling in two thousand and seven and were in completing and and realizing Holy Crap it has pretty good Yeah thirty five hundred feet

24:58 you make four or five million a day and it's everything a wells the same right and you kinda catch that Neil shale

25:07 flu type thing or I need more of this yUp and so we then met with core lab and randy miller and we joined their their gas shell Consortium I'm sure he had no management teams that were on that as well

25:24 that was like when caught June sixth two thousand and seven Rainey says where you guys are joined now you might want to just go up to Denver remark as we're having an unveiling of some new core cause

25:35 that's how it worked you had proprietary for six months and then you were required to release that core that you would had had taken and we walk into that meeting three or four hundred people in this

25:48 Yo big auditorium in Denver and in Kanas releasing their their Haynesville neural bowser Corps. And Randy Miller tells everybody, this is the best shale that's ever been invented. And I think, um,

26:05 Red River parish, just that's about 30 miles down the road for months. And so I'm thinking, well, we need to go look at this. And so we spent the next six months in 2007, just looking at what we

26:18 what we had. And and waiting. And because we were not the leader this deal. Yeah. But Chesapeake's poking around. And and they've drilled a few wells and they haven't released anything about it.

26:33 And Floyd basically decides to try and flush out Aubrey and get him to admit that this is really good. So we're in a investor meeting in New York in March. And I'm giving a presentation to 40 or 50

26:51 investors. And we created a couple slides on the Hanesville, just junior high star. We didn't really know what we were doing. Well, we knew it was good and looked good, but we didn't really know.

27:03 And so I put together a cross section and put together this, that and the other. And as soon as I started the Hanesville discussion, I don't remember Joan William, she was our IR VP, but

27:17 regardless, she had, she'd like to do kind of wacky stuff. So she had a stealth bomber come out of the screen and go across the screen with a big loud jet noise. And I had to act like I was

27:30 startled and look back because that was the day of the stealth play, right? Right. Everybody had a stealth play. So we use this little corny, you know, prop to tell the investors, this is our

27:42 stealth play that we don't know a whole lot about, but we're going to try and, you know, flush out Aubrey two weeks later with no, you other prompt than what we did. isn't an investor

27:56 presentation two weeks before comes out says the Haynesville shale the best Shale We've ever seen and it is going to change the world and also now we've got validation and from that point forward it

28:08 was a knife fight for four months basically between US and chesapeake nobody else really got engaged in that when it went twenty twenty five thousand dollars naked you know of El Paso could have

28:19 comstock could have other public companies a good rich get rich is it yeah everybody just stayed pat with their own little H B P cant valley fields right and it was and I'm not saying nobody else

28:36 played but we were were ninety percent of the North Louisiana Knife fight that went on well and I remember we were sitting there and I think ancap did the same thing and natural gas Partners did the

28:50 same thing it's like We Had old Crappy Cotton Valley companies that weren't working but yet the acreage footprint a literally put together five pages packet sent it to you guys sent it to Chesapeake

29:05 sent it to Goodridge and within forty eight hours y'all each had a bid to stay was the the king of Our Our Haynesville Effort I mean he he worked as a relevant asshole for four months and we acquired

29:20 about three hundred thousand acres and and format and and as I recall flores coming in at twenty five thousand dollars Yeager from Goodrich was a boy he was partner of Cheswick to Yeah that's how he

29:34 came in as a joint venture partner which has been don't forget what he paid to get in but he paid to get in I think it was twenty five thousand Roby was probably because cause our story is we had this

29:44 this failed deal called Cato and Isle of I shouldn't name names but it was worth right and Rex are good dudes another night Yeah he he's out of Dallas and so Anyway we we had drilled some crappy

30:00 cotton Valley wells and we wind up with and we wind up selling to good rich and because they they that that was early on we May have gotten like six hundred dollars an acre we thought that was the

30:18 greatest saying we were going to buy two thirds our money instead of all our money that was the greatest thing ever and we took good rich stock and so we have this good rich stock and were literally i

30:30 forget we had a ninety day hold period sixty day whole period something and we were going to sell it on the first day and our attorney at Vinson and Elkins went on vacation so we couldn't do it and we

30:44 were pissed because we were good and it wound up in that two weeks with them on Vacation Goodrich stock had triple because they will take it off. And so they get back, we sell our Goodrich stock and

30:58 we broke even on that deal. Which is a home run. Which was a home run and private. That was gonna be the biggest loss in Cain's history to that day. Really? It was tagged on my forehead, you

31:10 know, Bob Sinat and Danny Wineguess are letting me have it. This is all your fault. And anyway, we wound up breaking even

31:19 And the wildest thing about it is we had negotiated a clause in the sale that if Goodrich sold any of the acreage they bought from us, then they had to pay us the difference. Oh, you're kidding,

31:39 the entire difference? Yeah, the entire difference. You know, as if, and anyway, they wound up doing it, but they did it in a sneaky way where there's a corporate. transaction and set us up

31:50 else, but I didn't care. We broke even. That four months was the craziest of my career, for sure. And what I what I find really fun about that period is we've kind of gone on that story. We

32:06 literally were doing the Eagleford, the exact same timeline. We had started looking at the Eagleford in January of '08 We kind of got convinced based upon all the petro-physical evidence and

32:23 geochemical evidence that we came up with till we start buying leases. And we literally started buying leases the same time we started buying leases in Hanksville, like March of '08. And it didn't

32:33 take us long and we didn't have any competition. I mean, we were paid 400 bucks an acre on average for our 160 acres, 160, 000 acres that we leased down in the Hawkeville area. But the but the

32:44 point being is where we're having a knife fight with Chesapeake. In the Haynesville and paying twenty five thousand dollars an acre and we're over here and in the dark at night using you know a buddy

32:54 of mine's name and Corpus Christi to buy all these leases and he offered and nobody knows it right and we're literally about two months ahead of common common resources I Dunno if you know Elliot pew

33:07 and Roger Jarvis Roger was spinnaker right and in the end I liked those guys a lot we tried to buy either they ended up with I dunno we tried to back them I think they got a term sheet out of there

33:18 were fireworks supported Okay Yeah I Think we I think we gave em a term sheet at some point they're here but they they they had the same that they had the same idea the same database they just went

33:29 too slowly and we out random for all of that parkville trough acreage they ended up with one STs leafs that we tried to buy from them but then they did well I mean they ended up monetizing unmade Pine

33:41 Brook a bunch of money and made themselves much money but the point is again it's just so the business is just crazy you know in terms of how wide the birth is between a knife fight and something that

33:54 you got basically for free are relatively for free and they both turn out to be just monumental assets we ended two is to his credit and will give credit to you Guys too I mean Aubrey figured out that

34:11 if the wells work the acreage cost doesn't matter absolutely you know it's it's whether you have the acreage or not that that matters and so I mean there was a there was a true alpha story there and

34:23 there was a reason to finance that because it really was a game changer so it wasn't it wasn't just setting money on fire knows no I mean he he probably even went a little more overboard than we did

34:37 in the sense that he he he got so many place but that being said I mean the guy was a visionary I I knew Steve Dickson or chief operating Officer really well it's Funny we both came out of Kansas and

34:50 he was a mud logger E O chasing raves in western Kansas at the same time I was you know a break -in you know myself in it it takes one Wichita so we knew each other at that point in time and I think

35:04 it was just really ironic we we end up both becoming chief operating officers of the though the two most two of the most successful shall place a company's exploration companies and in the country and

35:18 steve's great guy and he he ran that that they had their own lab yet it was amazing they were so good at it so good at it we Yeah we were oK but we followed a lot we led the eagle for but we were you

35:32 know I I give them the Ultimate credit in terms of being the shale exploration company right I knew how to Yeah there Yeah no they that that really was Amazing to watch kind of the, what we finally

35:49 figured out at Cane and it took us a while to get there is, we actually did better when literally all we were doing with our engineers at Cane was helping transfer technology. Hey, we saw this and

36:07 this basin up, you know, up in the Bakken, let's say, we think it has applications down here in the Southern Midland Basin, just to make something up and getting our CEOs together and talking and

36:20 sharing notes and all. That's really when we started humming and doing much better as an organization. And, you know, Chesapeake was doing that internally. You guys were doing that internally.

36:36 Yeah. Yeah. It was a fun time. Yeah, it was a little at least So, what was the decision to sell?

36:46 two so why AM I Bygone on the BHP to BHP just Big number at his Gucci orient tired when we were always for Sale I mean we were floyd was he wants to start again you know build it up he's done it did

37:04 with huger turn did it with a few private companies that I work with it was always build and sell mentality and we didn't hide it I mean when we were talking to the public you know people ask you are

37:15 you guys thinking about it we're always for so raw and so but we wanted people to realize that and and so in one transaction happened and in mid eleven though in the fall of two thousand and ten we

37:31 actually had a one on one engagement with axon OCA and a big one I mean we started we had of your meetings with your books that thick and of their guys around the table and, you know, going through

37:48 the typical data room type exercise, but it was a one-off. It was a negotiated discussion. They were serious. Their upstream group was running upstream ventures. And

37:60 so anyway, that happened in the fall and it goes on and on and on as you can imagine. And I was the lead for us in communicating with the lead with their upstream ventures group. It was finally

38:13 like in maybe call it December or maybe January, winter of 11. And they finally said, Well, we can't get much more than about 26, 50. We're trading at maybe around 24. And they said, We'll pay

38:31 you a modest premium, but we just can't. We can't get probably to what you want. And we say, Yeah, you're probably right. We're not selling for 10 percent premium. So then.

38:45 Behind the scenes, I'm sure you know Greg Pippkin. Sure. So Greg's representing BHP. And

38:52 BHP had just lost a big, I think it was a potash merger, a Canadian company. It was gonna be a big deal, I mean, and it failed. And they've got30 billion of cash and sitting there. I don't

39:08 think I'm exaggerating. Yeah. They had a war chest of cash and they wanted to make an acquisition as a company They were not, I would say they were somewhat agnostic, whether it fit into the

39:18 mining or the oil and gas side, but I think they were interested primarily in oil and gas. So, Greg is representing them and not really have any discussion, but I remember this like it was

39:30 yesterday, we're at a bankers meeting at Pebble Beach. And so myself and Greg and Dave Elkurry, who was our general counsel, and then some guy with Deutsche Bank, who tried to make sure he was.

39:44 out of your shot, but I'm walking up the fifth fairway or whatever it is. And Greg says, you know, BHP really, really, really likes you guys. And you know, this is in May. Yeah. I think

39:58 there might be a transaction there. And he goes through some of the whys and why nots. And you know, they'd failed on that. And they just bought Fayetteville from Southwestern. So they had an

40:11 asset - no, it was from Chesapeake, excuse me And they had a services agreement with Chesapeake to operate it for him for a year. They couldn't spell shale. They literally did not have one working

40:24 interest on shore in North America before the Fayetteville transaction. Not one. Oh, that's crazy. Not one on shore working interest. And then they did pay5 billion for

40:35 Chesapeake's Fayetteville way overpay. So that's just going into my thinking, OK. They need an operating team They well were paid for. pay it bill, and they like us. Well, if they like that,

40:47 they're damn sure ought to like us. 'Cause we're a lot better than that. And we have a really good operating team. And so that's late May. Mid-June, we've negotiated a 65 premium with Mike Yeager

41:04 and BHP, all off of public data. And I had one meeting with them. Oh, wow. Not one meeting And that's one thing that I think we were really good at was everybody has to provide public data,

41:18 right? We provided credible public data, I think. And I think this situation validates that, that they could pay15 billion of enterprise value for an asset off of public data and it didn't change.

41:33 So we shake hands on June 15th plus or minus on15 billion of 65 premium over our share price 30 days later we've got a PSA. In thirty days later we close holy cow Fifteen billion dollar sixty sixty

41:51 days while All -Cash Org for a seven million dollar deal

41:59 and you know it and that was ninety days from when you know the comment from Greg on the golf course was even you know in our brain now Floyd may have known something about it at that point in time

42:11 but I don't think it was anything more than just we knew BHP was interested but that that just doesn't happen yeah that just don't happen now that's amazing Yeah that's a that's so while the you know

42:24 I think that's interesting your comment about giving more data because that's kind of been one of my things on the podcast the last few years when people complain about oil trades at three times the

42:37 but Dar four times they die go well you know you give people one reserve report a year this price how did they know more than three or four times he bit die you know cause we ran around and we showed

42:50 them a these are forty percent our our wells and even a twenty six year old can figure out while PDP P V ten didn't go up and I'm pretty sure that forty percent is more than ten so you know it's it it

43:03 should should have gone up and so Yeah I think I think part of if we want to get a better value for our tails is provide more information so that people could and and share more information we were

43:16 always i remember we were big and you know industry sharing we and I basically did this organized after the eagle for was discovered in six months or so into it all acreage has taken more or less how

43:32 many people can trade you know what they own but you can't buy it on the ground and so I organized to call it a symposium if you will of all the eagle for the operators in the

43:43 auditorium of the Wells Fargo Building a big 200 people, maybe about 250 people there, every single company was there, except for one.

43:54 Which one do you think might that have been? Just big? No, they were there. They were there. Who is the one that notoriously does not share any information with anybody about anything? And they

44:05 were in the Eagleford? Yeah, I'm picking EOG. EOG, yeah, of course EOG refused to participate. I

44:16 put them almost on par with Chesapeake in terms of their exploration abilities. Yeah, they'd be better. I mean, I just call it a tie. They were good. But that's the only good thing about that

44:26 company, in my opinion, because we were partners with them in the Haynesville. I

44:34 think I mentioned earlier that the Texo and Gas that I work with was the same model as EOG. And that was, each district was its kind of autonomous little operating entity. So you had - you know ten

44:46 or twelve different companies that reported Dallas where our headquarters were and you had authority to drill any way you wanted to as long as it wasn't a wild cat right you know but you had to get

44:55 dallas to authorize exploration but you know all the little corner shooting stuff that we did it was all each district and you were out you were rewarded on your district performance which sounds good

45:07 but it leads to less incredible reporting processes like reserves and this that and the other so I have flash forward to our partnership with the O G and they're tired of district and we drove the

45:21 first well he went a fifty fifty joint venture with them in East Texas and we drove a well and they decided the best way to produce as well as basically wide open just keep opening the Choke I don't

45:32 care what the pressures to sky now in the show and we We we were the I give credit to our engineer engineering staff we we basically pioneered what we called restricted Re production Choke Management

45:44 how what or Where you are But these high pressure shale reservoirs, particularly over-pressured, if you draw that pressure down too quick, it just, you know, formation just shuts down. And we

45:55 know we recognized that in 2009. And I think we rightfully got a lot of credit for that. Well, they didn't believe in it. And this well that they had, that they just basically gutted, they had

46:08 it on a 16 B factor. Oh, wow. There's nothing on hockey stick There's nothing on a 15. And I'm sure most of your listeners have some relative knowledge of what that means, but a totally bogus

46:23 forecast. Right. And we effectively had to threaten to go non-consent on all their drilling going forward if they continue to use the same production practice. And instead of having to take it 100,

46:39 which they didn't want to have to do, they agreed. And they finally came around and realized, Okay, that's a much better way to produce these wells. but back to the to the autonomy of these

46:48 districts that was part of the problem I mean he that engineer knew Damn good while at one one points SP factor in it you know twenty BCF well we had like three BCF based upon a more credible forecast

47:01 where they were sending that to Houston and given all these reserves to there and getting bonuses off right and then that's that's where the the flies in that in that model in my opinion is that you

47:13 just don't have a corporate you know each each usual satellites are their own corporation and that they do

47:23 The things that are not necessarily in the best interest of the company and now have a weave and kind of saw that and at Kane you know and one of the things I did when when Mike and I took over is we

47:40 made every engineer getting a room and review each company and so the the engineer who was on the deal who might be pushing the envelope or and and you can have differences of opinion too we actually

47:54 found that that doing that kept everybody honest is true chuckling right Yeah Yeah and and you have all this talent you might as well have have a full technical staff within the cane that said that so

48:08 the Kane model and and to Bob Sinnott Credit I think he was really the the the first one cain was the one to do it is to Danny Wine Guess was the first hire I was the second hire Mike hines The long

48:21 time Netherland sole engineer was the the third hire and then literally of his higher finance person hire Netherlands soul engineer used back and forth Yeah Yeah we every you know we we so half our

48:35 partners were engineers the other half as great audience well and at first it was the fact checking which allowed bob to sleep at night and that's probably really why were we did it and that didn't

48:51 necessarily work out great because you you'd have engineers be more conservative and portfolio companies would know something more about this or that where it really became a great tool is when we

49:04 were done these are later stage assets and like I was saying earlier it's hey guys we sure this does this FRAC help does this you know we're seeing finer may have a Finance guy bring in two different

49:14 Porco engineers in together which isn't Gonna work right but you had Credible errors bringing those that that that that could actually actually see it and I think that became cause at the end of the

49:27 day what I don't think people realized about the private equity world is

49:34 and you know a lot of the hoodie and just stuff that I did well one it's my personality but too it's also I don't need to be the most popular Guy I need to have fifteen management teams that want to

49:45 work with me and love me and choose me over in GP So if I show up in a suit right after encap what AM I AM in cap light in G P light or whatever and so it has been different and so when we turn that

49:58 engineering expertise and hey this a really cool resource you know we can we can talk to you about this that we we wound up drawing kind of geeky dirt under the fingernails engineers that we mashed

50:10 where they were engaged in the investment process yeah they weren't you weren't just there to oversee they were engaged Yeah city sitting on the investment Committee you know and Mike Mike when when

50:22 Mike and I took over the the private equity funds I mean we were co -head Vienna and I still still like my brother today cause I but Yeah that's that's ultimately how we wound up using that expertise

50:37 and and it worked it worked really well our kind of a leaders in that regard in terms of actually having a full run of a significant component of your investment team being technical Yeah Yeah now I

50:49 think everybody in the Inner space but That's What I was brought on for Pine Brook but I was a singular you know voice amongst all these financial types you had at least enough different voices to

51:02 have you know a varying opinions that then would boil down into the consensus opinion Yeah no I think that's right and I'd love to hear about CEO Sal Petrohawk and then how do you wind up at Pine

51:14 Brook Well

51:19 part of the premium that BHP was willing to pay and I've already mentioned they had no expertise whatsoever and that's an understatement and they knew it and is it they part of the deal for beside the

51:31 P S A was that all of the upper management except for Floyd and Stephen and General Counsel Ah had to sign on for at least a year and a half of BHP and we got paid handsomely it wasn't like it was a

51:46 real forces to the firing squad and get shot but it it was still challenging but regardless I did that I became president of the North American shale production division of BHP Billiton Ca quick

51:58 Corporation of the longest idle and his daughter and we can get into the alive challenges of being an executive at a company of that size and that ilk afterward working for you know the guys that just

52:12 went one hundred miles an hour down the road and kept it out of the ditch and and succeeded but anyway Till I signed on along with my brethren through the end of 12. So we closed in August '11, so I

52:24 was contracted through the end of 12.

52:29 Didn't go a minute longer than that. And it was hard, and I'll just tease that. I think it was the best job I ever did. Was that 16 months that I was at BHP of just doing the right thing. Now

52:42 they didn't listen very often, but it was easy because I

52:47 had no dog in the fight I didn't care about my job. I wanted to do my job well. So anyway, that came to an end and Floyd had already started Halcon with a bunch of the same sort of roll 'em,

53:00 forward Steve and others. But even if it hadn't already, the die was kinda cast at the end of '12 with Halcon is being, you know, not doesn't look very good right now. But I wouldn't have gone

53:15 anyway 'Cause the funnest part of starting a company is - is building it from the start. And it was already kind of built good, better, and different. Unfortunately, it was kind of bad and

53:26 different, but I wasn't going to do that. I wasn't going to go to work for Floyd. I didn't want to, nothing against Floyd, nothing against the E, but I just, I decided I'd kind of had enough,

53:34 had a pretty good check in the bank and, and I said, I'm going to do something different. And so I got approached by Pine Brook during the, I don't know, kind of the last six months of my tenure

53:46 at VHP

53:49 and I didn't have anybody representing me, but I think we're just got out. I talked to Quantum, I went a couple of interviews with Quantum

53:58 and then

54:03 Blackstone. Right. Angelo. Yeah. Oh, they were, they, they were late to the party. They act like they really wanted me to come, but I'd already kind of gotten engaged with Pine Brook by that

54:14 This is like in December of 12. so long as your Question I I kind of had an engagement period or recording period with Pine Brook for about six months meeting all the different folks and who I was

54:26 there was rich RB the rituals they originally fairly new okay Yeah and then Howard Newman right founder if he will and then mike Mike McMahon Luka was a was there they had an ill probably investment

54:43 team on on the energy side of maybe three partners and then the pyramid of you know Vice President's Associates so I chose to go to work for Pine Brook I I Liked Rachel Ata Liked Howard I ended up

54:58 getting on the board of Newfield with Howard Yeah and we Sorella aboard together for about a year and a half so I I started as an advisor just within a written retainer a modest it wasn't any big deal

55:13 and did that for about a year well then they made me a half partner and then shortly thereafter after they made me a full partner so probably from around two thousand and fourteen to twenty hour I was

55:27 a partner what was the biggest difference in like day to day running a company vs becoming a of finance bro well the hardest part was really the the the selectivity that is necessary the real not just

55:49 the asset is being presented to you but the management team and all of the components of this investment and being a geologist having built companies yo you kind of bring in a whole litany of assets

56:06 right some better than others but you know you've got a portfolio of assets in this case everyone is you know just kind of a singular bat right and and recordable if you if you Miss it you draw a dry

56:19 hole in your at Petrohawk as if it was a one in ten dry holes stronghold to be a public company is what your hit which were therefore different story you know when you when you have a have like you

56:31 said the story of that the north Louisiana company that was going to be close to zero and you saved it dry you know you don't eat that's that's challenging is when you you're involved in it and a

56:43 portfolio company in Peterlee HIV have suggested that this is a good investment and starts going sideways yeah the one you and your partners are trying to manages investment that's hard I found it to

56:54 be really really different than having a corporation have a lot of different assets as opposed to a private equity firm with a dozen singular bets yeah the the Thing I kind of hated along these lines

57:10 about it ultimately is you could look at your portfolio as a portfolio and the right thing to do for your LPs. And this is kind of what we did on Fund Six. Fund Six has this weird barbell type

57:27 outcome. You've got in there, Silver Hill, you had adventure, you had these big huge multi-bagger successes, and then you had failures that were big losses. And investors came in and said, you

57:44 know, yeah, this is venture capital and all. And I go, well, we could have worked these out. But I'm like, where do you want to spend the next dollar of the fund? You want to drill another

57:55 well at Silver Hill? Because what they've got in the Delaware is as good as anything out there. So we literally just shut those down. But the thing I hated about that is there were real human lives

58:06 associated with these were good management teams that you had recruited. And they'd made investments. They had made investments. And so kind of navigating that world Yeah. The -

58:17 you were just, you weren't aligned in your interests. And cause you made a management team put up maybe 25 of their liquid networks to be concentrated on this asset. And I'm sitting there with 15

58:29 going, Oh, these five are working, we're gonna feed that. Yeah, I didn't. That's hard.

58:36 I enjoyed it, you know, it was different. It was a whole different type of business. And it was exciting in a lot of regards, you know, just, you know, the whole meeting and management teams.

58:49 And it took a while to get in the swing of really trying to high grade, you know, what is this opportunity? And Rich is really good at it. I worked with Claire Harvey. Claire was in the Houston

59:00 office with myself. She's great. And she, Claire and I are great friends. And she was fun to work with. And she helped me a lot in terms of really kind of

59:11 getting the right perspective on a management team and the opportunity.

59:17 hyped up on that below that's a great idea right geologically well yeah but it's got this risk and that and you get you just really have to get used to to falling really deep into that that asset

59:29 opportunity and management team opportunity in in you know you might look at as you know there should be our bigger firm than we were and you look at two hundred management teams in a year he may six

59:40 investments or whatever it might be you know at a desk through a lot of opportunity and only picking what you think are the ones that are worthy I think one of the big light switches that went off for

59:52 me and it was just this is being I'm not saying good or bad I'M just saying different than Bobbin and Danny is

1:00:05 Bob and Danny would look for the one thing that was bad and kill the deal with it and what I figured out kind of later on as there were going to be ten things If seven out of ten worked and three were

1:00:20 bad that's okay that would be wind up being a good deal so I'd rather see six or seven cards and have one be bad right and at least have more information I see more the hand then maybe I'm seeing two

1:00:34 cards over here and they're both good and that that was I think one of the shifts we had and kind of a light went off for me was just like okay so our our OPS Guy may not be the best while we may have

1:00:48 a firearm and six months but we've got good rock we've drilled ten wells in your CFL on your CEO or Good Yeah that's that's a that's a non -starter you know if those two don't pass you respect Yeah

1:01:00 Yeah Yeah but if you got that core management team and maybe there were some subsidiaries that may mate but but but again they're quite often that didn't happen Yeah and he didn't do it because of

1:01:14 that one guy over there yeah and then there's that's what you're saying I think is that's a little short sighted well in there the other thing too that was interesting is if you plucked somebody out

1:01:25 of a big company you don't know where they good at politics and able to manage people and they were gifted assets or you know where they actually able to go build a company from scratch because it is

1:01:39 a different world when it's like okay here's your office space here's your coffee pot go to congo

1:01:47 that's a so last thing and this has been cool I could sit here and do this all day maybe we should have been playing cards tower Ooh I'm a force you to look into your crystal ball and five years from

1:02:04 now we're doing this podcast again what will have happened kind of in that five years that maybe people aren't talking about today

1:02:15 and

1:02:18 while I aM part of that one answer one comment would be in it's a near and dear to my heart is international shall perish and and you know it we talked about my involvement and ten born in Australia

1:02:33 and I don't think there's just a litany of opportunities out there that one could say Okay I want to get involved and that one over there and most of them probably have some governmental entity that

1:02:51 would keep you out some

1:02:55 above ground risk that would keep you out just because of the the the nature of that particularly area you're talking about trying to invest in Cause I look at in the Northern Territory of Australia

1:03:07 and other than be in the middle of nowhere I and having some wackos down in in Canberra that sometimes make your life miserable because you're too liberal Pretty good Regime right now but Australia

1:03:19 the above ground risk the the the workforce it's all in gas related but but I'M digressing to say that I think there's other opportunities out there and as that broad to the to the to your listening

1:03:31 audience probably not but I do think you'll find

1:03:35 that there will be some opportunities open up now that that people are probably going to be forced to look at because of the dwindling inventory I I I I say this only because I in my Heart of hearts I

1:03:50 always question you know analysts in the media and all that that is inventory really just that big a problem today I don't think so but is it a problem that you have to react to sooner than later yes

1:04:04 it is as it is or a quality inventory and most of these companies portfolio that's got ten years of running room probably at least and will probably make it longer Because we're good at this stuff

1:04:16 Yeah but there is an inventory problem to be able to keep our domestic or worldwide production for that matter sufficient to meet the rising energy needs and that's a long winded answer to say I think

1:04:30 International shale exploration is something that that will become more more prevalent and I think secondary recovery in the shale reservoirs has to get figured out we all know we're leaving a Zillion

1:04:46 barrels behind power many Zillion you want to add up there's eight per cent ten per cent re every whatever whatever Yeah I don't think anybody really knows but it's not very much and so I listen to

1:04:56 exxon kind of allude to that in some of their you know quarterly releases and investor presentations and you know I I'm not nearly smart enough know what that might be but in it is challenging you

1:05:09 know we are not touching a whole lot of the rock you know you're touching these fractures and and they're probably going to be relatively efficiently drained proxima yo in near well bore and within

1:05:20 that fracture network with there's Gotta be something that the smart engineers are going to figure out that we can do beyond know the E O Puffin puff that he oh geez try to do in the eagle for

1:05:32 something really scalable will come about I think It'll be expensive

1:05:39 but I think that is that is something that we're going to probably see improve our our domestic production base beyond just the imagery of a sticks well and in a we saw that with with crack and in

1:05:53 terms of just figuring out how to change out pumps you know when you when you've you've had a big horizontal well on line for five years you know you use the jet pump do we use the rod Pump and so

1:06:07 production practices and getting back in these old wells whether it's refracts which are challenging but there's there's there's all these different types of of of opportunities I I think I read an

1:06:20 article in one of the hearts you know daily blog blogs that goes out about re re everything yo re Frac rework re do this there's a lot of rays out there that that some of them will bubble up and

1:06:34 become really material in terms of restoring some of these overwhelms to higher levels of production and I don't think there's any material you know basin in the in in the lower forty eight or less

1:06:48 called even North America that is going to change anything about our our forecast I think Yeah We've had everything he could beg hams just know there's going to be a couple old Bay I looked at a deal

1:06:59 the other day and have not so far off basin but you know it's not gonna change the world I mean the only thing I think on That Front that might happen and this is a big time my a lower case M HM is

1:07:15 the somehow because of the crime as you get a Republican governor back into New York and fracking comes on the table I mean that's maybe the one I don't see it happening in in California Yeah I got a

1:07:29 funny story in that regard that when we were and in OH eight we're looking at all the different shell plays at Petrohawk and we've already committed to the Haynesville probably still Eagle Ford might

1:07:41 be a figment of our imagination at that time but We're We've We've got a land grew up in north northeast Pa and are putting together you your run sheets and all this and kind of do pull the trigger or

1:07:52 not and and I looked at it in My Infinite Wisdom acid we're going to end up with a bunch of sloppy seconds here Yeah let's go to New York

1:08:06 Fortunately he didn't listen to me because McLennan had already gone over there oh Yeah and he filed suit against the state for you know screwing him out of his his laces but Yeah there's a sliver

1:08:18 over there that's as good as northeast PA it's not very big if that is there and if I was living on one of those dairy farms I'd be pissed I'd be really pissed I I felt like I got a phone call and

1:08:32 about every three months and I would I would set the phone call up for for three O'clock so I knew I was going to be two hours so I'd do my two hour phone call and then I go home cause it'd be worn

1:08:43 out with mark Sexton because Mark had a bunch of acreage in New York and he would I've been up at the legislature I've been in all the stories there they're going to do it now so I really like Mark

1:08:55 but I was always like adults or Calvi would they do that Yeah that is just a small Yeah,

1:09:05 but one of these days, you realize what it can do for them. Yeah. No, it's amazing. I mean, you look around and arguably, I mean, that may be why Trump won Pennsylvania was because of the

1:09:19 fracking. I mean, it really has changed lives in Pennsylvania. We did a neat piece of content with EQT where a dairy farmer did a lease with EQT and the money that got, allowed him to totally

1:09:35 automate his dairy farm so that his kids didn't have to go work for the dairy farm, but they have income for life. Right. And so, yeah, amazing. Dick, this has been cool. It's been fun. No,

1:09:48 I appreciate you coming on and doing this. And I guess we'll butt heads in in Vegas. best of luck I'll give our vigor enjoy Thanks dick