Chuck Yates Needs A Job

0:00 So Colin, I was thinking, how do we intro this podcast with John Farber? So this is what I was going to do. I was going to do. When you get a chance to go to John Farber and record a podcast in

0:10 his home studio, you say yes. When you do it after he just made 79 times his money selling crowd rock to Vicki,

0:22 you say, hell yes, even if you have to take Colin.

0:26 I like the, I like the radio advertisement voice. I've been working on that. No, it was one. I really appreciated getting to spend time with John. I really liked hanging out with him. Um, you

0:39 know, just a really interesting guy and a thoughtful guy. And, um, you know, he just, he, he thinks about things in an interesting way. And so yeah. And then yeah, going there after the,

0:50 the crown rock acquisition wasn't, uh, wasn't a bad deal. Uh, the thing I didn't really say on the podcast, but I may have told you kind of on our way up or. you're going in is the thing about

1:01 Jonathan Farber. I think of kind of like all my peers out there that I was friends with and private equity and stuff. He always seemed to have like a really good grasp on the macro, you know, the

1:14 big picture. A lot of private equity guys, good with numbers, can get into the details and stuff. But, you know, I mean, you heard that in his story telling, hey, we had a thesis on this and

1:25 that and you know, I think - So I was saying he's very thoughtful and it's not even just on energy macro. I mean, you know, throughout the evening and I, and you know, some stuff was on the

1:34 podcast, some stuff wasn't on the podcast, but you know, he hangs out with interesting people, interesting podcasters, exploring different topics. And so,

1:43 I guess what I'm getting at is like, he's got a curiosity that he follows and learns about different things, which I find to be unique in the private equity space 'cause to your point, you know,

1:53 most people get stuck in an Excel spreadsheet and they know the numbers, but they don't think about, you know, other. other things that are happening in the world. So it was definitely

2:01 interesting conversation. So we'll turn it over. Do you think we dropped this in two different parts? 'Cause it's an hour and a half. There's a podcast, no, I think we drop it. We drop it in

2:12 one. In one. And I also want to say it's funny 'cause we're sitting there at Jonathan's house and we're sitting there. He's like, Oh wait, we're recording a

2:21 podcast? He's like, What am I going to talk about? That's typical farmer crap though. I love him Oh, he's trying to get it to be - This guy, like, we could have recorded a three-hour podcast if

2:30 we really wanted to. He's like, he's got a ton of interesting stories and things to talk about. And so, yeah, I think that this was just a banger episode and I'm excited for it to go up. It was

2:41 cool. Everybody, Jonathan Farber of the 79X.

3:06 Congratulations. Thank you. Crown Rock. Crown Rock. Oh yeah, that was a good day at the barbers. Worked out. Worked out. Yeah. So I still think the craziest thing about Crown Rock is just how

3:19 long you held

3:22 that. 'Cause when did y'all do that deal? 2007. I mean, that's 17 years. That's like never been done in private equity, right? Don't get me wrong, there was a lot of pressure to sell that deal

3:32 at various times I mean, we had a lot of constituencies, both internally and externally. The tradition, obviously, in our businesses, if there's a deal

3:44 that you can sell and make two and a half times or three times your money, there's a lot of people who say you're an idiot for not doing that, right? I think you were chief among them in that.

3:54 Probably.

3:57 Any chance I get it. Is that one not working? That arm's not coming down. Oh, it's not? Yeah, I don't want that Too tall for you. Yeah, I was waiting for the short jokes to come out, call and

4:07 catch the mic. Yeah, there we go. Shout out to the part.

4:12 But yeah, we had one

4:15 guy internally, James McLean, our

4:18 chief investment officer, who got that title largely because of his stubbornness and selling Crown Rock, well deserved. But we,

4:31 you know, he was always, whenever there was a lot of pressure to sell, whenever we had unsolicited offers, whenever there was a hot market environment, one of our direct competitors would sell,

4:41 he would basically stand up and say, Look, this is what's going on. These are the, these are how many new benches we're gonna be adding. You know, these are how many new locations we're likely

4:48 to add. This is what this thing is gonna be worth in the future. The amount of conviction too, you know, there's a story that Peter Till tells about Zuckerberg. They had an offer from like Yahoo

4:57 to buy Facebook for like a billion dollars and Zuck walked in and it was like a five minute meeting 23 year old kid, he's like, yeah, we're not doing it. And I'm like, what do you mean? We need

5:06 to consider it. And he just had conviction and what the platform could be in the future. And so to hear someone have that conviction on a oil asset is pretty interesting to me and lay out the case

5:17 of, hey, we have all these different benches that we're going to be able to extract from. And so kudos to him because that takes a lot of, it just takes a lot of - Well, don't get me wrong. The

5:27 management team was the critical - Tim and his guys were the critical factor in generating returns on this investment. And without supreme confidence on their side - because I mean, they didn't have

5:41 a lot of wealth outside of this deal. So you've been in a lot of deals, Chuck. You know, when you start to get into really positive return territory, and the management team starts thinking about

5:53 how much cash they take off the table in their carry, it becomes really difficult to hold that position Well, think about it this way is, random numbers, because I don't know what your deal was

6:02 with Tim and his guys, but let's say in the high splits, like at three times your money, management gets 50 and the private equity guys get 50. You're drilling half a well, unpromoted at that

6:02 point, if you're in the

6:19 high splits, and management knows that. They're looking at a10 million well going, that's5 million, and so that takes real commitment. I think what it takes is if you're a member of the

6:32 management team, and you've got10 million plus in theory that you're looking at if we sell the

6:44 business. In order to stand up, and in order to sit at the boardroom table, and basically endorse a long-term hold strategy, you have to have a tremendous amount of confidence in the quality of

6:56 the asset, right? I mean, that's what you're saying. You're You're saying, look, the discount rate that I'm willing to put on holding the asset is not going to be super high, right? Like, I

7:09 have enough confidence in the quality of this asset where it makes sense to hold it, basically. And that's what happened, right? So we got to the end of the fun life in

7:24 2017. We were able to put together an acquisition fund to buy the position. We had a very significant amount of our investors who rolled much more so than normally rolled because we spent a lot of

7:37 time socializing investors regarding the future potential of the deal. And when you say that in that situation, you're talking Lime Rock, Ie. you, the firm, went out and raised the vehicle with

7:50 investors to either buy out existing investors or you allowed them to roll. Exactly. Okay. Yeah.

7:58 And we rolled, uh, You know, almost every member of the Lime Rock team rolled the entirety of our capital and the deal, which is,

8:07 again, pretty unusual, you know? And we had a base case estimate, I think, on the

8:14 roll of we were going to make a little over two times our money because it was, you know, it was a pretty substantially valuable asset at that point. And at the end of the day, we made about three

8:22 times our way on the acquisition fund vehicle So I'm loathe to praise Mr. Farber because I'm going to throw it back in my face. But anyway, I love you like a brother, but here we go. To your

8:37 credit, you didn't get bitched at by LP world when y'all did that because I would have heard about it and you just didn't. And why I'm saying that to the world when you when you organize the

8:51 acquisition fund, gave people the option to roll or to be bought out. you didn't get griped at by people. And usually someone's always griping that something was unfair. The GP is screwing us

9:05 somehow. And you didn't get any of that. We were, I mean, look, we - So however y'all did it, kudos to y'all. I'll give you a couple of keys, right? Like we didn't,

9:16 it's better to be lucky than good in our business. And I think we did some things right, but we also, you know, had some, we were also lucky. We, you know, we worked hard to come up with a

9:26 fair evaluation on a mark-to-market basis. And then when we went out and solicited secondary interest in buying, you know, pieces of, of fun for, as we rolled it into the, the fun for

9:38 acquisition fund, it worked out to be essentially exactly a hundred cents on the dollar. So we were able to say to investors, look, here's the deal. You can come out of the fund and get cash,

9:50 and that's a hundred cents on the dollar of what we told you it was worth a few months ago, Or you can roll that value and we were not going to subject. you do additional promote going forward. We

10:00 had a small promote on new money that came in, but we didn't promote the existing - Oh, you didn't promote them on the GP? No. Oh, no wonder you didn't get bitched out. I mean, it was still a

10:10 great deal for us because we were able to crystallize the carry that we had earned over the first 10 years of holding the investment and put that in as Perry Passu investment dollars, right? So that

10:21 was a great option and that worked out very well for us So, you know, I don't think we were greedy. We, you know, we did it appropriately and I think people responded, you know, to that, you

10:36 know, to that set of terms. Yeah, no, I think everybody would say that's fair. Interesting. John, can we roll it back real quick? And can you explain to us how Lime Rock is structured because

10:48 I've got to meet some great people from Lime Rock resources, but you guys have Lime Rock. fund you have lime rock resources and I think lime rock is it new energy energy yeah okay yeah yeah we have

10:58 um yeah so lime rock has been in business since 1998 we're currently investing the lime rock partners investment vehicle we're currently investing fund nine which is a four hundred million dollar

11:09 vehicle and um we put that all oil and gas assets still in the fund yeah okay it's oil and gas and oil services gotcha um and um that's been you know that was the vehicle that invested with uh the

11:22 crown quest team in uh in 2007 got um and we put in ultimately just under a hundred million dollars into that deal um almost all of that capital went in in the first couple of years we had you know

11:34 one of the one of the keys to success in that deal was we were able to to sell off some of our developed assets to uh MLPs kind of relatively early in the

11:44 life of the investment we were able to use that capital to both provide you know some modest investment return early on and which which probably We reduced our appetite or our need to sell the deal

11:57 early, and it also gave us plenty of early growth capital on an efficient basis because we didn't have to put new equity capital into the deal. Yeah. So, you know, so Lime Rock Partners has been,

12:07 you know, kind of our longstanding core investment product. We started a few years after that we, started our Lime Rock Resources Vehicle, which is run by Eric Mullins and Charlie Adcock in

12:18 Houston, and that fund is a business of - Townes, CFO there. Yeah, Townes is our chief financial officer. That fund is in the business of buying, you know, proven developed reserves and

12:31 essentially lowering costs and managing the operation of those assets on an efficient basis. That's been a business where, I mean, I don't know how much of this I'm supposed to say I can all run

12:45 this by our corporate account, I'm going to chop this out. There have been some big freakin' blow-ups in that space. This is a business where if you manage it carefully, the way it was sold to

12:58 people is if you manage it carefully, you generate a low-teens type of return with minimal risk. But the way it's turned out is that a number of our competitors took on very aggressive leverage and

13:11 your risk goes up when you take on leverage. And if you run into what we would consider to be pretty modest production disappointments, you basically throw away your equity. And that's what

13:23 happened. I'm not going to name names, but you guys know what I'm talking about. And that's made it a lot harder to raise capital. I mean, we've pursued a strategy with the appropriate amount of

13:35 fiscal conservatism. And we've achieved the results that we sort of set out to. But that hasn't been true for the sector as a whole. That's made it more challenging. Danny Wan gets used to always

13:48 talk about it like flying a jet airplane five feet above the sea away get you at some point. I mean, look, it's, yeah, that's why you're not supposed to fly five feet, right? Exactly thing.

14:00 It's like leverage. It's, yeah, and I'm not, and by the way, I don't mean to denigrate Danny at all. I'm, you know, he's not - No, we didn't, we didn't, we didn't denigrate Danny at all.

14:12 No, we did not, we did. We will later. That's, that's, that, that, that's section seven point, is seven be too little high in the non-disparaged degree that we didn't say, oh, we didn't say

14:24 a bad word, we didn't say a bad word at all. Yeah. Senator. I have always been amazed by how much leverage this industry takes, whether it's in upstream assets or oil field services, because I

14:37 just run by this belief that it's much harder to kill a business one. You don't have that amount of debt. And so it's a tell all this time in oil and gas where you have the, the slightest hiccup in

14:49 operations or oil prices and all of a sudden you're upside down kills your business. So I mean, it's a killer, you know, it's Tim Dunn has a saying, which I'm going to screw up. But, you know,

15:00 well, I won't even I won't even try to paraphrase, but basically, you know, the idea is the way you make money in the oil and gas businesses by being able to hold your assets through really tough

15:11 times. Yeah. And that's so true. You know, I'm one of the earliest, most formative experiences I had in my career was is when I was an investment banker at Goldman, I was a very, very poor

15:22 investment banker, I don't have the relationship skills needed for that job. And it was not suitable to my personality, such as it is at all. But I did work on a deal where we sold Belden Blake to

15:40 a buyout firm. People can look it up if they really care And we were the selling bank, I went out and pitched this firm, they had never done any similar deal like this before, I pitched them and

15:55 presented an LBO model, which had a very modest amount of leverage on it on how they should manage this deal. I mean, it was a gas play at a time when the gas market, when the US natural gas

16:07 market was pretty weak as it has been over almost every year of my career

16:15 in this business. So not an unusual time at all But basically, they ended up liking the idea and they bought the company and they put way more leverage on it than I had recommended. And they far be

16:30 it from them to listen to me. I was just the selling banker like who cares what they tell you. We know better. We know how to maximize returns through just levering the shit out of things. And

16:43 that's what they did. And then 18 months, 24 months later when the gas market dropped under. luck probably. I don't remember exactly, but it went into the tank. They had to sell off a

16:56 significant portion of the assets at a very bad time in the business. And it turns out that they owned a big position in the Marcellus. So that investment would have been a home run if they had been

17:06 able to hold it. They were able to get out and

17:12 I think not lose money at the end of the day. But it was a great example in how leverage really destroyed their ability to generate an excellent investment return on that deal. Yeah. And I just see

17:24 that over and over again in our business. I mean,

17:28 the capital asset theorists will tell you that taking inexpensive leverage from banks

17:36 is always the right move from a theoretical perspective, but it just feels like the wrong decision in so many anecdotal cases that I'm personally aware of. And it's, you know, conversely, you

17:50 know, keeping a relatively modest debt profile has served us incredibly well, including on the Crown Rock deal. I mean, we went through periods of time when oil prices cratered and rather than

18:00 focusing and having emergency board meetings to restructure covenants or figure out how to raise emergency capital, we were able to focus

18:14 on how aggressively should we increase our leasing budget? Who should we talk to about buying additional assets? I mean, we really didn't end up making any significant producing property

18:22 acquisitions into Crown Rock, but certainly our leasing program was a key part of the success of the deal. Yeah, so when did you all put, so you said O708, you started Crown Rock, when did you

18:34 start getting assets? 'Cause back then, as I recall, it was like, do we like the spray berry? Not like the spray berry. That was even pre-wolf berry frack, right? It was right around the time

18:46 the wolf era was starting to get popular. But there were still, you know, there was a lot of people who'd not think it was gonna be an economic play and it wasn't, right? Like it if you looked at

18:58 current well economics, um, you had to make some pretty aggressive assumptions about technology getting better recovery rates going up and costs coming down in order to make a play out of it and

19:11 those those, you know, those assumptions came true, right and and everything kept getting better and and then you know, you sort of moved into this mode where I mean, I know Chuck will remember

19:22 this Colin. You might be too young for this, but there was a time when every oil and gas Engineer was trained to think that the current forecast or you know for a well You know for a well you are's

19:37 and for costs were always going to be Too aggressive and you needed to be much more conservative than that and then the shale came into into play and because the technology was so primitive initially,

19:49 and because it was such a d - type of extraction, it turned out that we were able to get better faster than we expected, right? So there were several years where the guys who were historically

20:02 overly optimistic, the guys who would have been wrong and from most of the history of the oil business were right. So we moved into this scenario where everyone sort of learned that you're actually

20:14 going to do better than your forecasts. That was not a long-term lesson that served the industry well, right? But that became kind of the industry consensus, the feeling, the vibe in our business

20:26 for a number of years. And I think that kind of happened until, I would say, the 2016, 2017, 2018 time frame, when we started to see real deceleration and improvement, right? And then that got

20:43 interrupted by COVID when we had this massive decline in activity, which actually had the effect of. being able to give the industry an opportunity to hydrate massively, right? Like at that point,

20:55 we kind of knew which areas were the really good areas. And industry as a whole was able to seriously hydrate its efforts and drop rigs predominantly in areas that were, you know, B and C tier

21:08 areas. Yeah. So then you saw a, again, another spike in per well unit efficiencies resulting from that high grading and, you know, I think we and others have said over the last couple years we

21:23 expect that to kind of attenuate and potentially reverse, but that really hasn't happened. I mean, you're now, we're now seeing a bunch of companies come out and cut rigs while increasing their

21:35 production expectations, right? Which is a good thing for those companies and a good thing for capital efficiency overall, but cumulatively it's having a kind of a concerning effect in terms of

21:46 overall market dynamics, right? You know what was wild, so I just spent two weeks with Brian Sheffield over in Australia and 10 hours a day, right? So we had to talk about everything. It was

21:58 interesting 'cause he started parsley in about '07 and he started leasing in the Midland Basin and started doing the Wolfberry fracks. And there was a rumor floated out there that oh, dad, pioneer

22:15 is like giving him the recipe of how it's gonna work Actually, when we talked it through, pioneer did not think horizontals were gonna work. They thought it was drained, that the Wolfberry

22:26 downspacing, the 80 acres or 40 acres, wherever it went, had drained enough that horizontals weren't gonna work. There's actually John Chrisman at Apache that sat down with Brian and was like, No,

22:39 we're gonna drill horizontals, it's gonna work. We sold Adventure 2, which was Midland Basin stuff, RSP. And we got36, 000 an acre and we hadn't drilled a horizontal. And I remember Mike Kynes,

22:53 'cause if you modeled it out, it was worth 50 or60, 000 an acre. And I remember Mike Kynes just looking and going, You know, dude, it might be drained. We should just take this. So, yeah. I

23:07 think it's interesting to hear. It wasn't a no brainer that all that stuff was gonna happen that John just talked about. I mean, you know, one of the other things that made the Crown Rock deal

23:17 work is we started jokingly calling it this, but it actually turned out to be a real phenomenon. We basically said, Well, we have a last mover advantage in this area. 'Cause we kind of sat there.

23:29 There was a time when, you know, the land situation was pretty competitive and companies were pretty hard-nosed and going after land. And as a result of that, they were very tight-lipped about

23:40 what was happening in the field. But then that changed, right? like eventually all the good units got leased up kind of trading around the margins and they were blocking up their land, but it

23:51 wasn't the same in terms of that fierce competitive dynamic, quite the contrary, that companies increasingly realized that by sharing and pooling information, they could develop best practices in a

24:03 much faster and more effective way, right? So that's what ended up happening out there. And we were able to participate in a lot of those data swaps and to see what was happening with different

24:16 wells and then we were probably, not probably, I think we were definitely we're the last major producer in the Northern Midland Basin to drill a horizontal well. I don't think we drilled our first

24:28 horizontal well until

24:30 2014. So we kind of waited a long time. Yeah, Pioneer and Parsley were late in 2013. We were talking about the public companies being late. Well, I love how you framed up or how you told that

24:42 story about how from once it could become optimistic in our assumptions enabled by technological revolution. But when I started drilling wells in 2010, I was drilling for RSP back then. It take us

24:56 three weeks to drill an 11, 000 foot vertical well. And, you know, Pioneer didn't have a horizontal program. And so that advancement, if you look at from 2010 to 2015, drilling a well looked

25:10 completely different in a matter of five years. And so it's interesting to hear about how y'all saw that transformation and being really pessimistic on assumptions and conservative on that too. It's

25:21 kind of, I'm a little puzzled by it. I'm puzzled by what's happening now. I'll be very honest. Like I don't, 'cause I just, like if you name what is something that's happened technologically in

25:31 the last 12 or 24 months in the field, that's a game changer, like can you think of something? Not a material step change. But it's like, I don't even have incremental changes in a lot of parts

25:40 of the drilling process is having this still pretty significant cumulative effect on costs and drilling speeds in one line. but it's like not any one single thing that you can point to. Yeah, it's

25:50 just a compound effect from several different things, yeah. Yeah, that is interesting. And I was also gonna ask you too, just kind of on like current state. I was just in Midland last week or

26:01 the week before and all the talk is about consolidation, right? And a lot of engineers are talking about it. And if I look, if I study the last, just call it 100 years of the oil and gas industry

26:14 in the United States, we move through these cycles We expand, we contract, we expand, we contract. You have a ton of MA in there, and it's kind of a story oldest time, but everyone's like,

26:23 Well, this time's different. How do you guys think about it? From a private equity perspective, with all of these large MA transactions, do you think that fringe assets start peeling off in the

26:36 next couple of years, and then it opens up opportunity for management teams to go out there and attack those opportunities? Give me kind of like your overall state of the world, What do you tell an

26:47 investor on how you make money today? I

26:51 mean, look, everything, things are pretty cheap, relatively speaking, right? There's this kind of underlying assumption that our industry is going away, stubbornly it has not and doesn't really

27:02 seem to have much of a predilection to. In terms of sort of general themes, I would say that, you know, one challenge is that the, you know, as more and more efficiency has been sort of ground

27:14 into drilling fleets, you know, part of the reason for that is economies of scale. And you know, when Chuck and I were in our heyday, many, many fucking years ago, you could easily back a

27:27 company and, you know, have a 20 or 30 or 40 million dollar annual drilling budget and generate good returns if you were drilling in a good area with quality people. And that was a relatively big

27:42 company. Yeah. Back in the back. Yeah. Today, it's like Today, that type of drilling program is going to be burdened with really profound disadvantages, just given the sort of industrialized

27:57 nature of operating rig fleets and frack spreads. And it's changed. It's fundamentally changed. And you need a much bigger drilling budget to make sense, which is, I think, part of why taking

28:13 non-operated positions in

28:16 plays has become a more popular investment approach. When we started Lime Rock in

28:25 1998, I had spent the prior eight years working as a research analyst at Goldman Sachs and then two years unhappily working as an investment banker before starting Lime Rock. And during that time,

28:40 there was a guy already covering the big EMP content. So like, when I got promoted in 1992 and they're like, you got to carve your own universe, I picked up a bunch of like small and mid-cap US EP

28:56 companies and some Canadian EP companies. Those are the ones that essentially weren't being covered. And these were run primarily by engineers and they were

29:07 really centers of excellence. They would, the ones that were successful would pick a play and they

29:16 would focus on that play and develop expertise that gave them highly different,

29:23 excuse me, highly differentiated economics, right? And what I quickly learned was that most of the smaller and medium-sized public companies had big portfolios of non-operated acreage and those

29:35 companies sucked because they had no identifiable competitive advantage and they just, you know, I would compile the finding cost study every year where you basically work through the annual reports.

29:46 and you compile their, you know, different categories of capital expenditures and look at their reserve report and you'd basically calculate their capital efficiency. I'm finding new reserves and,

29:57 you know, it just, you know, I just spent many, many nights at 85 Broad Street tabulating these numbers and getting hammered home that, you know, the companies that had poured, you know,

30:10 that500 million companies that had positions in eight basins, most of which were non-operated, would just have shitty numbers every year. And the companies that, you know, that focused on,

30:23 you know, Eastern Alberta and developed an expertise and a shallow gas play would just have exceptional numbers. And, you know, it just, it just, it became very clear that you had to operate.

30:35 And that has, that was really the operating philosophy of Lime Rock for most of our history When we started, that was core principles that we didn't want to be involved. in non-operated positions.

30:47 And then in - Well, I don't know if it was, you were the same way, but if you got somebody's resume and the guy was operated by others, OBO for Apache or one of those places, you're like, God,

30:58 that's gonna be a crappy management thing. Yeah, yeah, yeah, yeah, yeah. I mean, that was - He's doing really, you know, setting AFEs. Yeah,

31:05 that's what I've always looked at non-op. There's no competitive advantage to it, right? And then I think I was, this was a few years back, I was talking to this engineer

31:15 I can't remember what company it was at, but they had non-op position in Henry's wells. And he's like, we gotta check every single month from Henry. Like they operated the hell out of that asset.

31:25 And then the month that they sold that asset, capital calls started coming in. And he's like, there was a clear distinction between Henry and whoever bought that asset. So there's all this agency

31:35 risk involved in it as well. So it's like, you don't have a moat. No competitive advantage. You have agency risk in the operator And so, yeah, non-option has never made sense to me from. Well,

31:46 but it's that change though. Like what happened, you know, what happened was in sort of 2015,

31:54 2016, you know, we were constantly looking for opportunities to put money to work. And we had been very successful in a deal in the Marcellus with Roger Beemons and the land team that put the

32:06 acreage together split off and approached us about backing them in a minerals play. And we had never done minerals. We didn't like minerals We had an aversion to it because of our sort of DNA

32:20 aversion to non-op, right? I mean, minerals is not up. So we were initially not, you know, but like we knew the guys were very smart and had made us a lot of money in effect. So we took a hard

32:33 look and what we ultimately concluded was that if you

32:38 were buying acreage in an area where you understood the economics, they were so,

32:46 Um, they were so effectively differentiated from other areas that you knew the wells were going to get drilled because your primary risk is that the operators size not to drill the wells. Right.

32:54 Yeah. You just, you know, you just haven't on a bad asset. Yeah, this is crazy in the modeling we did at kang because I never understood. I mean, carlburn Sikhi is one of my dearest friends on

33:04 the planet. I still understand minerals, but you would rather the will, the well be drilled this year and hit 75 of the type curve, then wait for three years and have it hit 100 But you know what?

33:16 If you

33:22 paid upfront for that opportunity, your ex-wife knows is better than anyone. The fire dealer should

33:31 not take IRR. That's a hard cash. We're leaving.

33:35 There's another non-despaired. That

33:38 covers that situation. I can't say anything before we can. Have you Never heard that story. This is a great story because we got to get this on tape. So God bless Kim, Kim's a wonderful mother.

33:49 I am so blessed that our problems did not leave me with a bad mother to my children. So she's amazing, right? And she's cheap to her credit. She's very cheap and all. And we finally got into the

33:60 place in life where I'm like, go splurge on yourself and she wants a Ferrari. 'Cause I mean, she should have been a race car driver. Yeah, she wants that. And I go, do me one favor. Will you

34:11 just call Farber and have him help you? 'Cause left of your own devices, you'll do it cheap and all this and I don't want to spend this fortune. But I also want you to do it right. Did you help

34:23 her with a Ferrari? Oh man. He told the story.

34:27 So now we have to go to another part of the story. So I got asked by the IPAA at the private capital conference to talk about all the other private equity firms. And I'm sitting there going,

34:38 there's no fucking way I can do this. 'Cause if I get up and trash people, these are friends of mine Yeah, I go. But then if I get up there and I say great things about everybody, they're gonna

34:48 call me a pussy, right? Oh yeah, you will stuff. So anyway, I got up there and I compared every private equity firm to a rock band. And like I said, NGP, they're the Beatles, they really

35:02 started it. Plus when they sold half themselves to Barclays, they could talk in a British accent and not sound any more pompous than they already are. I was doing all that to put my man Farber up

35:13 there and I said he was Keith Richards, and I said, 'cause not even, and John did a horrible deal. We're not even gonna speak its name, but anyway, did a horrible deal. And I said, not even

35:23 that could kill him. He's just like Keith Richards. And so anyway, the rumor I heard, and I've been meaning to ask you. No rumor, okay. The rumor I've heard is that you had, like everybody

35:35 from Lime Rock together, 'cause y'all do y'all's annual strategy session or whatever And that was right after I'd said that on stage. Chuck Yates has attacked our firm. Chuck has come after me,

35:48 he's talking mad at me. But don't worry, I'm advising him his wife on a Ferrari and I'm fucking the hell out of the truck. I don't know if you actually said that. That's funny. That's, I mean,

36:00 I can either confirm or deny that, but it's actually pretty accurate.

36:07 Barbara looks like he doesn't remember it, but he's like, it's definitely something that I would say. No, it's all kinda bad. No, he's pissed I think I'm pissed. So it sounds like Cam got the

36:16 top of the line, sorry, got the - You got the job, I mean. Well, I mean, I, you know, she didn't know about it. She's like, well,

36:24 So, I mean, it's a beautiful car. That was gorgeous. Hopefully, was it a 458? Hopefully, you got to see it a few times when she would like drop off kids. I drove it once. I drove it once.

36:34 Around the block, that was a - All right, well, yeah, I hope you enjoyed it. There you go, yeah, oh well. When I first - You had sort of asked,

36:43 What I was saying is that was kind

36:47 of crossing the Rubicon for us in terms of getting back into non-operated stuff. And we, soon after we did that deal with the management team I was talking about, which is called San Jacinto team,

36:59 a group of guys based in Denver, doing an amazing job for us. We're currently investing our third vehicle with them

37:09 The, you know, the Crown Rock Eyes approached us with a minerals idea and that's been very successful as well. And like the stuff we've done in minerals has been very, very successful. I think a

37:21 lot more so than general industry. Our chief counsel is probably not going to let me say this, but it's unquestionably true. You know, we have, we've just done really well on the minerals side,

37:32 but it's because we've stayed really disciplined Like we, we just think that because you don't operate and you don't make the drilling decision, you got to be damn sure that you're getting the right

37:40 acre. you got to stay tight. Yeah, we just have really, really strict underwriting criteria on the quality of the acreage. So we turned down a lot of stuff. We never got active really

37:52 in the Haynesville, which is a big mistake in retrospect. We left a lot of money on the table. Mineral strategies in the Haynesville did very, very well over time. But look, I'm not complaining

38:02 we've done well in that area. It's been by far the most active area that we've invested in at Lime Rock Partners since 2016. And I think we invested earlier in size with a greater portion of our

38:16 fund than any of our competitors. And it served us really well. And

38:21 the same, I would apply the same to non-operated stuff. And I'd say that's become an important strategy for us because given our fund size, it's not really going to be viable for us to do big,

38:34 operated programs through our companies. Unless we're taking such a small part of the company that That's it. It's not something that'd be interesting to us. We want to control the decision-making

38:44 process. Yeah, gotcha. So, give me

38:50 a typical deal, and I know there's no such thing as a typical deal today. A management team walks in and they have to have an asset for you to back them. What do these deals look like that get you

39:03 excited, get you to put a term sheet out the door? I would say, yeah, I would say they're walking around money deals. I'm not going to say never, because we don't like to draw like hard and fast

39:17 rules on things. But because we don't think those serve you well, I mean, there's always going to be conditions that make a deal interesting, except in seismic acquisition. That's the one.

39:32 But no, seriously, one of our competitors, I remember early on, when we

39:39 were first getting going,

39:41 a number of our competitors and the investment rules that they were implementing. And one of them had a hard and fast, we're not ever gonna do anything in the Gulf of Mexico. And we

39:54 did, we did get involved in the Gulf, we didn't always do well there, but we did back Mike Menarovic and the arena team

40:04 and buying his company out of bankruptcy in the early days of the pandemic. And that was a very unusual deal. And if we had had a hard and fast rule against that, we wouldn't have captured that

40:13 opportunity. It's been a great transaction for us. But again, going to a federal bankruptcy court and buying a complicated shallow water Gulf of Mexico asset is not something that we had on our

40:23 bingo card. But when the pieces come together and it makes sense to do something that's off the beaten path, you got to do it in our business. It's just not, it's not a business where you can

40:33 follow a cookie cutter approach for any period of time and be successful. The industry has tried I mean, Chuck remembers that like in the. in the sort of the 2014, 2016 period, everyone thought

40:45 they had found this formula, this acquisition,

40:49 this sort of dot map development program and the manufacturing process. Yeah, that shit didn't work out. So how does that work for you guys internally? Like with this bankruptcy acquisition,

40:60 something that falls outside of your wheelhouse of the normal deal that you do. How does that make you feel when you pull the trigger on it? I mean, getting comfortable with a deal like that, just

41:09 knowing that, hey, this isn't a typical deal that we do. How do you get comfortable with it? I mean, you just got to - It doesn't vary that much from the deals that you typically do, or the

41:20 underwriting process is ultimately the same, where it's like, OK, we - I mean, there are major new elements of the underwriting process. You have to understand the legal ins and outs. You have

41:27 to understand the lay of the land in terms of fraudulent conveyance claims, for example, a deal like that. Because you're taking tremendous risk on the front end And the problem is, if someone

41:38 lodges a fraudulent - and bans claim that gets some traction, then it's like there's this sort of after-the-fact, reallocation of gains that can happen. So if that's a substantial risk, you got to

41:53 know that upfront. So we had to do a lot of work getting smart on kind of legal ins and outs of that type of process. And ultimately we did get comfortable with it. And the dynamics of the deal met

42:05 our expectations in terms of certainty and speed of execution. But yeah, there's significant new elements when you just have to be thorough in diligence and those factors. I don't know, there's no

42:24 shortcuts. Are all Yale's investments US. based assets? Not, I mean, not historically. We've had offices in Scotland, in London, in Calgary Right now, it's just, you know, we're just

42:36 Westport and Houston with you know, essentially all of our investment people in Houston. And, you know, that's, that's really, I think, an artifact of the shale revolution. I mean, once,

42:48 once the shale revolution got going and we understood there was a large opportunity to deploy capital in the US. in a, in a, in an area where you could develop reserves as cheaply as countries that

43:02 had much, much higher risk levels. Political risk levels, we just didn't think it made sense to be putting a lot of money internationally, and that's very much turned out to be the case. So, but

43:13 look where, you know, we continue to look in certain international markets. We just deployed some money into the conventional Canadian market first time in a number of years. So we're not, we're

43:26 not a US. only firm, but certainly that, you know, where we're kind of, we started, and when we started Lime Rock, the majority of our investment was

43:36 really international. That's changed pretty dramatically. I have a couple of questions for you. Obviously Chuck knows you way better than I do, but you made comments earlier about how you're a

43:45 shitty investment banker.

43:48 I want to know your life pre Lime Rock before starting Lime Rock. Your investment banking, did you get into private equity before starting Lime Rock? What was the reason for starting Lime Rock?

43:58 How, the why, I want to know the early story. I mean, I, you know, I

44:05 went to Georgetown, studied sort of international relations.

44:11 Didn't really think much about Wall Street, honestly. It was, you know, it's not a school where you kind of think about Wall Street. It's a school that's a feeder school to the United States

44:20 Foreign Service. And if you don't go into the US Foreign Service, you usually go to law school, right? And you, you know, you go on to become a lawyer,

44:31 which is fine. I don't mean to slam the lawyers that we work with at all. They're well compensated. They can be slim. I bash attorneys all the time. That's what they're paid for Yeah So, you

44:47 know, I had I passed the Foreign Service exam. I was supposed to go into the Foreign Service and I had a lot of friends Who had gone in the year before and I was getting pretty consistent reports

45:00 from them that it was not a fun place to work It was a period of time where the Foreign Service was kind of shrinking They were going through a kind of a bit of a structural change where they were

45:09 reducing some of the senior level Numbers which meant that they extended the amount of time that you were doing like the super Entry-level stuff like stamping visas in a 102 degree, you know,

45:22 counselor it somewhere and What year are we circa when this is this is 1989 1990. Okay. Gotcha So I think right around the tops right around the time spindle top was was discovered Yeah, the early

45:37 days. Yeah, you

45:43 all like colored TV back then? Yeah, yeah. So, you know, I was getting very negative kind of vibes from people that had gone into the Foreign Service and I read a book called Liars Poker.

45:53 Michael Lewis's kind of zenie book about, you know, what Wall Street was like. It was not meant as a guy to recruiting people to Wall Street. It was. But it sounded kind of crazy It sounded like,

46:06 hey, this is kind of, what's the downside of doing this? You know, it's like, I'm gonna learn a lot. It's gonna be fun. It's gonna, I'm gonna be exposed to all kinds of crazy people and

46:16 situations. So I just on a fluke sent my resume in to a bunch of banks and Goldman had,

46:25 you know, had a research analyst named Don Textor, who ran the EP franchise

46:34 research, and he chewed through analyst regularly so you know this wasn't this wasn't all that unusual they had an opening because his assistant had just quit so they interviewed me and made me offer

46:49 I like

46:51 today I would never in a million years be hired on Wall Street I hadn't taken a single finance class yeah George I didn't know anything I learned everything that I knew about finance or that I that I

47:02 used in finance on the job

47:05 and

47:07 you know they offered me the job I I told you can defer the foreign service for up to two years so I got a deferral and ultimately decided not to do it and started at Goldman in the energy research

47:21 group and that's you know that's kind of what happened I was interested in energy I mean energy had you know I studied geopolitics at Georgetown energy had a very strong geopolitical angle you know I

47:34 joined Goldman right as the as the as Iraq was invading Kuwait. Yeah, it was an exciting storm era, yeah. Yeah, there was, you know, we would be on the morning call, the energy guys would be

47:45 on the morning call every morning. Morning call is this like firm-wide call to the Salesforce and it's kind of a prestigious thing to be on the call and we're on the call all the time. We had, it

47:58 was one guy who was kind of Middle Eastern, I guess, and by origin So everyone at the firm considered him an expert.

48:08 This is a default expert. He was like a Middle Eastern expert, he had no, and he

48:13 became famous because when the Iraqis started threatening Kuwait, he went on the call and he issued the famous pronouncement, one out of country will never invade another out of country. It's just

48:24 not going to happen. And yeah, it turned out to be wrong.

48:30 You're in house

48:33 Who's Zach Goldman there? 'Cause I would've known some of the corporate. I guess Bobby Tudor's there. Sure. Eric Mullins is there. Tudor was a Riverstone guys. Tudor was great, you know,

48:45 that's where I met him. My first experience with Bobby was a classic investment banking services. I don't know, you may want to cut the story out because it's going to be a little inside baseball.

48:56 But one

48:58 of the first meetings I got invited to was a meeting where we were talking to an EP company that very unusually for an EP company was generating a lot of cash and they were considering a share buyback.

49:10 And

49:12 so we had this pre meeting where we were all talking about what we were going to say in the meeting. And I had done some research on exons, share buyback program and I had some stats on that and how

49:23 it had worked out for them and that I had come up with and I kind of delivered my little monologue at the meeting and the senior bankers were like, Yeah, that's good you should use that in the

49:34 meeting. So we get to the meeting and you know, the meeting's proceeding and it's Bobby's turn to talk and he fucking does my thing word for word, he

49:45 stole it, he stole it and like, you know, it's like, now it's my turn, I'm like, oh, hi, everyone, I'm, I'm just going to get on to our

49:56 blog. I think you guys are great. I really have anything to say now. Um, but yeah, so that's got, well, that's kind of crazy. You know, going back into some energy finance history here, you

50:05 know, you had a high density of, uh, you know, a lot of smart guys. There were the two river stone guys over there. Yeah. Mannered Holt was there. Didn't, didn't you over it? Was there?

50:16 Yeah. I mean, so did y'all. Who are the guys that ran the group? I'm blank. I'm blanking at Lucian. Lucian. That's right. Lucian. Yeah. My favorite Lucian story. Again, I don't, you know,

50:26 whatever, I'm just going to tell it. I don't care. Yeah. We can check it out. Chuck Yates needs a job. Anything goes. Anything goes. I'll tell my bashing Goldman story too. We haven't even

50:36 broke out any whiskey, we're just drinking water over here. I was down in Houston,

50:44 we were pitching Joe Foster, when he was talking about taking new field public. And we were pitching them and it was a little tricky because the company, we were taking a business public, there

50:59 were no real short-lived Gulf of Mexico, shallow water producers that were public at the time. There was like Pogo, which was a little different because they had an onshore portfolio, which gave

51:11 them some greater length

51:15 to their reserve base. But Newfield had like a 36-month reserve life. It was crazy. So we were talking about taking them public at four times cash flow. I don't remember the exact numbers, but it

51:28 was a very low number, but it was arguably a lot more than the company's worth So we go through the pitch. We're at the soft detail, I don't know if it's still the soft detail up there, right near

51:40 the airport. And it was right near Newfield's offices at the time and we're running through the pitch and we get to the end and Techster kind of goes through the discussion of valuation and he, you

51:55 know, kind of bottom lines what our projected range is gonna be and Lucian like stops me and he's like, I don't know, we got to move it up one full multiple point or whatever, right? We got to

52:07 otherwise, you know, we got to move it up and

52:12 Techster gets pissed off and he goes, David, I'm not your whore. And Lucian looks at him and he goes, Don, you're either gonna be a hoe or we're gonna be a co.

52:28 That's that fake. That's the way the business was done Probably still is, but, you know, far be it for me to say. The, I mean, the guys back at Stevens, the corporate finance guys used to

52:40 write the research reports and hand it to a research guy, a swear to God. Yeah. It wasn't that bad. It was, 'cause I broke one. No, I mean a Goldman, it may have been that bad at Stevens.

52:51 Yeah. So I Goldman, you know, if Bobby'd been there, Maynard, I mean, I don't come from the investment banking world. I mean, did you guys interface a lot? Oh yeah. So. There were no,

53:02 there was no control room There were no fucking Chinese walls, really. Like, we talked about Chinese walls, but it was kind of a theoretical construct. Yeah, not you. It was like, on Star Trek,

53:12 the only time they ever talked about the prime directive, not to interfere with other civilizations, is when they're about to massively interfere with another civilization, right? It was the same

53:21 thing at Goldman. Whenever we talked about a Chinese wall, it's because we were doing something that totally, violate. I'm just going to need to make sure the statute of limitations is expired on

53:30 all this

53:33 stuff because this podcast gets released, but yeah, that was basically a deal. I just think it's cool how a lot of the top dogs and energy finance now just, they're tied in for young kids. Like

53:42 myself, it was a fucking dream job because, you know, because these companies were terrible investors, right? They consumed capital like crazy So they were always in the debt markets. They were

53:55 always in the equity markets, which meant that there was, you know, you always had investment bankers, you know, banging down your door, wanting to understand what was happening. You're always

54:03 involved in pitches. So it was like, it was super exciting. It was like a really dynamic place to be as a research analyst. You know, it's like, if you had been covering like consumer products

54:15 companies were actually good companies to invest in and generate cash and like return it to their investors, that would be fucking boring because you've never seen an investment bank or there's like

54:24 nothing there's to do really with those businesses. Yeah, yeah. So, you know, it's just, it's kind of funny. It's like the worst actual business, the better it is to be, you know, research

54:36 analyst in a sense, kind of covering those businesses. So how many years were you in investment banking? I did that for five years. So I joined Goldman in 1990 and in 1995, I left to join a buy

54:49 side from a family office. Okay. Those are brothers. Okay. And I was only there for nine months They hired me to do private energy deals, but then when I would actually find a deal and write a

55:02 memo and propose it, they would invariably say that they didn't want to. I guess I need to be careful. There's a non-disparagement clause there to shock. Why is it that our careers are, are

55:18 peppered with not - I don't have a - I don't have a - What does that say about us? I don't have a single not-a-terse-rich class. I'm like, what are you doing wrong? I mean, you guys are shackled

55:27 down. It's 'cause we didn't have beams back in our day. We had beams, we'd have been fine. Yeah, I was there for nine months, then I went back to goal, and that's when I got hired in the

55:36 investment banking side. And just, and it was fine. It wasn't what I wanted to do I was really interested at that point in the private equity side.

55:49 You know, there was really only first reserve and natural gas partners at that point. And

55:56 I talked to both of them, neither of them would hire me. So I was like, if I want to do this, I got to start my own fucking place. That's fucking awesome. I love that it won't hire you, so you

56:03 just start your own shop. Basically, that's a funny way to put it, but it's essentially accurate. Yeah. And how did you go about doing that? Well, I was able to, there were, it was great.

56:18 group of people who had left Goldman to form an entity called the Beacon Group in 1996. I think Rich Aabi, who always say - Aabi, Brian Martin, were the guys that I knew, and

56:34 they had - they were able to raise like a billion dollars, and they didn't have a lot of clear ideas on how they were going to invest the capital And I was able to basically say, Look, you know,

56:47 that we see opportunities. You know, I had sort of built this thesis at Goldman that these, you know, single-basin focused, you know, excellent engineering-oriented companies could generate

57:00 superior value, right? And I thought, you know, we saw that happening initially in a bunch of US. onshore basins, and then it was starting to happen in the offshore with Newfield and others It

57:12 was an early day starting to happen in the North Sea. It didn't really happen down a bit. large scale in the North Sea, the way that I thought it would, because just the challenges technically

57:23 were massive, right? But there were

57:27 other international basins. It was happening in Canada. So we were in, you know, John Reynolds, who became my partner at Goldman, was

57:37 the oil service analyst at Goldman. He also had developed a thesis that you could deploy capital into kind of up-and-coming oil service companies, technology specialists. That would ultimately be

57:51 very interesting to the large global oil service companies. And we were able to put a pretty compelling pitch together for Beacon. And they ultimately agreed to seed us with100 million and kind of

58:05 split the profit interest on that money. So that was our first fund. That's awesome. We left. And, you know, we were quite young It would have been very hard to raise a normal way institutional

58:16 fund. I was kind of piecing together at the timeline and I said, you know, you're pretty young at that point. You had to be what young 30s when you I was 30. Yeah, 30. Yeah. Yeah. So I was a

58:27 little younger, even though he looks older,

58:30 but yeah, and, and our first fund worked out well, you know, we had, we had our first investment ever was deer creek energy We, we were able to, you know, British Petroleum, BP Canada owned a,

58:47 owned oil sands, lease 24, which is a big lease along the Athabasca River. Just loaded with tar sand and, but it was, it was not largely on the surface. So there was no path to development at

59:01 the time. Yeah And there was a management team that had developed an idea to basically drill a radial series of large diameter wells around a single well where you put a high capacity pump. pump

59:17 steam through the radial wells, which would mobilize bitumen into those wells, which would drain into the central well and pump it to surface, never fucking worked. It was like, we spent years

59:31 trying to get that shit to work. It did not work, it never worked. I was like really surprised that y'all were doing that because that's huge technological risk in doing that. So it was a big

59:39 technological risk. I mean, look, a big part of the deal was the option value of buying that They said like we were able to convince BP Canada 'cause they just didn't want to have that thing on

59:51 their books. I mean, so much of the success of energy private equity, especially in the early days was kind of driven by irrational decision-making at large majors. I guess that's probably a

1:00:04 reasonable thing to say right now. And they just wanted off their books. So we basically bought an option on this lease that contained billions of barrels of oil, and we paid them five million

1:00:17 bucks for it. Yeah. And

1:00:21 three years later, when

1:00:24 we sold - no, we ultimately held that position, I think, for six or seven years. And we ultimately exercised the option. So we owned the lease.

1:00:38 But at that point, oil prices had run up a lot. When we bought the lease, oil prices were under20 a barrel. So that was why BP Canada placed so little value on it. And look, that was in our

1:00:50 initial underwriting case. We knew that even the technology didn't work. I mean, look, don't get me wrong. We expected that we'd be able to make the technology work because we were kind of young

1:00:59 and stupid at that time. But even if it didn't work, we figured there was some option value in the lease. And that turned out to be the case. Yeah. So it's pretty asymmetric from - Yeah, exactly.

1:01:09 Exactly. It's a highly asymmetric deal. It was what a professional poker player would say, a very high expected value bet. Poker player. The reason I ask is if you Google your name, a poker

1:01:21 picture company. Really? Yeah. I mean, I did play in the world series of poker for a few years. Okay, picture if you play in poker it comes in so it's good. Yeah, yeah. I haven't, poker's

1:01:29 something, do you play poker? I don't, I mean, I will, but I'm not like, I'm not a great player. It's kind of like something where you have to play a certain amount every year to stay current.

1:01:39 Yeah. Like the style that people are using. That's interesting. And if you don't, it's not very fun to play 'cause you're just in this sort of defensive crouch the whole time. Yeah. And I've

1:01:49 never played enough to gain the skill to be good at it. And so, which is interesting This. research report just came out like two months ago talking about the power laws in poker and they did a ton

1:02:02 of data analysis on it. And that's actually got me interested in playing because now that I have some insight into how power laws play into poker, I'm like, okay, maybe I am interested in playing

1:02:11 but to hear that the skill changes over time. It does. So like I played, there was a couple of years And I went out to the World Series of Poker and it was fun. I never, I never won any money,

1:02:23 but I did get really close one year to getting into the money. And I played with some of the sort of legendary poker players. That was a lot of fun. It was a good time. The last year I played, I

1:02:32 hadn't really played a lot of poker during the year and it just wasn't very enjoyable. So I don't know, I don't know if I'll ever get back to a time when I just have other, other kind of priorities

1:02:43 in terms of how to spend my time. It's just, it's very time consuming Yeah, just sit there and poke me. You know what's funny is this is completely off topic, but when daily fantasy sports came

1:02:52 out, I used to play 40, 50 hours a week. I had all these analytics I'd run and type up, you know, scripts to upload hundreds of lineups and I'd run algorithms to pick my lineups and all the guys

1:03:03 in that space were professional poker players because it had such similarities to playing poker. And in the same vein, it would change over time. And over time, it got to where I was like, this

1:03:15 process anymore. And it was one of those things where it's like, you had to spend 40 hours a week doing it to stay current. And I was like, there's better ways to spend, spend my time building

1:03:23 business and so before the internet, I used to kick all my friends asses in, uh, in fantasy football. Because I would get on the phone and befriend the local sports writer and like a ball to be

1:03:36 writer. Yeah. And I'd call him up and like the guy in Buffalo turned me on a Doug flute. You know, flute is getting sorry. So I was so good at it and all that. And then the internet pops up and

1:03:47 I'm bemoaning this and my buddy Fish sits there and he goes, let's be real, dude. Our interests have changed in life. If we were playing blonde country music singer, you'd kick all our ass.

1:04:01 Fair enough. Yeah. You're an efficient market certain. Just not as fun. Yeah. You need an information arbitrage. Yeah, fine. Another person. And the official advantage is really. That's

1:04:11 actually yeah I mean when it comes down to like what daily fantasy sports was it I mean, we're all just sharking people. And then once all of these data platforms and content websites came out, it

1:04:21 just became less fun because there was too much information out there. So. One final thing to hit on, 'cause I definitely have decided I need a glass of wine or booze. We've been going on for like

1:04:31 an hour and a half. Yeah, exactly. Tell us about LP World. What's kind of

1:04:39 the latest, greatest, what are LP's thinking, is money coming back? Give us the lay of the land there. Um, I mean, I think the source of capital for upstream energy, you know, investment

1:04:52 funds has changed fundamentally. We, you know, we, we, we have line rock, has always been very endowment heavy. You know, we, we, we got our start as part of the Beacon Portfolio. We, we

1:05:05 had developed like a personal affinity with a lot of the guys who, you know, were, and women who were, who were very

1:05:14 plugged into energy on the internet. downman side of the world. And, you know, in fact, Crown Rock was, you know, was very well, you know, was was largely capitalized with endowment capital.

1:05:25 Some of the, some of the positions that, you know, we're in, we're in Crown Rock on the part of endowments represented two or even 3 of the entirety of the endowment. So there are some

1:05:38 institutions that got checks earlier this week, representing several percentage points of the value of the endowment, which is, which is, uh, you know, interesting. Hold on. Hold on.

1:05:50 Not related, but sort of related. There's a huge disturbance in the force. Sarah Yates had gotten into UNC, UVA, and Rice. She chose Rice. Dad was a static two weeks ago. Vandy called and said,

1:06:04 you're off the waiting list and now dad's gonna have to go to Nashville instead of Westview. Wow Sarah, Sarah broke my heart Look at that. See ya. Anyway, keep going, I didn't mean to cut you.

1:06:16 We have a, we have a alumni, Jeff Schofield, at

1:06:24 Lion Rock who went to Vanderbilt. So I don't recommend it.

1:06:30 That's awesome. So there's any way to change that. I would caution that I would urge you to do so. She had her speech ready to go on dad. Here's why I'm going to Vanderbilt. Bubba Bond, my line

1:06:43 was, hey, sweetie, I get it I wouldn't want to live a mile from your mother either.

1:06:48 It's good. I mean, but keep going back to elementary. So look, yeah, I mean - Mayor may not have been one of those institutions getting the check. Yeah, I mean, so - Right. And as an alum, I

1:06:59 am grateful. So like, when I take a look down on the list of institutions getting very large checks from Crown Rock, and I look at investors in Fund 9, very little overlap there. Which is kind of

1:07:11 sad, actually, right?

1:07:15 you know, some of these, and I don't blame the individuals that we're working with at all. Like they understand that, you know, that we live in a world where 78 of our primary energy still comes

1:07:27 from hydrocarbons and is going to for a very, very long time, that's moving down, you know, modestly and

1:07:35 that there are responsible and irresponsible ways to develop hydrocarbons And, you know, we are very much on the first part of that equation. So I don't, look, I don't, I don't make any

1:07:49 apologies for the benefits that hydrocarbons have brought into the world. I think the divestment movement is

1:07:57 deeply, deeply wrong headed because it,

1:08:03 you know, is leading to a world. I like to do these segueing here a little bit, but I like to do these discussion salons here where we bring in kind of interesting intellectuals And, and. and

1:08:15 expose them to a group of 50 or 75, really interesting people, and it leads to great discussions. We had Steven Pinker here a few weeks ago, the Harvard professor who has done a lot of work

1:08:25 documenting the progress of kind of human quality of life. Like he has these metrics that he uses, 15, I think, primary metrics that kind of document where we are as a species. And there's been

1:08:41 tremendous progress in almost every one of those metrics over the last 15 or 20 years. And it kind of falsifies the notion that we're in this like time of trouble, like which is kind of, I think,

1:08:58 largely a product of kind of our clickbaity, social media-driven online existence, right? It's like in measurable way after measurable way, life is as good as it's ever been And when you go down

1:09:11 that list of -

1:09:14 of metrics, whether it's infant mortality, or food, access to food, access to transportation. And now we have to walk to give water. Yeah, I mean, basic shit like that. These are all heavily

1:09:28 related to the cost and availability of energy. And if you reduce availability of a most efficient form of energy, which is hydrocarbons, people are going

1:09:39 to suffer. And they're going to suffer in not inconsiderable ways. And yeah, certainly I am not sitting here saying that global warming is imaginary.

1:09:52 It is a real issue, it is really happening and it is in my view anthropogenic in nature. But there is no evidence that there's this cataclysmic snowball effect that's going to send things out of

1:10:07 control. Quite the contrary, it seems to be the case. So we're talking about, changes in temperature that are in all likelihood easily adaptable, and yet people want to accept these calamitous

1:10:24 reductions in availability of energy instead of

1:10:30 experiencing the alternative So look, I sort of segue into a little bit of a TED talk there, but I'm going to send you these charts that you'll appreciate this guy that's an indie hacker on Twitter

1:10:42 and I

1:10:47 follow him, and he lives all around the world, and he was making this case for the productivity of humans being correlated with air conditioning, and he's like I realized this when I was working in

1:10:58 Bali, he's like we'd be outside all day, and out of the beach, hanging out outside, and the second I would walk into a cafe, he's like I would snap out of this, he's like I'd be zoned out, and

1:11:09 all of a sudden I'm in the zone when I get It's like it was the air conditioning and you started posting all these charts of air conditioning in Europe and how not having access to air conditioning

1:11:21 lowers productivity of humans, which is, I mean, it's just simple biology, you know, we're in our state of being cooled like we can, we can think and we're not thinking about survival. We're

1:11:31 thinking about, you know, being productive as humans and so you'll appreciate that because it kind of piggybacks off of just all the other benefits that I've started I started giving a speech where

1:11:42 I go, guess the temperature in here. What's the temperature in the room and you get the audience to kind of guess. And then you say, okay, how many people think it's higher than that think it's

1:11:53 lower than that. And then you also ask the question, what is the temperature when you got up this morning? What is a peak during the day? And then, you know, you do what's the temperature and

1:12:06 the peak of winter versus the peak of summer. find is most of the time the room is off two or three degrees, people, you know, think it's 72 and it's 70 or something like that. And then during

1:12:20 the day, you can go anywhere from, you know, high 50s to mid 80s if you're in a Colorado mountain town. Yeah. And then, you know, you can winter to summer is huge. It's like, we're talking

1:12:32 about way bigger differences during the day than which we then we're talking about average temperatures over the last

1:12:44 150 years. So just keep that in perspective. I mean, look, the where I was trying to go with this is I feel like the, you know, the sort of attempt to make energy investing or hydrocarbon

1:12:56 investing socially unacceptable is just really wrong headed. It hurts people It's not constructive. I definitely feel like there is some

1:13:11 rationale for policy choices that emphasize less carbon intensive modes of energy generation, whether it be nuclear or solar or whatever. I'm not opposed to that, but just the

1:13:26 overall policy. And it's just frustrated me because I think that are more sophisticated investors understand that, but they've been given politically dictated constraints that are just not

1:13:42 objectively good. Are we seeing LP base breakdown, red state, blue state? I mean, look, we, man, what I was where I was going with this is, is our core relationships and our, the kind of

1:13:54 legacy backers that we have are primarily endowments. And, you know, over the last four or five years, six years, those have been taken off the board as a source of capital So that's led, it's

1:14:08 been a challenging environment for us because. in a market that is transitioning where a lot of firms are no longer in the business. I mean, the overall amount of equity capital available to

1:14:20 upstream energy funds over the last 10 to 12 years is probably down by 70 in

1:14:27 terms of whether you wanna look at sort of current dry powder or any other metric. I think that's the order of magnitude. Yeah, Eric, I think Eric told me kind of making these numbers up, but

1:14:38 magnitude was right They said there used to be 5, 500 people that would invest in energy, and now it's 1, 500. To your point. To your point, yeah. That's just it. I mean, I'm more focused on

1:14:49 kind of the amount of capital, but it's like foraging new relationships in that environment is challenging. It's obviously, attracting in foreign capital is challenging for us because of FERPDA and

1:15:05 other specific tax inefficiencies true to investors in our space that are who are not American. Yeah. So one last question on that topic, you know, and the tech side, it's funny, I was sad. But

1:15:20 can I just conclude with the call? I mean, but look, I mean, there's other investors who've stepped in, I think more savvy kind of family offices, certain of the state pension funds, the ones,

1:15:31 as you say, and the red states have kind of stepped in. And I think expected returns, maybe this is the part I can't say, well, we'll see what I knew says about this, but I feel like given the

1:15:41 reduced amount of capital, both from private equity as well as other sources, expected returns in the space, I think are going to be excellent over the next five to ten years. I personally have

1:15:54 certainly helped my crown rock proceeds. I have very significantly increased my own participation in the funds, and I feel very, very comfortable. Past performance is no guarantee of future

1:16:06 performance. I've already had all your disclosures for you. So, investors can lose money, but they can also make money, a lot of money.

1:16:15 So my question to you was, you know, we saw this huge secular swing in and how investors think about oil and gas, which led to this massive divestment from endowment funds. And the story I was

1:16:30 gonna say was I was, you know, what the VC this morning here in New York And I met with them back in 2020. And they're like, hey, Colin, we love what you're working on. We're bullish on it,

1:16:37 but oil and gas, that's just dead. And you couldn't blame them. I mean, it was negative40 oil when I was talking to them, right? And now, you know, I talk to them and they're really interested

1:16:46 in what we're doing. And I look at Silicon Valley, you know, with the rise of high performance computing, you know, they want to go the nuclear route, they're understanding, and I'm a huge

1:16:55 nuclear fan, but they're understanding that there's a lot of regulatory burdens and limitations. It's not as dispatchable as Nat gas power is. I think Silicon Valley is starting to get black-pilled

1:17:05 in understanding, oh, hey, we need natural gas if we wanna power up all of these data centers. I would think so, but let me give you a sort of counterfactual to that. We recorded a podcast here

1:17:17 two nights ago, and it was a, I'm not gonna name the group, but it was like a really smart technologist. It was a San Francisco area-based podcast that recorded over here 'cause they were

1:17:30 interviewing us Mark Andreessen, that's my main podcast. Okay, all right. Not anyone. It's gonna be pissed if you didn't, it was gonna be pissed if you didn't have me over when Andreessen chose

1:17:41 to start. It was

1:17:43 a super smart guy who lives here who has been at Apple for many years, and is like, he just gave a really compelling talk about how simulation technology has made building things. It's like

1:17:58 everyone, you know, all the smart people over the last. 20 or 30 years become software engineers, because in the software realm, you can kind of build things and deploy them super quickly. And

1:18:09 you get that immediate feedback and satisfaction. It's much easier than Adam's. And we're starting to get to a point now where our simulation of the physical world is so damn good and quick and

1:18:21 accurate that we can build things much, much more effectively than we have in the past, right? Like all these fucking rocket ships that Musk is building and other rocket ship companies. It's like,

1:18:34 this is all, you could find yourself wondering, why is all this stuff happening now? And it's largely because we can now build something that we are far, far more certain is gonna work as intended

1:18:46 than we could previously. And building multiple iterations of physical objects is really fucking hard and expensive and time-consuming. So if you can build it right the first time or pretty close to

1:18:56 right the first time, It completely changes the dynamics of the dynamics. that. And, you know, that led to a discussion of AI and it led him into a discussion of how much, you know, memory,

1:19:08 how much computing capacity is going to increase over the next couple years. And, you know, I need to kind of go back and send the podcast to get these numbers right. But I think he was saying

1:19:17 that, like, over the next two to three years, the amount of computing capacity in the world is going to triple and quadruple. And then sort of exponentially increase from there, which, even with

1:19:29 more efficient computing units, leads to massive increases in energy demand. And he was talking about meeting that through nuclear. And there is a wild mismatch between what he was saying in terms

1:19:41 of the timing of the needs and when that energy could be delivered. I mean, nuclear, I am all for nuclear. I think it's, you know, there's a study that came out last week estimating that I think

1:19:52 there's been 4 million man years of life lost because of the Chernobyl disaster, not because of radiation. specifically released at Chernobyl, but because of the dissuasion effect that that

1:20:05 accident had on construction of nuclear facilities and how much air pollution and other undesirable elements have impacted human health as a result of that. It's very tragic. So look, I'm a big

1:20:18 believer in nuclear and I think the new designs I'm convinced are a lot, are maybe not 100 safe, but a hell of a lot safer than in the past And, but look, I mean, the timing is, I think people's

1:20:33 understanding and expectations on timing are way off. That's exactly what I was saying though. Like I was talking to Founders Fund and they're like, we're bullish on natural gas and natural gas

1:20:43 technologies to fill that demand of high performance computing, so. Well, I think what tech's not burdened with is tech has so much pull with the government, they may not have the same regulatory

1:20:55 burden We as energy people have when it comes to nukes. That's the one wild card that I haven't been able to get my head totally around. 'Cause we've seen that big pharma and tech can walk into DC

1:21:08 and get what they want. Yeah. And so if they have the nuclear solution, potentially the regulatory burden won't be as bad. We need to record a separate podcast sometime talking about the

1:21:20 convergence of tech and energy because this is something that I'm really passionate about. But what I think is just hilarious is that the rise of nuclear is actually gonna enable the rise of

1:21:29 synthetic hydrocarbons where we can use cheap heat to dissociate molecules from CO2 and make high density fuels. And so we'll actually use hydrocarbons for the rest of mankind and they'll be

1:21:41 synthetic, we'll make them in a lab environment. Yeah, no, I mean, that's so - Absolutely, I mean, it's - What I was getting to all that about was do you think that that pendulum from a secular

1:21:51 viewpoint on hydrocarbons swings back? 'Cause I think I'm seeing it in Silicon Valley and in tech Do you think that that? comes back to Wall Street in the financial world where it becomes acceptable.

1:22:04 And I also think that it was easy to divest when oil and gas wasn't making any money. And so do you think that that pendulum swings bet? I think it's gonna have to be repackaged. You know, people

1:22:14 aren't gonna, I think I just think it's hard within a 10 year period for people to say, yeah, this is bad. We're not gonna invest in this anymore. And then a few years later say, you know what,

1:22:26 we were kind of wrong about this. We're gonna, like that's a very hard thing Yeah. To get people to do. But if you can repackage it in a way where you're doing equivalent investing, but you're

1:22:36 calling it something else. You know, whether they're, oh, this is now infrastructure or this is now whatever, it's something different. It's a power project and, but you're like, reallocate in

1:22:46 type of assets that are there. Then I think that that's how you're gonna get more capital. Yeah. Kind of flowing into the packaging. Reprahaging repackaging it. Yeah. Yeah. I still think it

1:22:53 comes down to a CIO has to be able to become able to become able to become able. former CIO, if they don't have energy exposure. And when you're messing around at kind of 5 of the SP 500, that's

1:23:06 still tough. I think that's gonna be the big thing we're gonna have to get over is being real. Even if you're the number one performing asset class, but - Yeah, makes sense. Unfortunately, that

1:23:17 means we have to root for tech to suck, but I don't wanna do that. I mean, this guy who was here the other night, this technologist, I was telling you, if someone asked him like what would be

1:23:27 your top recommendation in terms of telling your kids what to study right now, you know? And he didn't really have to think already, he said, I think it's all about energy, specifically, I think

1:23:38 batteries. Like battery technology, the advances in battery technology are gonna have a profound effect on progression of kind of human society over the next 20 to 50 years. And that's kind of the

1:23:52 tip of the spear right now. So that's what, that's what I thought was an interesting. My kid's electrical engineering and finance always regretted. I wasn't a finance bro like you guys. It seems

1:24:02 like it turns out well for a lot of people to get into it and then, but electrical engineering and that kind of plays into batteries as well in material sciences. So I agree with his answer. That

1:24:10 was good. Drink Tom? Let's get some drinks. Before we got on here, Farber said he had nothing to talk about. I know. What are we even gonna talk about? I'll just bullshit.

1:24:23 That was good stuff. That was fun. Yeah, that was a blast We'll see if it out downloads Gary's podcast. Do you still need a job or is this like, are you locked in now to the whole podcast thing?

1:24:33 The. 'Cause I might have to change the name of the show. If we're doing poker, I'm pretty pocket committed on digital water. This was great. So we were talking about something the other day

1:24:45 'cause daughter Sarah, the one going to Vandy, will run the world one day. We don't know if we're good or free evil, but we know she'll run the world. So we're going through things cutting

1:24:55 another check into digital archives. And she looked at me and said, please, dad, just let me get through Vanderbilt.

1:25:03 The amount of anxiety that you gave her. Yes. Good stuff. Cool. All right. Cheers. Thank you.