Chuck Yates Needs A Job

0:21 Our industry took a sucker punch to the gut in 20. OPEC price war, COVID demand destruction, stock market, exodus left many producers on life support and with heavy debt loads and restricted

0:35 access to capital. Private equity, quite frankly, didn't do much better than the producers. And well, 2021, bring us in and reprieve. Well, private equity continued to support management teams

0:48 in their projects. In the first business session, our panelists will provide unique perspectives from the producer and private equity to navigate the ups and downs in 2021. Our moderator is Buddy

1:01 Clark, co-chair of the Energy Group for Hanes and Boom. Panelists are Gregory M. Robbins, President Greedall and Gas, Michael A. Freeman, partner Hanes and Boom LLP, and Chuck Yates, advisory

1:16 board, Cottonwood Venture Partners. Welcome, gentlemen, and thanks for being here. I would make one note if you would, after if there's time allowed, and you would like to ask a question for

1:27 those that are present, feel free to step up to the mic. Thank you - I feel like I'm on the front row of class -

1:35 At least you got your mic to work - All right - Well, good morning, everybody. We are excited to be here, at least to have another, to try to restart the normal routines we've had for so many

1:50 years in the industry, I was talking to one of the organizers of NAEP, and can remember going back to the hotel or in the Galleria where NAEP was held in a small sort of ballroom area. Now it has

2:03 certainly expanded over the years, let's hope that we're beginning to restart the engine and this time in winter, NAEP will be back in full force. But for now, we're going to try to kick off the

2:15 presentations this morning, And fortunately, we have a very good -

2:21 we actually were supposed to speak last winter, but as everyone knows, Nate was postponed. But in preparation for last winter's, Nate, I had asked all the panelists what they thought the price of

2:34 oil would be on say August 15th of 2021. And to a man, they said 6716. So I think we have a pretty sharp panel here. And maybe we'll ask them at the end of the presentation with the price of beef

2:47 for winter, Nate So let me get started with just a brief introduction of our panel. To my far left is Greg Robbins, president of grit energy. Greg started out as a banker, and then in private

3:03 equity, with a private equity shop and worked at Memorial Production Partners for a while. And he formed grit energy with Larry Forney, a few other people with some financing from and he'll tell us

3:18 more about that detail. They've already had one level of success that was their first company, Grit Energy 1, and now they're on their second Grit Energy incarnation. Although, Greg, you didn't

3:32 ask me about the naming of it. Grit Oil and Gas 2 was a huge mistake. It should have been 2 Grit Oil and Gas Energy. Get it to Grit. See, if the crowd was bigger, that would just be uproar. We

3:46 probably wouldn't be able to finish the program

3:50 Greg has really been a leader in his company and will give us some really good insight. For those in the audience that are looking to find a way to get into this space and access private equity,

4:02 that will be the theme of our presentation. Mike Freeman is a partner of mine and Haines and Boone in our Dallas office, has worked for a number of years with various private equity shops as well as

4:12 their portfolio companies The mic has been on both sides of those.

4:18 negotiations he's seen how the sausage is made and will be able to help kind of intermediate between the discussions of our panelists because our third panelist Chuck Gates has worked for a long time

4:31 in the private equity space, graduate of Rice University and had worked at Kane Anderson for a number of years and now will I think his title now is Vice-Roy of the Galaxy? Galactic Vice-Roy. So

4:45 he's kind of moved up in his career. Okay I kid you not I went in on LinkedIn and they make you put a title so I was like unemployed dude doesn't sound very good so I put in galactic vice-Roy. I kid

4:58 you not somebody sends me a message saying congratulations on the new job so I messaged back well thank you very much I'm just pursuing my dreams and the person came back and said I know you'll crush

5:12 it.

5:15 And it's worked out well for Chuck this is wardrobe has really improved over the years, I'll say. Someone actually tweeted out about two weeks after I got fired last year, something to the effect

5:30 of, they always say dress for the job you want. Chuck took that shit real seriously.

5:38 All right, let's get into it. As I said earlier, the theme of this presentation, what we think the audience is here to find out is how does one, with a great prospect, go about finding enough

5:54 capital to be able to acquire the prospect and develop it. And I thought we could start off with Greg, because he's had that exercise, actually on both sides, he's seen pitches from management

6:07 teams looking for financing, but he's also honed his skills and has been able to really establish a good relationship with his private equity provider. Greg, maybe just a background on how you kind

6:20 of got into this business and then your most recent incarnation of Two-Grit. Good morning. So I kind of started in early 2011. We, I was lucky enough to be a part of the NGP creation of what

6:36 turned into MRD-OPCO memorial. But that was a deal that was a consolidation of some portfolio companies And what's different between then and I'd say now for us is that we were handed assets. They

6:52 were, they had a number of portfolio companies that were trying to consolidate and to for various reasons. You know, I think one guy they were moving out of the business, a couple others, they

7:02 wanted that person to spend time on other assets. But regardless, we were kind of handed the keys and we never had to really extend ourselves And we didn't know if it was going to take, we had to

7:14 take a public and then we, I truly personal risk, but finding that asset

7:23 and kind of raising the money for it was really not our initial business model. And so, which was a great way to start because that is a very hard part of this deal and all we had to do was execute.

7:35 And that was really where our business model was formed was we never had to hone our skills in finding an asset, but we had to deliver And we had to follow teams that were operating these assets

7:48 under the private equity model. They were already nimble, they were already lean, they were already, assumingly doing what they were supposed to do. And we had to come in there and suddenly do it

7:56 better. And so, our team quickly became petratechnically weak and operationally intense. Lots of engineers. And it was an execution model. So fast forward until 2016, late 2016, we sold the

8:09 balance. We kind of spun out the upstream MLP We sold them RD to rain.

8:16 And there was kind of weird mix of kind of who was left standing, but there was arguably four to five kind of founders that group. And we all decided to go different ways. I had had four kids born

8:28 in that time period. And it has been just a whirlwind. And I wanted to take a few months off. And then the balance of the team kind of just went right back into it. So Larry and I started grit in

8:44 what turned out to be kind of January of 2017 We took a few months off, like I said. And that was really the beginning of the asset search. And I think we learned really quickly that when we

8:54 started, there was a small group of us. And it was ultimately ended up being six people. And at any given time, four of those people were engineers. They could execute on projects. But they

9:07 weren't looking for assets. And they weren't underwriting deals. And they weren't doing models and various kind of reservoir research.

9:17 But it all worked out, we were able to find an asset, buy it, sell it, make a little bit of money. That was Fund 1 for Carnelian, and for those of you who don't know, if you don't do a 3 or 4X

9:28 in Fund 1 and Carnelian in your failure. So we were not one of those companies. They had a number of portfolio companies that did extremely well. But we were able to buy it, sell it, execute - I

9:40 think we took a good price risk. But I'm trying to just get to GRIT 2, which I think is really the most important part of this presentation. So we sold that asset in June of 2019. And we just

9:54 bought something in July. We closed it on July 22nd of this year. And so we had two years without an asset. And it was brutal. It was the best being unemployed through COVID. It's checking

10:08 probably. Appreciate. So I mean, you just couldn't get a lot done and you feel like you're looking at all your buddies. been in their wheels on stuff that doesn't matter. And so having those few

10:18 months was nice, at least for me. But before that and after that, just made deals hard. So I think that the summary of our beginnings was trying to find a deal in those two years, trying to work

10:31 with our private equity to keep our equity commitment, which we did, or they were gracious enough to allow us to do. And all that can go on and on. But I don't know what particular topic you want

10:43 to cover But I will say that if you break up the last two years, you had pre-COVID, you had through COVID, and then you kind of had this post-COVID fallout, where deals were supposedly plentiful,

10:56 but money wasn't available. And we made it through, and we have an asset now, and

11:03 good to be where we are. And I think we really need to talk about what the future holds But going back to how did you find -

11:15 Carnelian, did you talk to a lot of different private equity shops? And what's that drill from the producer's side? How do you see yourself going out to access private equity capital? Carnelian

11:24 was a spin out of NGP. So we had - when we started Memorial, we actually officeed an NGP's office. There's only a few of us. And so I got to meet Thomas Ackerman during that time. And so when we

11:38 sold Memorial, Thomas, and Daniel had already formed Carnelian. And so we didn't call anyone We just called Carnelian. And so again, Mike, our first deal, we were handed assets and our first

11:50 commitment, we were just handed a deal from Thomas. But that's how the world turned at that time. If you had success on a deal, which meant you made money, not necessarily operationally

12:02 successful, but you made money, you got another equity commitment. That's just what it was. And Chuck - I mean, that's what Chuck did from that side. But I kind of feel like if you made money,

12:12 you got a commitment. And the level of work - at that time and how they measured success was more about your financial track record than your structural track record from executing projects. What

12:25 did you actually do and how did you perform? That's a part of it. But I think people, they think winners are going to be winners and losers are going to be losers.

12:37 Yeah, no, it was the worst predictor of future performance was whether you made money or not Because I can't tell you the number of times we made money to spite ourselves. And then there were times

12:49 we actually did everything right and we lost the fortune. I mean, really looking back at it with some hindsight now, it's amazing. And I think one of the things back to your point where you were

13:02 in that day and age, remember, you know, what is it, Charlie Munger says, show me your incentives and I'll show you your actions Back then, energy was a set. allocation in all the investors'

13:17 portfolio. So 10, 12. And so they needed money out the door. If you're a large endowment, you ran this scenario where oil went to 25 barrel. You decided you wanted 10 exposed to energy. So the

13:33 private equity firms, getting all the grief about doing all these bad deals, actually did their jobs pretty well in terms of taking the money and getting it exposed to energy for their clients. But

13:45 yeah, back in the day, we had every incentive to keep management teams around, keep them loaded up with commitments, and go find those assets because our clients want money in the ground and oil

13:58 and natural gas for their exposure. Well, you both are talking about existing management teams and renewing it, rinse repeat But how does a young team of geologists and an engineer, they know this

14:16 great asset, somewhere in East Texas that from the prior company they'd worked for, maybe they've been laid off or whatever, but the company's not exporting that asset. They think they can get a

14:25 lease on it, but they gotta have cash to do it. What do they need to show to the private equity guys that will convince them to get them in the door? One, and then two, close a deal with them -

14:36 Yeah, and the world's changed, obviously, pre-COVID versus post-COVID Pre-COVID, you had a fancy PowerPoint with some pictures and you could get yourself a meeting and do that. And you two guys

14:52 compare and critique me

14:54 on this 'cause I'm sitting on the sidelines watching it. But today, I mean, you need to walk in with a team that's actually worked together before. I mean, that's a big risk to an investor.

15:05 These three guys have never worked together and you're gonna give them 100 million. What happens if they break up? So you want a team that's worked together. You have to show that you've made money.

15:18 Just walking in and saying, hey, I got this great idea. I know this asset doesn't help. You need to show that you've made money before. And then I think today's age, there are no more equity

15:31 line of commitments where, hey, we'll pay your GA, go find an asset. You've got to have the asset on lockdown. And to your point, if it's leasing, that's actually really tough, because I'm not

15:43 sure folks are drilling these days or looking at drill first type models. But if it's an acquisition, maybe you've got to have a letter of intent in place or something. And I get that it's a

15:55 chicken and an egg problem. But you really have to have it on lockdown so that the private equity firm can scrub down everything about getting into business with you. Here's the team. We've been

16:07 together. We've made money. Here's the asset Here's the exploitation plan. You almost have to have a - totally buttoned up today to be able to get money 'cause money is really scarce - Yeah, I

16:20 would agree with all that. I think things have changed. They were changing before COVID. We were in a sort of a cycle that was not trending in a good direction, but COVID clearly made things worse.

16:32 And private equity sponsors now, from what I've seen them from talking to private equity sponsors, you have to have all the things that you've said and have a deal basically in place And how do you

16:44 actually articulate that to a sponsor in order to get the commitment? I have seen in some circumstances, some are sponsors are more willing to do this and others, some sponsors are willing to sort

16:55 of engage in some sort of consulting arrangement almost right before you buy. And that's, I don't think all sponsors are doing that, but certainly some sort of an additional step to allow them to

17:06 establish that relationship before they actually make their commitment - Yeah, and I think, Are there doing -

17:14 Even if it's not a consulting, but it's like, hey, for the next three months, six months, we're going to date and have some exclusivity associated with the deals you bring. But

17:28 on our side of what we experienced was it's really hard to get traction with sellers if you don't have money and you're trying to get that LOI. And it's just not real And a lot of this, the way we

17:44 see it is if the banks are hungry for MA, which they were this last year, the

17:49 banks are also calling on these same sellers and they're trying to lock down those deals and they're going to a process. And how do you go into a process with a bid with

18:02 no money and be competitive? We struggled, we did that, but we had money and we felt like we lost the vast majority of our processes to. folks that did not have money. And that's seller. And

18:16 I've been in those shoes, but it's like milking that last incremental dollar for

18:24 a deal that has substantial risk. It's just didn't worth it. But at the end of the day, someone's whatever 10 higher, you feel that obligation to pursue it at least. And then that's when I think

18:35 a lot of deals fell apart. But we felt like if you kind of went through the deals that we actually pursued that were in a process, we felt over half, if not two thirds of them, were all top two or

18:47 three bids were people without money. And so then you play that scenario out and you're like, Okay, I just won this bid. And how long do you have to go find your money a week? And so it just

19:01 creates a dynamic that is just frustrating for people that do have money, but they did have money losing deals that deals kind of auger in. And

19:12 then it just makes it very difficult for people without money. So I just, my advice on that is stay away from the deals that set you up for that. And we had a

19:25 presentation of Carnegie and we're big baseball guys, but we had the full, hit them where they ain't strategy, because we just didn't want to be in that situation. And so we looked at deals that

19:37 would not go to a bank. It was too small, too risky to whatever, just a failed deal It was not going to go to a bank. You could find sellers that were willing to work with you and create that

19:48 structure. And you just remove a part of the process. You remove yourself from part of the process that you just don't want to participate in. And it seems so simple, but I can't tell you how many

19:59 times I saw people routinely reenter the same bank processes during this kind of post-COVID period, knowing they were going to fight those fights and probably come out on the other end.

20:12 successful and it's just a, you know, I just burn your time up just like that - I get DM through Twitter, LinkedIn and the like and basically get some variation of the question of how do you make

20:23 money today? And

20:26 my answer has been if you expect the world to revert to the mean, get out. I mean, it's not going back to the mean. You're not getting a 500 million commitment from NCAP to go do this, it's just

20:40 not happening again And the thing I've always said is you've got to, to your point, go hustle down deals that no one else is talking to. And or you've got to develop a unique skill set where you

20:51 can really walk into Thomas Ackerman and say, Hey, we do this better than anyone in the world. This is the reason that we can be the high bidder on this asset and we can still make you money.

21:03 'Cause I think if you walk in with a marketed deal from Jeffries and you've never worked the area before, you're not going to get any traction with a private equity person. You've got to give them

21:17 something that truly is a differentiator. And

21:23 so, and we we

21:27 another thing that we did during the bright during this two-year break was

21:35 You kind of create this you have a relationship with your private equity guy And you know at some point they ask you to do things that you're uncomfortable doing and how much do you stay? Oh, please

21:43 go on

21:45 And so how much do you stay true to kind of what you're you're taking on for narrow people and putting them with entrepreneurial people or type 8 people and type 8 people and like you know Who's gonna

21:56 win that battle and the answer is always private equity? You know and everybody has a boss and everybody needs a partner and I think we came at it with a mindset of you know If we dig in you know You

22:10 know, what are we really asking them to do? you know, and, you know, and I think that it was a give and take relationship, but they asked us to do some things that we were really uncomfortable

22:19 doing, which is we like to work a few deals at a time and put a ton of time into them. That just didn't work then. And so what they asked us to do ended up being one of the best things we ever did.

22:30 We ended up hiring a data scientist who married all of our, we spent about four times more than we've ever had before on data from all the data providers, and then we hired this guy to marry it all

22:41 together. And we just, for the purpose of, we looked at a deal every week and put a bid in on that deal every week. And we said, we started on, we started the two weeks after COVID, two weeks

22:55 after spring break when they shut school in. And we did that every week going forward. And it seemed for us at a time, it was like, man, it's so shallow. Like it's just the opposite of what you

23:06 feel like you need to do But it was just practice. By the time Caster really widened that's what they want. They want a real wide net. They want a lot of shots on goals, all the little expressions

23:19 that you can capture that. But

23:22 what that did is it refined our ability to review and assess deals quickly and cast that wide net. And we would have never done it and so glad we did. And what it changed us, it converted us to for

23:37 those of you who do not pursue your material IT related integration, data, kind of data backed organization. You got to get there or you're out. And that's private equity these days. We were

23:52 doing things and we'd tell them about it and they're like, Oh yes, we know people have been doing that for months. We were behind on integrating and utilizing data efficiently. And now we're, I

24:04 think we're as head as anybody else's And so visiting with private equity groups constantly. And if you can't get a meeting with the top dog, take a meeting with the next guy or the next lady, or

24:16 whatever it takes to just get feedback from these private equity guys. I do know people that call six different private equity guys every other week. He's in their office. How did them tell them

24:26 what they do? And I think that does pay off. And it's just that tenacity is what they want to see. They don't need to see an alpha guy come in there with the best proposal ever And he's got a big

24:41 organization with a big GNA budget. They want to see someone that's just nipping the ankles of every deal they can and trying to find someone who's hungry for assets. That's been my experience with

24:52 what the private equity folks are looking for right now. So, Mike, let me ask you. Once the team has found a private equity sponsor, somebody's going to cut a deal And is it just a preset formula

25:08 on how the money will be - allocated the waterfall or is that a negotiated part? Is it kind of depends on where you are and your negotiating power - Yeah, I think it's where you are in your

25:18 negotiating power. You typically aren't gonna have a lot of negotiating power. And I think in 2021 you have probably less than you did, less than you've ever had. But there are a number of things

25:29 that are negotiable, but for the most part, those with the money make the rules. So there's not a whole lot. In terms of they typically have, each sponsor might be a little bit different, but

25:38 they typically have a standard waterfall that they like to operate under and provide a back-end, typically a profit center so some sort to the management team. But I think, and I've had discussions

25:51 with people lately because a lot of those traditional back-ends were really predicated on the investment turning over within two to three years, which was obviously the model. And for management

26:05 teams to be incentivized to actually make a return, which is what gets people up in the morning. That is a harder thing to do. So I think they're rethinking that. I think we're sort of an unknown,

26:16 I think, for management teams going forward. What the waterfall is going to look like is a little bit unknown because pretty clearly, private equity now is looking at a longer-term play. They're

26:27 looking at prospects and looking at turning prospects into production as opposed to just buying, overpaying and buying pure production - I mean, I just think you sign whatever they put in front of

26:38 you. And I hate to be flip-off - As quickly as possible - As quickly as possible before they change their mind. I've gotten a message one time through Twitter and I was talking to the person and

26:50 it's, well, we wanna negotiate this. And I'm like, you're an idiot. You have no asset. Someone is offering to give you the money to get the asset. Three years from now, if you make money on it,

27:03 you're not gonna care whether you have the extra 5 or not. If you blow this deal right now, I guarantee your answer is going to be zero. in three years. So, I mean, particularly when you're

27:14 young and have nothing, just sign whatever they put in front of you - Yeah, I don't, you know, we're not the, you know, these port codes are not the victim. I'm sympathetic to the private

27:24 equity folks. I mean, they're, it's hard to raise money. And their job is going to be very different going forward. And the LP shrinkage is real. So I mean, they're taking these huge risks. I

27:37 think what the risk that they're taking is equal to or greater than what the teams are taking to right now. And you get that document you sign in. And

27:48 I don't think we negotiated anything. We changed the address, changed our names, signed the document. And, you know -

27:56 So you mentioned it's hard to get to access capital. On the private equity side, it seems they've refocused their attention away from energy and certainly upstream one of the gas deals to other

28:07 areas How much color? pouter is out there available for private equity spend in EP and US. Anybody have a handle on that?

28:18 Whatever number you throw out, I'm going to say half of whatever it's said. Just a little bit of history on this that I think a lot of people know, but go back to kind of the late 90s when Ken

28:30 Hirsch is out raising a NGP1 or NGP2 or NGP3 In early days, he used to have to walk into the private capital bucket of an institution and explain, This is what energy is. This is why it competes

28:48 with LBO, venture capital, whatever the case may be. With

28:54 success of the early private equity energy funds, it then became an allocation. When you walked into fundraise and call it 2007, you didn't walk in and say here's energy you walked in and said

29:09 Here's Chuck Yates at Cane versus NCAP or whatever. It was a lot of comparing contrast. But the allocation of 10, 12, 13, whatever it was, was there for energy. And you were talking to an

29:21 energy person. Those days are now gone. You're walking back in, talking to the private capital bucket, and you're going to have to compete with LBO, venture capital, et cetera. And those things

29:35 are all on fire and are doing really well When you ask the question, how much capital is available, it's literally a day-to-day relative type scenario in that when Carnelian perhaps may raise later

29:51 this year or next year or NGP might or whoever goes out and raises, they're truly not going to know until they put the puck on the ice. You used to be able to say, well, we're going to go raise a

30:02 billion and a half. And you kind of knew where your clients were in terms of allocations. So that day is all gone. It's literally almost day to day, hand to hand type combat of competing with

30:13 every other investment vehicle in the world. Yeah, I would just add, I think, I mean, there's two things in terms of dry pattern. What private equity firms have currently to spend and then in

30:24 terms of raising their net funds? I think there is dry pattern in terms of people I'm talking to, the firms have capital to deploy. Deals are more expensive to do now ABL financing, but it could

30:38 probably speak to better than I can. But ABL accessibility is significantly less than it was, which makes the deals a lot more expensive. But there's equity capital available. I think going

30:48 forward when it's their turn to raise for them to raise their next fund, then there is the question of how readily available is capital relative to the way it used to be. You have different sources

31:01 that for ESG purposes or just because they've. soured on investing in the EMP space because returns haven't been as good. Those are question marks I think.

31:12 You know it was interesting if we would have been having this discussion a year ago, you're right, firms have capital and all that. If you would have had all the private equity firms up here under

31:23 true serum and asked them, how much do you truly have at your disposal? They would have said, scared shitless to cash call my limit, it's right now cuz I don't know that they'll send the money

31:34 Yeah. Yeah, we heard a number of situations like that. And

31:41 I don't wanna get into Carnier's business. I do know that they feel a lot more calls than they've ever had from LPs and dealing with people that just won out. And but they've looked, they've had a

31:54 lot of success and I think they've managed it, but I don't think that's unique to them as other people. But it's your comment about bank debt So we did provide some bank debt. Haines and Boone was

31:58 on the -

32:05 to represent our lead bank on our transaction. And I will also say that, you get, you excited to do a deal, you know, you're trying to factor in some equity return for the management and for

32:19 these private equity teams if you're able to source that capital, but

32:24 it was shocking how few banks were active. And I used to have a little bit of a banking background. I know a lot of the bankers, we had 28 banks, 30 banks in our memorial bank facility. So I just

32:37 met a lot of these people, he'd call and doo doo doo doo doo doo, you know, I mean, nobody's home. And I think we ultimately, after, you know, I mean, I kid you not, I mean, you call 25

32:49 banks. And I think we had seven banks say, we're open and we'll talk to you. And then we had five banks that were like, we'll open and we'll look at it.

33:03 pretty scary number and I think that is really the deal right now is people are scared to have upstream exposure and it's a real shame.

33:13 There are going to be opportunities that these smaller and I don't even know what small is now but 500 million in less there's going to be opportunities that need to be fulfilled by people that want

33:24 to spend their time on that asset and that's just allocation of resources and that's what's going to be the best for our industry and

33:32 so here you've got a bunch of people that are just so afraid to put dollars to work in that space and so look I think a lot of this is self-curing right if you can't find money on deals and the

33:43 sellers can't find buyers and some of this is going to work itself out but

33:49 it's going to take a lot more time we have right now and it's also going to take people selling assets for returns that aren't historically. as good as they were, because it's not good for the major

34:04 teams. You do a 2X deal, but you've held this asset for six years, you make nothing. So why are they so? So I don't want to steal your job as moderator, but I'm actually curious. I just put you

34:16 on the panel, that was my job. Okay. No, but five years from now are all the money center banks out of energy? And let's just leave it to EMP lending. Are they all out of it? Half of them still

34:31 there, or all of them still there?

34:35 I think there's coming to you, Nick. I think there's going to be,

34:40 I think that the big banks are going to be less active. And I think the large regional bank, our lead agent is Bank of Oklahoma. And I think banks that size, which I guess are regional banks, but

34:55 they're 40, 50, 80 billion dollar banks, what are you going to call it? I think those banks are more active. twice as active as they are now - But money center banks will still have an energy

35:05 group, just won't be as active - Commercial paper, transactional work, but on the lending side, why expose yourself? You make so little on the lending side, why expose yourself to the headline

35:17 risk? I think that's the problem - Yeah, I wish I had a lot more to add, but I totally agree with everything you just said.

35:26 I think that the bigger commercial banks are clearly getting out of it, and there's just less appetite - Are we gonna have a wholesale, no more oil and gas, big press release with AOC sitting there?

35:40 I mean, I think that happens, and I don't think it's just one of them. I think two or three of them, wholesale, no more oil and gas. I mean, I hope not - Well, so Chuck, I've actually come

35:50 out, for example, they won't finance deals in Alaska. I think B of A wells have made, and the European banks right now are out. I don't know if they come back, This conversation is the same

36:01 conversation that if NAIP was going on in the late 1980s, early 1990s, the same conversation the banks have left us, there's no more capital, you know, whoa, it's me. And as Greg said, the

36:14 cure for low prices is low prices. The cure for no bank financing is no bank financing. There are other banks that are going to come in. And those that have exited will come back. I was just

36:25 shocked to see that Bank of Montreal has pulled up stakes They were one of the first foreign banks to come into Houston back in the 1970s. So they have been through a lot of ups and downs. And that

36:35 they're pulling out is somewhat substantial. But at the same token, you see these really small banks. I've seen there's a bank out of New York. They'll make loans up to 5 million.

36:47 So you know, you grow and in time they'll be 25 million, 100 million. And they'll form club deals. Bank of Oklahoma has been an oil and gas lender since early 1900s. with George Keisser at the

37:01 helm, I don't see that bank exiting the area. I just think, Greg's right, you're going to see more regional banks, and that's how energy lending started. I mean, I hope you're right. I'm just

37:14 worried with the ESG, and let's call it a tidal wave. I just really worry about it on that front, because clearly we as an industry have had a red problem in terms of losing money and the like But

37:27 we have a real green problem, and it's not just ESG,

37:33 roll your eyes at it. I mean, there are institutions today that are fundamentally saying we will not invest in hydrocarbons anymore, and it just feels realer than it ever has. I think it is true.

37:44 There are groups that had been active in the area that are exiting it, but nature absorbs a vacuum, and you're going to find financing sources Some of our clients are saying, well, I have this guy

37:58 in China who wants to - diversified and and make loans in the US so I I'm not concerned that there'll be no capital, but it's harder to get capital it'll it's a cycle yeah, and I'm on the overall

38:13 presentation to private equity I Guess I'll give an analogy. Yeah 20 years ago. No one really talked about PA Ten years ago. You kind of talked about it factored it in but stuck it at the end of

38:24 the year's over-forward So it's so discounted that you didn't impact you built buying a deal five years ago You're actually putting it in your database With as you would actually do it and then now

38:38 it's one of the first things you talk about with private equity guys high well-count deals that have shut in Temporarily abandoned they've got PPQ issues whatever the I mean That's a that's a tough

38:50 deal to run by private equity right now and you're seeing Chevron Having tons of issues shallow old the age of your well-bores a lot of that stuff matters, but

39:01 It doesn't mean you can't do those deals or can't make them work, but I will say that the ESNG, our industry was late to address it. And then when they addressed it, it was, I don't know,

39:12 wholeheartedly.

39:15 Now we have real legitimate ESNG slides in our deck. Some of it is, some of it bothers me because what they, what I say they, like people in the outside industry looking in, what they measure is

39:29 not as important to us, but calculating quantifying, addressing it in your presentations to go raise that private equity is important now. And that means we measure our carbon footprint and it's

39:41 real. And you got to be really serious about everything from your pumpers running long roots in the field all the way to any venting or flaring that you've got in the field. All that stuff needs to

39:52 be taken very seriously and addressed in underwriting because they like to see that now because they get calls from their LPs about it.

39:60 And so if you're a team that is taking it seriously, managing it, understanding it, and you're not going to be a team that's got the headline risk. Well comes up, nobody's doing deals in

40:11 California on the private equity side right now, but no one wants to show up in the newspaper and they don't want to be the equity behind someone that is getting the wrong kind of attention. So,

40:25 I think private equity at least is taking it very seriously I think it depends on the firm, obviously some might be handling it a little more sophisticated manner than others, but I think they don't

40:38 necessarily think of it as a negative. I think they look at it as a business opportunity. A lot of them think, a lot of the sponsors think handling ESG in a certain way and it can be good for

40:48 business. Running your operations in a particular way could be more sound from an economic standpoint And I think, you know, one, one, just anecdotally.

41:01 PE. Contact of mine told me last week.

41:05 They're trying to do the two most obvious things. Basically get rid of flaring and truck eliminate,

41:13 pipe as much production as they can. And previously they didn't really have a conversation. They might have a quarterly discussion about flaring activities. Now at least this one P shop says they

41:28 literally have a board meeting to discuss whether they're going to flare. So I think those are things that are top of mind now. Yeah, I mean flaring and venting are just wasting a resource. And a

41:40 lot of us just how it's set up and some, you know, you know, how you did things and what gas meant to you a long time ago is different. I think hopefully with the recent uptake and gas, you know,

41:52 people can get, you know, make, if it's a commercial decision, Obviously it happens, but the question is when it's not commercial. or you're still going to address it and do it. And I think the

42:02 answer is unequivocally, you have to address it and you have to make decisions and even if they're not commercial. We're approaching some of those in this asset that we just bought. We got a

42:13 presentation going to Carnegie next week that is going to be a commercial negative deal but we think it's kind of the right thing to do for the field and so we're going to kind of hit those

42:26 discussions. It's talking about PM wells associated in the field but I think that those are kind of things that they also want to see and they also want to be a part of and they're willing to accept

42:36 not everything has to be a profit shop if you're following a path to overall profitability and taking care of your business properly on the ESSG front - 'Cause I mean just sort of the final word on it,

42:51 this is not government regulatory pressure to do this. This is investors This is consumers. My three children have lived the greatest life of any three humans on the planet. I want to get adopted

43:05 as one of my kids. If you ask them tomorrow, would you get rid of the oil and gas business? They'd say yes. It truly is a tidal wave that's going to hit us and it's something we've got to be,

43:19 take very seriously. Okay, well this has been a really positive panel But I think the quote was, Don't let a crisis go to waste. And this is a huge crisis. There's a lot of opportunities for

43:33 people that happen to be in the right place the right time with cash in their back pocket or commitment to have cash. And so if you're out there and you are looking to stick your toe in the water or

43:47 become an entrepreneur and run your own company, don't be discouraged because I think it's when things look the toughest that you really can find some good opportunities. So with that, trying to

43:58 put a positive spin on things. I'll ask if there are any questions from the audience with the lights on, I have a little trouble seeing. Are there any questions from our esteemed audience?

44:10 If you're raising your hand, I can't see. Just yell out. I'm from, right. I'm always wearing any. All right. Yes. I think there's a mic in the center aisle.

44:21 First off, I want to thank you guys for your expertise and time. It's really beneficial to see that I had a question about the price of oil. We recently seen, I'm an investor in Exxon and Chevron,

44:32 and my family's been lifelong employees for Exxon and Enron when they were here. But we've seen the price of oil go from like 35 a share for companies like Exxon, and it's right at, I think it's

44:46 like 50 something now. I don't know what it looked like today because of Afghanistan But do you guys think the price of oil is going to remain steady? And also, please tell us your outlook for

44:57 these oil and energy companies. because we're hearing that investors want to sustain, control the decline of these industries, right? So if you're investing in these companies, what's the outlook

45:09 for the next few years - So the great bifurcation is happening. We've under-invested in oil drilling in the United States. We're down to what about 11 million barrels a day. We're gonna continue to

45:23 fall. I don't think we're ever going to reverse that trend the Saudis claimed to have 3 million in spare capacity. They don't have that. I mean, they went from running 50 rigs a year to 150 rigs.

45:41 If they truly had that, they wouldn't be running this many rigs. The world is gonna be very short oil supply soon. Demand, last week we used more gasoline in the United States than any time COVID

45:55 since.

45:58 It is our crack cocaine. So we are going to see in the next five years, we're going to see 125 oil without anything bad happening and you know something bad is going to happen. It just is and all

46:14 bets will be off on what happens there. The problem if you're going to try to get that exposure through these oil and gas companies, guess what? They're not oil and gas companies anymore Exxon is

46:25 going to be a transition company. That was what the latest board elections were about. You see the court case where a royal Dutch shell is having to reduce emissions, etc. They are all moving away

46:39 from it. So my advice to you is the oil run we're going to see, play it through the commodity straight and avoid the oil companies because they're going to go spend a whole lot of money on solar and

46:54 wind and all that and they're not going to make any money it's going to be able to. bubble just like Shell was - Well it looks like it ran out of time unless you all want to bring to your price -

47:04 I'll do things real quick. The mid-cap guys, smaller private equity companies have been extremely disciplined, there's been very little spending. That's what's causing a lot of the shortage and I

47:17 think that trend continues or can remain extremely disciplined. And as far as leaving this on a positive note, I love that. Do you say 125 - Yeah - 125, okay. Just want to make sure. I'm all in

47:31 on that. I don't have a number, I just like this number. So now that we bought something, I want prices to go up, of course - Well headline out of Nate, this year will be 125 oil. What day was

47:42 that gonna occur - Five years. He said within five years - Five years, come on, I have about December 31. What have we got there - December 31 - Of 2021 - Of 2020, give me this Let's go December

47:55 31, 2022. So we've got a little bit of outlook. I'll say 9725 - Okay, there you go. This is being recorded so you all can come watch this in two years. All right, I think we are out of time. I

48:06 appreciate the audience's attention and I certainly appreciate each of my guest speakers here and my co-host. So thank you. Would you all thank the panel for us? Appreciate it, Charles. Thank you.