June 17, 2024 • 45 mins
Phoenix Capital CEO Adam Ferrari joins Robert Rapier and talks about recent aquisitions and drilling issues across Texas, North Dakota, Wyoming, New Mexico and more.
Inside the Oil Patch. The Latest information on the Oil, Gas, and Natural Gas industry with your host, Kym Bolado. For more information visit https://shalemag.com/in-the-oil-patch-schedule/
Inside the Oil Patch. The Latest information on the Oil, Gas, and Natural Gas industry with your host, Kym Bolado. For more information visit https://shalemag.com/in-the-oil-patch-schedule/
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Episode Transcript
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(00:01):
Welcome to the nationally syndicated Energy Mixradio show produced by the Energy Network Media
Groups. The Energy Mix Radio showwill give you an inside look at the
energy industry and how it affects youby talking with industry leaders, experts,
and government officials on the Energy MixRadio Show. Hi, I'm Robert ray
Pier, editor in chief of ShaleMagazine. Welcome to the Energy Mix,
(00:22):
formerly in the Old Patch Radio.Although the oil and gas sector will always
be the core of our coverage,we have always covered the entire energy sector
and so we felt like a newname would be more reflective of that.
So going forward we are the EnergyMix. This week's guest is Adam Ferrari.
(00:42):
He is CEO of Phoenix Capital Group. Welcome to the show, Adam,
Thank you very much. In thisfirst segment, I always like to
start out by having you tell listenersa bit about yourself, your background and
what Phoenix Capital Group does. Soif you would just acquaint yourself with our
listeners, well, thank you verymuch for the kind intro, and I'll
(01:04):
try to go a little bit quicklyand get to current. I am a
chemical engineer by discipline, just likeour host, which I don't talk to
many chemes nowadays, so it's adelight to do that. I've worked in
the oil and gas industry since twothousand and five. Early in my career,
I was a completions and production engineerfor BP and the Deep Waters of
the Golf from Mexico. So I'vebeen in the engineering side a big part
(01:26):
of my career. And I spenta little bit of time in investment banking
at McQuary Capital And fast forward totoday. Phoenix Capital Group is a startup
as of twenty nineteen, so we'vebeen in business for over five years.
Our whole thesis in business was toefficiently form capital. We think that capital
formation and energy has become incredibly inefficientover the years. So we go direct
(01:48):
to high net worth and retail investorsand we raise money by cutting out the
middlemen, which could be private equityor public equity on Wall Street. So
we raised a lot of capital andwe deployed that into minerals in our operating
arm. And so we've been drillingin the back in now for about the
last nine months, and I'm proudto say today that we've drilled the fastest
ever three mile middle Bacan horizontal sixand a half days from SPUD to TD.
(02:12):
So we're pretty proud of our operatingarm. But we kind of touch
every facet of the upstream oil andgas business. We're acquiring mineral interest not
operated, working interests, and we'reoperating and we do that across nine states.
We only operate in the Balkan,but we're acquiring minerals in Wyoming and
Colorado, Utah, Texas. Ifthere's viable activity happening, we're usually there
covering some of it. So that'sa short snippet of who Phoenix Capitol Group
(02:37):
is. And as of today,to give your listeners a scope for our
size, we produce about eleven thousandbarrels of oil equivalent a day, so
we're not EOG size, but we'renot really tiny at this point either.
We're and we're growing pretty aggressively.We should be at about twenty thousand barrels
a day by the end of thisyear. And that's who Phoenix Capitol Group
(02:57):
is. Okay, so today we'regoing to talk about mostly murders and acquisitions.
But your intro led me to thinkabout another question and I just wrote
a Ford j article about this theother day. I've noticed that for the
first time since I think the saleboom began. Over the last ten months,
(03:19):
oil production has been quite flat.If you still year over year,
we're still up seven hundred thousand barrelsa day, but that's because last July
and August there was quite a spurtof the production. And there have been
two times that production declined since theshale boom began, when Opek had a
price lower that affected US production andthen the COVID hit. But this is
(03:44):
the first time I think there hasbeen something, there's been a production flattening
that was not caused by a significantexternal factor. And you seem to have
your pulse, the pulse of theindustry and what's going on. And I'm
just wondering, you know, atsome point the shale loom is going to
start the flat now and it's goingto start there. It's going to be
flying at some point, and Idon't know if we're there yet. I
(04:05):
don't know if this is just youknow, a slot pause. I'm trying
to read into this what this means, because I don't think we've ever had
a period where, you know,last August we were producing the same amount
of role we're producing right now,and I don't know. So what is
your feeling and you think we're startingflat now or you think there's plenty more
(04:26):
to go on the on the shield, I do. That's a loaded question.
Man. We could talk for hoursjust about this topic. But I
think there's two things that are reallyimportant to think about when you're contemplating this
question. Number one is capital flowinginto the industry the way it always has,
because at the end of the day, the barrels are there, you
just need the money to bring themout. And then number two is the
best rock already drilled. Let's startwith number two. The best rock is
(04:47):
already drilled. And let's just becandid. So if you go to the
heart of the best base in thedelaware of the permei and the back end
that you went to, you knowthat you went to this kind of an
outlier because the best rock is kindof being drilled now and it wasn't previously.
But it's a small basin. Butif you look at the big producers,
the best rock was already drilled.So even you know in the Bakan
where we're operating, the core hasalready been developed. So now companies like
(05:11):
Phoenix, Capitol Group, Crack inanyone else that's operating in the Bakan.
We're drilling stuff that was passed onten years ago. And so while we're
making far better wells in those areasversus what somebody could have done ten years
ago, it's still not as goodas you could get out of the core.
So, you know, capital formationis a little light. We think
companies are being quite a bit moredisciplined nowadays. Now Phoenix is in rapid
(05:34):
growth mode, but we're not movingthe market with our ten thousand barrels a
day. So but if you lookat the big players, the Excellence,
the Chevrons, you know, theyseemingly are quite a bit more disciplined with
how they're deploying capital. And thebest rock is already drilled. So I
do think net on net it's goingto be hard to grow from here unless
there's substantial change. Now it couldbe federal lands opening up, So I'll
(05:58):
point to Wyoming big non opposition ofthe Powder River Basin. The Powder River
Basin is probably the most prolific geologicbasin outside of like the Perimeter or the
Delaware, but it's mostly federal andit's it's hard to get things done there
because the federal government is kind ofslowing things down. It's not easy to
get tracks up for auction, tobe able to lease the BLM tracks,
and then once you get them,it's not necessarily easy to get them permitted.
(06:21):
And so I think, you know, I think the way the industry
is going today, I think thebest rocks are already drilled. Capital isn't
flowing as much as it maybe wasin previous price booms. So I don't
think you can really grow from hereunless, and I'll caveat it, the
federal government sort of sets a manddateand says, look, we're we're going
to be pro oil in the US, and we're going to open up more
(06:42):
land and we're going to kind ofget out of the industry's way and let
them do their thing. But thatdoesn't affect Texas. Texas is predominantly fee
but it could affect you know,New Mexico, it could affect Wyoming,
Colorado. There's other places it couldaffect it, even in North Dakota.
There's a lot of federal land inNorth Dakota to just not as much,
is why. I mean. Somy take is we're probably going to stay
flat for ever a while. Butif the federal government wants to continue American
(07:08):
energy dominance, I think it's it'spossible to go up from here, but
we would need to have a morefriendly administrative state to accomplish that. I
always tell people too, it's afunction of prices. I mean, people
ask me sometimes has old production peaked? And I'll say, well, twenty
dollars old production is peaked. Sure, one hundred and fifty dollars old production
has not yet peaked, because there'sa lot of marginal production out there that
(07:30):
you could bring online. That isso true, right, so true?
Yep, And even in the backandif we had one hundred and twenty dollars
oil, I can tell you rightnow there's two hundred thousand acres that no
one's thinking about that would be violent, right, And we know where it's
at to be easy to go get, so that that's a very good point.
At the right price, there's alot more that's viable. That's true.
Well, that was a good youknow, I've been wondering about that
(07:51):
a lot lately because I'm concerned thatOPEC is just playing a waiting game.
You know, they're trying to waitout the ship boom until they can reassert
their don minutes over the market.And you know, I watched this pretty
closely and it's the first time I'venoticed we've had a significant flattening. So
that was that was I appreciate thatanswer. That's a good point. If
(08:11):
I can I add one little pointhere. The way I look at the
world in the market, it's youknow, where's the next five million barrels
aday going to come from? Becausewe're producing about one hundred and one now
worldwide and world demands still going togo up, contrary to what people said
in COVID and in previous times ofcrisis. But where's the next five million
a day going to come from?So I think the American shale producers are
well positioned because I do think pricesare higher longer. It's hard for me
(08:33):
to fathom us being able to deliverthe barrels we do every day without a
floor of at least seventy and soto get those next five million, I
think there needs to be a significantprice increase, and I think you see
that with Saudi Ramco. They're notflooding the market with barrels at seventy dollars
either. So I think the USenergy picture is still going to be prolific
(08:54):
in the future because I do thinkprices go up and I think we respond
to it when it happens. So, well, what do you think about
you worked in deep water? Howmuch potential is there in deep water that
we know of? It? Isthere one hundred and twenty dollars barrels out
there waiting to be tapped? Youknow, I haven't actually thought about it
from that perspective because the cycle timesare so long offshore. And I'm speaking
(09:18):
a little bit out of my expertisebecause it was a long time ago when
I worked out there was from fiveto nine. But we underwrote projects back
in those days thinking about things tenyears out. And so when you're thinking
about that long of a time horizon, you can't react quick enough to price
moves to capitalize on it out there. But would I would say this,
I think there's an abundant volume ofreserves there yet to be discovered offshore,
(09:41):
not only are the Gulf of Mexico, just around the world. It's just
a matter of the risk profile ofthat activity. It's a high risk game
playing out there, and when youcan get the barrels so easily on shore,
you know, is it still worthit to pursue those obviously for the
big players, Yes, Exon Mobilis still doing it, BF and Shallow
are still doing it. But Ithink that's a that's a small sandbox.
(10:01):
And yeah, I think there's alot more to be done out there.
It just takes a very long time. Yeah, that's as you probably already
know. I've worked off shore inthe North Sea and I tell people it's
like building a floating city out therein the middle of the ocean, and
it's a lot easier to produce barrelsin the permium base than that it is,
you know, to build a platformout there and put all the infrastructure
in. You're right, a loteasier. And that's why you've seen the
(10:24):
shale revolution really happen, because thereserves are there, they're still large enough
in volume to justify it, andyou can get them out of the ground
very quickly with minimal risk. AndI think that's the secret. The risk
profile I was very low. Okay, so the main topic today, we're
going to talk about mergers and acquisitions, and you know, the first segment
(10:45):
I was I tended to do itdive into cherchle Phillips and the Marathon acquisition.
So we've only got about a minuteleft in this segment, and so
we'll cover most of this in thenext segment. But what can you tell
us about the acquisition? What arethe details of the acquisition. So it's
a pretty big acquisition in terms ofdollar It was in the multi billions,
(11:07):
very large Kandaco took out a smallerrival, Marathon, and I don't follow
those two incredibly close worldwide, butthey're both big in the Bakan and it
creates a kind of another baking superpower, sort of like Cord has been buying
up people. This creates a kindof company that's on the scale of now
Cord up there. They have amassive position, They have a lot of
great drilling locations. We have offsettingdrilling locations to Marathon. So I think
(11:30):
it's good for us because it kindof affirms where we're underwriting acreage now when
Contaco moves in and buys them.But yeah, it's a big deal for
the Bakan. They're both two largeproducers there and now it's going to be
one. Who do you think themost in this acquisition? I think the
shareholders do. I always my shorttake on these big M and A deals,
(11:50):
the employees usually don't win because there'sgoing to be downsizing. But at
the end of the day, you'regoing to have less people managing more barrels.
So it's good for capital for theinvestors, and I think that's still
a good thing as well. Butthat's who ends in my mind, because
they should have a more profitable companyon the other side. So we'll take
a quick commercial break right there,and then I want to dig deeper into
(12:13):
this overall trend of Urgersian acquisitions.We'll talk about some of the major recent
acquisitions in oil and gas and thentalk about why this is happening. I'm
Robert ray Pier. We have theenergy mix. I'll be back after the
commercial breath. At the Port ofCorpus Christy, we maintain a clear pathway
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us with your most precious asset.Help him back to the energy mix.
I'm Robert ray Peer with this week'sguest, Adam Ferrari. Adam, before
the break, we were talking aboutthe Chronicle Phillips Marathon acquisition. I was
wondering if you could give us asummary of some of the other major recent
acquisitions in oil and gas. Yeah, this has been sort of a season
(13:20):
of M and A activity, andwell, we're not a public company,
you know, Phoenix Capitol Group isprivate. We still pay attention to these
sort of big M and A dealsbecause it helps us sort of get a
bearing on what the market thinks aboutvaluation. And so the two big ones
that I think everyone would want toknow about and be aware of our Excellon
Pioneer. That was, you know, Exon had made a large acquisition like
(13:41):
that, I believe since Xto andXto was many moons ago, it seems
like. And the other other largeone in the last twelve months was Chavron
acquiring House, which was also youknow, both of those transactions sort of
touch us a little bit because we'rea back in centric producer at this point,
and Exon has a footprint in orderto Dakota and obviously has had a
large footprint in North Dakota, sowe were very keen on those deals.
(14:05):
We think the price is paid werepretty healthy. These are both multi tens
of billion dollar transactions, So thesetwo were the big ones. But there's
been a plethora of smaller ones thathave been going on to the Permian and
the Delaware that we don't pay asmuch attention to. But over the last
twelve months, Emina activity has beenvery furious, if you will. Lots
of transactions happening, and then thosewere obviously the headline ones and I think
(14:28):
caught a lot of people's attention.I have to wonder if Exceon Mobile had
a crystal ball, they would havemade that Xto acquisition if they knew the
direction of natural gas prices. Youknow, Conico philis did the same thing.
They made a major natural gas acquisitionbecause it looked like natural gas prices
were going to the moon. Andthen you know, fracking opened up so
much that you know that turned outto be strategically. I think I'm a
(14:50):
stake for both companies. Well,I've been in the business in two thousand
and five, and the only timegas the gas market was really good was
during like the hurricanes than Katrina Rita. And my reference point is Western Colorado
or the Peance base in which Xtois big, and there was about one
hundred and twenty or so rigs runningthere in the peak. There's never been
(15:11):
more than four since then over thelast fifteen years. So people that have
been calling for the gas boom,the gas boom, it just never happened.
And frankly, you know, theguys that have been on gas in
the last twenty years haven't done well. I think that we don't try to
predict the future, but it's hardfor me to fathom a really strong gas
market in the US anytime in thenext ten years. There's just too much
(15:31):
supply. Unless our government sort ofhas a mandate to export American molecules all
over the world, well that wouldchange things. But I think it's a
hard to justify underwriting gas assets atall in the US. But that's my
take. We're liquid's focused shop.So for people who weren't around in two
thousand and five, it's hard toimagine the shift that happened around two thousand
(15:58):
and five when natural gas in theUS started coming online from racking because shreathing.
Up to that point, it lookedlike we're gonna go the way you
know we were with oil. We'regoing to be increasingly dependent on other countries
from natural gas. And then suddenlythat's right, more natural gas than we
know what to do with. AndI know it caught up many many people,
even in the industry, completely offguard. Yeah, that's true that
(16:21):
it's a good reference point. Iremember when I joined the industry in oh
five, there were legitimate pundits inthe space that were very respected and bright
that we're calling for what are wegoing to do in ten years? We're
not going to have enough gas torun the country, And now you know,
it's completely the opposite. It's wehave gas coming out of everywhere,
we don't know what to do withit, and it's I just read an
article recently about some of the deeperI don't know if it was a Hainesville
(16:42):
specific target, but I think itwas, and it was on the Texas
side. And these wells are fifteenmillion dollars, but the volume of gas
they're making is just obscene, andit's no wonder that there's an abundant supply
and people are still proven up.There's still more resources in places we didn't
even know about five years ago thatare quite prolific. So, yeah,
the gas market, it's just hardto fathom. There's just so much supply.
(17:04):
It would take something pretty dramatic tosort of create, in my in
my view, a positive economic environmentfor US gas in the long run.
I don't I don't know why peopleare drilling it right now. Yeah,
I know, in about two thousandand four, I think the late Matt
Simmons would go twild out in thedesert. He said, we are headed
for a certain natural gas shortage inthe US, and the only solution is
(17:27):
to pray. And then I know, uh t Boom Pickens was very negative
on naturals. You know, theyall thought and and for good reason.
You know, people didn't really knowthat shale was back there out there.
You know, behind the scenes,it was we're about to have a revolution
until Aubrey drank the frack fluid onTV. Then that's when everything shifted,
(17:47):
right. Rest in peace. Yeah, So let's let's get back to the
topic of mergers and acquisitions. Sure, why oil and gas companies merged I'm
going to run a four joint atthe wellness because people start and they think
it's just to keep prices high andto eliminate competition. But what are some
of the major reasons that ol andgas companies merge. I think it's all
(18:11):
economics. But a company like Exonis looking at their mandate. They have
a ton of cash and they havetwo choices with that cash. I like
to condense things to the simplest form, and because I think things can be
explained with the simplest answer. Typically, Exon has a bunch of cash.
Their mandate is to either invest itor return it to their shareholders, and
if they can't invest it at abetter rate, then they can reward their
(18:32):
shareholders and they give it back.And Exon thought that it was in their
best interest of the shareholders to goahead and buy a company instead of growing
their barrels organically. And so theylook at a company like Pioneer, and
they said, we can do itbetter than Pioneer. We don't need all
of their people. So this isa creative to our shareholders and we're going
to take them out. And Ireally think it's that simple. Exon is
(18:52):
basically saying, we think the marketfor oil and natural gas is strong over
the long run, and we thinkit's in the best interest of our shareholders
to deploy. I think it wasfifty billion of dollars in stock and cash
to buy Pioneer, and we thinkwe could do it better. And so
that's really the genesis of all ofthe big M and A activity is we
think we're better than you, andit's good for our shareholders, and they're
(19:14):
going to get a great, acreative return enhancement from this acquisition, and
they do it. And you know, that's my simple take on it,
and I think that's why most ofthese transactions happened. It's a creative to
a shareholder, right. I didan analysis of BP a few years ago,
and I was looking at all themajor rolling gas companies and the price
that BP. If you took thewhole value of BP and looked at the
(19:37):
proove reserves they had, it wasa ridiculously low cost. And I thought,
I mean, if sn low wouldbe better off going to buyd BP
than they would be drilling for oil, and interesting, that's one of the
reasons they do it. So afterthe break we did, we can take
another break, but we'll start digginginto some of the financial benefits of these
companies from mergers and acquisitions. I'mRobert a peer with this wee's guest Adam
(20:00):
Ferrari, and we will be rightback. Join us in Corpus Christy on
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Energy. Welcome back to the EnergyNix. I'm Robert ray Pierre with this
week's guests, and Ferrari Adam wouldlike to ask about how companies help manage
(21:32):
risk and volatility with these mergers andacquisitions. I mean what and also technical
and operational synergy, so some ofthe you know, not just the financials,
but there's a lot that goes intothese mergers and acquisitions that these companies
have to manage. Sure, SoI would say, starting with the first
(21:52):
one, sort of risk and volatility, I've really you know, I really
don't often think about it in thoseterms, but I do think like if
you look at Exon Pioneer, youknow, they probably have a little bit
more robust of a risk management profile. Simply because they're fully integrated. You
know, Pioneer is purely upstream.So Pioneer delivers a barrel and they're done
with that barrel. Exon produces abarrel and they can take it into their
(22:15):
own refriaries if they want to.So I do think when big companies sort
of gobble up the independence that aren'tfully integrated, I think it does create
a more balanced, less volatile energyinfrastructure, like from the start to the
finish, because you have a companythat can do everything, and they,
in my view, they probably plantheir business a little bit better because they
(22:36):
have they're more in tune with sortof the end user and the end customer
because they're touching that part of ittoo. So I do think overall,
when Exxon gobbles up their peer groupin the industry, it creates a more
stable sort of ecosystem for energy forpeople like a Phoenix Capital group, because
you know, I think less volatilityin our space is good for the little
(22:56):
guy because we can't ride out volatilitylike that on mobile can. And so
I do think when when these kindof transactions happen net on net, I
think it reduces overall market volatility becauseXon is probably the most disciplined producer boiling
gas that's ever existed. So andI kind of like in the other majors
(23:17):
to an Axon because they do everything. But that's that's my short take on
why. I think it's how itaffects sort of the volatility and risk profile.
And I just like I said,I think about it from an industry
macro perspective. But for xout,I just think that they can do more
with an asset based than Pioneer canbecause they have the infrastructure downstream that Pioneer
doesn't have. So okay, sowhat about technical and operation synergies. There's
(23:42):
a lot of those. You know, you find logical reasons why certain companies
merge, and that's often the case. Sure, can you talk a little
bit about that. Yeah, Imean XI already had a massive position in
the Permian basin. So they weren'tas big as Pioneer, I don't believe,
but they were close. They werebig, and so I think it's
(24:02):
simple for a company like Exxon Mobile. You know, if you think about
Exon, they have more data thanprobably any other oil company around the world
because they've been participating in pretty muchevery resource play, every conventional play,
for however, the last one hundredyears. If you think about the combined
companies, so I always think acompany like Xon, they look at Pioneer
(24:23):
and their first thought is, wecould do it better because we have more
technical expertise and we have the meansto do it better. And so they
look at a company like Pioneer andthey say, we don't need their technical
staff. And I'm sure they're goingto keep a decent amount of their folks,
but you know, there is apretty big synergy we can do it
better, and we already have thepeople to do it better, and so
we're going to add more value tothis asset over the long run. And
(24:45):
that's their criterion when they're underwriting stufflike that. I've sat in those rooms.
I've worked for the big companies earlierin my career, and that's quite
literally how we think about it.And that's really the synergy side of it,
Like we can reduce cost and wecan get more barrels out and we
could do it more efficiently in them, and that's kind of that's kind of
the secret sauce when these M andA deals are happening. That's that's the
(25:07):
conversations that are happening behind closed doors. So what about this? What about
the publicly traded ones? You know, how do these mergers and acquisitions typically
affect the spot market behavior of theoil and gas companies involved in these mergers
perisitions? Man, talking about stockmarket behavior is like trying to predict the
weather. You know. The thingswe see in the stock market don't seem
(25:30):
to make any sense in our spaceat times. But I think net on
Net you know, I think thisacquisition was pretty well received, and I
think it's a positive for excellent stockin the long run. But in a
short run, who the heck knows? The stock market doesn't seem to make
sense with what Nvidia is doing inApple. I think the energy sector,
(25:51):
just in large, has not gottenfair evaluations for a long time. And
frankly, that's our thesis behind whywe're private. I wouldn't want to subject
our interest holders in this company tothe volatility of the stock marketer. To
me, it's more of a popularitycontest. But if you go back to
Axon net on Net, I thinkthese deals are over the long run,
(26:12):
they're positive because eventually cash is goingto be king, you know, And
I think every stock market rally eventuallycomes to reality and says, who has
cash? You know? Is ita great idea or is it a company
that can produce cash and an exonto cash flow machine? And I think
with the Pioneer acquisition that only improvesover time. All right, So we'll
(26:33):
take a quick break right there,and then I want to talk about some
of the challenges associated with successfully mergingtwo companies. We'll be brought back with
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(27:17):
on a twenty thirteen Yamaha Source sideby side owner study. Welcome back to
the Energy Mix. I'm Robert rayPier with this week's guest, Adam Ferrari.
Adam, every time there's a mergeracquisition, and you'll hear people in
Congress complaining about anti trust and competitionand so forth. And I'm sure that
(27:40):
the Conicle Phillips Marathon deal is goingto be subject to scrutiny like that,
talk about some of the legitimate objectionsto these mergers the regulators could raise.
Are these legitimate concerns? And doyou expect them to go anywhere? So
I'm biased, and I have tobe very upfront about that. I don't
(28:02):
think there's really legitimate concerns to thescope and scale of these types of mergers.
At the end of the day,you're not creating somebody that still has
significant volumes of production that could tip, you know, competitive balances. In
my view, you know, Coniccoand Marathon combined are still not even one
percent of world oil production, andso it's hard for me to fathom how
you're raising legitimate concerns about those typesof activities. But I think it's more
(28:27):
political and I don't think it's reallyfinancial in nature, or I don't think
it's a consumer type concerned. Ijust think that oil and gas and I've
been in this business since so fiveI think we've gotten a pretty unfair shake
in the court of public opinion,and I think it's driven just by the
politics of it. To be frank, I don't really see there being any
(28:48):
legitimate sort of public interest issues withanti trust around these types of mergers.
I really think it's just if theboard of the companies have an issue.
I think that's where those types concernsneed to be addressed. It's the shareholders
and the board of these public companies. That's their governance. And if the
folks in charge of the governance forthese companies decide it's in the best interest
(29:08):
in their shareholders, then these dealsshould go through. I just don't think
there should be objections from the government, especially in an era where the tech
companies have clear monopolies and you knownothing's done about that. I don't think
there's any real legitimate concern about anyof the acquisitions we've talked about today from
a competitive landscape standpoint, That's whatI was going to ask. So you
(29:30):
don't see a significant impact on competitionin the in the area, I don't.
I don't at all. I thinkit's good for people in the space.
I think it's good for small guysbecause in my view, the excellons
of the world. They move alittle bit slow, and when we're out
there, boots on the ground tryto source the next opportunity. I think
it's better I'm competing. It's exonmobile versus a smaller company and so.
(29:52):
But from a consumer standpoint, Isee no negative to the consumer of energy
products in America at all smaller companies. So is there are there specific threats
to smaller companies because some of thesecompanies are much smaller than Comical Filter Mauthon
And does it create problems for themcompeting? What are the potentialsks for those
(30:15):
smaller firms. I don't think so. I think at the end of the
day, most smaller firms have anexit strategy that revolves around somebody buying them.
I think that Phoenix sort of standsalone. We've been pretty adamant since
day one. Our exit strategy isto be in business in thirty years.
You just don't see that that oftenanymore in a world where so much private
(30:37):
equity capital is coming into back operators, somebody's always for sale. I can
just tell you in the back Andin the last twelve months we've seen three
operators put the for sale sign upyou know, they least twenty thousand acres,
drill three or four wells or more, and now they're for sale.
And so I think I think theM and A activity is a good thing
for companies that are sort of tryingto capitalize on that sort of a strategy
(31:00):
with capital deployment. You know,pump money in in five years, get
out. That's most people's strategy inour space, amongst the smaller players.
That is what kind of due diligencedo companies do beforehand to ensure that there
is a strategic fit during the mergerand acquisition process a whole lot. But
I think at the end of theday, the first step in any relevant
(31:22):
due diligence is underwriting the acreage.And for the big companies, they sort
of their claim and they'll tell youwe've already underwritten the whole back in.
So if you go talk to exonMobile, they'll tell you we've underwritten the
backet. If you talk to Cord, which is sort of a merger of
a bunch of other companies, they'veunderwritten the whole bok in. That's always
step one. Do you like theacreage and can you add value to the
(31:42):
acreage? And then the next stepis, you know, is the title
in good order? Because I youknow, most companies that are doing M
and A activity, they always thinkthey can do it better than the previous
operator. So I think who theprevious operator is doesn't matter that much.
It's just about the acreage, andyou know, to a lesser extent,
the title. You know, Ireally, if you're talking about title,
(32:07):
you're already close to doing the deal. Anyway. It's all about the acreage.
In my mind, what kind ofchallenges do the companies face post merger?
You know, had you seen amerger that really just didn't work?
Man, I can't think of anyin my in my tenure, but I'm
sure there's plenty, Robert, Ijust can't. Off the top of me,
(32:27):
I can't think of one. Ithink one of the bigger challenges is
to blend cultures. You know,if you know, if it's not truly
a takeover and it's it's kind ofa merger and you're really trying to blend
a bunch of strong personalities, Ithink that's probably always a challenge more the
human resource side of things, notnecessarily like blending acreage. I think that's
(32:49):
pretty straightforward. I think it's allabout people, and you know, I'll
look at Phoenix Capitol Group in thebaking for example, we have strong opinions
on how to do things. Andif somebody approached us and said, hey,
we love how you're drilling and wethink you got good acreage, so
we'd like to buy you, butwe want to keep some of your people
because you guys are doing pretty specialthings, that would be pretty tough.
(33:12):
Because we have a pretty established culturehere and we pride ourselves on minimal red
tape. You know, we don'trisk safety in anything we do or environmental
protection, but we're efficient. Andmy personal belief is the big companies have
a little too much red tape andthey kind of shackle their best people.
And our whole pitch is we don't. We don't put shackles on anyone.
We still expect outcomes that are inline with safety expectations, but we're going
(33:35):
to let you be be who youare and be a competent professional. And
that's how we've achieved a lot ofsuccess operationally. And if we had to
merge that culture into an Exxon Mobile, that'd be pretty tough because that's not
how they are, so I thinkthat's that's probably the biggest challenge in my
mind, is the amalgamation of culturesthat are established in operators. Yeah,
the Exxon mobile culture is kind offamous, and I have heard people say
(33:58):
either that you had took the littlebit of getting used to doing things on
mobile. I did work for Connach'very proud, very proud. They are
one of my buddies from graduate school. Worked for them for a long time.
You know. I worked for Conicowhen they acquired Phillips, and so
I got to see that firsthand,that integration. But then years later they
(34:19):
said, hey, let's spin offthese refining assets into Phillip sixty six.
So that wasn't a merger that didn'twork, but it was after a while
they said, hey, we wantto be an old company and we think
Phillips should be a refining company.So uh yeah, So let's take a
quick break. In the final segment, one of the things I want to
talk to you about are specific candidatesyou think could be right for future deals.
(34:45):
I think would be our listeners wouldbe really interested in hearing that.
So we'll be right back on theEnergy Mix with this week's guest, Adam
Ferrari join us in Corpus Christy Wednesday, August fourteenth at eleven am for the
twenty twenty four Coastal Band Energy TransitionLuncheon at the Ort Center on Harbor Drive
(35:07):
in Corpus Christi. This year's keynotespeaker will be Nick Burrillo, the executive
director of the Center for Hydrogen Safety. Topics to be covered include carbon capture,
assessing and managing safety risk in thehydrogen value chain, and the emerging
hydrogen economy in the coastal band.That's Wednesday, August fourteenth, starting at
eleven am in Corpus Christi, orthe twenty twenty four Coastal Band Energy Transition
(35:30):
Luncheon. Poor tickets and sponsorship opportunitiesgo to shalemag dot com slash event Slash
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(35:51):
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four hours a day, three hundredand sixty five days a year. Thank
you, Coastal Bend Region for entrustingus with your most precious asset. Welcome
(36:14):
back to the Energy NIX. I'mRobert ray Pierre with this week's guest,
Adam Ferrari. This week we've beendoing a deep dive into the world of
mergers and acquisitions in oil and gas. So, Adam, one question I
had is who do you see ascandidates for future acquisitions and mergers on both
sides of the transaction. Who mightbe out there looking to acquire somebody who
(36:35):
is shopping around to be acquired.Sure, so we're we touch a lot
of basins in the US, butfrom an operator standpoint, we are backing
centric into a lesser degree the PowderRiver basin in Wyoming. So when it
comes to acquisition targets, you know, there's there's plenty that I will get
to. On the smaller public companyside, I think there's always those guys
(36:59):
are always up for sale at theright price. But in the back and
in particular, you have two companiesnow that are interesting to us cracking oil
and gas. They're private equity backed, they've been growing their barrels consistently over
the last ten or so years,and they're about at the point now where
they're right for one of the bigboys to come in and look to take
them out. And so that's aname that we track really well because we
(37:21):
have a lot offsetting acreage to Crackin. We admire them as an operator.
They've taken acreage that Continental looked atten years ago and didn't like and
made it really good and done alot of really great things with their position.
So Cracking is one name that comesto mind. Grayson Mill Also,
they're a big backing operator and theyare also private equity backed, and in
my mind they're built for a sale. So they're and I think it's somewhat
(37:45):
public knowledge now that they're actively outthere looking for a suitor. And so
when it comes to the other sideof the equation, you know, it's
hard to look past Cord and youknow they're now they're gobbling up companies.
So they bought Enterplus for recently andCord was a merger of Whiting and Oasis
previously that they've now probably have thebiggest baking position of the Bachan is about
(38:07):
one point one million barrels a day, give or take, and I think
coord combined to somewhere around four hundrednow, so they're a big part of
it and still probably looking to grow, and so they they'd probably be one
of the obvious tart choices for apurchase. And I'm surprised I'm saying this,
but Conaco Phillips hasn't been very activein the Bakin until the Marathon deal.
(38:28):
And obviously they didn't buy Marathon justfor the Bawkin, but that's a
big part of it. That Marathonalso had a big Eagle Ford position in
Texas, so Conaco could be asuitor as well. You know, they
seem to be an acquisition mode,and they have a good baking footprint and
the names I just mentioned would becomplementary as well. So that that's just
me speculating. I don't have anyinside info on what Kanak's doing, but
(38:50):
I wouldn't be surprised if it wasthem or Cord sort of continuing to look
to deploy capital and continue to gobbleup stuff in the Bakony. I was
always a little surprised. I'm biasedas well because I worked for Connico Phillips,
but I always thought they were probablyone of the most well managed eanp's
and I always kind of was surprisingno bodies out there trying to take them
out. I'm sure over of Chevron, and they're they're also ANIKE and P
(39:16):
sort of like Antadarco. Anadarcico ownedthe minerals and a lot of their units
from the railroad transaction the old UPRstrip, and Cottaco Phillips has the same
situation in North Dakota. So yougo to Mackenzie County, one of the
most prolific counties in North Dakota,Cottaco Phillips owns minerals all over the place,
entire sections. So they have avery interesting position up there. In
fact, and I'll explain it alittle more later, we are interested in
(39:38):
developing some Contico's acreage that they're notgoing to get to, so they do
least other operators, and we havean open relationship with Contico and we do
talk to them about about their acreage. But they have a massive acreage position
and that's rare for operators. Operatorsusually don't own their minerals, but Cottaco
owns a lot of minerals in NorthDakota. So well, let me we
(40:00):
open the floor to you and youcan tell us a little bit about that,
what you're working on, what aresome of the things that you've got
going on. So, Phoenix CapitolGroup has positions in all the major counties
in North Dakota, and I liketo tell everyone we tend not to buy
other companies, although we have boughtother companies operated DSUs in smaller quantums,
but we're organically assembling acreage and weadd value through the drill bits. So
(40:23):
we are all over North Dakota buildingout positions for our operating arm to develop.
We're in Williams Divide, Montreal,Burke McKenzie, dun County, and
so we cover all the major countiesand we're actively leasing on the ground right
now to develop our position in ourmost exciting prospects, I would say,
(40:43):
or prospect if you will, isin eastern Montana. So eastern Montana is
the lesser known of the Bakan areas. So most people think about the Baka,
they think about North Dakota, butMontana is a state has a very
friendly severance tax and centive for operators, and there's a little less competition over
and we personally see a ton ofvalue in eastern Montana. The well results
(41:04):
with new completions are phenomenal, andour acreage acquisition costs is very low.
And as I've mentioned earlier on thepodcast, we have financed our growth through
private capital formation via exempt offerings withthe SEC and you can find out more
about that on our website if youjust go to Phoenix Capitol Group dot com.
But we're really excited about organically assemblingacreage in the world where M and
(41:25):
A is all the rage. Phoenix'sapproaches, We're going to get in at
a very low cost. We're awholesale shop. We're going to lease directly
and we're going to develop it ourselves, and we're going to keep that value
for our internal partners and our bondholders alike. And that's sort of our
business model. But we are activelyputting positions together now in real time in
(41:45):
the Bakan in both Montana and NorthDakota. So are you know, I
know there are some things that havechanged dramatically over the past couple of decades,
especially with shield Boom, and I'mwondering if today's deals are significantly different
than they were maybe a decade ortwo ago. You know what, what
kind of trends have changed, anddo you see those trends continuing. That's
(42:07):
a that's a really good question.I feel like energy is it's an interesting
marketplace because it's so volatile, andI think that you have the stalwarts that
are always in the game. Youknow, the core team that we put
together at Phoenix. You know,we've been in the industry ten to thirty
years on average, our whole team, so we've been in this space transacting
(42:29):
and so. But what you dosee in the industry is when there's an
upswing, there's a lot of enhancedcompetition. I think you'll see upstart brokers
showing up and try to put dealstogether. And I'm sure it was that
way thirty years ago, but youknow, I think it sure feels like
to me that the staples in theindustry maybe are getting fewer in number through
(42:51):
some of these vicious price cycles.I think some of the folks that have
tried to dabble in this space inthe past aren't here anymore. But even
though I'm saying that, I canname a couple of upstart operators that had
never drilled the well that just showedup within the last two years in the
back in and they didn't necessarily havea technical E and P background, So
(43:14):
maybe I just contradicted myself, Andmaybe that means we are in an era
where people feel really good about commoditieslonger term and folks that hadn't traditionally been
in this space or putting money togetherand trying to try to operate. But
I still think when the economics arethere, you're gonna have competition, and
you know, and I'll just stepback and say this in a world that's
(43:36):
where now interest rates are higher.Now, if you go back in time
two years, you know, yougot one percent of the bank, but
the energy space still had good yieldseven when nothing else did. And I
think that did attract a lot ofcapital, and that was certainly our thesis,
you know, as when we're raisingcapital in private markets, where else
can you get twenty to fifty percentreturns on your money? Well, it's
(43:57):
hard to do that, but inoil and gas you could still do that
if you know what you're doing.So that's our view of the world.
Really everything's serving by price, andyou kind of mentioned that earlier, Robert.
The right price, there's a lotof activity, and I still feel
like we're in that marketplace now.Yeah. Well, I always say this
has been a very enjoyable conversation forme. I like this world oil gas
(44:21):
mergers. I follow it a lot. I track, you know, oil
reserves and how much they're on thebooks for and so it's it's a pleasure
to speak with someone who looks atthis kind of stuff every day. That's
all the time we have for thisweek's show. I want to thank my
guest, Adam Ferrari, for beingon the Energy Mix. Adam, we'd
(44:42):
love to have you back again sometime. I think we could talk a lot
more about the whole oil and gasspace, So you know, I hope
we can have you sometime. Iloved you and it was my pleasure,
and thank you for your time.Everyone appreciate the audience. Thank you until
next week. The Energy Mix Radioshow is where we explore topics that affect
us all in the oil and gasindustry. Every week, our host will
interview the movers and shakers in thisfast paced industry. You'll hear from industry
(45:07):
experts, elected officials, and manymore on the Energy Mix Radio Show.
Welcome to the nationally syndicated Energy Mixradio show produced by the Energy Network Media
Groups. The Energy Mix Radio showwill give you an inside look at the
energy industry and how it affects youby talking with industry leaders, experts,
and government officials on the Energy MixRadio Show. Hi, I'm Robert ray
Pier, editor in chief of ShaleMagazine. Welcome to the Energy Mix,
(00:22):
formerly in the Old Patch Radio.Although the oil and gas sector will always
be the core of our coverage,we have always covered the entire energy sector
and so we felt like a newname would be more reflective of that.
So going forward we are the EnergyMix. This week's guest is Adam Ferrari.
(00:42):
He is CEO of Phoenix Capital Group. Welcome to the show, Adam,
Thank you very much. In thisfirst segment, I always like to
start out by having you tell listenersa bit about yourself, your background and
what Phoenix Capital Group does. Soif you would just acquaint yourself with our
listeners, well, thank you verymuch for the kind intro, and I'll
(01:04):
try to go a little bit quicklyand get to current. I am a
chemical engineer by discipline, just likeour host, which I don't talk to
many chemes nowadays, so it's adelight to do that. I've worked in
the oil and gas industry since twothousand and five. Early in my career,
I was a completions and production engineerfor BP and the Deep Waters of
the Golf from Mexico. So I'vebeen in the engineering side a big part
(01:26):
of my career. And I spenta little bit of time in investment banking
at McQuary Capital And fast forward totoday. Phoenix Capital Group is a startup
as of twenty nineteen, so we'vebeen in business for over five years.
Our whole thesis in business was toefficiently form capital. We think that capital
formation and energy has become incredibly inefficientover the years. So we go direct
(01:48):
to high net worth and retail investorsand we raise money by cutting out the
middlemen, which could be private equityor public equity on Wall Street. So
we raised a lot of capital andwe deployed that into minerals in our operating
arm. And so we've been drillingin the back in now for about the
last nine months, and I'm proudto say today that we've drilled the fastest
ever three mile middle Bacan horizontal sixand a half days from SPUD to TD.
(02:12):
So we're pretty proud of our operatingarm. But we kind of touch
every facet of the upstream oil andgas business. We're acquiring mineral interest not
operated, working interests, and we'reoperating and we do that across nine states.
We only operate in the Balkan,but we're acquiring minerals in Wyoming and
Colorado, Utah, Texas. Ifthere's viable activity happening, we're usually there
covering some of it. So that'sa short snippet of who Phoenix Capitol Group
(02:37):
is. And as of today,to give your listeners a scope for our
size, we produce about eleven thousandbarrels of oil equivalent a day, so
we're not EOG size, but we'renot really tiny at this point either.
We're and we're growing pretty aggressively.We should be at about twenty thousand barrels
a day by the end of thisyear. And that's who Phoenix Capitol Group
(02:57):
is. Okay, so today we'regoing to talk about mostly murders and acquisitions.
But your intro led me to thinkabout another question and I just wrote
a Ford j article about this theother day. I've noticed that for the
first time since I think the saleboom began. Over the last ten months,
(03:19):
oil production has been quite flat.If you still year over year,
we're still up seven hundred thousand barrelsa day, but that's because last July
and August there was quite a spurtof the production. And there have been
two times that production declined since theshale boom began, when Opek had a
price lower that affected US production andthen the COVID hit. But this is
(03:44):
the first time I think there hasbeen something, there's been a production flattening
that was not caused by a significantexternal factor. And you seem to have
your pulse, the pulse of theindustry and what's going on. And I'm
just wondering, you know, atsome point the shale loom is going to
start the flat now and it's goingto start there. It's going to be
flying at some point, and Idon't know if we're there yet. I
(04:05):
don't know if this is just youknow, a slot pause. I'm trying
to read into this what this means, because I don't think we've ever had
a period where, you know,last August we were producing the same amount
of role we're producing right now,and I don't know. So what is
your feeling and you think we're startingflat now or you think there's plenty more
(04:26):
to go on the on the shield, I do. That's a loaded question.
Man. We could talk for hoursjust about this topic. But I
think there's two things that are reallyimportant to think about when you're contemplating this
question. Number one is capital flowinginto the industry the way it always has,
because at the end of the day, the barrels are there, you
just need the money to bring themout. And then number two is the
best rock already drilled. Let's startwith number two. The best rock is
(04:47):
already drilled. And let's just becandid. So if you go to the
heart of the best base in thedelaware of the permei and the back end
that you went to, you knowthat you went to this kind of an
outlier because the best rock is kindof being drilled now and it wasn't previously.
But it's a small basin. Butif you look at the big producers,
the best rock was already drilled.So even you know in the Bakan
where we're operating, the core hasalready been developed. So now companies like
(05:11):
Phoenix, Capitol Group, Crack inanyone else that's operating in the Bakan.
We're drilling stuff that was passed onten years ago. And so while we're
making far better wells in those areasversus what somebody could have done ten years
ago, it's still not as goodas you could get out of the core.
So, you know, capital formationis a little light. We think
companies are being quite a bit moredisciplined nowadays. Now Phoenix is in rapid
(05:34):
growth mode, but we're not movingthe market with our ten thousand barrels a
day. So but if you lookat the big players, the Excellence,
the Chevrons, you know, theyseemingly are quite a bit more disciplined with
how they're deploying capital. And thebest rock is already drilled. So I
do think net on net it's goingto be hard to grow from here unless
there's substantial change. Now it couldbe federal lands opening up, So I'll
(05:58):
point to Wyoming big non opposition ofthe Powder River Basin. The Powder River
Basin is probably the most prolific geologicbasin outside of like the Perimeter or the
Delaware, but it's mostly federal andit's it's hard to get things done there
because the federal government is kind ofslowing things down. It's not easy to
get tracks up for auction, tobe able to lease the BLM tracks,
and then once you get them,it's not necessarily easy to get them permitted.
(06:21):
And so I think, you know, I think the way the industry
is going today, I think thebest rocks are already drilled. Capital isn't
flowing as much as it maybe wasin previous price booms. So I don't
think you can really grow from hereunless, and I'll caveat it, the
federal government sort of sets a manddateand says, look, we're we're going
to be pro oil in the US, and we're going to open up more
(06:42):
land and we're going to kind ofget out of the industry's way and let
them do their thing. But thatdoesn't affect Texas. Texas is predominantly fee
but it could affect you know,New Mexico, it could affect Wyoming,
Colorado. There's other places it couldaffect it, even in North Dakota.
There's a lot of federal land inNorth Dakota to just not as much,
is why. I mean. Somy take is we're probably going to stay
flat for ever a while. Butif the federal government wants to continue American
(07:08):
energy dominance, I think it's it'spossible to go up from here, but
we would need to have a morefriendly administrative state to accomplish that. I
always tell people too, it's afunction of prices. I mean, people
ask me sometimes has old production peaked? And I'll say, well, twenty
dollars old production is peaked. Sure, one hundred and fifty dollars old production
has not yet peaked, because there'sa lot of marginal production out there that
(07:30):
you could bring online. That isso true, right, so true?
Yep, And even in the backandif we had one hundred and twenty dollars
oil, I can tell you rightnow there's two hundred thousand acres that no
one's thinking about that would be violent, right, And we know where it's
at to be easy to go get, so that that's a very good point.
At the right price, there's alot more that's viable. That's true.
Well, that was a good youknow, I've been wondering about that
(07:51):
a lot lately because I'm concerned thatOPEC is just playing a waiting game.
You know, they're trying to waitout the ship boom until they can reassert
their don minutes over the market.And you know, I watched this pretty
closely and it's the first time I'venoticed we've had a significant flattening. So
that was that was I appreciate thatanswer. That's a good point. If
(08:11):
I can I add one little pointhere. The way I look at the
world in the market, it's youknow, where's the next five million barrels
aday going to come from? Becausewe're producing about one hundred and one now
worldwide and world demands still going togo up, contrary to what people said
in COVID and in previous times ofcrisis. But where's the next five million
a day going to come from?So I think the American shale producers are
well positioned because I do think pricesare higher longer. It's hard for me
(08:33):
to fathom us being able to deliverthe barrels we do every day without a
floor of at least seventy and soto get those next five million, I
think there needs to be a significantprice increase, and I think you see
that with Saudi Ramco. They're notflooding the market with barrels at seventy dollars
either. So I think the USenergy picture is still going to be prolific
(08:54):
in the future because I do thinkprices go up and I think we respond
to it when it happens. So, well, what do you think about
you worked in deep water? Howmuch potential is there in deep water that
we know of? It? Isthere one hundred and twenty dollars barrels out
there waiting to be tapped? Youknow, I haven't actually thought about it
from that perspective because the cycle timesare so long offshore. And I'm speaking
(09:18):
a little bit out of my expertisebecause it was a long time ago when
I worked out there was from fiveto nine. But we underwrote projects back
in those days thinking about things tenyears out. And so when you're thinking
about that long of a time horizon, you can't react quick enough to price
moves to capitalize on it out there. But would I would say this,
I think there's an abundant volume ofreserves there yet to be discovered offshore,
(09:41):
not only are the Gulf of Mexico, just around the world. It's just
a matter of the risk profile ofthat activity. It's a high risk game
playing out there, and when youcan get the barrels so easily on shore,
you know, is it still worthit to pursue those obviously for the
big players, Yes, Exon Mobilis still doing it, BF and Shallow
are still doing it. But Ithink that's a that's a small sandbox.
(10:01):
And yeah, I think there's alot more to be done out there.
It just takes a very long time. Yeah, that's as you probably already
know. I've worked off shore inthe North Sea and I tell people it's
like building a floating city out therein the middle of the ocean, and
it's a lot easier to produce barrelsin the permium base than that it is,
you know, to build a platformout there and put all the infrastructure
in. You're right, a loteasier. And that's why you've seen the
(10:24):
shale revolution really happen, because thereserves are there, they're still large enough
in volume to justify it, andyou can get them out of the ground
very quickly with minimal risk. AndI think that's the secret. The risk
profile I was very low. Okay, so the main topic today, we're
going to talk about mergers and acquisitions, and you know, the first segment
(10:45):
I was I tended to do itdive into cherchle Phillips and the Marathon acquisition.
So we've only got about a minuteleft in this segment, and so
we'll cover most of this in thenext segment. But what can you tell
us about the acquisition? What arethe details of the acquisition. So it's
a pretty big acquisition in terms ofdollar It was in the multi billions,
(11:07):
very large Kandaco took out a smallerrival, Marathon, and I don't follow
those two incredibly close worldwide, butthey're both big in the Bakan and it
creates a kind of another baking superpower, sort of like Cord has been buying
up people. This creates a kindof company that's on the scale of now
Cord up there. They have amassive position, They have a lot of
great drilling locations. We have offsettingdrilling locations to Marathon. So I think
(11:30):
it's good for us because it kindof affirms where we're underwriting acreage now when
Contaco moves in and buys them.But yeah, it's a big deal for
the Bakan. They're both two largeproducers there and now it's going to be
one. Who do you think themost in this acquisition? I think the
shareholders do. I always my shorttake on these big M and A deals,
(11:50):
the employees usually don't win because there'sgoing to be downsizing. But at
the end of the day, you'regoing to have less people managing more barrels.
So it's good for capital for theinvestors, and I think that's still
a good thing as well. Butthat's who ends in my mind, because
they should have a more profitable companyon the other side. So we'll take
a quick commercial break right there,and then I want to dig deeper into
(12:13):
this overall trend of Urgersian acquisitions.We'll talk about some of the major recent
acquisitions in oil and gas and thentalk about why this is happening. I'm
Robert ray Pier. We have theenergy mix. I'll be back after the
commercial breath. At the Port ofCorpus Christy, we maintain a clear pathway
(12:35):
for waterway commerce so that our customerscan deliver goods and energy products to the
communities who depend on them around theworld. We work diligently to build and
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(12:56):
us with your most precious asset.Help him back to the energy mix.
I'm Robert ray Peer with this week'sguest, Adam Ferrari. Adam, before
the break, we were talking aboutthe Chronicle Phillips Marathon acquisition. I was
wondering if you could give us asummary of some of the other major recent
acquisitions in oil and gas. Yeah, this has been sort of a season
(13:20):
of M and A activity, andwell, we're not a public company,
you know, Phoenix Capitol Group isprivate. We still pay attention to these
sort of big M and A dealsbecause it helps us sort of get a
bearing on what the market thinks aboutvaluation. And so the two big ones
that I think everyone would want toknow about and be aware of our Excellon
Pioneer. That was, you know, Exon had made a large acquisition like
(13:41):
that, I believe since Xto andXto was many moons ago, it seems
like. And the other other largeone in the last twelve months was Chavron
acquiring House, which was also youknow, both of those transactions sort of
touch us a little bit because we'rea back in centric producer at this point,
and Exon has a footprint in orderto Dakota and obviously has had a
large footprint in North Dakota, sowe were very keen on those deals.
(14:05):
We think the price is paid werepretty healthy. These are both multi tens
of billion dollar transactions, So thesetwo were the big ones. But there's
been a plethora of smaller ones thathave been going on to the Permian and
the Delaware that we don't pay asmuch attention to. But over the last
twelve months, Emina activity has beenvery furious, if you will. Lots
of transactions happening, and then thosewere obviously the headline ones and I think
(14:28):
caught a lot of people's attention.I have to wonder if Exceon Mobile had
a crystal ball, they would havemade that Xto acquisition if they knew the
direction of natural gas prices. Youknow, Conico philis did the same thing.
They made a major natural gas acquisitionbecause it looked like natural gas prices
were going to the moon. Andthen you know, fracking opened up so
much that you know that turned outto be strategically. I think I'm a
(14:50):
stake for both companies. Well,I've been in the business in two thousand
and five, and the only timegas the gas market was really good was
during like the hurricanes than Katrina Rita. And my reference point is Western Colorado
or the Peance base in which Xtois big, and there was about one
hundred and twenty or so rigs runningthere in the peak. There's never been
(15:11):
more than four since then over thelast fifteen years. So people that have
been calling for the gas boom,the gas boom, it just never happened.
And frankly, you know, theguys that have been on gas in
the last twenty years haven't done well. I think that we don't try to
predict the future, but it's hardfor me to fathom a really strong gas
market in the US anytime in thenext ten years. There's just too much
(15:31):
supply. Unless our government sort ofhas a mandate to export American molecules all
over the world, well that wouldchange things. But I think it's a
hard to justify underwriting gas assets atall in the US. But that's my
take. We're liquid's focused shop.So for people who weren't around in two
thousand and five, it's hard toimagine the shift that happened around two thousand
(15:58):
and five when natural gas in theUS started coming online from racking because shreathing.
Up to that point, it lookedlike we're gonna go the way you
know we were with oil. We'regoing to be increasingly dependent on other countries
from natural gas. And then suddenlythat's right, more natural gas than we
know what to do with. AndI know it caught up many many people,
even in the industry, completely offguard. Yeah, that's true that
(16:21):
it's a good reference point. Iremember when I joined the industry in oh
five, there were legitimate pundits inthe space that were very respected and bright
that we're calling for what are wegoing to do in ten years? We're
not going to have enough gas torun the country, And now you know,
it's completely the opposite. It's wehave gas coming out of everywhere,
we don't know what to do withit, and it's I just read an
article recently about some of the deeperI don't know if it was a Hainesville
(16:42):
specific target, but I think itwas, and it was on the Texas
side. And these wells are fifteenmillion dollars, but the volume of gas
they're making is just obscene, andit's no wonder that there's an abundant supply
and people are still proven up.There's still more resources in places we didn't
even know about five years ago thatare quite prolific. So, yeah,
the gas market, it's just hardto fathom. There's just so much supply.
(17:04):
It would take something pretty dramatic tosort of create, in my in
my view, a positive economic environmentfor US gas in the long run.
I don't I don't know why peopleare drilling it right now. Yeah,
I know, in about two thousandand four, I think the late Matt
Simmons would go twild out in thedesert. He said, we are headed
for a certain natural gas shortage inthe US, and the only solution is
(17:27):
to pray. And then I know, uh t Boom Pickens was very negative
on naturals. You know, theyall thought and and for good reason.
You know, people didn't really knowthat shale was back there out there.
You know, behind the scenes,it was we're about to have a revolution
until Aubrey drank the frack fluid onTV. Then that's when everything shifted,
(17:47):
right. Rest in peace. Yeah, So let's let's get back to the
topic of mergers and acquisitions. Sure, why oil and gas companies merged I'm
going to run a four joint atthe wellness because people start and they think
it's just to keep prices high andto eliminate competition. But what are some
of the major reasons that ol andgas companies merge. I think it's all
(18:11):
economics. But a company like Exonis looking at their mandate. They have
a ton of cash and they havetwo choices with that cash. I like
to condense things to the simplest form, and because I think things can be
explained with the simplest answer. Typically, Exon has a bunch of cash.
Their mandate is to either invest itor return it to their shareholders, and
if they can't invest it at abetter rate, then they can reward their
(18:32):
shareholders and they give it back.And Exon thought that it was in their
best interest of the shareholders to goahead and buy a company instead of growing
their barrels organically. And so theylook at a company like Pioneer, and
they said, we can do itbetter than Pioneer. We don't need all
of their people. So this isa creative to our shareholders and we're going
to take them out. And Ireally think it's that simple. Exon is
(18:52):
basically saying, we think the marketfor oil and natural gas is strong over
the long run, and we thinkit's in the best interest of our shareholders
to deploy. I think it wasfifty billion of dollars in stock and cash
to buy Pioneer, and we thinkwe could do it better. And so
that's really the genesis of all ofthe big M and A activity is we
think we're better than you, andit's good for our shareholders, and they're
(19:14):
going to get a great, acreative return enhancement from this acquisition, and
they do it. And you know, that's my simple take on it,
and I think that's why most ofthese transactions happened. It's a creative to
a shareholder, right. I didan analysis of BP a few years ago,
and I was looking at all themajor rolling gas companies and the price
that BP. If you took thewhole value of BP and looked at the
(19:37):
proove reserves they had, it wasa ridiculously low cost. And I thought,
I mean, if sn low wouldbe better off going to buyd BP
than they would be drilling for oil, and interesting, that's one of the
reasons they do it. So afterthe break we did, we can take
another break, but we'll start digginginto some of the financial benefits of these
companies from mergers and acquisitions. I'mRobert a peer with this wee's guest Adam
(20:00):
Ferrari, and we will be rightback. Join us in Corpus Christy on
Wednesday, August fourteenth at eleven amfor the twenty twenty four Coastal Band Energy
Transition Luncheon at the Ort Center onHarbor Drive in Corpus Christi. This year's
keynote speaker will be Nick Barrillo,the executive director of the Center for Hydrogen
(20:22):
Safety. Topics to be covered includecarbon capture, assessing and managing safety risk
in the hydrogen value chain, andthe emerging hydrogen economy in the coastal band.
That's Wednesday, August fourteenth, startingat eleven am in Corpus Christy for
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Energy. Welcome back to the EnergyNix. I'm Robert ray Pierre with this
week's guests, and Ferrari Adam wouldlike to ask about how companies help manage
(21:32):
risk and volatility with these mergers andacquisitions. I mean what and also technical
and operational synergy, so some ofthe you know, not just the financials,
but there's a lot that goes intothese mergers and acquisitions that these companies
have to manage. Sure, SoI would say, starting with the first
(21:52):
one, sort of risk and volatility, I've really you know, I really
don't often think about it in thoseterms, but I do think like if
you look at Exon Pioneer, youknow, they probably have a little bit
more robust of a risk management profile. Simply because they're fully integrated. You
know, Pioneer is purely upstream.So Pioneer delivers a barrel and they're done
with that barrel. Exon produces abarrel and they can take it into their
(22:15):
own refriaries if they want to.So I do think when big companies sort
of gobble up the independence that aren'tfully integrated, I think it does create
a more balanced, less volatile energyinfrastructure, like from the start to the
finish, because you have a companythat can do everything, and they,
in my view, they probably plantheir business a little bit better because they
(22:36):
have they're more in tune with sortof the end user and the end customer
because they're touching that part of ittoo. So I do think overall,
when Exxon gobbles up their peer groupin the industry, it creates a more
stable sort of ecosystem for energy forpeople like a Phoenix Capital group, because
you know, I think less volatilityin our space is good for the little
(22:56):
guy because we can't ride out volatilitylike that on mobile can. And so
I do think when when these kindof transactions happen net on net, I
think it reduces overall market volatility becauseXon is probably the most disciplined producer boiling
gas that's ever existed. So andI kind of like in the other majors
(23:17):
to an Axon because they do everything. But that's that's my short take on
why. I think it's how itaffects sort of the volatility and risk profile.
And I just like I said,I think about it from an industry
macro perspective. But for xout,I just think that they can do more
with an asset based than Pioneer canbecause they have the infrastructure downstream that Pioneer
doesn't have. So okay, sowhat about technical and operation synergies. There's
(23:42):
a lot of those. You know, you find logical reasons why certain companies
merge, and that's often the case. Sure, can you talk a little
bit about that. Yeah, Imean XI already had a massive position in
the Permian basin. So they weren'tas big as Pioneer, I don't believe,
but they were close. They werebig, and so I think it's
(24:02):
simple for a company like Exxon Mobile. You know, if you think about
Exon, they have more data thanprobably any other oil company around the world
because they've been participating in pretty muchevery resource play, every conventional play,
for however, the last one hundredyears. If you think about the combined
companies, so I always think acompany like Xon, they look at Pioneer
(24:23):
and their first thought is, wecould do it better because we have more
technical expertise and we have the meansto do it better. And so they
look at a company like Pioneer andthey say, we don't need their technical
staff. And I'm sure they're goingto keep a decent amount of their folks,
but you know, there is apretty big synergy we can do it
better, and we already have thepeople to do it better, and so
we're going to add more value tothis asset over the long run. And
(24:45):
that's their criterion when they're underwriting stufflike that. I've sat in those rooms.
I've worked for the big companies earlierin my career, and that's quite
literally how we think about it.And that's really the synergy side of it,
Like we can reduce cost and wecan get more barrels out and we
could do it more efficiently in them, and that's kind of that's kind of
the secret sauce when these M andA deals are happening. That's that's the
(25:07):
conversations that are happening behind closed doors. So what about this? What about
the publicly traded ones? You know, how do these mergers and acquisitions typically
affect the spot market behavior of theoil and gas companies involved in these mergers
perisitions? Man, talking about stockmarket behavior is like trying to predict the
weather. You know. The thingswe see in the stock market don't seem
(25:30):
to make any sense in our spaceat times. But I think net on
Net you know, I think thisacquisition was pretty well received, and I
think it's a positive for excellent stockin the long run. But in a
short run, who the heck knows? The stock market doesn't seem to make
sense with what Nvidia is doing inApple. I think the energy sector,
(25:51):
just in large, has not gottenfair evaluations for a long time. And
frankly, that's our thesis behind whywe're private. I wouldn't want to subject
our interest holders in this company tothe volatility of the stock marketer. To
me, it's more of a popularitycontest. But if you go back to
Axon net on Net, I thinkthese deals are over the long run,
(26:12):
they're positive because eventually cash is goingto be king, you know, And
I think every stock market rally eventuallycomes to reality and says, who has
cash? You know? Is ita great idea or is it a company
that can produce cash and an exonto cash flow machine? And I think
with the Pioneer acquisition that only improvesover time. All right, So we'll
(26:33):
take a quick break right there,and then I want to talk about some
of the challenges associated with successfully mergingtwo companies. We'll be brought back with
Adam Ferrari on the Energy Mix.Farmers and ranchers are the hardest working people
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(27:17):
on a twenty thirteen Yamaha Source sideby side owner study. Welcome back to
the Energy Mix. I'm Robert rayPier with this week's guest, Adam Ferrari.
Adam, every time there's a mergeracquisition, and you'll hear people in
Congress complaining about anti trust and competitionand so forth. And I'm sure that
(27:40):
the Conicle Phillips Marathon deal is goingto be subject to scrutiny like that,
talk about some of the legitimate objectionsto these mergers the regulators could raise.
Are these legitimate concerns? And doyou expect them to go anywhere? So
I'm biased, and I have tobe very upfront about that. I don't
(28:02):
think there's really legitimate concerns to thescope and scale of these types of mergers.
At the end of the day,you're not creating somebody that still has
significant volumes of production that could tip, you know, competitive balances. In
my view, you know, Coniccoand Marathon combined are still not even one
percent of world oil production, andso it's hard for me to fathom how
you're raising legitimate concerns about those typesof activities. But I think it's more
(28:27):
political and I don't think it's reallyfinancial in nature, or I don't think
it's a consumer type concerned. Ijust think that oil and gas and I've
been in this business since so fiveI think we've gotten a pretty unfair shake
in the court of public opinion,and I think it's driven just by the
politics of it. To be frank, I don't really see there being any
(28:48):
legitimate sort of public interest issues withanti trust around these types of mergers.
I really think it's just if theboard of the companies have an issue.
I think that's where those types concernsneed to be addressed. It's the shareholders
and the board of these public companies. That's their governance. And if the
folks in charge of the governance forthese companies decide it's in the best interest
(29:08):
in their shareholders, then these dealsshould go through. I just don't think
there should be objections from the government, especially in an era where the tech
companies have clear monopolies and you knownothing's done about that. I don't think
there's any real legitimate concern about anyof the acquisitions we've talked about today from
a competitive landscape standpoint, That's whatI was going to ask. So you
(29:30):
don't see a significant impact on competitionin the in the area, I don't.
I don't at all. I thinkit's good for people in the space.
I think it's good for small guysbecause in my view, the excellons
of the world. They move alittle bit slow, and when we're out
there, boots on the ground tryto source the next opportunity. I think
it's better I'm competing. It's exonmobile versus a smaller company and so.
(29:52):
But from a consumer standpoint, Isee no negative to the consumer of energy
products in America at all smaller companies. So is there are there specific threats
to smaller companies because some of thesecompanies are much smaller than Comical Filter Mauthon
And does it create problems for themcompeting? What are the potentialsks for those
(30:15):
smaller firms. I don't think so. I think at the end of the
day, most smaller firms have anexit strategy that revolves around somebody buying them.
I think that Phoenix sort of standsalone. We've been pretty adamant since
day one. Our exit strategy isto be in business in thirty years.
You just don't see that that oftenanymore in a world where so much private
(30:37):
equity capital is coming into back operators, somebody's always for sale. I can
just tell you in the back Andin the last twelve months we've seen three
operators put the for sale sign upyou know, they least twenty thousand acres,
drill three or four wells or more, and now they're for sale.
And so I think I think theM and A activity is a good thing
for companies that are sort of tryingto capitalize on that sort of a strategy
(31:00):
with capital deployment. You know,pump money in in five years, get
out. That's most people's strategy inour space, amongst the smaller players.
That is what kind of due diligencedo companies do beforehand to ensure that there
is a strategic fit during the mergerand acquisition process a whole lot. But
I think at the end of theday, the first step in any relevant
(31:22):
due diligence is underwriting the acreage.And for the big companies, they sort
of their claim and they'll tell youwe've already underwritten the whole back in.
So if you go talk to exonMobile, they'll tell you we've underwritten the
backet. If you talk to Cord, which is sort of a merger of
a bunch of other companies, they'veunderwritten the whole bok in. That's always
step one. Do you like theacreage and can you add value to the
(31:42):
acreage? And then the next stepis, you know, is the title
in good order? Because I youknow, most companies that are doing M
and A activity, they always thinkthey can do it better than the previous
operator. So I think who theprevious operator is doesn't matter that much.
It's just about the acreage, andyou know, to a lesser extent,
the title. You know, Ireally, if you're talking about title,
(32:07):
you're already close to doing the deal. Anyway. It's all about the acreage.
In my mind, what kind ofchallenges do the companies face post merger?
You know, had you seen amerger that really just didn't work?
Man, I can't think of anyin my in my tenure, but I'm
sure there's plenty, Robert, Ijust can't. Off the top of me,
(32:27):
I can't think of one. Ithink one of the bigger challenges is
to blend cultures. You know,if you know, if it's not truly
a takeover and it's it's kind ofa merger and you're really trying to blend
a bunch of strong personalities, Ithink that's probably always a challenge more the
human resource side of things, notnecessarily like blending acreage. I think that's
(32:49):
pretty straightforward. I think it's allabout people, and you know, I'll
look at Phoenix Capitol Group in thebaking for example, we have strong opinions
on how to do things. Andif somebody approached us and said, hey,
we love how you're drilling and wethink you got good acreage, so
we'd like to buy you, butwe want to keep some of your people
because you guys are doing pretty specialthings, that would be pretty tough.
(33:12):
Because we have a pretty established culturehere and we pride ourselves on minimal red
tape. You know, we don'trisk safety in anything we do or environmental
protection, but we're efficient. Andmy personal belief is the big companies have
a little too much red tape andthey kind of shackle their best people.
And our whole pitch is we don't. We don't put shackles on anyone.
We still expect outcomes that are inline with safety expectations, but we're going
(33:35):
to let you be be who youare and be a competent professional. And
that's how we've achieved a lot ofsuccess operationally. And if we had to
merge that culture into an Exxon Mobile, that'd be pretty tough because that's not
how they are, so I thinkthat's that's probably the biggest challenge in my
mind, is the amalgamation of culturesthat are established in operators. Yeah,
the Exxon mobile culture is kind offamous, and I have heard people say
(33:58):
either that you had took the littlebit of getting used to doing things on
mobile. I did work for Connach'very proud, very proud. They are
one of my buddies from graduate school. Worked for them for a long time.
You know. I worked for Conicowhen they acquired Phillips, and so
I got to see that firsthand,that integration. But then years later they
(34:19):
said, hey, let's spin offthese refining assets into Phillip sixty six.
So that wasn't a merger that didn'twork, but it was after a while
they said, hey, we wantto be an old company and we think
Phillips should be a refining company.So uh yeah, So let's take a
quick break. In the final segment, one of the things I want to
talk to you about are specific candidatesyou think could be right for future deals.
(34:45):
I think would be our listeners wouldbe really interested in hearing that.
So we'll be right back on theEnergy Mix with this week's guest, Adam
Ferrari join us in Corpus Christy Wednesday, August fourteenth at eleven am for the
twenty twenty four Coastal Band Energy TransitionLuncheon at the Ort Center on Harbor Drive
(35:07):
in Corpus Christi. This year's keynotespeaker will be Nick Burrillo, the executive
director of the Center for Hydrogen Safety. Topics to be covered include carbon capture,
assessing and managing safety risk in thehydrogen value chain, and the emerging
hydrogen economy in the coastal band.That's Wednesday, August fourteenth, starting at
eleven am in Corpus Christi, orthe twenty twenty four Coastal Band Energy Transition
(35:30):
Luncheon. Poor tickets and sponsorship opportunitiesgo to shalemag dot com slash event Slash
twenty twenty four Dash Energy Dash TransitionDASH Luncheon at the Port of Corpus Christi.
We maintain a clear pathway for waterwaycommerce so that our customers can deliver
(35:51):
goods and energy products to the communitieswho depend on them around the world.
We work diligently to build and enhancecritical mass retirementfrastructure and manage traffic. Twenty
four hours a day, three hundredand sixty five days a year. Thank
you, Coastal Bend Region for entrustingus with your most precious asset. Welcome
(36:14):
back to the Energy NIX. I'mRobert ray Pierre with this week's guest,
Adam Ferrari. This week we've beendoing a deep dive into the world of
mergers and acquisitions in oil and gas. So, Adam, one question I
had is who do you see ascandidates for future acquisitions and mergers on both
sides of the transaction. Who mightbe out there looking to acquire somebody who
(36:35):
is shopping around to be acquired.Sure, so we're we touch a lot
of basins in the US, butfrom an operator standpoint, we are backing
centric into a lesser degree the PowderRiver basin in Wyoming. So when it
comes to acquisition targets, you know, there's there's plenty that I will get
to. On the smaller public companyside, I think there's always those guys
(36:59):
are always up for sale at theright price. But in the back and
in particular, you have two companiesnow that are interesting to us cracking oil
and gas. They're private equity backed, they've been growing their barrels consistently over
the last ten or so years,and they're about at the point now where
they're right for one of the bigboys to come in and look to take
them out. And so that's aname that we track really well because we
(37:21):
have a lot offsetting acreage to Crackin. We admire them as an operator.
They've taken acreage that Continental looked atten years ago and didn't like and
made it really good and done alot of really great things with their position.
So Cracking is one name that comesto mind. Grayson Mill Also,
they're a big backing operator and theyare also private equity backed, and in
my mind they're built for a sale. So they're and I think it's somewhat
(37:45):
public knowledge now that they're actively outthere looking for a suitor. And so
when it comes to the other sideof the equation, you know, it's
hard to look past Cord and youknow they're now they're gobbling up companies.
So they bought Enterplus for recently andCord was a merger of Whiting and Oasis
previously that they've now probably have thebiggest baking position of the Bachan is about
(38:07):
one point one million barrels a day, give or take, and I think
coord combined to somewhere around four hundrednow, so they're a big part of
it and still probably looking to grow, and so they they'd probably be one
of the obvious tart choices for apurchase. And I'm surprised I'm saying this,
but Conaco Phillips hasn't been very activein the Bakin until the Marathon deal.
(38:28):
And obviously they didn't buy Marathon justfor the Bawkin, but that's a
big part of it. That Marathonalso had a big Eagle Ford position in
Texas, so Conaco could be asuitor as well. You know, they
seem to be an acquisition mode,and they have a good baking footprint and
the names I just mentioned would becomplementary as well. So that that's just
me speculating. I don't have anyinside info on what Kanak's doing, but
(38:50):
I wouldn't be surprised if it wasthem or Cord sort of continuing to look
to deploy capital and continue to gobbleup stuff in the Bakony. I was
always a little surprised. I'm biasedas well because I worked for Connico Phillips,
but I always thought they were probablyone of the most well managed eanp's
and I always kind of was surprisingno bodies out there trying to take them
out. I'm sure over of Chevron, and they're they're also ANIKE and P
(39:16):
sort of like Antadarco. Anadarcico ownedthe minerals and a lot of their units
from the railroad transaction the old UPRstrip, and Cottaco Phillips has the same
situation in North Dakota. So yougo to Mackenzie County, one of the
most prolific counties in North Dakota,Cottaco Phillips owns minerals all over the place,
entire sections. So they have avery interesting position up there. In
fact, and I'll explain it alittle more later, we are interested in
(39:38):
developing some Contico's acreage that they're notgoing to get to, so they do
least other operators, and we havean open relationship with Contico and we do
talk to them about about their acreage. But they have a massive acreage position
and that's rare for operators. Operatorsusually don't own their minerals, but Cottaco
owns a lot of minerals in NorthDakota. So well, let me we
(40:00):
open the floor to you and youcan tell us a little bit about that,
what you're working on, what aresome of the things that you've got
going on. So, Phoenix CapitolGroup has positions in all the major counties
in North Dakota, and I liketo tell everyone we tend not to buy
other companies, although we have boughtother companies operated DSUs in smaller quantums,
but we're organically assembling acreage and weadd value through the drill bits. So
(40:23):
we are all over North Dakota buildingout positions for our operating arm to develop.
We're in Williams Divide, Montreal,Burke McKenzie, dun County, and
so we cover all the major countiesand we're actively leasing on the ground right
now to develop our position in ourmost exciting prospects, I would say,
(40:43):
or prospect if you will, isin eastern Montana. So eastern Montana is
the lesser known of the Bakan areas. So most people think about the Baka,
they think about North Dakota, butMontana is a state has a very
friendly severance tax and centive for operators, and there's a little less competition over
and we personally see a ton ofvalue in eastern Montana. The well results
(41:04):
with new completions are phenomenal, andour acreage acquisition costs is very low.
And as I've mentioned earlier on thepodcast, we have financed our growth through
private capital formation via exempt offerings withthe SEC and you can find out more
about that on our website if youjust go to Phoenix Capitol Group dot com.
But we're really excited about organically assemblingacreage in the world where M and
(41:25):
A is all the rage. Phoenix'sapproaches, We're going to get in at
a very low cost. We're awholesale shop. We're going to lease directly
and we're going to develop it ourselves, and we're going to keep that value
for our internal partners and our bondholders alike. And that's sort of our
business model. But we are activelyputting positions together now in real time in
(41:45):
the Bakan in both Montana and NorthDakota. So are you know, I
know there are some things that havechanged dramatically over the past couple of decades,
especially with shield Boom, and I'mwondering if today's deals are significantly different
than they were maybe a decade ortwo ago. You know what, what
kind of trends have changed, anddo you see those trends continuing. That's
(42:07):
a that's a really good question.I feel like energy is it's an interesting
marketplace because it's so volatile, andI think that you have the stalwarts that
are always in the game. Youknow, the core team that we put
together at Phoenix. You know,we've been in the industry ten to thirty
years on average, our whole team, so we've been in this space transacting
(42:29):
and so. But what you dosee in the industry is when there's an
upswing, there's a lot of enhancedcompetition. I think you'll see upstart brokers
showing up and try to put dealstogether. And I'm sure it was that
way thirty years ago, but youknow, I think it sure feels like
to me that the staples in theindustry maybe are getting fewer in number through
(42:51):
some of these vicious price cycles.I think some of the folks that have
tried to dabble in this space inthe past aren't here anymore. But even
though I'm saying that, I canname a couple of upstart operators that had
never drilled the well that just showedup within the last two years in the
back in and they didn't necessarily havea technical E and P background, So
(43:14):
maybe I just contradicted myself, Andmaybe that means we are in an era
where people feel really good about commoditieslonger term and folks that hadn't traditionally been
in this space or putting money togetherand trying to try to operate. But
I still think when the economics arethere, you're gonna have competition, and
you know, and I'll just stepback and say this in a world that's
(43:36):
where now interest rates are higher.Now, if you go back in time
two years, you know, yougot one percent of the bank, but
the energy space still had good yieldseven when nothing else did. And I
think that did attract a lot ofcapital, and that was certainly our thesis,
you know, as when we're raisingcapital in private markets, where else
can you get twenty to fifty percentreturns on your money? Well, it's
(43:57):
hard to do that, but inoil and gas you could still do that
if you know what you're doing.So that's our view of the world.
Really everything's serving by price, andyou kind of mentioned that earlier, Robert.
The right price, there's a lotof activity, and I still feel
like we're in that marketplace now.Yeah. Well, I always say this
has been a very enjoyable conversation forme. I like this world oil gas
(44:21):
mergers. I follow it a lot. I track, you know, oil
reserves and how much they're on thebooks for and so it's it's a pleasure
to speak with someone who looks atthis kind of stuff every day. That's
all the time we have for thisweek's show. I want to thank my
guest, Adam Ferrari, for beingon the Energy Mix. Adam, we'd
(44:42):
love to have you back again sometime. I think we could talk a lot
more about the whole oil and gasspace, So you know, I hope
we can have you sometime. Iloved you and it was my pleasure,
and thank you for your time.Everyone appreciate the audience. Thank you until
next week. The Energy Mix Radioshow is where we explore topics that affect
us all in the oil and gasindustry. Every week, our host will
interview the movers and shakers in thisfast paced industry. You'll hear from industry
(45:07):
experts, elected officials, and manymore on the Energy Mix Radio Show.
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