- it's really a pleasure to be here. I want to thank Mike and also, the rest of the group for inviting me. I've really admired the energy and enthusiasm that Mike has shown over the years and the commitment to knowledge transfer and for actually trying to do things that are interesting and practical for the membership. So, that's really great. And I'm gonna just give you a little bit And I'm gonna just give you a little bit of background about myself. I started out in petroleum geology, graduating right at the collapse in the '80s, and so, it was like 1981, so I quickly had the opportunity to diversify. It was very interesting. I kept my hand in the entire time, as a geologist, petroleum geologist, although I studied toward a Masters in economics, and I worked for Kerr-Mcgee as an international operations analyst during that time. I also diversified and got certification in instructional technology and design. So, I've really been really fortunate to have had the opportunity to diversify and bring things together. And it's always interesting to me to have the chance to look at things from different perspectives and also, having kept my hand in as a small operator with my dad's company, so I've actually felt the pain through all these different ups and downs, and also, when Mike and I met, I was at the University of Oklahoma, Director of Education and Professional Development for outreach in geology and and geosciences and engineering, 40 00:01:53,533 --> 00:01:56,499 that was interesting too, to see exactly what was happening, not just here, but also in a global context. So, today, I thought well, we're here at a very interesting point in time, and I could give a presentation on different technologies used in shale, but Mike thought well, it would be more interesting to do something maybe a little bit more business oriented, and interestingly enough, between the time that we first talked and now, things have gotten really interesting. Of course, I mean that in a bad way, but at any rate, this is a great opportunity for us to kind of reflect , to see what's going on, and also, to see about the different kinds of strategies that we can employ to actually survive, and perhaps even make positive strides during this time of incredible transition. So, I wanted to talk a little bit about innovation, entrepreneurship for the independent. What is different now than before? And then if we have time, I'll go into little case study for Oasis. I'll look at their IPAA presentation. We'll just go look at things. So, let's first start with current conditions. Now, this is really recent. You may be familiar with some of these statistics. This came out just like a week ago, and some of the companies that have lost more than 90% of their market value since 2014. 73 00:03:21,666 --> 00:03:24,832 This is not like over a couple of years. We're talking SandRidge and you know, mainly in the Mississipian, and they, well, I won't go into why for each one, but probably some of you, and feel free to chime in if some of you would like to share some of your insights, but they, SandRidge, Halcon, 82 00:03:42,400 --> 00:03:43,833 a lot in Eagle Ford, Goodrich Petroleum, Swift Energy, and Energy XXI. 85 00:03:48,433 --> 00:03:51,333 They've lost more than 90%, and then current conditions, imminent bankruptcies. Samson has been looked at as like there's no way that they can last, even. These are imminent, and this came out a couple of days ago, and the prognosis, that many of these companies won't even last a few more weeks. PostRock, Midstates Petroleum, Resolute Energy, W and T Offshore, Breitburn Energy, Comstock Resources. So, what do these have in common? What exactly happened to them? Well, I can tell you a personal story about what happened to PostRock. How many of you are familiar with PostRock? Okay, I'll give you a little background. PostRock is a company that used to be called Quest Star and they're in the Cherokee Basin, and they have a lot of coal bed methane operations, low volume, potentially good, potentially not so good. And then, they raised quite a bit of money four or five years ago with their idea of going and buying old production using new technologies to enhance the production, and also to get involved in some shale plays, with the idea of proof of concept so they could flip that clay. So they could go in, and find some discoveries and they focused mainly in the Woodford. PostRock is in Oklahoma City. Ok, so what they have done, in terms of... they managed to get a line of credit for 120 million dollars, so they had a line of credit. They also raised capital to purchase properties. And then, in the case of... they had like a perfect storm of bad situations. First of all, coal bed methane, the cost of dealing with all the water skyrocketed. So, and then of course, we all know what the price of gas has done. And then, we also know the price of transportation. And so, that was problematic. And on top of that, then they did manage to have some discoveries in horizontal, but they weren't used to drilling horizontal, and something they had an AFV for two million dollars suddenly near turned out to be five million dollars. So the cost overuns. And then, on top of that, some of their production that they purchased, like in central Oklahoma, Pottawatomie County, etc., it was doing ok, except the price of oil collapsed. So, then it suddenly became much more expensive, and, at the same time, they needed to put a lot of capital investments in replacing, gathering systems, in replacing storage, replacing pumping units, 152 00:06:26,700 --> 00:06:28,466 so all those costs were high. So there we were with a perfect storm of no revenue, and then, with the price of oil collapsing, their line of credit was reduced from 140 millon to 70 million. Sounds like a lot of money, right? Well, they'd already spent 80. So, oops. The only thing that could have saved them at the last minute was the fact that they had just purchased... 167 00:06:55,733 --> 00:06:58,433 and I know this because I was personally involved, they were in the midst of acquiring some older production that had potentially water flood reserves, or at least some had five million barrels of recoverable oil, there just needs to be a water flood, but at least they were able to acquire that 75% and book, coincidentally, about 10 million dollars additional to their reserves. That happened like two days before the actual disaster happened. So, they managed to dodge a bullet by one step, and they're not dodging the additional bullets that may be coming their way no matter how wonderful the plan happened to be. So, it was like. and Samson, their situation. They're in Tulsa. How many of you know the Samson story what happened? Ok, so they managed to get a lot of production in Wellston, and then they convinced a company to purchase them, paid top dollar, and that company that now has purchased Samson is not, well... How do you characterize how they're doing now? Not great, right? So, they just have not been able to. They have the unfortunate experience of buying high and then right before a collapse, so, Samson, again, the original founders of Samson, are no longer involved. They sold out. And so, then, what we have, part of it's a Japanese company, and another, I can't remember who the other are, but I put links to some of the things. Those are just two examples of what's happened in many cases, to all of them, and a lot of it has to do with not just lack of cash flow, but also, debt, and so we have the contributing factors reduce... and on top of that, we'll have the other things that are unique to now. We have not just debt, reduced line of credit, but also, pinch points in refining capacity. As you well know, our refineries can handle sour crude, but the sweet crude that comes from shale operations is not what refineries handle. So, there's just a backlog, a bottleneck. Also, there's a bottleneck in terms of storage. So, Stroud, and the area in central Oklahoma, not Stroud, Cushing, sorry. The Cushing terminal has been super capacity for a long time. It's getting a little bit better, mainly thanks to decline curves, that it's not as full, and then you have rising midstream costs, So, a lot of the companies that were in midstream say that gas gathering, conditioning, compressors, all those services taking up the nitrogen, all of that, those have skyrocketed. Also, a lot of companies, such as Chesapeake, spun off the midstream. Midstream's doing fine, but they're crushing, and kind of like taking advantage of people's inability to go anyplace else with their production. So as long as you had an integrated company that had production and midstream, these generally tended to play nicely together. But the minute that you spin them off, then you have opportunistic crushing of this. 249 00:10:24,400 --> 00:10:26,966 It's normal for that to happen. Interestingly enough, too, I don't know how many of you followed Chesapeake in their lawsuit that they lost, but they were double-dipping and they were charging royalty owners midstream production costs and actually, you have to look at every single lease because some of them have actually written in for royalty owners, reducing that... usually it's working interest owners who pay. They were still charging the working interest owners and making the royalty owners pay, so they were underpaying royalties. They finally negotiated, and, I think the final tab was about four billion. It was pretty huge. That has not been easy on oil companies, either. They've lost those sorts of suits. And Oklahoma has had numerous, numerous underpaid royalty lawsuits, class-action suits. So, then there's also litigation that results in paralysis. All you need is one disgruntled partner, or one partner in problem in bankruptcy, and it's really hard to get anything done. Even if there might be opportunities, if you've got a partner that's on the ropes, and many are, then you can't often move as quickly as you need to. 282 00:11:43,933 --> 00:11:44,366