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Kate Richard on Oil Market Indicators (Audio) · Bloomberg Intelligence

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  Speaker 1: all right, thank you very much, Bill Maloney, and to
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  Speaker 1: a w K on your terminal. I'm Charlie Pelletan. That's
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  Speaker 1: a Bloomberg business flash. This is taking stock with bim
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  Speaker 1: Box and Kathleen Mays on Bloomberg Radio. Investing in oil
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  Speaker 1: and energy of One of the people you want to
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  Speaker 1: speak with is Kate Richard. She is the founder and
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  Speaker 1: the chief executive of Warwick Energy Group based in Oklahoma City,
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  Speaker 1: and they have interest in over four thousand wells across
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  Speaker 1: eight US states and over a billion dollars in managed assets.
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  Speaker 1: Kate Richard joins us now, Thanks very much for being
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  Speaker 1: with us. Tell us a little bit about Warwick Energy
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  Speaker 1: Group and what sets it apart. I know that you
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  Speaker 1: began your career at Goldman Sachs, but tell us about Warwick.
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  Speaker 1: No problem, Nice to talk to you this afternoon. Um
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  Speaker 1: So Warwick UM was started in two thousand and ten.
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  Speaker 1: We are in Oklahoma City based UM private equity entity,
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  Speaker 1: and we consolidate non operated assets in the core of
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  Speaker 1: the core of the lowest cost basins in the US
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  Speaker 1: and UM SO what we do is we buy minority
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  Speaker 1: interests in oil and gas wells and in oil and
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  Speaker 1: gas leases or acreage UM right in the core of
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  Speaker 1: a or so after exploration and after proof of concept
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  Speaker 1: and UM non operated assets are interesting for people. They
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  Speaker 1: are also a little bit confusing because the typical investor
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  Speaker 1: thinks normally, if a well is operated by Chevron or Xxon,
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  Speaker 1: it's owned by Chevron or Axon. In reality, UM we
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  Speaker 1: have fractional interests in oil and gas wells. So you
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  Speaker 1: can think of it like a pizza and UM we
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  Speaker 1: buy the pieces of the pizza to buy as much
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  Speaker 1: as we can in the well. Typically you have the
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  Speaker 1: operator which will own fifty and UM drill the well
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  Speaker 1: and then drill subsequent wells on the acreage, and then
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  Speaker 1: you have multiple non operators. So are you getting those
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  Speaker 1: pizza pieces at a big discount right now? Yeah? We are.
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  Speaker 1: I mean, that's one of the reasons that you go
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  Speaker 1: to the trouble to consolidate non operated assets because you
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  Speaker 1: can buy in at interesting valuations. But the more important
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  Speaker 1: reason that go to the trouble to buy non operated
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  Speaker 1: assets is that once these very very high quality, low
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  Speaker 1: commodity price break even plays like the Scoop which is
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  Speaker 1: the south central Oklahoma oil province, or the Stack which
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  Speaker 1: is the Sooner trend in the Anadarko Basin of Canadian
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  Speaker 1: and Kingfisher Counties, which is a terrible acronym, or um
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  Speaker 1: the Permian Basin in West Texas. So once you have
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  Speaker 1: plays like the Scoop in Oklahoma, the Stack in Oklahoma,
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  Speaker 1: or the Midland Basin or the Delaware Basin in West
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  Speaker 1: Texas proven So once people know where the core of
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  Speaker 1: the core is, which is um in real estate terms
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  Speaker 1: like Fifth Avenue real estate, the once that's identified and
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  Speaker 1: you really have proof of concepts from wells that have
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  Speaker 1: been drilled, oftentimes at that point, the big chunky operated
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  Speaker 1: positions in those plays will not exist anymore. They will
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  Speaker 1: have already been leased. And so at that point, the
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  Speaker 1: only way to get into the core of the core,
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  Speaker 1: or to get into that Fifth Avenue real estate is
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  Speaker 1: to buy the non operated interest. And there's an interesting
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  Speaker 1: precedent for this in the market UM. Devon actually bought
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  Speaker 1: a company called Geo Southern, which was a Blackstone backed
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  Speaker 1: entity UM for six billion, and that was in the Eagleford.
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  Speaker 1: Devon had kind of missed building a big operated position
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  Speaker 1: in the Eagleford, and that was a non operated position.
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  Speaker 1: At that point, it was the only way to really
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  Speaker 1: get into the core of the core of the Eagleford,
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  Speaker 1: and so they bought this non operated position and their
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  Speaker 1: operator was b HP. So that actually also is a
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  Speaker 1: very interesting thing about US oil and gas UM. Oftentimes
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  Speaker 1: the non operated owners, or the fractional minority owners who
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  Speaker 1: own pieces of the pizza, so to speak, will actually
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  Speaker 1: be oil and gas companies. So you will have Devon
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  Speaker 1: in BHP Bilton Wells, or you have Continental in Newfield Wells,
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  Speaker 1: or Newfield in Continental Wells and UM. And so there's
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  Speaker 1: a very big part of the US oil and gas
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  Speaker 1: industry that is non operated even for the big operators.
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  Speaker 1: So when you say non operated, obviously someone else is
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  Speaker 1: doing the operation. You're taking that pass of interest in
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  Speaker 1: the investment. Correct. Yeah, and so another word for non
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  Speaker 1: operator is operated by other, or another term for non
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  Speaker 1: operator is operated by other, which we call OBO. Right,
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  Speaker 1: let me let me ask you about the price of
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  Speaker 1: oil right now, back down to a level we haven't
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  Speaker 1: seen since the beginning of August. You think investors pay
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  Speaker 1: too much attention to the short term supply and demand factors.
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  Speaker 1: What should we be looking at? Well, we look very
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  Speaker 1: closely at the movement of the S and T, We
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  Speaker 1: look very very closely at the euro dollar exchange rate,
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  Speaker 1: and we look very closely at the cop the copper price. Um.
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  Speaker 1: So what we actually see is that short term supply
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  Speaker 1: demand fundamentals may drive the stock on a daily basis
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  Speaker 1: or for front month contracts, but for the longer term
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  Speaker 1: crude contracts, so for you know, December crude or for
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  Speaker 1: the strip, we don't see those forward contracts or the
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  Speaker 1: overall price of oil on a five year basis. Really
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  Speaker 1: move on, you know, a Department of Energy inventory number
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  Speaker 1: for crude or on an i e. A International Energy
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  Speaker 1: Agency report on a short term demand for crude, and
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  Speaker 1: in fact what we see is that it moves more
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  Speaker 1: fundamentally in line with some of the bigger financial factors
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  Speaker 1: like copper pricing, SMP pricing, or the US dollar exchange rate.
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  Speaker 1: And I would tell you, in terms of um the currency,
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  Speaker 1: that is probably what's most important right now. Thank you
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  Speaker 1: very much for spending time with us. Kate Richard is
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  Speaker 1: the chief executive of Warwick Energy Group speaking about investing
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  Speaker 1: in energy assets based in Oklahoma. This this bloomberg coming
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