Hello everyone!
Welcome back to your weekly newsletter. Hope everyone had a great week.
Rinse and repeat!
I was talking to a friend about what’s going on with the two Oil and Gas assets in the 4th iteration of the King Upside business model.
As a refresher, the Upside model is a Value ADD business model: Acquire Develop Divest. Partners participate with equity to Acquire OG leases for drilling projects designed to Develop the land by drilling new wells thereby proving larger resevoir value at scale to then Divest for a multiple.
I was excited and started talking faster (and probably louder) when he said, “just like what we do in real estate and the goals of all other companies”?
Uhhhhh, yes. Exactly.
I realized as much as all this feels unique for King, and in a lot of ways it is unique, just like any business, leaders drive to find what is working, throw out what isn’t, then RINSE AND REPEAT!
Do what works well, and scale it.
On that note, it’s getting pretty interesting with these 2 assets in 2 different regions of the US, because the science is starting to come in. And it is demonstrating ample opportunity…to the tune of 100s upon hundreds of viable drilling locations.
Nonetheless, the hard work of proving up the fields is in full swing now. And the hard work is so much more rewarding when the science is compelling and there is line of sight to scaling the effort (RINSE AND REPEAT!).
To dig in a bit deeper, in the OG business, this R&R principle is part of a broader (and deeper) set of results commonly known as the 4 R’s:
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Returns
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Rate
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Running Room
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Repeatability
Hit on all 4 R’s, and there’s higher probability of achieving a multiple on original capital.
I wrote about the 4 R’s in my book, “The Upside of Oil and Gas Investing”. Whether you are in OG or another industry, Here’s an excerpt from the book on the 4 R’s:
Returns refer to whether or not the project makes economic sense. We have to present a plan that makes good financial sense for us to consider moving forward with a project. If it doesn’t make sense, we’re not going to push forward; that would be a waste of everyone’s time.
Rate refers to the high rates of hydrocarbons (or oil and gas) that we can produce in a single area. This is what we mean when we talk about proving up a location. If we can get a high rate of production, it’ll make it that much easier to sell the prospect.
Running Room is the number of locations we’re drilling in any given project. We have over one hundred locations on many projects, which makes it that much easier for us to produce a good rate. The more locations available for drilling, the more opportunities for producing a good rate—and the greater chance of investors making their money back and then some.
And finally, Repeatability refers to the likelihood that we can repeat this process again and again with different acreage, ideally bringing along the same investors as business partners time and time again.”
You can get a free PDF of the book here, or if you prefer a better reading experience, you can opt for the Kindle version here.
In other crazy news…
Natural Gas prices hit $3 / mcf on Friday. The price was below $2 not even two weeks ago!
Maybe we should continue having conversations around natural gas prices and maybe they continue to move our way?! We are cautiously optimistic about the future of prices and the demand for LNG (Liquified Natural Gas) in particular.
LNGs is primarily about mobility. NG, liquified, is 600 times smaller than dry gas making it easier to transport large volumes when a pipeline is not available. The US is the largest exporter of LNGs in the world.
Where’s Waldo?
Ok, not really Waldo. This week I was honored to be on multiple radio stations discussing the current state and near future inside the OG industry.
Prices are moving higher this year because demand will simply outpace supply…again.
And related to that supply problem, although I’ve covered it repeatedly on TV, Radio, and in past newsletters…I will say it again: US rig count is still way off from pre-Pandemic measures.
The financial markets have slowed significantly thanks to the Fed causing inflation and then pumping up interest rates to cool things down before they overheat. This makes it hard to find capital to drill new wells.
Thanks for reading today. Don’t forget about the Podcast and the Recommended Reads…keep scrolling to get to them.
Unlocking Freedom and Building Wealth
In this episode, Jay is joined by Dave Wolcott, Founder and CEO of Pantheon Investments, as they discuss the limitations of investing in equities and introduce a three-dimensional investment strategy for predictable passive income, forced depreciation, and tax efficiency.
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