WEBVTT - Kate Richard on Oil Market Indicators  (Audio)

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<v Speaker 1>Here he is Bill Maloney. Good afternoon, Charlie. Stocks are

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<v Speaker 1>The down included United Technology, Chevron, and Cisco, and in

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<v Speaker 1>the First Breaking News to ask on Bill Maloney, Charltte

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<v Speaker 1>all right, thank you very much, Bill Maloney, and to

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<v Speaker 1>hear live breaking news over your Bloomberg type squawk squ

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<v Speaker 1>a w K on your terminal. I'm Charlie Pelletan. That's

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<v Speaker 1>a Bloomberg business flash. This is taking stock with bim

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<v Speaker 1>Box and Kathleen Mays on Bloomberg Radio. Investing in oil

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<v Speaker 1>and energy of One of the people you want to

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<v Speaker 1>speak with is Kate Richard. She is the founder and

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<v Speaker 1>the chief executive of Warwick Energy Group based in Oklahoma City,

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<v Speaker 1>and they have interest in over four thousand wells across

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<v Speaker 1>eight US states and over a billion dollars in managed assets.

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<v Speaker 1>Kate Richard joins us now, Thanks very much for being

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<v Speaker 1>with us. Tell us a little bit about Warwick Energy

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<v Speaker 1>Group and what sets it apart. I know that you

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<v Speaker 1>began your career at Goldman Sachs, but tell us about Warwick.

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<v Speaker 1>No problem, Nice to talk to you this afternoon. Um

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<v Speaker 1>So Warwick UM was started in two thousand and ten.

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<v Speaker 1>We are in Oklahoma City based UM private equity entity,

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<v Speaker 1>and we consolidate non operated assets in the core of

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<v Speaker 1>the core of the lowest cost basins in the US

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<v Speaker 1>and UM SO what we do is we buy minority

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<v Speaker 1>interests in oil and gas wells and in oil and

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<v Speaker 1>gas leases or acreage UM right in the core of

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<v Speaker 1>a or so after exploration and after proof of concept

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<v Speaker 1>and UM non operated assets are interesting for people. They

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<v Speaker 1>are also a little bit confusing because the typical investor

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<v Speaker 1>thinks normally, if a well is operated by Chevron or Xxon,

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<v Speaker 1>it's owned by Chevron or Axon. In reality, UM we

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<v Speaker 1>have fractional interests in oil and gas wells. So you

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<v Speaker 1>can think of it like a pizza and UM we

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<v Speaker 1>buy the pieces of the pizza to buy as much

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<v Speaker 1>as we can in the well. Typically you have the

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<v Speaker 1>operator which will own fifty and UM drill the well

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<v Speaker 1>and then drill subsequent wells on the acreage, and then

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<v Speaker 1>you have multiple non operators. So are you getting those

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<v Speaker 1>pizza pieces at a big discount right now? Yeah? We are.

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<v Speaker 1>I mean, that's one of the reasons that you go

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<v Speaker 1>to the trouble to consolidate non operated assets because you

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<v Speaker 1>can buy in at interesting valuations. But the more important

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<v Speaker 1>reason that go to the trouble to buy non operated

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<v Speaker 1>assets is that once these very very high quality, low

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<v Speaker 1>commodity price break even plays like the Scoop which is

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<v Speaker 1>the south central Oklahoma oil province, or the Stack which

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<v Speaker 1>is the Sooner trend in the Anadarko Basin of Canadian

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<v Speaker 1>and Kingfisher Counties, which is a terrible acronym, or um

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<v Speaker 1>the Permian Basin in West Texas. So once you have

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<v Speaker 1>plays like the Scoop in Oklahoma, the Stack in Oklahoma,

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<v Speaker 1>or the Midland Basin or the Delaware Basin in West

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<v Speaker 1>Texas proven So once people know where the core of

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<v Speaker 1>the core is, which is um in real estate terms

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<v Speaker 1>like Fifth Avenue real estate, the once that's identified and

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<v Speaker 1>you really have proof of concepts from wells that have

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<v Speaker 1>been drilled, oftentimes at that point, the big chunky operated

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<v Speaker 1>positions in those plays will not exist anymore. They will

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<v Speaker 1>have already been leased. And so at that point, the

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<v Speaker 1>only way to get into the core of the core,

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<v Speaker 1>or to get into that Fifth Avenue real estate is

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<v Speaker 1>to buy the non operated interest. And there's an interesting

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<v Speaker 1>precedent for this in the market UM. Devon actually bought

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<v Speaker 1>a company called Geo Southern, which was a Blackstone backed

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<v Speaker 1>entity UM for six billion, and that was in the Eagleford.

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<v Speaker 1>Devon had kind of missed building a big operated position

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<v Speaker 1>in the Eagleford, and that was a non operated position.

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<v Speaker 1>At that point, it was the only way to really

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<v Speaker 1>get into the core of the core of the Eagleford,

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<v Speaker 1>and so they bought this non operated position and their

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<v Speaker 1>operator was b HP. So that actually also is a

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<v Speaker 1>very interesting thing about US oil and gas UM. Oftentimes

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<v Speaker 1>the non operated owners, or the fractional minority owners who

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<v Speaker 1>own pieces of the pizza, so to speak, will actually

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<v Speaker 1>be oil and gas companies. So you will have Devon

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<v Speaker 1>in BHP Bilton Wells, or you have Continental in Newfield Wells,

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<v Speaker 1>or Newfield in Continental Wells and UM. And so there's

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<v Speaker 1>a very big part of the US oil and gas

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<v Speaker 1>industry that is non operated even for the big operators.

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<v Speaker 1>So when you say non operated, obviously someone else is

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<v Speaker 1>doing the operation. You're taking that pass of interest in

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<v Speaker 1>the investment. Correct. Yeah, and so another word for non

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<v Speaker 1>operator is operated by other, or another term for non

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<v Speaker 1>operator is operated by other, which we call OBO. Right,

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<v Speaker 1>let me let me ask you about the price of

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<v Speaker 1>oil right now, back down to a level we haven't

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<v Speaker 1>seen since the beginning of August. You think investors pay

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<v Speaker 1>too much attention to the short term supply and demand factors.

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<v Speaker 1>What should we be looking at? Well, we look very

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<v Speaker 1>closely at the movement of the S and T, We

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<v Speaker 1>look very very closely at the euro dollar exchange rate,

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<v Speaker 1>and we look very closely at the cop the copper price. Um.

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<v Speaker 1>So what we actually see is that short term supply

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<v Speaker 1>demand fundamentals may drive the stock on a daily basis

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<v Speaker 1>or for front month contracts, but for the longer term

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<v Speaker 1>crude contracts, so for you know, December crude or for

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<v Speaker 1>the strip, we don't see those forward contracts or the

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<v Speaker 1>overall price of oil on a five year basis. Really

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<v Speaker 1>move on, you know, a Department of Energy inventory number

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<v Speaker 1>for crude or on an i e. A International Energy

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<v Speaker 1>Agency report on a short term demand for crude, and

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<v Speaker 1>in fact what we see is that it moves more

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<v Speaker 1>fundamentally in line with some of the bigger financial factors

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<v Speaker 1>like copper pricing, SMP pricing, or the US dollar exchange rate.

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<v Speaker 1>And I would tell you, in terms of um the currency,

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<v Speaker 1>that is probably what's most important right now. Thank you

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<v Speaker 1>very much for spending time with us. Kate Richard is

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<v Speaker 1>the chief executive of Warwick Energy Group speaking about investing

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<v Speaker 1>in energy assets based in Oklahoma. This this bloomberg coming

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