Energy Crue
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Energy Crue
Insights from Drew Limbacher: Navigating M&A Trends and Private Operator Strategies in the Energy Sector
This episode dives into the evolving M&A landscape within the energy sector, particularly focusing on the Permian Basin's potential. We explore key trends in asset deals, the importance of niche strategies for private operators, and how effective networking is essential for securing opportunities in a competitive market.
• Discussion on M&A trends and average asset deal sizes
• The role of public companies in acquisitions
• Importance of finding unique niches for private operators
• Significance of networking and relationships in deal-making
• External factors affecting the energy industry, such as tariffs
• Predictions for the future of smaller operators in the market.
Thanks for watching. Hello everyone, welcome to a new Energy Crew podcast. We're doing this ad hoc at the beautiful, beautiful Midland International and Space Airport. I'm standing here with Drew Limbacher, who led a fantastic operator mastermind roundtable last night. We're going to kind of dive in kind of some key takeaways, kind of what we discussed around the table and just kind of the experience of it all right. So, drew Limbacher, real quick, I'm going to do a little introduction right now. We've been friends I think we figured out over 10 years.
Speaker 2:Last year after the successful sale of Venser Energy, where he served as COO over the operations over there, obviously COO over operations. Anyway, he led our first topic series roundtable discussion and it was pretty much what's the M&A trends look like and what's kind of the strategy moving forward then versus now. And it's very interesting because now we're standing here a year later with a new company and we're actually seeing what we discussed one year ago come to actually it's not come to fruition today but actually become a little more clear on what we're actually dealing with in this market, in this industry. Drew is now launched with a similar team I think a lot of the team you worked with over at Venter, that's right, cedar Creek Energy Partners, where they're actually right now. They're still and this was such a cool conversation because right now they're still and this was such a cool conversation because right now they're still looking for the deals.
Speaker 2:I think a lot of people are. But also, if you're looking for someone to uh perform some contract operating for your group, vencer uh at I may be wrong about this, but I feel like I'm right successfully had the best performing wells uh before you sold uh vencer two years ago, is it?
Speaker 1:two years ago. That's right. So January of 24 is when we closed.
Speaker 2:Yeah, so again, january 24 is closed. So yeah, it's been a year. So again, contract operating in the market for that, in the market for deals, but again just in the market, just to meet people and connect and find out what's going on out there. So, drew, first off, thank you for doing such a great job last night. Thank you for having me.
Speaker 2:The topic that he led and I'm about to pass this off to you to kind of fill in the blanks, the topics that Drew picked to share around the table is a packed room at Venezia, midland, the best Italian in this side of Mississippi. The topic that we discussed was I'm drawing a blank right now oh, it was scaling smarter, that's right. And then is the Permian still the place to be? And the whole concept of this was pretty much right now, in this day and age, private operators are operating or being very strategic, very different than, I guess, ways that y'all performed in the past when actually you were approaching deals or operating all this stuff. So that was a great discussion and obviously is the Permian still the crown jewel? So let's talk about this real quick.
Speaker 1:What are some key takeaways that you wanted to bring to the table that you felt we covered last night's discussion, so last night we talked, we started out with our history, which JP just did, and we talked about market trends on asset deals, on mergers, on capital raises and kind of what's going on in the broader market and how does that reflect for someone that's trying to start a company?
Speaker 1:And so one of the asset trend ideals, for example, asset deals have gone up in size every year for the last five years I think in 2024, the average asset deal size is 1.1 billion, and so the average asset deals that you're going after, that are actually closing and going forward, are bigger.
Speaker 1:They're mostly oil, weighted by value, and then they're obviously more PDdp heavy and so bigger deals um, probably fewer people going after them. The other thing about asset deals is they're mostly bought by publics, and so I think public's accounted for 75 of most asset acquisitions, I think 90 in 2024, and so if you're a private company and trying to compete, you're competing against publics that can use their stock and other things that make them possibly more competitive than you, and so from there, the point was on fundraising, doing other things. You have to find a niche, like where are you competitive? So scale and venture made great sense. I mean great partners made sense in 2020, 2021 when we were starting up, but that same scale may not make sense now. What we found was we weren't as competitive as we used to be on bigger deals.
Speaker 2:What do you mean? Like you as a team? Yeah, as a team, because the market's changed.
Speaker 1:That's right Because the market has changed. There's a lot more public interest, obviously in the Permian, always like it's a hard place to get in, yeah, and so like what do you offer? What do you have different that gets you in to the Permian and having a group that's in rigs that are already operating in a specific area to get the company started. We talked about partnering kind of with midstream groups that have H2S expertise and kind of lowering the strike price in certain inventory by going and treating oil H2S in certain areas. We talked about different areas that are out of favor. I think a lot of people have looked South Midland, south of the Grisham Fault we had experience there in East Rankin. How do you go after inventory that people haven't looked at in a while? Or deeper? We were looking at Wolf Camp D Barnett, and so we a lot of different niche ways to get into this, which is not just the traditional like I'll just go look at marketed deals only and find your way in.
Speaker 2:Sometimes it does work, but you've got to have an angle. Do you see this as kind of like when you're talking about niches and all that stuff? Niches get riches. Do you talk about like like teams that are pretty much specific at something? Are you going to see like pretty much tailored teams to go after, like, I guess, certain, whether it's formations or certain like zones or maybe kind of very uniquely than things that have done historically before?
Speaker 1:Yeah, that's right. I think that you have to find what is your unique way in. There's some people, one of the groups there, has a kind of a unique mineral package and they kind of use that to develop smaller deals around them. You got to find a way because there's big guys that were also in the room and Oxy.
Speaker 1:Conoco those guys certainly if they want an asset, they're very hard to compete with right. They can go in and get it, develop it. They have scale, they have size, and so what do you? What do you have different?
Speaker 2:Why do you think we're seeing fewer teams now? Private operator teams now go after these deals or try to find deals right now.
Speaker 1:No, that's a good point. So there is, we just got done or private equity just got done with the fundraising cycle in 2024, raised a bunch of money. But also, what we just talked about is the average deal size has gone up so much, and so even if there is a decent amount of funds there which there are more funds are being allocated to a smaller number of teams to compete for those deal sizes that are bigger. That's right, it makes you more competitive, and so actually there seems to be like a shrinking number of teams going after fewer big deals. There's a lot of that, and so it's not like it's not always the same. That's not always true, always the same, that's not always true. There's a lot of smaller market kind of PE and fundraising options.
Speaker 2:So it seems like, okay, let me ask you a question. With less teams, right, so that would make things a little bit less competitive. But, however, now it seems like the deals are bigger, so that enters the public market, so the competition is still there.
Speaker 1:That's right. Competition is still there, and then a lot of it. I think there's a hope or maybe an anticipation that after all, these publics have kind of merged and done different things in the Permian, they'll do portfolio reconciliation and do other basins and kind of get out of them in a big way and create opportunities. And so I think there's a lot of waiting on the sidelines, waiting.
Speaker 2:So let me ask you a question. Get your crystal ball out, because this is something that we've talked about. I feel like for the past seven months, there's been a lot of teams, a lot of smart teams, on the sidelines right trying to get in. Trying to get in you know farming in, or you know these big companies, you know shedding some acre. I don't think those conversations are happening yet. At least, not to my knowledge. They're happening yet. So when do you think those conversations are going to be more accessible?
Speaker 1:I guess it's a good question. I, if I'm looking at it from a portfolio, I would think, administration wise, you'd want some clarity on that which we had, so we understand what who the president is, what their administration is, what their policy is. You probably need a quarter or two to kind of get your feet underneath you and look at, kind of what your portfolio is, and so I'm hoping that in the second half of this year you start to see more opportunities.
Speaker 2:Okay, I mean, I've heard that, I've heard it in the 2026. That's a crystal ball. That's all we have is crystal balls. We also discussed, I mean, yeah, with the new administration, one thing that's kind of come into that around the table that people are kind of discussing and focus on is the tariffs on steel. How's that going to affect everything? So that's going to be interesting to watch as well. So what other? What other key points takeaways we did? We get around that kind of stuck out to you last night no-transcript.
Speaker 1:OK, cleanup in 2022. And the feedback I got from some side conversations was because we did so much good cleanup in 2022, we didn't have the same problems or we don't anticipate the same problems with tariffs as what we would have had otherwise. So we diversified our supply chain during that period. We've actually created a good opportunity for ourselves now.
Speaker 2:So the spike can be more manageable versus.
Speaker 1:That is the hope. I think there's still probably single line items that have some potential to go up, depending on kind of how tariffs go. But hopefully the spike is more manageable and so is your manager costs.
Speaker 2:So we're looking at 2025 right now. All right, what do teams need today? All right, in 2025, that's something new that you think for them to be successful. What do teams need today? Private operator teams need today that you didn't even think about five years ago. Yeah, Everybody.
Speaker 1:You need a deal, which is what everybody says, but it's the niche. It's like tell me, tell me what unique thing you bring, whether it's a relationship with a particular company and, in that, all those network, the networking things as you always mentioned. Like, tell me how you're going to get a deal done ahead of all these other people. We have people in basins. We have this. Tell me what you do different and where are people finding deals?
Speaker 2:these days, once it obviously hits the internet. Obviously it's too late by then. Right, it's trad, but where are people finding deals? Are you finding the most success?
Speaker 1:Yeah, it's through relationships Like that is it, like that's where we're at, I'm sorry, relationships We've done a bunch of networking and a bunch of talking to people, and we've we've had a real clear message about what our team is good at and our background and who we are, and we're trying to keep that. We keep that repeating over core people and groups and try to find ways in and we find connections every once in a while. You do that enough. And we found a connection of, hey, I think I can help you with that. Like, let us, let us help you with that. That's how we've gotten close on, that's how we got them. I love it.
Speaker 2:I dig it All right. So, listen, we're about to catch a flight. He's going back to Houston. I'm going to Oklahoma City for another Crew Club Operator Mastermind running table. We have Jeremy Entz, the VP of Operations Engineering at Ascent Resources, talking about extreme long laterals. How far should we go and could we go? I think it's could we go? You're about to go too far. It's like what have you done? You've gone too far, what have you done? So, anyway, I want to thank you so much for leading such a fantastic conversation last night and also a year ago.
Speaker 2:I wish you and your team obviously success. If you're out there and you're looking for a contract operating team right there, reach out to Drew Limbach and his team Great group, obviously great success previously and they're looking forward to carry that. It sounds to me like this industry is made up of some entrepreneurs people that will figure it out and that seems to be in 2025, we are being squeezed to be a little bit uncomfortable for these smaller teams private operators to find something new, find a niche. Look at deals you've never looked at before, in different lenses and different lights, different angles so I'm kind of excited to see where this goes. It's very unsettling right now because I like the smaller operators, I like private operators, so it's going to be exciting to see, kind of, where those successes happen. So I want to thank you so much, buddy, and let's go, I guess, debrief this and wait for the plane to get here and all that stuff. All right, great, thank you very much, thank you.
Speaker 2:Thank you, JP. Oh, that was a good pause.
Speaker 1:That is gross.
Speaker 2:That was good.
Speaker 1:Thank you.