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In this episode, Michael Tanner and guest John Farrell from WellDatabase discuss Devon Energy’s $5 billion acquisition of Grayson Mill, a deal including significant midstream assets that enhance Devon’s position in the Bakken shale. They analyze the strategic value of the three-mile lateral drilling approach, the importance of midstream infrastructure for regulatory compliance and production efficiency, and compare Devon’s move to potential acquisitions by other players like Cord Energy. They also speculate on future M&A activities, particularly the possible divestment of Hess’s Bakken assets following developments in Guyana. The episode concludes with a positive assessment of the deal’s strategic fit for Devon.
Highlights of the Podcast
01:31 – Overview of Devon Energy’s $5 billion acquisition of Grayson Mill, including midstream assets.
02:41 – Previous predictions about Grayson Mill’s sale.
06:09 – High-level thoughts on the deal.
08:05 – Breakdown of assets and production numbers.
12:52 – Historical context and strategic acquisitions by Grayson Mill.
23:20 – Analysis of the three-mile lateral strategy and its cost efficiency.
28:28 – Future outlook for three-mile laterals in the Bakken.
31:21 – Importance of midstream assets for production and regulatory compliance.
39:11 – Why Cord Energy didn’t acquire Grayson Mill.
43:03 – Speculation on future M&A activity involving Hess and Exxon.
46:01 – Final thoughts and wrap-up.
Michael Tanner – Managing Director, Sandstone Group [00:00:00] What’s going on? Everybody, welcome into episode eight of the Deal Spotlight. We are going to be spending all of this time breaking down Devon Energy’s acquisition of Grayson Mill, which as you’ll kind of come to find out in this episode, I think personally comes out of left field. We’ve got a great, great guest on the show. He’s been here multiple times. John Farrell, co-founder and CEO over at Well Database. We love, well database guys, if you have not checked out well database you can go to their website. It’s in my opinion probably one of the premier oil and gas data services out there. We use them all the time. Really appreciate everything they do over there. And as you’ll see in this episode, we’re able to dive into all of the little different nuances using that platform. So highly recommend checking this out. But this is an awesome episode, guys. John and I dive into sort of all things surrounding this deal. You know, first talking about, you know, kind of the fit between Devin and Grayson Mill, which, you know, in my opinion, is is a little wonky relative to where their acreage positions are. We also spend a little bit of time talking about the midstream assets. We of course, talk about the three mile development, which is, as we learned in court and or plus is kind of the move now specifically going on in the BOC and, and and down in the Delaware. So we kind of compare contrast all things. And then much like we did in forecasting who we thought Grayson Mill was going to sell to back in a previous episode, we kind of lay up and figure out who we think’s nest guys. Awesome episode again. Really appreciate John for coming on and doing this with us. But without further ado, let’s go ahead and get to the episode.
Michael Tanner – Managing Director, Sandstone Group [00:01:41] John Farrell, thanks for joining us on the spotlight. This is going to be a fun one.
John Ferrell – Co-Founder & CEO, WellDatabase [00:01:45] Yeah, absolutely. Thanks for having me Michael. Appreciate it man.
Michael Tanner – Managing Director, Sandstone Group [00:01:47] No, absolutely. I, I always enjoy sitting down with you and getting to dive into the weeds. Really excited to cover this one. First off, because there’s it kind of goes along with the trend we’re seeing in the in the M&A market, which is, private equity selling out at at high oil prices. Obviously, we’re sitting here at $80 oil. Not no better chance for a private equity company to go ahead and and sell out. But two, there’s also a chance to review the three mile laterals, which I know we covered, in one of our last ones that we did specifically with cord and or plus and I and I bring that up at the talk because I want to before we dive in here real quick, I want to go back in the time back the time machine or the Wayback Machine, for tech guys out there, we actually and you specifically brought this up at the end of our cord and plus, merger. We covered this a little bit. I want to show a clip from that.
John Ferrell – Co-Founder & CEO, WellDatabase [00:02:41] But when you look at that level of acquisition, what other consolidations might be available there? Pretty rough there. I mean one jumps out. Obvious one I was going to say.
Michael Tanner – Managing Director, Sandstone Group [00:02:51] One jumps out. We were talking about this at Nape.
John Ferrell – Co-Founder & CEO, WellDatabase [00:02:54] Absolutely. Yeah. And it’s definitely rumored that there are out there, kind of seeing what they can get up to in cat backed, group. And so, they should build their operations. I do have, you know, a couple people over there. They’re fantastic on the data side. They’re fantastic on the operation side, they, they’ve got their stuff in order. So that’ll be my number one to see fall.
Michael Tanner – Managing Director, Sandstone Group [00:03:15] You saw this coming from up in three miles away.
John Ferrell – Co-Founder & CEO, WellDatabase [00:03:19] Good call. No, it’s really interesting. It’s, it is something that was floated out there at one point in time. And I remember we were sitting at nape talking about this, where it was. Who was Grayson Mill going to? So it’s pretty interesting to watch this kind of all come to fruition, and I think we’ll touch on it. But it’s interesting to see where this is headed next.
Michael Tanner – Managing Director, Sandstone Group [00:03:36] Yeah. And I think, you know, I like to start these out always with a high level discussion about what the what the deal was it. And I know there’s a bunch of stuff to dive into. But you know, to kind of quickly highlight the the deal here. Obviously Devon Energy goes ahead and dips their toe into the M&A market buying Grayson Mill who’s a private equity backed, oil and gas operator, specifically in the Williston Basin. And the Bakken, they were they actually started out as we were talking earlier, they actually started out as, as a powder River basin, specific operator and probably found some opportunistic opportunities to go ahead and dive into, the BOC. And mainly because they went ahead and swooped up Equinor, which was the combination, as we’re about to talk about of of state oil, who used to be called and Brigham that was about a $900 million acquisition back in in late 2021. Then they followed that up really quickly by buying up vintage, back in assets for about $825 million, in early 2022 or excuse me, late 2022. So basically, all in all, Grayson Mill was it consists of, you know, about 1.7 billion, BOC and acquisitions relative, as I mentioned, for, end cap, is that as the private equity backer here? The total deal was basically 5 billion, which, as we mentioned, was floated back in on January 25th. If you’re a news aficionado like myself, you can go back and find, on the world’s greatest website, energy news, b.com, private equity firm and cap and I’m reading here straight from the article, is exploring a sale of Grayson Mill that could value the block and shale focused oil and gas Bruce at around $5 billion, inclusive of debt. And that’s exactly what they got. They got 3.25 billion of that in cash, 1.75 billion, billion in stock. That accounts for about 100,000 boe per day, relative, give or take. Its, if, you know, according to, the news release you’re sitting at about a what’s the oil mix? About a 55% oil mix, 25% NGL mix and about 20% gas. So pretty good liquids mix relative to what, you know, the Bakken, which is known for a lot of gas over there. You know, really interesting that one. They floated out that $5 billion mark and two, they got it right, you know, from a high level. John, what do you think about this? I know you know a lot. You you know, you you floated this a while ago. So give me your kind of 30,000 foot view on what you thought of this deal before we kind of dive into some of the finer details.
John Ferrell – Co-Founder & CEO, WellDatabase [00:06:09] Yeah, it was interesting because, not too long after that number was floated, there was a couple enemies that came out that said that that sounded high. They thought three and a half up to four and a half sounded like it made sense to them. And offhand, I tended to agree with that. I thought that you’re looking at those acquisitions that you talked about, about 1.7 billion in they’ve drilled, you know, a number of wells. I think it’s in the 70s. So they’ve got a decent capital expense in you’re talking about a couple, you know, two. And a half billion and that there in, in cap is in for now. So but floating that 5 million number, that 5 billion number was really, really smart by them because I think it did set the stage, especially being a piggyback firm. They were going to be looking for a good cash, aspect of it. And by floating that number out, they were able to kind of weed out some of the people who are considered a little bit more, conservative in their estimates. But then they also through the kind of what grace and has proved out in their drilling kind of the opportunities in three mile laterals. You know, they, they did catch a premium. And then furthermore, the, the, the midstream assets that is adds a layer that I honestly was not looking at back when I first looked at this deal, the potential in February. And if you look at it without any kind of midstream savings, and I do think three and a half to four and a half max is what you’re looking at. But there’s something about that midstream cost, which I wish I knew more about. But that the, the ability to get your production to market in the back end is one of the major challenges. And so by having those midstream assets, you’ve now kind of changed the game, changed the cost, game, changed the, changed everything. And I’m sure the bottom line looks good and probably supports that 5 billion, especially considering that Devon is relatively known for being conservative in their estimates as well. So. But all in all, I think it was a well played, well played plan by Grayson Mill. And so I agree, I know and, and.
Michael Tanner – Managing Director, Sandstone Group [00:08:05] I think from from Grayson incarceration mill side. It’s exactly I think what you were hoping for. You float a number, you get the number. You the sale doesn’t hold out too long. You’re able to exit at a, you know, a decently high oil price. You go through. And we’ll I’ll throw up a few slides here in a second. But I mean, pretty much this entire deal looks to be underwritten at $80 oil. A lot of the, the, you know, the there the 12% free cash flow yield that they’re kind of saying is their base base analysis for Devon now moving forward was under rated 80 at $80 oil which we can quibble about. That’s probably a little bit too high for my blood. I probably would have gone with 70. But hey, I’m not sitting in the seat. I’m gonna throw up two slides here to begin with. Here’s slide number two. If you’re, following along here at home, here’s kind of the or unquote transaction overview from Devon side, immediately accretive to all of their key financial metrics. We couldn’t get a it wouldn’t be an M&A deal if we didn’t hear the word accretive a few times. So we gotta love that. All their key performance indicators they’re claiming is going up. It enhances the scale and scope of their quote unquote operations. They’re up to about 375 barrels of oil per day, which is pretty incredible from a scale standpoint. And and relative to the amount of, you know, it’s only 55,000 ish barrels of oil if you take their 55%, oil cut number, at face value. So, I mean, you know, they were already at 325,000 barrels a day. You forget how big Devon really is relative to this, completely transforms their Wilson asset. You know, it triples their in basin production. And it’s going to add somewhere between 4 to 500 individual locations, which we’ll dive into in a bit I love it. They also highlight refract candidates. And we have a whole nother, you know, show on what what I think about refract candidates. But from the standpoint of there is a decent inventory. They’re claiming now it’s about ten years of a three rig program in terms of inventory, which, hey, if at the at the large scale that Devin’s playing, which is, you know, large public operators inventory is the name of the game because you’re going to that’s really how you’re going to get significant value outside of just being valued based upon your PDP. You brought up specifically the midstream stuff, which I think is a critical piece to this, which we’ll cover in a bit. It really allows, you know, now, Devon and allowed Grayson Mill to really produce. Really. You, like you said, not only bring your oil to market, but also turn what is generally a you know, we talk about this on the accounting side all the time, turn a cost center into a revenue generator. If you now all of a sudden have all of this infrastructure that not only that, it’s not just a cost center, but now is actually bringing in revenue because one you can now you’ve got a lot of commercial, you can a lot of this water that they’re moving ain’t theirs. So there’s some commerciality factor. This it’s a big part of this. And I think it’s a reason why the as you mentioned, the price point was 5 billion versus maybe that three and a half to four and a half. Kevin also came out and said, as we see in this last bullet point here, they’re going to expand their buyback authorization by over 66% to about $5 billion. So, that’s good for all of your, Devon shareholders out there. I think the other thing, too, where was it? Here. I, you know, we look here on slide nine, I think here’s the just going back quickly to those financial metrics. Again, they’re assuming $80 oil, which I’ll quibble about a little bit. That seems to be a little bit too aggressive to me. But hey. You’re in here. You got to do what you gotta do. You know, I love this one. Less than four than four times EBITDA or EBITDA in this case. Because we don’t really want to know what the capital. You were not including capital in this. So what does that mean? That really means it’s 3.99998. Maybe. So we can for math assumptions. We’re going to assume about four just to make it easy. They’re going to see cash flow growth of about 10% per share. Not terrible free cash flow generation. They’ll see about 15% to their their top line. And of course we get that word accretive again. In terms of getting their share buybacks and dividend payout. So you could see on the right hand side there $70 oil is about a 9% cash, flow increase 8,012%. And 90 is is about 14%. So you can see that slight incremental degradation there. But I mean, that’s kind of the high level stuff. There’s a there’s a bunch of stuff I want to dive into, want I want to dive into the midstream stuff a little bit. I want to dive into three mile laterals. But let’s just take a step back. You’ve done a really, really good job. And it’s one reason I love well database here. So kind of let’s just go back to the beginning of of Grayson Mill and talk about those two acquisitions. And then kind of what Grayson Mill did after those acquisitions to put themselves in the position they are, to grow.
John Ferrell – Co-Founder & CEO, WellDatabase [00:12:53] Absolutely. And, you know, one to, to, to finish up on those. The one thing that I noticed after our last evaluation, we did that, that the market wasn’t super thrilled with these, this level of acquisition, they really like love. That has a deal. They like the Diamondback deal. They did not care for the the $5 billion deal. And it’s really peculiar to see, but we you know, the minute I heard this, I jump and look at their stock price over the three days post this announcement. You know, they it maybe it was just only like 8% that they dropped. Maybe we covered all of that now, by the way. But it lends to what you were just saying with all of the bullet points, so much is like, we’re doing this deal, and then let’s dive in and make sure our shareholders are excited about it. Because the market just wasn’t loving these deals. That being said, you know, it’s a solid deal. It’s a solid deal on both parts. I think there’s there’s, I think that the values there, I think it’s just pretty equal, pretty solid. Just acquisition to start with, but to jump back and talk about where, kind of where these came from, you know, you’ve already touched on this with how, Grayson Mill acquired those assets from Ecuador and then inventive after that. I’m I’m I’m not mistaken, those midstream assets were a part of Equinor’s acquisition as well. I could be wrong on that. The interesting thing about these assets is that when most of these were acquired. So, again, I believe it was Ecuador. Was it Ecuador that took on Brigham? Yes.
Michael Tanner – Managing Director, Sandstone Group [00:14:18] Where those kind of a merger, not a merger of equals because Ecuador was a huge company, but kind of a merger of Brigham and at that time, state oil, they kind of create this standalone banking entity that was kind of operating in isolation up there.
John Ferrell – Co-Founder & CEO, WellDatabase [00:14:31] Exactly. And so, the most interesting part about that, and then, the inventive is that those assets were mostly acquired. And if you look at the deals that those, the, the acquisitions from those periods of time, those are actually valued significantly higher, in my opinion, than what they were when Grayson Mill acquired them. So, Grayson Mill really look to acquired some assets that were still financially solid for the most part, but they were devalued at the time of the acquisition. So, I mean.
Michael Tanner – Managing Director, Sandstone Group [00:15:02] Just just to jump in, that’s the understatement of the century to talk about how they were overvalued. Holy smokes.
John Ferrell – Co-Founder & CEO, WellDatabase [00:15:08] Yeah. It’s so it’s great. I mean, at the end of the day, timing is everything. That just holds true here. But if we look at the kind of the breakdown, and so in, well, database, what I did because of the fact that these are all operated under grace enabled the day, we need to go back to the original operators. And one thing you can do in one database, it’s awesome, is that you can search by the original versus the current operator. You can also pull together the various operators that come up. So when we talk about the Ecuador wells, if I come and look at this layer that I’ve created, those are actually brought up from Brigham EOG, which is just a few outliers, Ecuador and some whiting wells. Those are the four, the original operators that were involved in that original acquisition. And so that’s a cool thing in my database. I was able to pull those together, drop those in into the Ecuador layer, did the same thing for a vintage. But what we can see is as far as assets go, they were basically black and white. They, they were just buying production, plus some spots. They were they went from being extremely overvalued to maybe a little bit undervalued, which lead, you know, explains why Grace and Nell jumped from a powder River basin to a back end player, you know, seemingly overnight. That being added. And I will drop in that the powder River basin, Wyoming federal lands have had just a nightmare in the permit world. And I believe last I look, there’s something like 18,000 canceled permits in the powder River basin due to federal delays. So that plays into this as. Well, when we’re looking at the bigger picture. But again, we’re talking about solid assets. Nothing that will blow the doors down. But it was just good core assets in the back. And we can see that, you know, we have the red are the economic assets and then the, the darker, darker all of the they’re outlined in the event of assets. And then the Grayson Mill stuff that they drilled, you can kind of highlight there as well. But if we’re looking at those and we’re doing something light type curves, we can see that, you know, Grayson Mill has improved upon the type curve over time. So that is can’t be understated. They bought solid assets, but Grayson Mill has taken those assets and have improved upon them to an extent. They haven’t necessarily turned into the number one player in the basin across the board, but they have made solid strides for improved performance. And this way, this type curve is going to be weighted down from some of the older assets and things like that. So something to keep in mind. But Grayson Mill did acquire those assets. They were solid, kind of well-performing assets. One thing you touched on was the gasoil ratio in the block. And you see over time that trend, in a in an interesting way. So if I come over and look at the monthly production and I’m going to flip off, the, Grayson Mill as the original operator here, so we can just look at all. So it’s going to turn on all Grayson Mill Wells again. So you can see I have them highlighted, but now they’re all on here. One of the interesting mixes you see, obviously. Well, count is is rolling up, but our gas numbers are increasing at a faster ratio. If I look at a type. Well, and as you can also spot kind of how the gas, oil ratio, the gas continues to kind of, take is a flatter decline than the oil does. The other thing, you’ll notice that whenever you’re looking into buy well type, you have some lighter oil. That’s what the lighter green dots are. And if I come into my production dashboard I can come over by, by will type, and this will kind of break down those lighter oil. So we have the heavier black oil, wells. But then that volatile oil was a higher gear. If we flip over to the type curve on those, there is a dynamic there where the, lift for those allows for the sea. The bound oil will have a higher initial production and a flatter decline than your black oil does. So there are more than one dynamic at play when it comes to the gas ratios in the back. And yes, over time they will always increase. But there’s a lifting mechanism that helps promote a longer term flatter decline in bucket in the back and wells as well. So all that being said, being able to handle the gas is your number one concern. And we just talked about the midstream which is I mean I believe in North Dakota as dictated. I believe it’s only 4% of your, either 4 or 8% of your total gas production can be vented or flared now. And so it’s not only it’s it’s it’s not just a cost issue to deal with anymore. It’s a regulatory issue as well. So again, all of this adds up to those midstream assets. And to be just pivotal in the decision that these and in the cost structure and in the decision for Devon to come in here. Yeah.
Michael Tanner – Managing Director, Sandstone Group [00:19:42] No, I mean you’re you’re absolutely right. I think, you know, the one thing that I kind of, you know, you I love this view that we’re looking at right here, which is kind of the the Grayson Mill. I think the interesting part is where the Devon Wells are relative to where Grayson Mill is. And it’s, there’s there’s a little bit of a difference. It’s not quite as contiguous maybe as you would have hoped. Again, that may not be the the point of what Devon was hoping for. We’re looking at really in this acquisition, but there’s not as much, you know, the synergies that you’re going to see from this are probably not as heavy as you would have expected, because that midstream infrastructure that’s running through all of those wells that you’ve got popped up here, don’t run through the current assets that Devon has. So that’s one thing you don’t see sprinkled throughout this presentation, which everybody on the emanates out synergies. Well we’re not seeing what they’re actually touting on this this you know in this deal per se or at least what they’re publicly talking about which again I just find interesting from a from that standpoint.
John Ferrell – Co-Founder & CEO, WellDatabase [00:20:44] Yeah. It’s not a question at all. If you look at where, on this map here, I still have the Grayson Mill, and the kind of the acquisitions over here on the, on the western north and western side, you can see that there is next to or really literally zero overlap. Honestly, you are, you know, a full section, full township away from where any of those assets, which are the assets there, it was still operated as if I could roll this up as a parent company to show you the Devon, but still to kind of get a look, there is literally no synergy or anything here. But like you said, there doesn’t need to be it. There’s no reason for it. They Grayson Mill did a great job of positioning itself as a self-contained asset, which meant that your buyer is anyone. You don’t have to be a back end player to do this. You don’t have to, you know, be a pure play. Anything anyone could just walk in turnkey, have assets with the infrastructure and. And a drill planned ready to roll, which I think is why, again, on top of the financials and why it was able to command the price they did when others were saying that it wasn’t worth it.
Michael Tanner – Managing Director, Sandstone Group [00:21:46] No. Absolutely, absolutely. Well, let’s. So I mean the other big so you talk about the big stuff that’s being touted in this one. It’s the amount of running room in terms of the overall acreage footprint. I mean, you talk about Devon’s current acreage, foot point, footprint that you see down there is only about 120,000 acres. Grayson Mills is about, oh, a little over 300,000. So you’re about tripling, you know, a little less than tripling your, your acreage, which is, which gives you the running room. So they’ve got about 5000 net locations. I thought the interesting thing that they pointed out, if you go and read through the transcript, I went ahead and, and, read that a few times, actually didn’t listen to it to see if I could catch, you know, sometimes you sometimes the way something’s transcribed versus kind of the tone of the question or the way the answer can be a little bit different. But they’re touting over 60% of those locations are the infamous three mile lateral. And I know if you’ve listen to the deal spotlight at all, we sound like a broken record. But that’s really where the majority of the upside to a lot of these deals are being touted as is. Hey, we’re now moving from a stock two mile lateral to a three mile lateral, and I think there’s some really interesting data that we were looking at prior to this that show why companies are doing the three mile lateral. So let’s, let’s, let’s move to that a little bit. Now what we’ve got pulled up here’s kind of the overall, barking view of the three mile lateral. And then we’ll kind of dive into the individual companies here. But I think this is a super interesting look.
John Ferrell – Co-Founder & CEO, WellDatabase [00:23:20] Yeah, absolutely. No. That what we’ve seen. And you know, honestly, we kind of touched on this before the the chicken is carry such a consistency. Which it always have. I and I heard from this gosh, it is 15 years ago here in drillers talking about you can’t you can’t lose, which is a bad attitude to have that since we’re three quarters of the racetrack opportunities are coming from because of the sloppy, sloppy drilling. But at the same time, you know, you can’t lose it. It’s very consistent. And so what we’re seeing is the strategies around the the wells, the drilling, the completions are just scaling almost linearly with the so they they didn’t have to re-engineer, reinvent this wheel. They took these strategies on a two mile lateral, just extended out another mile. And lo and behold you’re at the same profit loading yard at the same. Yeah. Same everything, same kind of cluster build. And then you see this production uptick that is kind of linear on a per foot basis. And then and so at the end of the day, what you end up with is what are your cost savings. By having a rig on site, having all of the completions, having a one job to do a three mile lateral rather than to do, you know, two jobs. And that’s really what you’re talking about. I believe I’ve read anywhere from 25 to 35, up to 40% cost savings by being efficient with a single drill site and pad preparation, completions, the whole nine yards. And so it’s scaling linearly like that. It’s fantastic. It just you can’t lose.
Michael Tanner – Managing Director, Sandstone Group [00:24:48] Absolutely. You can kind of see here you’ve got the big boys. Obviously Continental’s the the 100 pound gorilla in the room, but let’s go. I want to look at these type wells here. Here’s some. Yeah.
John Ferrell – Co-Founder & CEO, WellDatabase [00:24:58] Absolutely. Yeah. And so we’ll normalize these by lateral length to just to kind of give us because when we did this search it is we kind of just did 12,000ft or longer. Just kind of give us a broader. And we did limit it to 2017 to newer, there were some, some wells or toyed with pre 17, with 3,000,003 mile laterals. But what we see with the profit loading, everything kind of hit its stride and 17 in the bank. And and there are some interesting outliers for sure. You know, we have some interesting peaks here. When we flip this over to a cume chart, you do have to kind of take into account the operator strategies that they employ, whether or not they’re choking back, whether or not they are, how they’re dealing with pressure. I think even Grayson Mill, had that in some of their three mile laterals that they’ve run. They in that presentation on the deal, they showed for four of their wells, one of them, which was significantly under the other, three. And it was because it was running on a pump that had a limit that was like 2000. Don’t I forget what it was. 22,000 was 2500 some manner. But their estimations is that they would see a similar year from it over time because they’re essentially controlling pressure that way. But you see that play out here. Marathon’s type curve shoots up and then we start to see it level off when Oasis and again Oasis core will show up as current operator now as Oasis, I didn’t want to roll these up by the, by the parent operator, one to look at each one individually. So but this oasis, these oasis options, as well as the petrol hunt here, they all kind of cross over over time with what looks to be a little bit more of a controlled, pumping situation or a choke situation, depending on what. What we’re looking at. But at the end of the day, you’re you’re variance between these, you know, at the 60 month mark, some of the, the worse wells, the, their this is normalized. So that number doesn’t make any sense. But our range, you know, they they’re pretty tight. But there is some, some, some interesting things in here. And so Grayson Mill. Mill right here, it’s kind of hard to see, but it is at the upper middle of the pack. It’s right here. And so obviously they’ve done a pretty fair job with it. I really want to see, the other. Well, that, because they have only done a handful. How many was that? Eight. They’ve done eight of them. I want to see that other. Well, that they talked about choking back on that part of that pressure. Because I have a feeling that you’ll see a higher you are from it over time. But again, what we’re seeing is pretty tight, some consistency. If we come over and look at, I think we had this custom chart up here about the profit per lateral link. We’re not seeing any kind of new strategies around this, not any new cost or anything like that. We’re using the same strategies, just drilling longer, producing more. And the uptick is, is, the efficiency savings on the drill, DNC and then the, production uptick. It’s just math that works out really well.
Michael Tanner – Managing Director, Sandstone Group [00:27:48] Yeah. No, I mean, it’s that chart that you just showed right there I think is super interesting. It’s it’s it’s we’re not breaking any news to anybody who’s, who’s listening here. They’re like, well, that’s why people why people went from 1 to 2 mile laterals because of the cost savings. But it’s it’s really nice just to see it formulated in like.
John Ferrell – Co-Founder & CEO, WellDatabase [00:28:07] Oh.
Michael Tanner – Managing Director, Sandstone Group [00:28:07] Well that’s why. And so I think it’s super interesting. You know, and you can see there’s the BOC has drilled a lot of three mile out or so. I mean, I wouldn’t have told you 322 was the actual was the actual number. I just said it. Maybe it was in the 100 mark, but that, you know, I think you’re going to see that double and triple within the next, you know, 24 months.
John Ferrell – Co-Founder & CEO, WellDatabase [00:28:28] Absolutely. And that that is key. We’ve seen it in these last two acquisitions. It’s it is the key of the future of it. And that’s all about what your your leasehold looks like. A do you do you have leases that supports the three mile lateral. That’s that’s key.
Michael Tanner – Managing Director, Sandstone Group [00:28:41] Yeah. No. Absolutely. you can see that you, you know, again I just love I love the ability. But how you guys on this date and you guys in, well database have laid this out. It it’s super awesome. I think the other, you know, I think the other interesting part, we’ll go ahead and here I want to throw up. Slide. Where is it? Here. There’s slide eight. And I just want to talk a little bit specifically about that midstream that midstream infrastructure. They go ahead and say that that midstream business does about 125 million to, of Ebit acts per year, which is pretty again, turning a what generally is a cost center into a revenue generator. I think you brought up something that it’s it’s with the new flaring regulations in North Dakota. The reason why you have midstream infrastructure is not so that you can get paid on your gas. No one really cares about how much you’re getting paid on gas. On gas. It’s so that you can get your oil wells. You can get these. You don’t have to choke your wells back. You can turn them on full blast and actually have an ability to take that gas away and whatever, wherever it goes, it, it it allows you to get your oil to market. They have really good connections, both to the Dakota Access Pipeline, the North Dakota pipeline lanes and multiple other operate and a takeaway and midstream operators in that area. So, you know, if you look here specifically on that map that we’re showing here, I mean, it’s there, it’s their acreage foot is is pretty riddled up on that northwest spot. You kind of see, that’s what’s funny is as you get closer and closer to, Devon stuff, the midstream infrastructure sort of goes away. And maybe that’s exactly where. And my guess is that’s where a lot of the locations are. Probably the new development is going to be because they have the ability now to drill out that stuff. So, you know, having that midstream, I mean, I, I can I can tell you from experience there’s, you know, everyone argues over models. It doesn’t matter whether it’s 5000 bucks a month, up of them fixed costs and $1.50 per oil or 10,000 per month, and, you know, 250. But it does not matter. There’s two things that matters what your you are and what your water disposal costs. And having this type of infrastructure and water disposal specifically, and the gas takeaway, because it allows you to actually keep your wells on is critical. And I think I think you hit the nail on the head. That’s why the the price was commanded as high. Because it’s not just about, well, what’s the what’s the future forecasted value you have to layer in all this other stuff, in the ability to say you’re not going to be held up by future development, even if they go to zero flaring. We’ve got the ability to handle it all. So I think it’s important not to skip over this midstream stuff.
John Ferrell – Co-Founder & CEO, WellDatabase [00:31:21] Absolutely. Well and you and you hit, you touched on the water disposal, which is something they do. They discuss as well. You know, what’s interesting is the I mean, the water disposal assets they have are actually pretty limited. But I suppose they’re enough. That’s one thing. That I found interesting. They don’t. It’s not like they’ve got a massive water disposal system in place. But again, they do have a few water disposal wells out there. And so that definitely is going to facilitate that water disposal side of things. You know, again, you hit on the midstream side, you need all of these pieces to line up. And again, that just kind of shows that it was a turnkey, you know, ready to roll, production model. So.
Michael Tanner – Managing Director, Sandstone Group [00:31:57] Yep. No, I completely agree. I, I want to shift a little bit now and talk I want to talk about Devin’s angle here, because one of the things I like to do when I look at these deals is, okay, great. Devon made this deal. We like Grayson Mill. If I had $5 billion, maybe I would have jumped in and and we could have bought this. But I like to go back and say, okay, where was Devon’s mind at prior to this? And one of the easiest things to do is go look at their earnings presentation. And this is May 1st, 2024 okay. So this is 60 ish days prior to them acquiring Grayson Mill. And so you don’t know where they were in the in the life cycle of this deal where they already talking to to end cap, were they not were they thinking about what to do? Obviously, they were kind of the last man standing when it comes to, hey, what are we going to do from an M&A standpoint? Every one of our, large public compadres have actually gone ahead and done and done some deals. So it really, you know, you you think you obviously know that they were tossing around a bunch of different deals. But if you just go back to their Q1 2024 earnings report, I mean, what I find interesting is that they had very little to say about their their back end asset. And actually, if you go, you know, you start looking at all of their individual slides. I mean you get to slide 13 on their presentation will throw it up here. Again this is from their Q1 2024 earnings report. Their yeah. Look at point number two here. High grade activity in the Williston Basin activity focused on high confidence developments. And we are going to reduce capital activity by 50% relative to their 2023 program, which I find super interesting that they’re going to tell you on May 1st, hey, we’re going to actually reduce our capital in the Bakken by 50%, and then 60 days later, they triple their production in basin and now say, hey, we’re going to go run some rigs through it. So and maybe the hey, we’re reducing our capital and maybe the thought is, hey, we’re reducing our capital activity in the Williston, but we’re just going to go beef it up and buy a bunch of production. Maybe that was the plan, but I find it interesting that they kind of they didn’t in my opinion, they weren’t necessarily thinking about it then because they would have said something and they wouldn’t have necessarily. I don’t think that second bullet point in their reducing capital activity by 50% versus 2023, they probably would have left that out if they were, you know, on the cusp of making this deal. And it brings me to kind of my, my, my, my from Devon side. I just think they got caught with their pants down in terms of they needed to make a deal. They were probably getting pressure from the board to do something in terms of, you know, everybody had you know, they were the last man standing when it comes to all these M&A deals. They were probably sniffing around on Crown Rock. They were probably sniffing around on marathon. And when they couldn’t come to those deals, well, this was a deal that they could make if it within the parameters. I mean, you brought this up when we were talking earlier. This was 3.25 billion in cash. You know, one of the things that I first thought of Wells well, why didn’t cord go out and now just swoop up Grayson Mill? This would have been a much more synergistic. And to use the to use our favorite word accretive acquisition from cord side. Now that they’re really one of the top players within the Williston Basin. But you brought up specifically. Well, it comes back to the cash and caps not going to go for an all stock deal, which is what court had to do to get Enter plus. So I think Devin saw this as a chance to let’s go get some assets. Me let’s go get buy some production. We get a bunch of midstream assets. Maybe we’re paying a little bit more relative to what we think. But I still from a Devon side I’m not I have a little. This always just comes back to my thought of like, people always joke that these management teams are just shooting from the hip a little bit, and this doesn’t bring me much more confidence that Devon is like, oh, but we’ve got a master plan here relative to, you know, and obviously when new information comes in, they get presented with the opportunity to buy this. Maybe they came in, but everybody knew this was available. There was a you know, if you getting leaked to Reuters in January everybody knows. So you knew about this at Nape. I mean and obviously it would it was it was leaked and it was leaked before this. But it wasn’t a shocker that oh private equity buys low in 2021. And now I was trying to sell it like it’s not a shocker. Everybody knows that’s what happened. So from Devon side I you know it doesn’t you know if, if, if, if there was something to be said about wow this management team knows exactly what they’re doing. They obviously do their, their. They’ve made some great acquisitions in the Delaware. They’re one of the companies that was ahead of the curve on the Delaware, which if we start going and ranking shale plays, the Delaware Basin currently is going to be at the tippy top and edge of the spear. So they’ve done a good job there. But to me, this just seems like they got caught with their pants down and needed to do something. And this was something that they were able to probably come to an agreement relatively quickly relative to May 1st. They weren’t even talking about this. So that’s really all I’ll say from Gavin’s side.
John Ferrell – Co-Founder & CEO, WellDatabase [00:37:04] Well, and I’ll double down on that because I equate it to, you know, showing up at conferences, you know, well, database we show up at conferences and we have it in our minds, like if you don’t show up the next year, people are going to think that you just you died or something like that. And that was a mentality I remember at night for, for a better part of a decade, it was like you had to come back and if your booth got smaller, then you must not be doing good. Or if you don’t show up, then there’s a problem. That’s what I feel like we’re in now with the acquisition world. If you are a mid-major or higher and you haven’t made an acquisition in the last 18 months, then are you or are you going away? What what’s what’s the problem? And so in that it does transition. You know, you brought up, cord. I’d love to talk about that for a second, because that was I mean, I don’t think it was just us who thought, well, that was a blatant, like, an obvious, fit, that they would go through and pick up Grace and nil. And so when they didn’t come in, it was a your immediate reaction is like, oh, wow, what’s going on with them? Are they for sale? You know, is that what we’re looking at? Which I’m not I’m not saying they are aren’t, but they might be. They could be. Who knows? But, you know, looking at this, we pulled this map up and saw kind of that inner plus those inner plus wells and compare. So what we have is cord is the primary wells in the Grayson Mill are the, so the blue is all cord and then the Grayson Mill is that was to the west and north that are just completely intertwined with cord acreage. It’s like the most natural fit on the planet. And there had to be like, I mean, those midstream assets would pay, you know, double for these for, for, for cord in this regard because they are all completely, you know, geo located to each other. But I think you hit the nail on the head. It has to be the cash thing. Private equity does not want your stock right now because they open to fund that. You need to close it out. They need cash to to kind of get back to where they need to be. And so that’s why you get the inter plus acquisition, which comparatively looks ridiculous from a, you know, synergy standpoint. Of course it sits, you know, offset the, the cord stuff. And so it’s not like it’s ridiculous. But at the same time, when you compare it to Grayson Mill, it looks like Grayson would have just been head and shoulders above a better fit. But again, it’s cash. Cash is king in this deal.
Michael Tanner – Managing Director, Sandstone Group [00:39:11] No. Absolutely. And, you know, not being necessarily able to leverage the infrastructure that’s sitting on the current Grayson Mill acreage versus what’s now sitting on the, you know, kind of the legacy Devon assets. It’s super interesting. I mean, so from court standpoint, I think you’re absolutely right. I mean, that was a 9010 stock cash consideration, which as a public company, you can leverage your stock a lot more. And as you’re acquiring another public company, it makes it a little easier to do stock. I think again, the cash part of this is is the biggest. You know, the other thing you know, from end cap side, I mean it was pretty good, a pretty good classic private equity flip. I mean you spend about 2.5 or $1.7 billion. In original acquisitions, they drilled about 75, 78 wells, probably spent somewhere in the range of 75 to $90 million on those wells was able to basically boost production by 45, somewhere between 30 to 45,000 boe a day. So you’re talking about a total of 2.5 billion in cash, and that’s a pretty good deal considering you’re talking about a year and a half return relative to when this all got put together. They walk away, obviously with being able to return some cash to the shareholders or their fund, institutional, shareholders, I should say. And you know, that stock, who knows? You know that most of that stock probably sits within the end cap portfolio, and they’re able to leverage that, for a variety of reasons. So, I mean, all in all, I if from from Grayson Mill side and, and cap side, you played it perfectly. I just always come back to you know, I think they got they they had Devin in the corner and we were able to extract everything that they wanted and maybe a little bit more.
John Ferrell – Co-Founder & CEO, WellDatabase [00:40:53] Right. And that’s a there’s something to be said for holding your ground on that. You know, that number did like I said, everyone thought it was high. And so for them to get it from a company that is considered relatively conservative in their approach, is pretty solid. One thing I will note, as we kind of look at this, this is the total production for all Wells and Grayson Mills, did everything that just changed hands or is changing hands. And you see, the black line is the number of wells that have come on line. So they’ve got about 160 producing wells right now. And so I go back predate, you know, the Grayson Mill stuff happened in 20 2019, something like that or 21. But regardless, you know, you see these kind of flat production and, obviously we’ve come up some on the. The oil number. But again, you have to watch those declining wells. You know, drilling 70, 80 wells. That is almost 1300 wells. Those gas numbers are it is is the across the board and those gas numbers just keep increasing while your oil stays relatively flat. And so all those news, new wells coming in line, obviously they did build their production up, an amount. But so much of what they had to bring on line was to offset the decline from the old wells, and with the decline comes in increased gas production. And so there are some interesting dynamics that are really specific to the bank. And in this regard that we see today, I’m sure we’ll see some more of this as we get some more age. The bank is great because we got a lot of data on that on the shale side. And so it’s fun to kind of watch these and see how they progress. But, I think again, you said Grace and Dale played it perfectly. And stuck to its guns on that 5 billion number. And everybody went in good shape.
Michael Tanner – Managing Director, Sandstone Group [00:42:23] The shale business is tough. You know, people like I’m spending $50 million to keep my oil production flat. Yeah. Welcome to the. Welcome to the nature of declining assets, guys.
John Ferrell – Co-Founder & CEO, WellDatabase [00:42:33] Yep. That’s it.
Michael Tanner – Managing Director, Sandstone Group [00:42:34] Okay.
John Ferrell – Co-Founder & CEO, WellDatabase [00:42:35] But all in all, it’s a pretty good deal. I mean, I wish, you know, I wish we had more sexy deals, but, hey, this is fun. Anyway, it’s a solid deal’s. Got some interesting dynamics to it. And, yeah, it’s it’d be interesting to try to say what the next one looks like. Which brings me to a picture of the. And as a whole, there’s, consolidation is really, really taking effect in here. And, it’ll be interesting to see where Cor comes into play. Now, are they potentially going to be a seller? I don’t know. That’s a great question.
Michael Tanner – Managing Director, Sandstone Group [00:43:04] I think the real in my opinion, since since you did a great job of forecasting the next deal, I’m going to go out on a limb now and say what I think. I mean, it’s going to take a little bit because obviously we’ve the we have to everything’s got to shake out with, with the, with what’s going to happen in Guyana. But I think Haas and Exxon, once that gets staked out, I think Exxon, if they go ahead and do either acquire Hass or Chevron or whoever I think acquires has in this situation is going to shed has his bark and stuff, and it’ll be interesting to see who picks that up.
John Ferrell – Co-Founder & CEO, WellDatabase [00:43:39] That’s valid. Completely valid. I I’d love to see that one. And yeah, we could even come through and I mean, we can look at their assets right now has assets are pretty core. To the BOC. And I think they fit with a lot of the operators. So it’s a that one becomes a pretty open game about what they’re asking for, what they’re required to get. But yes, you’re exactly right. Those are the kind of assets that definitely will will be, on the on the chopping block if regulatory hurdles, show themselves in regard to that.
Michael Tanner – Managing Director, Sandstone Group [00:44:07] Well, because, I mean, Exxon’s come out and said, hey, man, we have no interest in the BOC in if we end up winning this first right of refusal game that they’re playing down with the because they’re only after acquiring that, extra interest in the Guyana stuff if Chevron gets it. I mean Chevron is not in the BOC and right now. So they may be have the skill and the want to hey, we have no problem entering, the banking, but I, I just have a feeling that, you know, if ExxonMobil wins, which I don’t know where, you know, if I had to gamble, I think what’s going to happen is Exxon is going to win this and gonna end up buying out, has this position in God, I think then has instead of sitting around here and, and just, well, now we’re just only in the bank. I think, again, they’re going to want to sell out specifically. So it’ll be interesting to see who pops in. Maybe that’s what court is waiting for. They’re waiting for maybe some shake out with Hanson and they go ahead and make that move. Or maybe continental. Who knows. I mean they’re you know, they’re also they’re the hundred pound gorilla in the room that I’m surprised didn’t jump in on any of these deals. And maybe they’re waiting to make that acquisition of passes back and stuff.
John Ferrell – Co-Founder & CEO, WellDatabase [00:45:11] Yeah, that makes a lot of sense. And I don’t have it up in front of me. But I do believe I saw the last earnings report. Hess is great about breaking out their North American assets versus their international assets. And if I’m not mistaken, that BOC and asset is barely, barely breaking even. It’s just not a very attractive asset, for them today. And I think that that will make it a deal that someone’s going to get a deal on it. So if that happens, if that rolls out. So that’ll be interesting to watch.
Michael Tanner – Managing Director, Sandstone Group [00:45:37] Yeah. So you heard it here first guys. Whenever it happens we’ll make sure to, play that Wayback machine in a bit. Well, anything else that you think we’re missing here? Otherwise, I think we’ll we’ll let people get out of here. I, I always appreciate you popping on, and, I just love being able to. It’s so easy just to flip through, well, database and see all this stuff. I’m a huge fan of what you guys are doing, and and I always appreciate your time and coming on and, and explaining some stuff to us.
John Ferrell – Co-Founder & CEO, WellDatabase [00:46:01] Yeah. No. Thank you so much. I love doing I love diving in the details. I spend so much time, you know, helping customers and working. And I don’t get so much time to use the software we create. So I absolutely love it when it when it can answer these questions and give us these views and kind of the insights we want to see so quickly. So no, I love it. And you know, the block and I, I feel like I’m in a crazy minority because I actually really like the block. And I like the I like the consistency of it. I like the, the, the the how. Everything kind of lays out the and I know there are a lot of hurdles there, but again. I enjoyed the activity in the park and so no, it’s been great night and I’m looking forward to the Haskell that you called.
Michael Tanner – Managing Director, Sandstone Group [00:46:39] Yeah. No. Absolutely. Absolutely. So. All right guys. Well, as always, we’ll give Devin the stamp of approval on this, even though I think they gotta, you know, they’re probably, just wait. They probably needed a deal to do, but we, you know, we’re big fans of Grayson Mill over here. So we’ll go ahead and give this one the stamp of approval. Guys. John, as always, I appreciate it. Thanks for everybody who’s joining us. Go ahead and hit the description below. We’ll have links so you can get to well database. You can obviously it’s easy to just find them online. and all the links to some of the back up stuff guys. until the next deal. We’ll see you then.
John Ferrell – Co-Founder & CEO, WellDatabase [00:47:10] Thanks, Mike.
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