American Oil and Gas Reporter - February 2021 - 55

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SpecialReport: Operations America
availability of investment capital for the upstream
sector? What criteria are investors looking for?
CAMPBELL: As it stands right now, capital is available if you
have a solid asset in the right basin, have existing cash flow, and
have a good operational track record. The debt markets are strong
right now. We recently completed a successful bond offering,
which, to some extent, proved that good companies with good
assets can get capital. But investors need to see free cash flow. If
you are trying to finance a big outspend, good luck!
There has already been, and will continue to be, a pretty significant paradigm shift with respect to the type of assets that
private equity will invest in and build. The acquisition and divestiture market demands assets with cash flow and high quality
inventory behind it. If you do not have both of those things, you
are not going to be able to monetize your asset.
It used to be that you could back a team, put some acreage together in an emerging play, drill a few wells to prove the position
geologically, and then sell it. That is no longer the case. Buyers
in this market need a significant flowing production and highquality inventory for future development. Private equity must be
willing to build out infrastructure, get a development going, and
then mature a production profile and cash flow.
There is a definitely an opportunity for private equity, but it
will be more focused on building companies rather than building
assets. Also, private equity providers will probably need a
longer hold period, which is not a comfortable thing for some
funds. For others, it is fine. Some private equity has a slant
toward more development and is comfortable with the operational
side of the business, but others are not.
The lower-cost-of-capital players could find a spot in the industry as well. Our onshore basins have become more de-risked
and a lot of the operational problems that we were encountering
a few years ago have been solved. So, there is not much guess
work as to what to expect from a development program in the
proven basins. I think there is an opportunity here for the lower-risk sources of capital.

Q:

What kind of environment to do you see for
operators seeking to expand through M&A?
What will it take for buyers and sellers to come
together to get deals done? What will capital backers
value more, good assets or good management?

CAMPBELL: The M&A market is not necessarily driven by
a lack of buyers, but by the financial side of the market. Whether
on the credit side or the private equity side, oil and gas investors
want to see free cash flow. The story that was pitched for many
years was that shale companies were making good returns, reinvesting capital, and were only a year or two away from
generating free cash flow. For too long, the industry just did not
get to the places it promised. Well, finally the industry has
matured to the point where most companies that have good

assets are well positioned and are free cash flow positive. Their
balance sheets are in good shape, leverage is low, and they are
making better well-level returns than they ever have. The fundamentals are finally there.
But the investors that lost money in the process of the shale
industry maturation now demand discipline. Again, they are focused more on businesses and less on the assets, so to speak.
They want to see cash flow. Investors are not interested in
proof-of-concept or early-stage development projects. They do
not want to have to climb a production curve to get to free cash
flow positivity.
On your second question: The quality of the operator definitely
matters, but geology is the most important factor. You can have
the best operations team in the world, but if you don't have
good rock, you aren't going to be able to produce good returns.
Our industry has learned a huge amount about how to best
develop shale, especially in the more delineated basins. The operational guesswork is largely behind us and the operators cooperate and collaborate well and share ideas. But there are
some operators who are better than others, especially in terms
of lease operating and capital costs.

Q:

You have mentioned the need for cash flow
and inventory to attract capital, and shifting
investment criteria. On balance, how do these variables factor into the longer-term health of U.S.
shale plays? How might policy changes in Washington
impact the outlook?
CAMPBELL: Because of our industry's current high level
of capital discipline, it is probable that we have seen the peak of
shale production for the next few years. People just are not
drilling as much. We will have to wait and see what happens in
the long term; I think the resource potential is still significant.
The United States will continue to be a major player in
hydrocarbon production, and that is great for this country.
Imagine if we did not have shale production. Imagine what the
global oil market would look like, and imagine where our
country would be economically. We would be much worse off,
and all of our industries, especially our manufacturing, would
be less competitive. And if we did not have cheap energy to fuel
the economic recovery from the pandemic, it would be a much
tougher road for us. I believe the United States will maintain
our significance in energy; it just makes common sense that we
would. I am optimistic about the future of this industry and
look forward to playing a part in it.
The public policy regime that is currently being implemented
is bad for the country...bad for the American consumer, and
bad for American industry. It is sad and unfortunate for this
country that energy prices are going to increase and that people
are going to lose jobs. That is tough and I hate to see it, but it
probably will increase oil and gas prices over the near and
medium terms. There really is not a part of the current policy
FEBRUARY 2021 55



American Oil and Gas Reporter - February 2021

Table of Contents for the Digital Edition of American Oil and Gas Reporter - February 2021

Contents
American Oil and Gas Reporter - February 2021 - 1
American Oil and Gas Reporter - February 2021 - Cover1
American Oil and Gas Reporter - February 2021 - Cover2
American Oil and Gas Reporter - February 2021 - Contents
American Oil and Gas Reporter - February 2021 - 4
American Oil and Gas Reporter - February 2021 - 5
American Oil and Gas Reporter - February 2021 - 6
American Oil and Gas Reporter - February 2021 - 7
American Oil and Gas Reporter - February 2021 - 8
American Oil and Gas Reporter - February 2021 - 9
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American Oil and Gas Reporter - February 2021 - 19
American Oil and Gas Reporter - February 2021 - 20
American Oil and Gas Reporter - February 2021 - 21
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American Oil and Gas Reporter - February 2021 - Cover3
American Oil and Gas Reporter - February 2021 - Cover4
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