Relatively quiet week for the DEP research team as we enjoyed spring break in Florida, thus no real industry commentary in this evening’s note. Rather, with DEP’s one year anniversary just days away, we instead use tonight’s note to thank several key supporters as well as provide a quick update on the firm and our strategy as we head into Year #2.
BKR U.S. Land Rig Count. Up another 7 rigs to 405 rigs this past Friday. Gains continue to be largely found in the Permian which added another 5 rigs.
A Personal Thank You. We celebrate our one-year anniversary on April 2nd. What a wild first year to start a business. A Saudi/Russia tiff coupled with the COVID pandemic created an interesting backdrop to launch a largely OFS focused research platform. But, after ~20 years of experience and scar tissue, we managed to navigate the crisis. The real reason for our survival, however, is the direct result of those who stepped up to financially support DEP, a particularly gracious move given how awful the macro backdrop and industry challenges were throughout most of the past twelve months. Therefore, I would like to call out a few folks who were instrumental to DEP’s early success (apologies to named people if this makes you mad).
First, I must thank James Garrett from Vinson & Elkins who provided early stage legal advice, including getting the DEP business set up with all of the necessary administrative paperwork. No doubt this was low calorie work for a high-quality legal eagle, but his team’s help and counsel is greatly appreciated. I am also grateful to Lyle Eastham of Big E Drilling who stepped up as DEP’s first official customer. You have no idea how appreciative we are for that first vote of confidence. To Scott McKee and the Cactus Drilling accounts payable team, we appreciate your help explaining to us the role of a W9 and how to fill it out. Importantly, a huge shout out to Nick Poradek at ST9 Gas & Oil for teaching my wife how to use QuickBooks as well as Matt Wilks from Pro Frac Services for his early vote of confidence and strong support. This collective group was the steroid shot I needed to get off the ground and I cannot be more thankful. I must also thank Chad Abraham and Mike Cox from Piper Sandler, as well as the leadership team from Simmons Energy, who worked with me on my exit from the firm. In the highly competitive world of finance, these friends gave me the flexibility to pursue my dream of having my own business. Not only did the team give me the opportunity to launch my business, but the firm also stepped up to serve as sponsors to DEP events, both financially and in the form of guest speakers. This has been and continues to be a huge help. There are, of course, scores of people that deserve special recognition (i.e., my wife, the DEP advisors, Jim Wicklund, John Schmitz, Tom Inman, Josh Lowrey, David deRoode, Tracy Turner, Aron Marquez, Danny Wesson, Luke Lemoine, Lance Robertson, among many others), but continued direct shout-out’s would yield an exhaustively long note (we know we missed hundreds of our friends, so please don’t take any offense as none was intended).
Approaching the one-year anniversary, I am especially grateful to our 90+ corporate subscribers. Your collective financial support allowed the DEP team to grow from just me to now four employees. This growth, however, is not finished. By late Q2’21 we hope to increase our research team by at least two members while we will also build out our sales capability as well. In keeping with the current model, the DEP team will not cover individual stocks. Instead, we will focus on industry trends and themes with a huge emphasis on in-basin tours. Perhaps even more important, we intend to host numerous industry events in order to bring the industry and investment community together. So what’s next?
The DEP Path Forward. Much of our research commentary has centered around U.S. oil service trends. We know there is much more to energy than just pressure pumping and well servicing data points, so we hope to expand our research commentary during Q2. On this point, we are in discussions with two potential hires. One will bring decades of E&P and midstream experience while the second will enhance our OFS coverage, hopefully developing a core suite of commentary on the OCTG, sand and compression markets. Yes, it’s odd to discuss potential hires before they are officially on board, but we like these folks and we think they like us, so a bit of optimism we can work out a deal. If not, the search will continue, but the objective will be the same – thoughtful commentary on E&P and midstream related topics and a deeper research product within select OFS verticals.
We will also stay true to a core tenet which is no plans to cover individual equities. We don’t view ourselves as stock analysts, rather we intend to focus on industry themes. We’ll leave stock picking to the experts. That said, we are strong believers the energy sell-side model is in transition, particularly in OFS and perhaps in E&P. This transition comes in different forms, including an exodus of experienced analysts either through career changes, retirements, reductions in staff and/or transition to other sectors. We think this trend, which we call the juniorization of the sell-side, continues. In other cases, firms have had to drop coverage of stocks due to “reallocation of research duties, etc.”. We think this phenomena will also continue, especially as the investment banking community continues to pivot hard to alternative energy. We understand why these firms are making the energy transition, but DEP won’t. We happen to like traditional oil and gas and we are big believers traditional energy will be here for some time. Therefore, when the dust settles and fewer experienced analysts cover this sector well, we hope the DEP team can add value given our decades of experience. Separately, we see a scenario where traditional energy stocks become “investable” again and when that happens, many within the generalist buy-side will return to the space. Firms with deep industry experience will be best positioned to provide industry and operational perspectives, a value to our corporate subscribers.
Investor Events & Corporate Access. Personal relationships matter. Not just with service providers and customers, but also with investors. Therefore, the DEP team will create multiple events to facilitate investor outreach. These, however, will not be Zoom calls or virtual conferences as we fail to see our one can develop a personal relationship with someone over the computer. Instead, we choose to pursue multiple events in intimate settings. These include already scheduled events such as our Telluride Executive Series, our Whistling Straits Energy Forum and our European Energy Conference in Scotland. We will supplement these events with regional outings. Namely, we will soon launch small group quarterly fishing/hunting outings for companies and investors who prefer to avoid the speed-dating 1×1 concept found at most investor conferences. We will target investors who wish to focus on corporate strategy and industry insights as opposed to those who simply focus on the quarter. We further intend to exclude annoying investors because we don’t want them as clients. Peace of mind and job satisfaction will always trump money at DEP. Details on our future small group outings will be forthcoming in the coming weeks via direct invitations, a function of extremely limited headcount. By the way, these small group events also provide solid networking opportunities among industry execs, so don’t think it’s just for investor outreach.
In concert with the Permian Basin BBQ Cook-Off, we will host company tours for attending investors. Preliminary investor interest in the BBQ Cook-Off is encouraging as most are ready to resume travel. Subject to headcount, we would like to host facility tours on both September 29th as well as the day of the BBQ on September 30th. Public companies wishing to host meetings those days should let us know. We’ll try to accommodate requests as best we can. Keep in mind, the more tours with larger market cap companies, the better the turnout will be with Tier 1 investors.
In 2022, we hope to bring back our London Energy Day. Sadly, COVID-related travel restrictions render the 2021 event unfeasible. We hope travel restrictions will be lifted in time for the European Energy Conference in late August, but Scotland’s COVID restrictions are a tad more limiting than what we see here in the United States. We’ll know about Gleneagles in May, but don’t worry, we’ll lock down the venue for 2022 should Scotland not re-open by August.
Final consideration vis-à-vis IR outreach. We know time is money. We also know travel costs for NDR’s and investor conferences can be rich, particularly for those who prefer to fly private. Therefore, the substantial number of DEP events will be held in Texas. Our view is those investors who are truly serious about energy investing will come see you once their COVID concerns fade. To the extent we can position outings in and around Houston/DFW and/or in the Permian, this allows you to not only see investors, but also visit with your customers and employees. This, in our view, is a much better use of the C-suite’s time. Obviously, for international investors, personal outreach, including travel, is required, thus our plan to eventually host two events in Europe each year.
Industry Events: We drive back to Midland tomorrow afternoon where we will host another reception on Tuesday evening as well as conduct product/site tours. This will be our fourth Midland group reception. Due to positive feedback, we will continue to host them at least once per quarter. For those who have never been, we typically attract ~50 industry attendees from both oil service and E&P companies. We intend to take this reception format to the DFW area at least twice per year as well as to OKC in July and hopefully Pittsburgh in August. In addition, for our E&P subscribers, we intend to kick-off our E&P Supply Chain lunch/dinner series in Q3. We tried launching this in 2020, but COVID restrictions forced us to hold off. By way of background, these small group networking events will allow our E&P friends to hear updates from OFS/Capital Equipment CEO’s as well as participate at facility tours.
With all of these industry events, our objective is to create not only a learning and networking environment, but to do so in a fun and informal setting. And for those who don’t see the value in networking, we recommend you think twice. Industry consolidation is going to continue and those who find themselves displaced due to consolidation synergies may want to have a large and fruitful rolodex. In other words, consider coming to some of our events.
Final Thoughts: Work should be fun. You should be just as excited for Monday’s as you are for Friday’s. That’s our goal at DEP and when it’s no longer fun, we’ll step aside. In keeping with the fun concept, on April 1st, we will host our one-year anniversary social at the DEP office. Please stop by for a drink after work. On April 7th, we’ll host our Kingwood Golf Outing. Many more events will be forthcoming. All will be worthwhile. We’ll do an exhaustive event update list in late-April. Lastly, if you haven’t signed up as a DEP subscriber, we could still use your support.