HOUSTON —
Justin and Derek: I was passed a link to your article, "U.S. oil drillers 'dying on the vine' as private equity flight prompts funding drought" and had a couple of thoughts come to mind. The first was, I wonder if people ask themselves the question why larger oil companies survive and smaller oil companies become the subject of these types of articles. There are so many other industries where "small and nimble" seem to be lauded attributes but for some reason not applicable in US upstream. Small, PE-backed oil companies have an expiration date which means they need to be sold prior to the expiration of the fund. This expiration date attribute acts as a boundary that restricts how a PE-backed portfolio company applies itself; the general choices being (a) do I want to demonstrate I am better at finding oil, or (b) do I want to demonstrate that once I find the oil I can operate very efficiently? It is my own observation that the cyclicality of oil coerces shorter-lived PE backed companies to demonstrate "better at finding." The result is that 400 out of 500 companies are left unsaleable (as you say) during the moments when no one cares about finding more oil. As a software investor focused on upstream, I have been listening to confessions for years regarding the sources and amount of waste. The simplicity of the problem many times leaves the observer astounded that humans allow this to occur ("oh my God....I thought I had a good marriage!!"). The numbers are big enough that many of those who would benefit from adjustment perceive career risk in admitting their existence (i.e. "I can stop anytime I want."). The larger companies tend to be larger companies because they waste less. Given their different time frames they are allowed to contemplate a different set of problems. Chip Davis Houston Ventures