Raising Capital in Current Year: Guidance for Petroleum Geologists

How the oil and gas business finds investors is changing.

Again.

But it may change back.

Or not.

“The private equity firms that have traditionally funded new hydrocarbon companies are facing new pressure from their investors to stop placing capital in oil and gas, and the desire for quick profit – or even profit at all – has become secondary to a perceived battle against carbon dioxide.”

That’s Don Burdick, CEO of Olifant Energy II in Tulsa, Okla., who understands how counterintuitive not making a profit sounds. On the surface, it’s a startling development.

When do investors not care about that?

“(It) may be a huge statement,” said Burdick of the paradigm shift, “but it may be a temporary fad too.”

This has come about, in part, he believes, because many of the sources for funding were college foundations and certain pension funds that have lost their appetite for hydrocarbon investing.

Image Caption

“This cartoon from Vanity Fair in 1861 reveals a time when whale-loving environmentalists celebrated the oil business. Will that day happen again?” said Burdick.

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How the oil and gas business finds investors is changing.

Again.

But it may change back.

Or not.

“The private equity firms that have traditionally funded new hydrocarbon companies are facing new pressure from their investors to stop placing capital in oil and gas, and the desire for quick profit – or even profit at all – has become secondary to a perceived battle against carbon dioxide.”

That’s Don Burdick, CEO of Olifant Energy II in Tulsa, Okla., who understands how counterintuitive not making a profit sounds. On the surface, it’s a startling development.

When do investors not care about that?

“(It) may be a huge statement,” said Burdick of the paradigm shift, “but it may be a temporary fad too.”

This has come about, in part, he believes, because many of the sources for funding were college foundations and certain pension funds that have lost their appetite for hydrocarbon investing.

It’s maddening, regrettable, but it is understandable, he believes, when you understand the dynamic behind the thinking.

“Remember, these firms raise money primarily from large endowments and pension funds, and many of the people invested in those institutions are demanding they divest of hydrocarbons,” he said.

In short, climate change has become a defining factor in companies’ long-term prospects.

“And the large private equity firms are simply catering to the desires of their investors,” he added.

Having said all this, Burdick believes there is now a more organic revenue stream coming online.

“We are now seeing much more direct investment in oil and gas start-ups by capital sources that are bypassing the private equity middleman,” he said.

Shifting Investment Winds

Clearly, though, the politics of the discussion are now becoming as important a dynamic as the economics, which includes the promise of renewable energy sources, which Burdick insists is overrated.

“Wind and solar have certainly received a lot more attention in the last few years, both by the press and through an infusion of capital,” he said.

Burdick said – hopes, actually – this is changing.

“Pushback against industrial scale wind and solar installations is gaining momentum as people start seeing the negative environmental consequences,” he said.

Burdick is referring to the case against NextEra Energy’s wind subsidiary, ESI Energy, which plead guilty to killing three golden eagles while also acknowledging the killing of at least 150 bald and golden eagles since 2012.

(For its part, NextEra, citing its $150 million investment across America to support what it calls its “avian impact mitigation efforts,” said it “never sited a wind turbine knowing an eagle would fly into it nor have we taken any action in disregard of federal law.”)

Burdick is convinced the shine of renewables is starting to dim.

“We are on the edge of a fundamental reshaping of finance. I believe once the general public understands the real environmental costs of wind and solar, the current supportive political climate will turn more negative.”

He points to a statement by BlackRock, a world leader in asset management, in which the company announced it would start voting against more restrictive climate resolutions in the companies in which they invest as some of these shareholder resolutions have become overly prescriptive or constraining.

“Does this mean a return to hydrocarbon investing eventually? Who knows?” said Burdick.

How to Navigate Luck and Circumstance

This business of capital and how one goes about building a business, especially in the current environment, will be the subject of a short course at the Unconventional Resources Technology Conference in Houston this month, entitled, “Building A Business, Raising The Capital: Petroleum Geologists Who Have Done It And Will Tell You How.”

For Burdick, who steered Oliphant Energy through a number of funding protocols through the years, said he personally understands the intersection of luck and circumstance and opportunity in his own career.

“I can’t say that I have ever been someone who charted out my career with a specific plan or timeline for accomplishing goals. But I can say that I have always tried to be aware of new opportunities, and at the right time, take a risk to pursue a new challenge,” he said.

Admittedly, Burdick said, this approach hasn’t always worked, “but overall, the benefits have outweighed the costs.”

Translating such advice begins, he said, with overcoming fear and uncertainty.

“In many cases, people simply want to know how to get started. They often see too big a gap from where they are to where they want to be. So giving advice on how to take those first steps in the right direction can be very helpful and encouraging,” he said.

Burdick is aware that the very nature of taking the step to building your own business – or more to the point, transitioning to that – has some similarities with those ballplayers who want to become managers.

Geologists, he said, have such a skill set.

“The core skill of being able to imagine outcomes when you have only a limited amount of data is something that gives a geologist an advantage when starting a new business,” he said.

On the baseball analogy, he said, it is almost as intense.

“To carry the analogy forward, to move from player to coach, you do have to learn the basics of all the positions, find ways to inspire your whole team, and recognize that the leader cannot play all the positions and needs to trust that his players are doing their job,” he explained.

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