Russ: This is the BusinessMakers Show heard on the radio and seen online at TheBusinessMakers.com it's guest time and our topic today, is energy and the huge changes that are taking place there and my guest is Ron Bolen, the founder of Da3Co. Ron, welcome to The BusinessMakers Show.
Ron: Thank you very much. I appreciate it.
Russ: You bet. Well tell us about Da3Co.
Ron: Da3Co is a small merchant banking operation that focuses, here in Houston, solely on energy sector. Everything from traditional hydrocarbon recovery, all the way to alternative energy. We represent clients all the way through capital formation, mergers and acquisitions, as well as in specific circumstances deploying our own capital to assist in our clients' needs.
Russ: Okay and how long have you been in the energy industry?
Ron: I've been in the energy industry since 1995, which seems like 100,000 years ago.
Ron: But I have been solely in the energy industry my entire career. Really haven't ventured much from it; first as an attorney, and then into investment banking, I'm now merchant banking.
Russ: Okay. Well I wanted to have you here on the show because it's my perspective that, my goodness, has the world ever changed from my perspective. Is that accurate?
Ron: That's absolutely accurate. I don't think it's much of a hyperbole to say that over the last five years, there have been changes, certainly in hydrocarbon recovery that I never saw coming in my professional career. I've made mention before that, you know, if you had told me ten years ago that ultimately, the United States of America could be an exporter of hydrocarbons, I would've thought you crazy.
Ron: Here we are, on the verge of doing that through the form of LNG/CNG coming out of the shell plates.
Russ: Well the shale plates, now LNG is liquid natural gas –
Russ: - and CNG is compressed natural gas.
Russ: What's kinda the difference between the two?
Ron: Really, it has to do with the processing mechanism and transportation of both. For our purposes, probably what's most important is that the LNG developments, there were four I believe – I may want to check my data on that – terminals under development in the United States for the purposes of the import –
Ron: - of liquefied natural gas.
Ron: One of those, at least, and I believe actually now more than one of those terminals are now under development to reverse that process, to essentially take the nat gas that's being discovered underneath our soil and exported to foreign countries, through the same LNG terminals that we were at one time predicting were going to be used for import.
Russ: My goodness. Are we going to join OPEC or something, I mean?
Ron: That would be an interesting statement, wouldn't it? I'm not sure how the negotiations would go, but –
Russ: For so long now, we've sort of been under the impression that my goodness, we have to find a better way. We have to conserve every ounce of energy because we're buying it from people that don't like us and we've got to figure out a way to get away from, also, from fossil fuels.
Russ: And yet we all know that fossil fuels burned so much more efficiently in creating energy than any of the alternatives so far, right?
Ron: Yes. Yes.
Russ: Okay, so should we be happy with what's going on?
Ron: You know, I am personally am quite happy with what's going on and I would even put myself in the camp and sort of, you'll hear it said occasionally, all of the above.
Ron: I truly believe in a portfolio approach to our energy needs. If you look at most developed nations across the planet, power generation alone represents somewhere between seven and nine percent of GDP. If you put that into perspective, it is a massive call of energy and effort on every society's part to generate the energy to move that society forward.
Russ: Right, right.
Ron: So when we look at that in terms of hydrocarbon recovery plus alternative energy, I essentially think everything has to be thrown in the basket. It does have some interesting consequences, as we see sort of the onslaught, if you will, of the increased volume of natural gas commodity coming out of the shales.
Russ: Right, right.
Ron: Including some of the liquids that are coming out of the shales in the _____ and others.
Ron: What is really done there, is it's had two effects. It has suppressed the overall price of the underlying commodity and it has negatively impacted alternative energy.
Ron: General rule of thumb that we typically use is at eight dollars on that gas, most alternative energy sources make sense; at four bucks it's tough. We're running around the twos right now. It's extremely difficult to make the economic argument for alternative energy.
Ron: That's not to say that they shouldn't be there, but what we're seeing is an unintended consequence of this amazing push or discovery, if you will, in the shales of the nat gas resources.
Russ: But it's actually even negatively affecting coal too, right?
Ron: It's negatively affecting coal.
Russ: Right, right.
Ron: We seen some of the major lobbying groups off the environmental side taking positions – historically, they were against coal.
Russ: Yeah, right.
Ron: And now have turned their attention towards natural gas. I assume those are reasoning behind that but, you know.
Russ: Well, wouldn't that reasoning be they don't like anything, perhaps, with fossil fuels – burning fossil fuels?
Ron: It's quite possible that the particular group I have in mind is against the burning of hydrocarbons for any purpose.
Ron: That being said, what I think is interesting is it is sort of sending a signal to the marketplace that people expect, sort of, the prices we're seeing in the underlying commodity of natural gas to be around for quite some time.
Ron: If you look at rig reports, and if you certainly look at sort of the MCF discoveries that are coming out, again, trying to avoid a bit of hyperbole, they're a bit staggering, at least to my understanding, of what we're seeing that we're going to have at our disposal.
Russ: Right, and aren't we sort of out of kilter way below global market pricing on natural gas now and that's why, maybe the exporting's actually happening?
Ron: Absolutely correct. In a global marketplace, you're going to go to that place that has the lowest underlying commodity.
Ron: And that's why we see groups now very, very interested in getting involved in the export of nat gas from the US.
Russ: Right. One now, I too am, for all of the different types of energies.
Russ: Mainly because you see what's happening globally. The demand is just through the roof but it certainly feels good, suddenly, to be in the position that we're in. Now, describe for our audience why we are in that position. I mean, what happened? I mean what innovation allowed us –
Ron: Sure. I think what you're referring to is what most people refer to as fracking.
Ron: Fracturing and essentially, that is the use of liquids and high-pressure gases to essentially fracture or break up tight sands or tight rocks that release hydrocarbons.
Ron: These would be reserves that have been in place for millions of years, but we haven't been able to access them. We now send a propulsion system, if you will, and it fractures the rock. Hydrocarbons are more easily released and then we recover those natural gas or crudes –
Ron: - that are coming up.
Russ: And wasn't it also the ability to do this horizontal drilling so well, too 'cause we could go down to the sweet spot –
Ron: That's correct.
Russ: - and just go for as far as we need and frack in that direction to, right?
Ron: That's absolutely correct. If you think of pay zone inside a system being, you know, can be as tight as 100 to 300 feet –
Ron: - the ability to turn lateral and go horizontal with the drill was sort of, if you will, the first step in the process of steps that brought us to essentially what we know as fracking today.
Russ: Right, well I think that's so cool. It's sort of speaks well for the innovation that always happens in free enterprise system –
Russ: - that people figured out, you know, how to do it. I even heard somebody – it might even be in you, 'cause I've heard you several times speaking on this topic – talk about how and now, it's more like a manufacturing process, right?
Ron: I don't know if that was me but that's certainly something I've been fairly public on.
Russ: Yeah, yeah.
Ron: I look at hydrocarbon recovery today as essentially a change from the wildcatters –
Ron: - if you will, and there certain people here in this town that have made substantial fortunes on sort of the zero, one game –
Ron: - of either hit or a missed, to what I refer to now as just in time manufacturing.
Ron: We know the hydrocarbons are there. We know that they exist. We now have to time out our recovery in an efficient manner to meet the demands of the marketplace. That's a complete paradigm shift, if you will –
Ron: - in both the marketplace, in the way that the market thinks about commodity pricing and recovery, as well as the participants in that field. In the old days, you know sort of our image of the wildcatter with the ten gallon hat and going out and punching a hole in West Texas and hoping to goodness he hit crude, has changed. We now have individuals in personality types that have to think about efficiency. They have to think in terms of my new changes and recovery cost because there is a reduction, if you will, in the risk of what's called a dry hole, but there is in fact an increase in the risk of efficiency.
Russ: Really interesting, really interesting. Well I'm real excited about it, you know, but it's not just natural gas, either, right?
Ron: That's correct. That's correct. If one of the big areas that your audience may have heard upon the news is the Bakken.
Ron: Essentially, North Dakota. These were fields that were discovered in the late '40s and mid-'50s that are now on a major surge. In fact I was reading a report recently one of the biggest problems in the Bakken right now is housing for labor.
Russ: Yeah, right.
Ron: You actually have laborers living in tents in city parks because there's just not housing available for them.
Ron: But that's essentially using the fracking and horizontal drilling technologies that we think about for natural gas for the release of crude oil and those crudes are coming up. There are some infrastructure issues there. Major pipelines are now starting to come in and develop those recovery systems, their transportation systems if you will, that can move that product to market. Right now, we're still trucking and putting it on trains, but the Bakken is extremely exciting. The next big play that a lot of people think about is a Marcellus, which is New York, Pennsylvania, New Jersey, sort of that area.
Russ: Right, right, right.
Ron: And then of course, what we think about here in Texas is you think in terms of South Texas or the, if you will, the –
Russ: The Eagle Ford.
Ron: - the Eagle Ford play, that's essentially right outside our window.
Russ: Right. Really cool. Well Ron, I really appreciate you coming in and sharing this with us. I think it's exciting times for sure.
Ron: Thank you very much.
Russ: You bet. That's Ron Bolen, founder of Da3Co and this is the BusinessMakers Show heard on the radio and seen online at TheBusinessMakers.com.