PlanetGeo: The Geology Podcast
PlanetGeo: The Geology Podcast
Rocks, Risks, and Riches: Strategies and Stories with CEO Doug Heller
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To kick off Season 6 of the Planet Geo Podcast, we invited Doug Heller, a Penn State alum and geoscience finance guru, to explore investment risk in the geosciences.
Doug shares thrilling stories about turning modest funds into substantial investments and offers invaluable advice for budding geologists and students. The episode delves into Doug's journey from exploring oil in the Gulf of Mexico to managing a complex bankruptcy case, and running Sun Specialty Products.
Doug sheds light on how to think about and manage risk, and provides tips for those interested in geoscience careers, the critical minerals sector, and much more. Join in for a fascinating conversation about the crossroads of geology and finance, complete with insightful risk analysis and career guidance for the next generation of geoscientists.
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Welcome to Planet Geo, the podcast where we talk about our amazing planet, how it works, and why it matters to you. To kick off season six of the Planet Geo podcast, I'm really excited to have Doug Heller on here to talk about investment, risk, exploration in the geosciences. Doug is a really valuable Penn State alumni. He's really engaged in the department on a wide array of topics, and him and I have a relationship talking about all sorts of interesting geological concepts offline. He has some amazing stories to tell, from turning a relatively small amount of money into a very large amount of money in his exploration in his career to thinking about risk, both career risk and geoscience risk. And his advice will be valuable for anybody out there who's thinking about the geosciences, thinking about careers, students that listen to this podcast, tune in because this is a really fun and exciting interview. You can follow us on all the social medias. We are at Plant GeoCast. You can send us an email. There's a contact us link on our website, plantgeocast.com. And as always, the first link in your show notes is the Camp Geo Mobile app. We have a ton of content on there and more exciting stuff coming this year that I can't wait to tell you about later. So check that out right now. First link in your show notes. Doug Heller coming at you. Cool. Okay. Doug Heller. Welcome to Planet Geo. I'm uh I'm really excited to talk to you and uh thank you very much for your time and willingness to join me here. Thanks, Jesse. Appreciate you having me. Yeah. Um, this is uh this is gonna be fun. I I uh we know each other. We've met uh when did we meet? I think we met you're you're an alum of Penn State, um, and you got your undergrad degree here. And in the what used to be geology strictly, was it the geology department at the time?
SPEAKER_00Or was it Yes, it was it was the geosciences department. Okay. Uh is the way it was styled then. And so yeah, my my degree was in in geosciences, at which geoscience sort of a balanced geophysics, geochemistry, and general geology program.
SPEAKER_01Okay, gotcha. So you're an alum and you you're uh an engaged alum, let's say, from Penn State, who who comes by and talks to us and joins on discussions of critical minerals, and we've been talking about lithium and various things, and and um so it's very fun to talk uh talk geology with you. But how what what came before Penn State, or maybe it wasn't, maybe it was at Penn State. Well, how did you get into the field of geoscience? Was there I mean, many people in geoscience have this kind of aha realization, sitting in a class or out on a hike somewhere? What was it for you?
SPEAKER_00No, it's a great question. I I I think it was my seventh grade earth science teacher in really in middle school. Not early. Yeah, no, this guy was he was great. Um Ed Snyder, and used to come to class every day with a white lab coat on, and I thought that was pretty cool. And and that's awesome. And I just I I just I I liked who the guy was. I like the the material that we were studying and uh understanding rocks, and we did field trips and uh or a few other trips in a seventh grade earth science class. Oh yeah.
SPEAKER_01Wow, that's exceptional. So you grew up in um north central Pennsylvania, is that right?
SPEAKER_00I grew up in in Montoursville, Pennsylvania. Yeah, North Central. Uh just it's a borough of William Sport and went to Loyal Soc Township High School. So just had my 50th high school reunion last two weeks ago. So well, we don't need to toss around numbers.
SPEAKER_01I mean it's not necessary. Um but so the in my understanding of uh Pennsylvania um and I'm not deeply familiar with it, but the the education system, the public school education system in Pennsylvania is that it does not require earth science at any level as a requirement. Maybe it does in middle school today. Um was that the case? So you took earth science in seventh grade. Did you get any other exposure?
SPEAKER_00I took it again in high school. So it was it was actually a required course um in middle school because the curriculum was you know, you didn't have electives in seventh grade. Um and then I liked it so much I took the course again, just more advanced course in in high school, uh, which I really loved. And I think that really kind of got my my geological interests up. And in addition to that, I'm just a I'm a big outdoors guy, as you know. I think we've spent some time on a trout stream occasionally. Yes.
SPEAKER_01Um outdoors, there's fish and rocks outdoors, which are two very good things, very good attractions out there. Yeah. Um so okay, so that then you came to Penn State, and how did that go? I mean, how did the geoscience program? I'm very curious what the geoscience department, you know, and program looked like uh when you went through because it's shifted a lot since that time.
SPEAKER_00It it has, but I would say, you know, there were some absolute titans of academia in the department at the time. I first of all, I I started out at a branch campus, primarily because a guidance counselor suggested University Park might be a a big pill to swallow for a kid coming out of a high school with 200 in his graduating class. So I went to went to Hazleton for two years and then uh two years at University Park. So most of my exposure to the program was junior and senior year. And uh there were just some really amazing professors in the department at that time, one of whom was a tremendous mentor to me, Gene Williams. Um course you you know, you you you really get to know these guys on on field trips, right? Yeah. And in particular, field camp, Jean was was um summer of 1978, was uh was at field camp as a kind of co-leader with Daryl Carrick for most of the six weeks, six week summer field camp at that point.
SPEAKER_01So um uh, you know, Alta uh Yeah, the still the went to Alta still. Okay, yeah, yeah. Looking at the contact metamorphic aureal there. Yeah, yeah. That's that's great. I just had an undergrad um well, former undergrad who's she's now doing PhD with me. Uh we just published her undergrad thesis, which was on some alteration in the Alta Ulta metamorphic Oreal and the samples that were picked up on field camp when she was an undergrad there.
SPEAKER_00It is an amazing geologic region. Um it's just very complex. There's so much going on, and it's uh it's just one of the best laboratories in the country uh for that.
SPEAKER_01Totally. So the branch campus thing, I mean, I think uh, you know, there are a couple, I've had several now, um, undergrads who've come through the branch campuses who end up in my doing senior thesis work with me in our research group here, and I just cannot say enough about the branch campus system. I think it's an incredibly valuable resource because you get I, you know, I I went to high school, I had a graduating class of 400 and something from uh what used to be a rural farming town in Michigan, but had a huge population, it was a huge school district, and I would have still found University Park main camp, Penn State main campus massively overwhelming. I mean, I think this place is it you could easily get lost here as a freshman starting out, I think, sometimes you know it it was it was good for me because I um the math, the physics, and chemistry teaching at the branch campus was was really outstanding.
SPEAKER_00And it was kind of a smaller class setting. So I sometimes I can be a bit of a slow learner, and uh it was really it was good for me. So I I enjoyed that very much. I made some dear friends at Hazleton that stayed with me, uh have stayed with me throughout my life, actually. That's great.
SPEAKER_01I mean, I'm really happy to hear that. I think I think the branch campus system is a is a real um uh power of the Penn State, the the Penn State structure in many ways. Um okay, so undergrad at Penn State. Can you give us a sort of a timeline then through you know what what came next? Where did you go next and and how did you get to where you are in a sort of an abridged version, I guess.
SPEAKER_00Yeah, I'll try I'll I'll try to be be brief. It was it was anything but linear. Um but you know, in in hindsight, in terms of my career, I suppose, it looks shockingly linear in hindsight, because which is a kind of a conflict of of terms, I suppose. But you know, graduated uh geosciences Penn State 79 and was very fortunate to be recruited by Texaco straight to New Orleans in the New Orleans office working the offshore exploration division in 1979. And boy, what a great place and time uh to start start your career. Uh a training program was was outstanding. And so anyway, I did that for eight years, primarily uh exploration and development work offshore via the New Orleans office. So you're basically making maps, drilling wells, and making presentations to uh to management, that sort of thing. Okay. And this is in the Gulf of Mexico mostly? Yes, Central Gulf of Mexico is where I I worked, Louisiana Shelf region primarily. This is before the days of deep water Gulf of Mexico. I mean, it was the the deep water was was a curiosity by the time I left Texaco.
SPEAKER_01But um can you can you can you uh explain that that difference a minute? The the what what what's the difference between deep water and what you were working on?
SPEAKER_00So so from the shoreline out to about oh four hundred feet of water depth, it's a it's a gradual shelf slope. But when you hit about 400 feet, it drops off very quickly. So you're then on the slope and going out into deep water uh before you hit the abyssal plane, you know, which is say 10,000 feet water depth. Anyhow, so we we were very focused just on the shelf region at the time. Okay. Um and using a lot of seismic data. Yeah. Okay. Yep. Um, making maps, um, just good old-fashioned exploration. Uh we were cross-trained in those days uh with the geology part of it in terms of understanding and evaluating well logs from wells, and then seismic data, which you know used to be the exclusive purview of geophysicists. So in in the early 80s, we were all cross-trained at Texaco to become explorationists to use both tools and the toolkit to to do what? To develop prospects. So, anyhow, I I left Texaco then in 1986. Terrible time to leave. Uh probably one of the worst decisions of my life in terms of timing. Um, I left in January of 86, and by April of 86, oil prices had had careened from $30 a barrel to about eight. And, you know, the world was changing for the for the energy industry in a very rapid way. So uh I had left to go work for a small upstate New York exploration and production company. And uh, you know, it didn't take me long to figure out that those guys were not going to make a very good future for me. So I was I was only with them for a year, and then I then I I did this transition. So I was I was doing exploration management for that firm for less than a year, really, and then uh decided to follow the money uh and I I started exploring the the idea of getting into energy finance. And but really um in part out of necessity because I was kind of stuck in the Northeast and there weren't a lot of options for geoscientists with my background at that time. I'd two young young kids, and um so I started started calling every investment bank on Wall Street that had had an energy finance department, and uh, oh, Mr. Heller, Texac? That's wonderful. Yes, we uh well and so about the you know 10 minutes into the conversation, they'd asked me where my NBA was from. Uh-and I said, well, I don't have an MBA, so click. Yeah, yeah, it was kind of a short conversation, but I would I was I was fortunate after a number of months to find a a home at a a wonderful Philadelphia-based boutique investment bank, uh, Butcher and Singer. And I was a critical part in my career, worked there for four years, became very close with the management personnel at Butcher. And they had a, you know, they had a a sort of a mid-tier corporate finance and merchant banking activity. And I just fell right into it and kind of picked it up. And then post-87, 88, they decided to wind up their natural resources group. So my now business partner of 35 years and I were sitting looking at each other and asking ourselves how do we how do we keep working ourselves out of jobs? And so we concluded we were gonna go do it on our own, which with a lot of hubris, and but we were fortunate then by 1991 to find a small private equity firm in Philadelphia that was willing to back us as a startup partnership. So, and we had a had a couple of deals that we were working on at our investment bank, and we were allowed to take those with us. So that's when we started our our our firm, Heller Hickox and Company, uh, with the backing of Diamling Schreiber and Park. A couple of great great friends, business partners, and mentors there. Um anyhow, so been doing that ever since. Um we were fortunate our first first transaction that we closed was a out-of-the-park home run in the offshore Gulf of Mexico. So uh that really kind of stood up the firms for us and got us going. And um, yeah, so that's kind of the the nonlinear, you know, path idea. Yeah, yeah, yeah, yeah, yeah.
SPEAKER_01Yeah, the nonlinear but linear in retrospect. So, okay, that there's several aspects of this that are that are very interesting to me. Um I'm struggling with where to s where to start, frankly. But let's focus on the maybe the transition to the financial side because this is something I've heard. I'm curious your take on on this statement. I've heard from various people in in your industry, in the energy sector, environmental consulting sector, people with a geoscience degree out of college are great and have all the critical thinking skills they need, but they struggle to make it into upper management in those firms uh in competition with the engineers, typically, or the kind of other science-y types that are in there.
SPEAKER_00I think that's a fair statement.
SPEAKER_01And the reason that I've heard is or the argument I've heard given is that geoscientists don't get financial any financial training formally or or informally, formally. Um and is that do you far on?
SPEAKER_00I think that's exactly right. So you you have a couple of options, I think, as a as a young geoscientist. You know, you go to the library and uh you know break out the books and teach yourself, which is is mostly what I did to kind of and and to and to be fair, you know, it's not like you need a sort of intense financial training to be successful in the financial side of the business. I mean, obviously, you know, going and getting an MBA is a is a great career choice. I recommend it for any of these kids that are interested in the business career today. But um, if you don't have that luxury, which which I didn't, you have to look to educate yourself or take some time off and and go figure it out. But um And get some other yeah, go ahead. I'm sorry.
SPEAKER_01Sorry, can I can I ask a couple clarifying questions? So you didn't you did not end up getting an MBA? Okay, but you you're sort of positive about it. What is the value of an MBA for let's say you got a geoscience undergrad and you know go working a little bit in in the field a little bit and then say uh some students are saying, oh, I want to transition, I want to do something different. What's the value of the MBA, do you think?
SPEAKER_00Uh I think it's I think it's a powerful combination. In other words, a a a science engineering technical degree taken with an MBA, I think is a there's no downside to doing that. Okay. I mean there might be a cost downside for sure, but particularly these days, I mean, an MBA 35 years ago costs a whole lot less than it does today, but but uh I I I didn't have that luxury. And and and so I think that that the concepts, the important concepts that one learns or would learn in business school can easily be acquired elsewhere.
SPEAKER_01Okay. And what that was the other part to my question is the perceived or real lack of uh business financial acumen that geoscientists get in a traditional job environment or traditional educational environment. Is it as simple as like learning the definitions of eBITA and things like that? Or is it is it more innate understanding of how a business operates and how to think about money and how to think about different types of investments and funds, fundraising? Uh like I can you give me just a sense of what is missing? What what if there was one class, what should we teach?
SPEAKER_00That's a that's a great question. And I I don't know that there's an easy answer to it, but I would say it's the latter. It's it's the latter, right? In other words, it's understanding how how business operates, how corporations structure themselves, how they finance themselves, how they restructure themselves, how they merge and acquire, and what's important in those transactions. That's very important. And it's it's kind of a practical, I think frankly, it's best learned in a practical setting, which I was fortunate to have. But um, I so I think and in some of these MBA programs now, I think they're they they're paying attention to that and have these these kids focus on internships that are that are important and get exposure to that instead of just learning definitions, right? Yeah, yeah, yeah, yeah.
SPEAKER_01So it's not just sitting down and being able to read a financial statement accurately. It's more like how to think about it, how to think about the money, how to structure your deal, how to think about who to talk to next, et cetera, for fundraising or whatever it is you're trying to accomplish.
SPEAKER_00Exactly. And and and one of the kind of complementary skill sets that I think most geoscientists have is they've got a measure of creativity, right? I'm trying to think of a good example, but I think that creativity and and the financial universe are they they work really well together. So looking at transactions creatively coming from the geoscience world can be a real real benefit. You can just look at them differently and not assume that it has to be structured a certain way.
SPEAKER_01And I agree. I've heard this from from multiple people, and I think I mentioned this offline to you at some point. Um, was uh this conversation I've I had with a hedge fund manager who is a geoscientist by training and a hardcore geologist by training, actually, and was just like I I love the the geological mind, you know, I love the geological mindset. I love hiring geo geologists because they think differently about the world. It sort of has that scientific aspect, but that it's a really creative field, it's a very visual field, it's it's data light and interpretive, and people are uh geologists, I think, are comfortable with risk or with uncertainty, rather, is probably a better way to put it, which I want to kind of touch on. But um I'm curious because I want to, you know, like I said before, I think I want to use some of this information and use you as a resource for my entrepreneurship and geoscience entrepreneurship class. So can we focus on the company creation period of and and sort of dive into the weeds a little bit on was it Heller uh Heller and Hickman? Is that what you said? Hickox, yeah, yeah. Hickox, Hickock, okay. I've got October sky in my head of Homer Hickam. Um anyway, uh so the the formation of that company, so you're leaving the sort of smaller investment bank and you had some deals that you were in the works and and they were closing down their that branch, and you're headed out on your own, potentially have the capability to take some of those prospective deals with you. What does that look like? How do you go about getting how do you go about fundraising to do that? And what is the structure? Like we get in the weeds. That one successful deal, was that one of the ones you took with you? And how did you get it funded? How did you think about it? And how long?
SPEAKER_00So that's a that's a really great question. Um, and it's an important one. Um, so in the latter days at my investment bank, we we came across a uh an offshore Gulf of Mexico asset collection that was in chapter 11 in New Orleans. And what is an asset collection? This is Well, it'd be a it'd be a collection of leases and and offshore wells and platforms and pipelines and that sort of thing. So this is a this thing was barely producing at the time. So it was it was really more styled as a big plugging and abandonment liability. But uh George and I took a look at it and we were immediately enthusiastic about the potential. And they were primarily two large salt domes in the Gulf of Mexico that had had legacy production around the flanks of those salt domes. They had been sold off by the major oil companies a number of years earlier. Company that was in Chapter 11 had acquired them, but didn't finance themselves properly, and they found themselves in Chapter 11. So we started looking at the Chapter 11 case. We're just very excited about it. It's like, gosh, if we had just get that company out of Chapter 11, you know, that could be a real, a real company, right? Because it's got great assets, there's a lot of oil and gas left there, but how do you do that? This is about the time that we that we left to go stand up our partnership with with a 50% business partner who had done chapter 11 work before. So it was a very good fit. Like we, George and I were kind of the technical and finance guys, and then we had a had a business partner who was expert. He was a lawyer, understanding chapter 11s and restructurings, and uh that was the first project that we worked on in our partnership. And after a year of working on it and spending a lot of money on it, frankly, doing due diligence, we uh we managed to acquire the company out of chapter 11 in a restructured format. And then because we owned it, we owned 90% of it, we began the turnaround process. So, so how does one finance something like that?
SPEAKER_01Well, um can I can can we back up a minute and say how did you find it? What what was the insight that you had that other people missed? I'm assuming other people were looking at this as well. And so, what was your like unique insight, if any, or your what or were you taking on risk that other people? That people were unwilling to take at some level?
SPEAKER_00That's a that's a good question. I I would say, first of all, you have to remember it was nineteen ninety-one, and the landscape in this industry was littered with restructuring candidates. Like go pick one and work on it, and you probably weren't going to have a lot of competition. Oh, really? So was this because of the 87 crash? Was this a result of that? Or was it? I mean, it was a it was a it was an extinction event for the industry, as think of it that way in geoscience terms. And by, you know, even by 1990, 91, there was still the wreckage of that out there. And there had been a couple of failed attempts to get this particular company out of Chapter 11. And the failures stemmed from the inability to deal with the plugging and abandonment liability, which the federal government was very focused on. So this was this was a complex case involving the Department of Justice, the Department of Interior, the Solicitor General's office, and board level stuff at Texaco and Amaco because they were the legacy owners. Uh so it was a it's a really fun deal to work. Um Yeah, yeah, yeah.
SPEAKER_01Okay. So this is a problem, really a problem-solving exercise on a multi-dimensions that you're exactly. But you saw the geological um benefit or the the fact that this could be a really nicely producing asset class um here. Okay, so you and your your your your business partner, you've got this insight, you've got the technical insight, and you're going and you f how do you find the the lawyer colleague who knows chapter 11, and then how do you find funding beyond that to do the yeah?
SPEAKER_00I have to I have to say finding finding our our lawyer colleague who who put us in business was was an act of randomness. I mean, it was not intentional to be brutally honest. I had had a colleague at my investment bank slip me a name one day and say, you know, if you're ever looking to stand up your own business, you might want to talk to this guy. And and I I kept the name for years. Like I like three years I kept it until I needed it. And then I'm like, well, maybe I should go talk to this fellow. And I did, and he he instantly said, Let's do a deal. So, anyhow, that's that's how that happened. It was very random, not intentional at all. I I sorry, I can't offer a whole lot of wisdom on the thing.
SPEAKER_01No, that that that and in but I think that in and of itself is is valuable. The fact that there was no you weren't thinking strategically about it. I think this is the the problem in some ways is that people often think that it's not just chance. And and it a lot of it is chance, or a lot of it is keeping the business card in your pocket for three years until you need it and not forgetting it. Or take the like take the dang meeting. I mean, that's my rule is like if somebody emails me and I'm like, ah, I think I might be interested, take the meeting because you never know. You never know, you just never know.
SPEAKER_00And so so this individual would that more to your point, he he used to have a famous line. His name was Bill Diamond, great guy. He's passed on, but he used to say, he goes, I've never had a bad sales meeting. Always take the meeting. Because why? You always learn something. And even if it's a bad meeting and you didn't make the sale or whatever you're trying to promote, you learn something. So that's that's what he meant by that. Yeah, that's great.
SPEAKER_01Okay. So now you've got the three guys, you got the th the team, basically, in some way, shape, or form. You got this deal and you're just trying to finance it. How does that work? And and you said you ended up owning 90% of the company at the at the back end of it, right? After the deal was completed.
SPEAKER_00So we we worked on all the pieces of the bankruptcy for the better part of a year, which was complicated. We had to solve the problem of plugging an abandonment liability because that amount of liability, it was there, it was real, and the federal government wanted us to deal with it. So, to make a long, complicated story as short as I can, we really, with the guidance of the Minerals Management Service at the time, they suggested setting up site-specific abandonment trusts that would then be funded through a wedge of future production, right? Like we're gonna go out and redevelop these fields. There's gonna be lots of oil and gas that's gonna be produced, and then a wedge of that is gonna be is going to be contributed to these trust funds to kick the abandonment problem down the road, right?
SPEAKER_01And a wedge meaning like if we produce some number of dollars, then there's a this fraction. If we get if we produce more, then there's a higher fraction that goes into the trust or something like that is the wedge. Okay, got it. Exactly. Got it.
SPEAKER_00And so that's what we did. And we and and so the you know, the question became well, okay, what happens if if the rede field redevelopment doesn't work? Well, then the liabilities were still real, they were still there, and at the end of the day, everybody agreed that it would still be the problem of the major oil companies who were in the line of ownership prior to the chapter 11, because they they owned the liability, that's what federal law provided for at the time. So they were no worse off, right? Okay, they were just like, please get this out of chapter 11 and kick that can down the road. We don't need this headache right now.
SPEAKER_01So that's we you can solve the problem for us, but you can't make it worse. So go do your thing, right? Okay, got it. Okay. So that's that's a good exercise and solve other people's problems. Exactly, right. Exactly.
SPEAKER_00It's down the road. So, you know, so so the heartbeat of this whole thing was, you know, we believed that there was a lot of value there. I mean, I remember telling my business partner, he goes, Doug, what do you think this thing is worth? And I said, Well, Bill, if we can get it out of chapter 11 and get this thing fixed and deploy the capital, which was the other thing, I said it's probably worth $100 million. And, you know, we were buying this thing for well, we put $650,000 of equity into it, and we financed the rest with with a a large credit facility that was recourse to the reserves of the field, which we had engineered the reserves, and that's how it was financed. Um so that's debt that's backed by the oil in the ground. Yes.
SPEAKER_01Is that the correct way to say that? Yeah, exactly. Exactly. Okay, six hundred and fifty thousand can turn into a hundred million is it I mean in with some debt in there and some risk and a lot of risk in there. Um that's amazing.
SPEAKER_00Yeah, no, it's like you you so we're we're gonna we should talk about risk at some point, but yeah, I'd hope to, yeah. So, you know, I give credit to to Shell here because about a year maybe after we got it out of chapter 11, Shell approached us and said, Um, we have a lead on the east flank of one of your salt domes, and uh we would like to farm in to your 100% interest in the field, in exchange for which we'll we will carry you for a quarter, 25% interest carried in the first well, and we're gonna give you the 3D seismic data that we're gonna shoot over that field. So we thought that was a pretty good deal. We got to keep all the shallow production, and we kept that 100%, and then farmed out the deeper, the deeper rights, and um so they And you got a 25% interest in the in whatever's in the ground beneath some level of of ownership there.
SPEAKER_01Okay.
SPEAKER_00So so they um so they did their homework and shared the data with us and and uh went off a year later and drilled a uh 200 billion cubic foot gas discovery on the east east flank of the salt dome. So yeah, you know, that was that that was that's what made the deal really because all of a sudden, you know, this struggling little company that you know we had been working to turn around and and redevelop the properties all of a sudden had this massive massive reserve base. And we had to refinance the company again because to keep up with shells development drilling was not a trivial consideration. I mean, these were very expensive wells, and we had a quarter of that. So and we were doing it all with debt. So yeah.
SPEAKER_01Okay, so in that in that deal, whenever they drill a well and you have a share of it, you have to pitch in on the well for the cost of drilling the well, basically. Okay, gotcha. So it's a cost share, revenue share effectively agreement here. So okay, before I wanted I w I definitely want to talk about risk here, but what can you are there highlights from from that deal, that excuse me, that deal point onwards, and then maybe into now Sun's specialty products, which you're the executive chairman and CEO, which kind of was one of the touch points that brought us together. You know, how'd you get into this company and and what kind of deals have you done since that first initial one in the in the in the interim?
SPEAKER_00Yeah. So we sold Gulfstream, was the name of the restructured offshore company in 1996 to Burlington Resources for a help you with the math on that. We we we did a it was a like a 50 to 1 on our equity investment. So it was a it was just a real home run. And and and the trust funds for abandonment were all funded, and everybody was happy, and the major oil companies were off the hook, and so life went on. So in the course of going back and forth to New Orleans, working that deal between 92 and 96, we came across uh Sun Sun Specialty Products, which was another New Orleans-based company, and our actually our accounting firm, Ernston Young at the time, who was doing the the tax and audit work for Gulfstream, recommended that we take a look at Sun because it might be an acquisition opportunity. So we wound up acquiring Sun uh in 1995, and then over the years I've gone progressively deeper into it from simply a an ownership and board position to actual actual management. Yeah, so Sun Sun's a where they're a manufacturer of specialty drilling additives to reduce torque and drag primarily and fluid loss, uh reduce stuck pipe risk, which is a huge, huge problem in some parts of the world. Uh, and we also make a neutrally buoyant prop and when wells are fracture stimulated and the sand is pumped, um, sand is heavy and it settles. And the so there's a a neutrally buoyant prop and it will find its way up and out in the fracture network relative to sand to create a bigger, a bigger prop uh fracture network for for better recovery and better better initial rates. Gotcha. Okay.
SPEAKER_01So this is uh for for the oil fields, oil sector basically producing specialty products. Okay. And has that been your main focus since the 90s, that that that late 90s time?
SPEAKER_00Uh so we've we've we've had a number of other transactions over the years. Uh we did a leveraged recapitalization of Wiser Oil Company, which was a New York stock exchange company, between 2000 and 2004, uh, that was ultimately merged with Forest Oil. We acquired a non-core division of Dow chemical involved in uh carbon dioxide membrane separations, which is kind of a kind of an esoteric part of the market, but an important one. You know, think about it. If you have a have a big gas discovery offshore in Malaysia, and it's 40% carbon dioxide, what do you do with that? So these membranes that the company would manufacture separated the membrane or separated the the hydrocarbon from the CO2 and then CO2 can be handled separately. So wow, okay, yeah.
SPEAKER_01Some other we've done some other deals as well. But that okay, so all right, that's a that's a nice summary. So uh on to the to the risk thing. I'm curious, I mean, it seems from the outside that you're you you're sort of a risk-on kind of person from leaving a really good job to go work up in the you know the northeast uh for a company or trying to get into the financial sector or uh tackling big complicated problems with with big multinationals. I don't know, how do you think about risk? Professional risk in in this space? Like I how do you even think about it? Do you take little risks on your way to discovering and then once you see a big risk that has some upside, do you say, oh, that's the one I want to gamble on? Or or do you just Jesse, that's a tremendous question.
SPEAKER_00I and I I I think risk is one of the most poorly understood concepts there is. And I say that because I think risk is inherently good if you uh understand it, if you understand it, and if you can manage it, right? Or hedge it. So those are kind of the categories of good risk. What constitutes bad risk, and I I see this all the time, is risk that it that you don't understand, right? You should run from that. Like, I mean, I see see it all the time. People looking to invest in things they have they have no business investing in because they don't understand it. Like at least understand what you're investing in, right? And and so because I think if you if you're diligent about your risk analysis, you're gonna make better decisions at the end of the day. And I think that's one thing that that engineers tend to be particularly good at. I think risk analysis probably could there could be better teaching on it. Um then there's then there's another whole category of risk that's that's invisible risk. It's the risk that you don't know any the either you can't see it, it's there, but you don't you're not aware of it. And I'm trying to, you know, an airplane crashed into my building or something, that's a risk. Is it probable? No.
SPEAKER_01I mean, right, these things like are things that these huge catastrophic things that we don't often think about.
SPEAKER_00Yeah, I think it's important to I would just encourage people on the risk on the risk scale to to assume risk that you understand and can manage. If you are not good at understanding it or managing it, you should probably try to avoid it. Seems logical, right? But it's a it's a tried and true rule that has worked very well for for us and our our partnership.
SPEAKER_01Yeah, no, absolutely. Okay, if if we were to say what's the biggest risk, professional risk you've taken, did you recognize it at the time, or was it only in retrospect that you kind of realized how risky it was? Or I mean uh that's a cheap, that's kind of a cheap question because it's asking you to like quantify you know these things. But from the outside looking in, it it's you'd say, Oh, your first deal, you're like building your own company, but then you clearly had thought about this. This was like, oh, we're putting you know several hundred thousand dollars in, and I think it's worth you know, nine ten figures, whatever. Like that you've you thought about that. Yeah, I I think maybe that was a well-calibrated risk.
SPEAKER_00I don't know. I I think that our uh the biggest risk, and I think I think George, my business partner, would completely agree with this. The biggest risk, and by the way, we've never really talked about that. I I need to have that conversation with him. But I think that the the biggest risk that we we took was probably the Gulf Stream deal because it was you know, look, we had our backs against the wall. We were, you know, at the time we had this great idea, but we were both broke, newly divorced here, two young kids, negative net worth. And so you you you kind of you you probably take risk that you wouldn't otherwise take if you had a comfortable, cushy job, right? So and specifically within the context of that offshore Gulf of Mexico deal, there was a moment when literally everything was on the line for us. And we were we we we had we had barred. I will, yeah. I mean, I'll be brief, but we had before the the shell discovery, okay, that was yet to come. You know, we were at a point with our lender and we were kind of maxed out on our credit facility, and we had had one more high potential development well that we really wanted to drill that was going to make the difference on this thing. And our lender looked at it and they thought about it, and we we had great seismic control on it. So they allowed us to take the risk, and it was it was a hit. So we you know we drilled like a hundred foot thick gas sand, turned it to production right away, and fixed everything. But that was that could have yeah, if we if that had been a dry hole or if we had had missed the target drilling, it could have ended very differently because I think they would have shut the company down. And there wouldn't have been a ship.
SPEAKER_01So what was that feeling? What was the can you can you paint a picture of that moment when you're sit when you realized we've hit? I mean, where were you? What was the what did it feel like?
SPEAKER_00Now I I so our engineer for the company at the time was on the rig, a great dear friend of mine by the name of John Garrett, and he wanted to be there uh as the drilling engineer to make sure this went we didn't screw this up, right? And so we're all kind of holding our breath and and I I got a phone call from from John late at night. He was breathless. He goes, You're gonna be really happy. He goes, uh he goes, we just we just we logged it and he goes, it's it's you got a nice hundred foot thick gas sand there. He goes, we're gonna be fine. And I was like, Oh, thanks, John. I'm I'm gonna sleep really well tonight. That's awesome. So but that's you know, that's the kind of that's the kind of risk that you know one takes on in this industry. And it's you know, there books have been written on it. I mean, it's the returns can be fabulous or you can go broke. Um, but understanding those risks and managing them is you know, it's that's really what you want to try to aspire to be good at.
SPEAKER_01So um I guess the the thing that I mean we as just to bring it back to kind of the geosciences, as a field, and that comes from the sort of training and the courses that we think or the topics we think about are you know plate tectonics back in time or reconstructing past environments, right? It's storytelling, there is data, but it's a data light environment, right? There's not a lot of data when we think about things back in time, but it's this intuition stuff. And I think we kind of understand uncertainty, and uncertainty is kind of risk, I guess, but we're not great at quantifying it. So, how how could we get better? How could we get you know students exposed such that they're better at that, or or skill sets? Is it just go out there and do it and get practical information about it? Or is it listening to stories like this?
SPEAKER_00Well, I think you know, un unfortunately, some of it is you just have to have an experiential soft database with that kind of risk, right? I'm trying to think of an example, but um when I was at Texaco, I thought we were really, really good at risk analysis. The question is, how much are you going to pay for a 5,000-acre block offshore that has a has a big amplitude anomaly on it? Well, so we would do Monte Carlo simulation analysis of how thick or thin that reservoir might be, what the probability of a seal was, what the probability of a blown trap was, is the fault sealing. So all of those things you assign a risk factor to, and then you know it gets thrown into a a risk analysis model, and and uh you come up with you just run the equation with a bunch of different inputs.
SPEAKER_01I'm a huge fan of Monte Carlo simulations. I use them all the time in the in in geochemical data, and they the value of it is it tells you what you don't know. It tells you if I turn this knob, if I crank it in if I crank it hard to the left or if I dial it slightly to the right, what does it do to the output? And and in my experience, there's a lot of ways in which that's non-linear or non-intuitive, which you don't actually realize until you start to build the model and you start to understand, oh, that knob doesn't matter much, but this knob is really the important one. And I I've never thought about that knob before, so therefore I don't understand it. And I I think that that aspect, even of just thinking about those simulations and building a Monte Carlo calculation on your own, helps you understand kind of these processes. But I also think, I mean, for me, research is is is constantly risk. It's a it's a constant background risk assessment. It's but it's with my own time. Like, should I spend time on this project or this project? Is this is this project a PhD level project or is this an undergrad level project? How do I de-risk it so that it could be a PhD project or could be a paper? It's it's just a constant risk assessment. And so which I think now I've got a little bit longer view of this, I used to be really bad at, and I've gotten better at just because of reps. It's just reps of like now. I think I have a better tuned sense of something that's good, like a a tractable idea that you're in the fog, but I think ooh, there's something through that fog. Exactly. I just don't know what it is yet. And I don't I think it's just reps. I don't know. That's my opinion.
SPEAKER_00No, I I would agree with that. I would agree with that. It's it's this this innate sense of that's just not going to work. Right? Or it's that's not worth spending my time on.
SPEAKER_01In the deals you've done, I think another way to think about risk is is is we could talk about it as like confidence in success. Have you in all these deals ha have you gone in being like this is going to work, I can feel it? Or have you been this might work, and if it goes well, it could go this way, and if it goes if it doesn't work, it's not the the down do you have like a floor and a ceiling? Do you know the downside, but you the upside's unknown? Or do you go into it with like great confidence every time and you know you're you're that kind of person?
SPEAKER_00Yeah, but y y you always go into one of these these these deals with a a business plan, a vision, and a model of what what the plan is, right? And the the absolute, the immutable law like gravity, is that that is not what is gonna happen, right? Every time you guaranteed, hands down, you will, within 18 months, be tearing up that business plan and going to plan B because something's changed, right? It's a di we We operate in a very dynamic market. It's cyclical. You know, it can be a little scary if you think about it too much, but but you have to my point going back to what I I said earlier, the ability to manage those risks is critical. You know, is it something I can manage or is it something I've blown it and I I don't have a plan B. So I think that's something to think about.
SPEAKER_01No, that's right. As an Eisenhower quote, the plan is useless, but the put act of planning is invaluable, or something like that is the uh the the quote. This is the advice I've I've heard from investing, which I think is really good in life, too, is risk is is not a fixed thing for everybody. It the the calibration is can you sleep at night? And some people can sleep at night like a baby with a ton of risk on their plate, and some people cannot. People are different and can um handle those things sort of differently. I guess, you know, I okay, to kind of we're we're we're running long in the tooth here. I we could talk about this for a long time, I think. Good stuff. What is the in can you give me a a sort of a forward-looking view for well, the value of future geos of geoscience students today, let's say, or students, you know, younger be younger generation. What's the future look like for them and what things should they be thinking about from a skill set or experiential standpoint to kind of make them successful in the future? Well, I would I know that's a long, complicated question.
SPEAKER_00Yeah, no, and it's I I don't I don't have perfect visibility on that, Jesse. But what I what I would say is I I I'm convinced that the oil and gas industry, which continues to be a large employer of geoscientists, has a lot of room to run yet, notwithstanding all the noise that you hear about the energy transition. I mean, that's going on, but nobody should think that oil and gas exploration geologists are going extinct anytime soon. So I would just say that if you're inclined to go into the industry, I would highly encourage it. It is a great place to get your get your foundation set, get your footing, start your life and career, build networks and relationships, and then decide, you know, if you want to stay in it, if you want to go into management, if you want to be a purely technical person for your career, that's all good. Or if you want to you want to take the road less traveled, which I did, and and go into energy finance, or do something entirely different. For instance, uh this is kind of a fun anecdote, the the Shell geologist who I became very close with, um, who made that discovery, that 200 BCF discovery, great guy, worked in New Orleans, and I think he had a master's degree in in geophysics or something, terrific, super smart guy. I think he's he's teaching school in upstate New York right now. He left the industry and wanted to go be a teacher. Yeah, yeah. And I think I I think he wanted to be a teacher because he he had he had a great story to tell. Like he had seen all this cool stuff offshore.
SPEAKER_01And so, anyhow. Yeah. I had uh that there's um one, maybe two of the undergrad above the the professors at the small and undergrad institution I went to had done done a similar thing. I think they'd had these, you know, a PhD in high temperature experimental petrology from the University of Chicago at the when it was the spot to do that field in the you know in the in the 70s and 80s. And then they went, I think one of them went weren't in Exxon mobil for 10 years, 15 years, then came back as a as a professor to teach at this liberal arts mission, you know, college in Michigan. Um, and had that experience. And I remember sitting there listening to him say, you know, uh, you know, one in ten, you're doing spectacularly well in exploration, geology, things like this, you know. So he had really valuable insight for for students who were who were thinking about that.
SPEAKER_00So the other the other thing I I would add to that in terms of of potential career guidance for students today is I I I think that this critical minerals, rare earth space is really ripe for opportunity for young geoscientists, um, in part because it's been neglected. I mean, mining in this country has moved offshore a long, long time ago. And I can count on one hand the number of hard rock geologists that I know that were associated or are associated with the mining business. And and I think that's going to change. Um I think that's that's a worthy I think so too.
SPEAKER_01And I think the the problems, I mean, we we've experienced it in some of our conversations offline about lithium. There's just so much we don't know about how these elements move around in the earth and the subsurface, they move around in in plate tectonic cycles. Uh it's a really, you know, I think it's fruitful whether you want to be in academia or in mining to kind of get into some of these problems. Or if you want to get it, you know, subsurface exploration for lithium or for rare earth elements or for carbon sequestration or for geothermal energy or whatever, like I think we're in a position, it's energy abundance. We need more electrons on the grid.
SPEAKER_00And that's going to come from a the good news is that that exploration is still exploration, right? Like if you're inclined to pursue exploration, which was my passion, whether it's oil and gas or critical minerals or rare earths, that the same principles apply. You know, do I understand how these things accumulate? Do I understand what the source is, why they're trapped where they are, and how do I how do I go find them? What are the tools that I use to do that? So yeah.
SPEAKER_01I think that's uh that's a a a relatively new appreciation of mine is that exploration, whether it's mineral exploration, oil and gas exploration, it's just research by any other name. You know, it's it's learning about the earth, it's understanding the earth, it's it's making predictions about the earth, and then going and testing those predictions. Um, and I think it's, you know, some of the conversations I've had with with folks recently about just exploring for metal deposits in some capability. They're just so such an invigorating problem. It's so fun to think about and it's testable, and um, there's financial upsides and there's there's there's risk associated with it. It's it's a great, great big opportunity set. So the last question I have is what well, second to last question, I'll qualify that. But on the financial side, is there you know, the MBA, if you can do it, do it. If people can't do it, how would you recommend? I mean, is it do people do you you you find people on LinkedIn to talk to? Do you watch YouTube videos? Like, how do you get how do you how do you flex those muscles? How do you get those reps in to kind of test out your your risk assessment or your financial acumen? What's a path forward that's not an MBA, maybe? Because I think that is, as you said, it's getting expensive and some people just can't do it.
SPEAKER_00Well, I I would say, you know, number one, start reading the Wall Street Journal every day. When you find something that you don't understand, you know, let's just say there was a big bond issue. Somebody did a bond issue. Well, just go research that online. What how how are bond issues done? Why are they done? And what is the bond market anyway? And try to understand that that element of capital formation, right?
SPEAKER_01Yeah. What is the bond market anyway? You'll discover the great beast that runs the U.S. economy.
SPEAKER_00Exactly, right, right. Um, or if there's a there's a a merger, so some company's merging, and they give you the details of the of the merger metrics. I mean, it's it's it's gibberish to people that don't have a financial background, but you you can go very easily educate yourself on that, particularly in this day and age with the internet being what it is. So um, and I I so I would just I would I guess I would answer that question by saying um if there's something that that you don't understand that that intrigues you, piques your interest, we're all good scientists, go figure it out. You know, figure it out. Okay, yeah, I like that.
SPEAKER_01That's healthy. Yeah, just go go learn about it. All right, I like that. Be curious about the world and don't be afraid to go explore it. So all right, Doug. Closing question here that we always have in our in these interviews is what's been your best day as a geoscientist?
SPEAKER_00You know, um well, I'm gonna answer it two ways. Um the best day as a geoscientist when I was doing exploration in the general sense of what the best day is, would be a day that I spent an entire day in my office with seismic lines all over the place chasing an idea and a prospect and mapping it. And like a big jigsaw puzzle. Picture it, it's coming together, and you have a sense like maybe there's a closure there, maybe I can make a trap. And oh, can I tie in this pay sand from another field? So, you know, I there were many there were many days at Texaco where I would I would leave the office just totally jacked because I had in my mind found oil. And you know, and then you have something to go sell to management to get a well drilled, that sort of thing. So that's one answer to it. So if you're a geoscientist and you you're you know, you like exploration like I do, there's no better day except for one. When you just get to sit around thinking about it.
SPEAKER_01Yeah, yeah.
SPEAKER_00The only better day, the only better day than that, and and this is my final answer to your question, was I believe it was single best day perhaps of my life, apart from my kids being born and getting married, um, would it would have been um Labor Day weekend 1995. Got a phone call that the shell the well we were carried on, the initial well that was going to test this 200 BCF prospect, that it had logged, and that the log was being sent via fax to my office. You need to go take a look at it. So I it was like a Sunday afternoon I went in and I pull off this big stretch of well log from the fax machine, and I'm looking at it and I'm counting the pay sands. So there were like five 50 foot thick new field pay sands, boom, boom, boom, boom, right top to bottom on the log. And I I knew instantly what it meant. Like this is a major discovery, big, big discovery. 200 BCF uh is is a lot of gas. And so I I uh went upstairs to my office and got out my colored pencils and started doing a pay count, which uh you know they they teach you to do at major oil companies so that you can calculate the correct thickness. So that was that was probably the best day of my life as a as a geoscientist. Yeah, that's it's good stuff.
SPEAKER_01So this is an ignorant question, but what is a pay sand and how do you how does that come off of well, how's that logged?
SPEAKER_00So a pay sand is simply a a sand that that has hydrocarbons, right? Oil or gas or both. You know, when they drill a well, the only way you know what you have have down there is Slumberger Halliburton will come out and they log it. So they they run a suite of electromagnetic and radioactive tools and retrieve it and get all these curves so you can tell exactly what the the lithology is, the the reservoir fluid, you know, the resistivity of the formation. And so through through analyzing those curves, you know whether you have oil, gas, or water, uh, with water obviously not being the objective.
SPEAKER_01Okay, gotcha. Yes. And so that these come out, that's the well log you're looking at, is is you know it's sand, so you know you can get it out, and you know that there's oil or gas there. Okay, gotcha. Cool. Yeah, that's awesome. A good day. Very good day. Yeah, yeah, absolutely. Absolutely. Well, Doug, uh, thanks very much for your time. I I sincerely appreciate it. Thanks for having me. Very interesting conversation. I love the I love your take on risk um and and how to think about it and you know how to how to get into a different field is just go learn about it. Just go try, go talk to people, go answer your questions you have for yourself. I love that. That's great advice. So I thank you for your time. I really appreciate it. Thanks, Jesse. Appreciate you. All right, we'll talk soon.
SPEAKER_00Okay, bye.
SPEAKER_01Hey, that's wrap. Thanks for listening. You can follow us on all social media. We are at Plant Geocast. Shoot us an email. We have a contact us link on our website, plantgeocast.com. And uh please give us any uh hints, tidbits, topics you want us to cover. We're happy to hear those and dive into them. And stay tuned for more Plant Geo next week.