Ep. 18 Interview with Neda Jafar | What Does It Take to Invest Through Energy Volatility?

Speaker A: Volatility is the only certainty. So you have to get comfortable with how do you actually manage through it and take advantage of it. And I think the one thing that gives us the most comfort as investors at the end of the day, I think of the Buffet ism of in order to succeed, first you must survive. Those lowest cost assets will be able to survive through those downturns, take advantage of them. If they have clean balance sheets and sort of operational synergies that they can take advantage of through scale, those matter more than ever. And then when you inevitably get that upturn, you can take advantage. You have to understand what you're getting and what you're giving up. Private investments, we have control. We own the assets fully, we can control the pacing, we can own operational aspects and discipline around it. We can ensure that if we have an integration story or some other sort of valuable synergies that we can take advantage of those and we manage that ourselves. But we give up. Obviously in the public markets we have the liquidity, but we're giving up control. And now we aim for control in certain ways or at least influenced by having a very active management philosophy. So I think it's really understanding those two sort of levers. What's more important and what's the cost of entry. When we think about where is the best risk adjusted return and we really try and take uh, a longer term view, even in our public investments, I do think there is a changing regime of, you know, the Permian is the gift that keeps on giving. But is it giving as quickly as it was and at the margins that it was? And you know, our research, we do a lot of work obviously on the public markets. We pull all the 10k data. We have all of our own models in house, a lot of our own technical staff in house. And our work would show that you're seeing while improvements in lateral lengths and therefore resource pulled out of the ground, you're doing it with declining capital efficiency, which is what worries us.

Speaker B: Neda, thanks so much for joining. Happy New Year to you and uh, great to see you. Great to have you along this morning.

Speaker A: Happy New Year. I think we're just at the end of when we're allowed to say, I

Speaker B: think we've probably got one more day where we can do that.

Speaker A: My last one, I promise.

Speaker B: I'll make a note not to say it to anyone from next week.

Speaker A: Thank you for having me.

Speaker B: No, this is good to see you and well, I guess there's obviously a lot, uh, that we're going to try and get through today. Um, so I'll try and be strategic in how we go about it, but maybe just to start off for the broader audience and maybe those that are less familiar with yourself and with Kimbridge's platform, would you be able just to share a brief overview of the platform, your aum, and the different strategies that you run?

Speaker A: Sure. Uh, so Kimridge is an alternative asset manager focused exclusively on energy. Uh, today we run about 6 billion of assets under management and we have three core strategies all underpinned by the same philosophy of owning the best assets at the lowest cost. Pretty simple. Uh, those are our flagship strategy, which is focused on control oriented investments in private, upstream, oil and gas opportunities, as well as associated infrastructure. We, uh, have our public engagement strategy, which is about unlocking mispriced assets that are stuck within either companies or corporate structures that have poor capital allocation, poor governance, misalignment of incentives, uh, that we aim to catalyze that value unlock through influence and active management. Then we have our carbon solution strategy, which is about economically grounded investments in the energy transition, leveraging so much of the expertise we've built out over the past 13 years at Kimmeridge.

Speaker B: Amazing. Thank you. That's a great sort of platform to launch the conversation. I think I want to dive straight into some of the themes that were brought up this morning at the roundtable and I guess some of the topics that are front of mind. I guess I'm looking at this and trying to pick your brain from the perspective of how an allocator might go around some of these challenges. Obviously, we've seen a lot of geopolitical and maybe macroeconomic volatility, um, as it relates to events in the world, certainly over the past year, but in particular the last week or so. Um, I mean, from your perspective, if you're speaking of allocators who are trying to wrap their head around energy, um, and around the risks associated with allocations to the space. I think there's a lot of perceived volatility, risk, uncertainty. I mean, how would you frame sort of the real impact of the events in Venezuela on global supply and prices? And I guess in the same vein, to lump two sort of similar questions together. How does evolving U.S. middle east policy affect oil markets and pricing?

Speaker A: Sure. No small, no small question.

Speaker B: Yeah.

Speaker A: And I think it's evolving by the minute. Uh, but I think it's one of the most fascinating things about energy and why I personally love my job so much, is because you're sort of getting your hand on the pulse of the global Economy, macroeconomics, geopolitics, uh, the technical aspects. There are lots of different things to think about, um, which makes it incredibly complex but also incredibly interesting. I think as it relates to Venezuela over the last week. The short of it is we're going to see a lot more uncertainty before certainty. Um, and I think right now it's just more sentiment than barrels. If you think through Venezuela sort of peak production around 3 million barrels a day today we're running about 700,000 or so and it can flex up fairly quickly to another 500,000 more. Um, but so much of the inventory today is just stockpiled above ground and that's been going to China. And so instead now you're going to see that coming into the Gulf coast refineries and into the us So I think about it more as sort of a shift in flows where China will be pivoting more towards Russian barrels, the US will be taking more Venezuelan barrels than really sort of like an instant surge. Um, but certainly volatility is, is, uh, is in vogue and as ever, uh, in energy. Um, so I think that sentiment has sort of near term impacts on the market that clearly there's a more bearish signal around Venezuela right now that if we can get it right and if Exxon and Conoco can join Chevron down in Venezuela again and bring a lot of the necessary infrastructure, a lot of the capital that needs to go in and really restore a lot of sort of detrimental activity over the last ten plus years, um, you know, you can certainly get there. It's just going to take a lot of time, a lot of capital. And I think for those companies in particular, they're going to need to see ironclad contracts, they're going to need to see security assurances. Uh, and that's just going to take decent amount of time.

Speaker B: Okay. No, it's interesting and I mean, I guess the reason behind asking the question is really looking at again, when speaking of allocators and different sort of investors, whether it's institutional LPs, whether it's smaller, more boutique family offices, I think a lot of the concerns that they've expressed are how they can go about underwriting geopolitical volatility when looking at new energy opportunities. Obviously the current administration has made no secret about the fact that its desire is to drive oil prices down, achieve $50 oil. And I think this has many LPs may be cautious about committing to a new upstream oil and gas fund, for example, because the projections they see under these scenarios don't necessarily do well in, uh, a $50 sort of oil environment. So I guess the question comes down to are they right to worry? And how should all be underwriting geopolitical volatility when looking at new energy opportunities?

Speaker A: Sure. I think being in this space as long as I have, and that's a decade plus now, volatility, uh, is the only certainty. Um, so you have to get comfortable with how do you actually manage through it and take advantage of it. And I think the one thing that gives us the most comfort is investors that need to be in the front of the cost curve. The end of the day, I think of the Buffet ism of in order to succeed, first you must survive. Um, those lowest cost assets will be able to survive through those downturns, take advantage of them. If they have clean balance sheets, uh, and sort of operational synergies that they can take advantage of through scale, those matter more than ever. And then when you inevitably get that upturn, you can take advantage. Um, so I think that's first and foremost is, you know, asset quality. Asset quality, Asset quality. Uh, it's your cost of entry and how disciplined you are on that cost of entry. So at Kimmerhage, we talk a lot about being sort of asset specific and structure agnostic. The cheapest way to enter an asset might not always be through a private MA transaction. Sometimes it's through public equities, sometimes it's through distress. Uh, so we sort of have all of those tools in our toolkit so that we can make sure if we know we want a certain asset, we figure out who owns it and then what's the cheapest path to getting control? Um, you know, I think the other thing that we do a lot of is think about normalized prices. Uh, so, you know, if I could tell you where oil is going to be in a month, I probably wouldn't be here. Yeah, but I think over the long term, you continue to see the marginal cost of production rise around 8% over the last two decades. And when we think about modeling pricing scenarios, we take a ban. We don't sort of anchor to any specific single scenario. We look at a distribution and we try and understand what's our sort of base case, upside and downside, and can we ensure that we're able to continue through that downside scenario so that again, we can participate? As they say, the best thing for low oil prices is low oil prices. Uh, as much as the administration would love to see $50 oil, we know here in the US that that's untenable. For US oil producers. Um, so I think you have sort of this push and pull beyond what you're hearing in the headlines. Certainly that gets into investors psyches. But also taking a longer term view of what are the true economics of the space, what's required, if you think about the capital intensity of this space as well, uh, and the fact that so many of these companies are now much more disciplined about their reinvestment rates around leverage, um, capital is not in flush, uh, availability today. Uh, so they have to make very clear decisions around am I taking this barrel up or dollar and putting it into the Permian or am I putting it into Venezuela, where am I getting the most bang for my buck? And Venezuela is heavy crude oil. It's got higher lifting costs. Those margins get pretty skinny at $50. So I think it's, you know, ultimately the market will dictate more than the White House.

Speaker B: Sure, that makes a lot of sense. And I think another sort of theme that seems to be top of mind for a lot of people is there's a lot of conviction around rising gas demand. Whether that's from AI, from data centers, from um, obviously AI and sort of anticipated power demand growth across North America is dominating the headlines. There's obviously a sort of tremendous amount of demand growth that's coming from LNG and international markets as well. From your perspective, what portion of that demand growth is truly structural versus more speculative or timing dependent?

Speaker A: Sure. So certainly a large portion is absolutely structural. I mean I think even before the rise of AI, we were seeing a move to the electrification of everything, a move to onshoring, uh, and increasing power demand trends. Now with AI you've just fully put that into ramp mode. Um, but natural gas I think now is consensus. It's a multi decade growth story which if you think about four or five years ago was certainly not the case. And there were questions of is this a green or brown or how do we classify this, is it a transition fuel or not? I think the world has come to understand that natural gases necessary, um, even with all the renewable builds growth, we're seeing it with hyperscalers today. They understand yes, we want as clean an electron as possible, but we need it as quickly as possible. And you're going to have to have that five nines reliability that really requires a consistent baseload power source. And that's what natural gas provides. So we've done a lot of work on this. Internally we estimate about an incremental 90 gigawatts of power demand coming just from data centers through 2032 equates to around 12 bcf a day. Today you're looking at like 105 to 110 bcf a day market here in the US. And then on top of that you mentioned LNG which we're intimately familiar with. We have our own integrated gas to LNG story, uh, and investments that we're working through down in Louisiana and LNG export, although you've seen some push and pull, a couple of recent projects were scrapped, uh, you're still looking at an incremental 15 bcf a day plus through 2030. So 30 bcf a day incremental demand over the next five, six years on a 110 bcf a day market. It is no small amount, no small margins.

Speaker B: Yeah, no, it's fascinating and um, I mean it'll be really interesting to see how that all plays out. And I think from the numbers you're laying out, there's no denying the US is entering a period of structural demand growth. But I think we're of the view, and it came up in the meeting this afternoon which Matt joined and I think we're of the view that there's abundant supply to demand in most growth scenarios. I think if we look at data from the past year, gas Production growth in 2025 exceeded expectations, largely driven by growth outside of core plays. So I guess the question that I want to put to you is in this environment and with this sort of level of activities, will privates show the same discipline as public companies? And I mean, how quickly can we start to see new infrastructure coming online and sort of Permian gas fill new takeaway capacity starting in the next year?

Speaker A: Yeah, you bring up a lot of great. There is no denying there is a ton of gas in the U.S. now, the economics of that gas and the clearing price for that gas is one question. Um, but also it really comes down to location. One of the reasons why we're very excited about our upstream assets in the Eagle Ford dry gas window are not just because they're front end of the cost curve gas assets, but because they're also so proximal to LNG and now also to many of the data centers and the multi gigawatt hyperscale facilities that are being built in that area. Um, the difficulty today, as you said, in terms of how much is structural versus somewhat speculative is that you throw a dart at the board at the map and power demand seems to be growing everywhere. But where are you actually going to see that access to supply, the access to transmission, the Access to capacity. I think it all comes down to really location, location, location. Uh, and then to your question just around will supply overwhelm the demand? Are we setting up for some sort of air pocket in natural gas as LNG exports come on, um, and growth more broadly across the globe, uh, continues to grow. But there are questions as to where that comes from. Perhaps. Um, but over the long term I think folks really underestimate the elasticity of demand to gas prices. So sure, we could maybe see TTF and JKM coming down to um, 8, $9 per MCF. But we're moving to a global market where you're seeing those prices really start to converge with the US when you take in shipping and transportation and regas and everything else. And we think that only tightens over the coming years with the US and Qatar really as the core engines of growth.

Speaker B: Sure. No, that's, that's fascinating. I guess in, in the context of that sort of global LNG scene, I uh, think the market has sort of, as you've alluded to, has started to worry about the emerging LNG glut. The question, and it's a question that came up again this afternoon is at what price would we see price sensitive LNG buyers emerge and how committed are developing nations to coal to gas switching and sort of at what price environment would we need to see, uh, to really accelerate that coal to gas switching?

Speaker A: Sure, yeah. It's so interesting because again going back to the geopolitics of everything, gases at the sort of center of these AI power demand dynamics, but also what's happening more broadly geopolitically. And you're seeing Europe flows or uh, sort of Europe demand move away from Russian flows which are now going to China. You're seeing Europe now depend more on the US which is actually advantageous to US shippers because the transport time is shorter. Um, so you're seeing all of these things play out at the same time. And then meanwhile you're seeing growing opportunities in Africa and Asia, uh, South America, not necessarily ones that are contracted because they don't have the investment grade credit required to sign 20 year type contracts. But so many of these new markets, what was I think 25 different regasification opportunities or sort of markets looking back even three, four years ago, by 2030 you're going to have 40 of them. So you're seeing a whole new investment in regasification, uh, infrastructure that will allow these markets to pull in LNG and do so on the spot market. And certainly they are price sensitive. Um, but I think a lot of that sort of perceived glut will be solved for through that price elasticity. Uh, and then I think also with AI again, even the OECD markets like Europe, even Japan, I think a lot of that demand is actually underestimated. And as you see AI take off in those parts of the world, you can see a, uh, stabilizing, if not even certain growth in those regions as well.

Speaker B: Okay, now that's really, really helpful, thank you. Um, and I guess again I want to maybe come back just to what I was alluding to at the beginning around policy uncertainty, commodity price volatility and how maybe generalist investors and allocators without deep sort of track records of energy sector investing and sort of technical expertise navigate some of these challenges. I think rather than trying to predict policy, um, sort of as a sort of high performing gp, speaking to different allocators and getting sort of sharing your perspectives on opportunities across the energy space. How are experienced LPs underwriting assets that can survive regulatory volatility or political reversals? And from your perspective and from the conversations that you've been having, there's patient, long term capital have an edge over maybe some of the more short sighted institutions that are looking for quick returns.

Speaker A: Sure. Um, yeah, there are interesting questions both I think when you're looking at, from a more generalist perspective, we just come back to it again and again. You need to be at the front end of the cost curve. That's really your only safety in a cyclical sector. Um, but then also beyond that I think is the conservatism of your balance sheet. As a firm, we've generally eschewed taking on leverage and maintain fairly low leverage, uh, levels on any producing assets that we have. Because you've just seen that story play out so many times before. Um, and you know, rbls are a great advantage, um, sort of symptom of this when prices are working and you're writing up all your reserves, they continue to give you more capital to then go drill more. And then of course prices go the other way and all of a sudden that capital sucked out and your reserves are written down and it's sort of this doom loop. Um, so I think that's one of the things we try and be really careful about is stay away from any sort of financial engineering and really stick to the very basics of understanding the resource. And that's where our technical team, the fact that two of our three founders came from industry originally as geologists, geophysicists, I think that technical expertise is so critical to understanding where you are. Uh, and of course, as a generalist investor, that's not something that just comes off the shelf. So really understanding who you're partnered with and that, that piece of it. Um, but then I think also just maintaining sort of that diligence at the management level, as you said, around capital discipline, around, um, just the health of your balance sheet and not trying to get too far ahead of your skis. Even when oil's at 100 and you're eager to grow more, uh, that's when this industry has found itself getting into more and more trouble. Um, so I think that's a big piece. And I think if you can manage that and you can manage being in the right assets, if you can manage the health of your balance sheets, then you can really take advantage of the volatility. And that's something that we try and do, is really use volatility to our advantage and think about it as our friend rather than foe.

Speaker B: Okay, that's really helpful. And I think I want to again, take a step back. Maybe. I remember, um, sort of the first time I connected with Kim Ridge was probably around the time Mark Viviano joined the firm, um, back around 2020. And he was talking about the sort of unprecedented outflow of capital that the sector had experienced, how the sector had become uninvestable and I think how it had by and large lost the faith of the generous investor. I think we saw through this, uh, unprecedented, um, outflow of capital. That flight of capital originally, I think, was attributed to ESG concerns and ESG reasons. I think over time the narrative has developed into one whereby LPs have maybe abandoned or deprioritized real assets more broadly because the diversification and illiquidity haven't necessarily been compensated for. I think coming out of the meeting this morning, one of the clear sort of takeaways or general consensus was that energy needs to show consistency of returns across all cycles to restore that confidence and attract capital back, uh, on a consistent basis. So I guess two questions with that in mind. On a risk adjusted basis, uh, are returns in the private sector, uh, generating enough above public markets to warrant an illiquidity premium? And secondly, how can managers such as Kimridge achieve that consistency across all market cycles to restore that confidence and ultimately attract capital back to the space?

Speaker A: Sure. Yeah. I think again, it goes for us. We have the ability to invest across private, public. So we think about this a lot in terms of understanding where are we in the cycle, where are these, uh, investments or assets priced. We sort of look through the public equity of some of these companies and just really try and understand what's the underlying value of those assets and think about okay, would we own this asset as a operator at this value? And that really helps inform how we think about it from a public equity stance rather than depending on consensus or thinking about multiples. And um, because Mark will tell you that you have to really distinguish between a value opportunity and a value trap. And just because something's cheap, maybe there is a broader misallocation of capital or governance issue, um, or sort of business reason why that's the case. But it also could just be that there's bad geology and we always say you can't outrun the rocks. Um, so I think understanding that piece of it is critical regardless of said public or private because we invest in both. I think the way that we frame it is you have to understand what you're getting and what you're giving up. So in private investments we have control. We own the assets fully, we can control the pacing, we can own the sort of operational aspects and discipline around it. We can ensure that if we have an integration story or um, some other sort of value bull synergies that we can take advantage of those and we manage that ourselves. What we give up obviously is the liquidity. Uh, in the public markets we have the liquidity but we're giving up control. And now we aim for control in certain ways or at least influenced by having a very active management philosophy. Um, but we don't own 51% in any of these companies and by definition are minority investors. Uh, so I think it's really understanding those two sort of levers. What's more important and what's the cost of entry. Uh, when we think about where is the best risk adjusted return, uh, and we really try and take a longer term view even in our public investments, you know, we're not in equipped for a quick trade. We are sort of long only investors, but with an activist bent if you will. Um, but the way that we solve for just that forever bullishness on the sector, uh, that is an affliction of many long onlys, is that we can actually draw down the capital as and when we see the opportunity so we don't have to be 100% invested all the time. And we can therefore really lean in when we see those mispricings result from a geopolitical event or some. I think it was liberation day. We put 60% of our portfolio to work in our most recent vintage, uh, because you had seven 10% type moves in a single day. So that's when we can get the most active. Um, I think it's just about thinking through it through different lenses, what risks you're willing to take and where your capital is serving a need that others can't.

Speaker B: Have you seen over the past couple of years, as that evolution of capital has evolved and we've seen investor appetite wane and start to come back, have you seen the terms that allocators are looking for in different deals or different sort of allocations change over time?

Speaker A: Sure, yeah. Well, I don't want to get in trouble with rgc, but thankfully, um, we have been able to buck the trend of a lot of the value destruction, import returns of the sector and the broader private EMP landscape over the 2010-2020 period. Um, and I don't think investors, I mean certainly the pendulum has swung a bit further in their favor. But when we think about our funds, we really want to be partnered with partners in the deepest sense of the word. Um, we think about alignment, we think about transparency, uh, and we appreciate that no 10 year fund, um, at least not what I've seen is ever a perfect up into the right straight line. Uh, so there are bound to be bumps along the road and just having, you know, that open conversation, those deep relationships, the transparency, I always say, like you want to run with the bad and walk with the good in terms of news to investors so that they really feel and understand that they're along the journey with you. Um, I think that just ends up being a better situation for all involved. Um, and hopefully we can make our investors a lot of money and we can do well alongside them. So I think there's, you know, alignment ends up being the biggest piece, um, that we focus on with our LP relationships. And I think, you know, I say if you try and please everybody, you're pleasing no one. You know, in terms of do I want yield, do I want growth, do I want gas, do I want oil? You know, the concerns or the ask can be fickle. Um, so you have to really understand what's your edges and as a gp, make sure your LP understands that fully and that you can have hopefully, uh, a long and fruitful relationship together.

Speaker B: Sure, that makes a lot of sense and I think in terms of those concerns, sort of. Again, another one that was voiced this morning is sort of around risk management, downside protection. You obviously alluded earlier to the fact that you've got your three different strategies, your private market strategies, your public engagement Strategy, the carbon solutions strategy. I mean, what, in your view, and I'm sure you're welcome to say all three strategies, but ah, what are the best energy strategies with true risk management and downside protection that you think people can wrap their heads around and get comfortable with?

Speaker A: Yeah, I try not to play favorites. Um, you know, everybody's got a favorite. I mean I think it's really, I joke about sort of raising the right funds at the wrong time. Um, you know, we raised our last vintage in 2021 when it was sort of peak esg fervor in the oil and gas and uh, sort of against the oil and gas space. Um, and my partners would, you know, give me the cold comfort that like, listen, the harder your job is, the easier ours is on the investment side. So I think you have to be aware of capital flows and understand what that means for investing in your space. And so we saw, you know, the excesses of shale and what that did in terms of, of collapsing the cycle. And I think the vintages that have come out of that, that investors have subsequently missed because they had so much sort of shock and scar tissue over the prior decade, um, will benefit from that. And I think you're actually starting to see that now in the energy transition space where like the Bragawatts and the growth at all costs sort of mentality of a few years ago has really come back to earth. Uh, but the capital has now sort of flown out of the space just as quickly, quickly as it came in. There is more pragmatism I think today in understanding what works and what doesn't. And a lot of these, um, what I'll sort of call like philanthropic investments around really high cost solutions that, you know, with a hope might make it down the cost curve. Um, I think the operational prowess of those investments like direct air capture or hydrogen, you know, some of these things that are much further out the curve, um, has proven to be tough to stomach for a lot of investors. But of course with that more recent memory, it's harder for them to make new investments in the space. So I think having a really core philosophy around how you invest what you're investing in has served us very well. So when I think about our energy transition strategy, again, understanding cost curves, where those assets sit, being able to attack these, um, investments from a lot of synergistic angles with our existing business, and understanding how does natural gas work with solar and battery storage as sort of an optimized solution rather than being sort of siloed to like, we're only looking at climate or we're only looking at traditional energy. I think it's a part of our sort of superpower as a firm and that we can get a much more holistic view.

Speaker B: Sure, that makes a lot of sense. And I think if I'm looking at sort of the role of energy within a broader portfolio, um, I guess a couple of questions in terms of the role that you think that should play within a sort of investor's portfolio and why they should perceive that to be attractive. I guess two questions. How are LPs benchmarking energy today versus infrastructure, private credit, tech and I think what do you think the energy industry needs to do to really, I guess establish a competitive advantage and compete for discretionary capital and maybe a, um, um, sort of tag on or add on to that question. Many family offices in particular, and obviously we've seen as a lot of traditional institutional LPs have pulled back from the space, I think families have been seen as a willing participant or are leaning into maybe some of the dislocation that exists in the space. These families often think about energy maybe less as a return engine and more as a balance sheet stabiliser. Uh, where do you see gas weighted assets, royalties contracted structures genuinely helping these groups and their portfolios during periods of inflation, volatility and geopolitical stress?

Speaker A: Sure, yeah. So if I think about the traditional role that energy or natural resources would play in a portfolio, so much of it was about the diversification and I still think that's true. The assets that are less correlated with the broader market and tech, um, there is a place for that. But that on a standalone basis isn't enough. And the traditional oil and gas space in particular needs to demonstrate that it can continue to generate returns that are in our case targeting venture rates and private equity rates and should have um, that same sort of competitive piece in the portfolio relative to anything else you're looking at. So in our view the appeal is that energy, when done properly, should offer exposure to those non correlated features but also be able to generate outsized returns. So that, that's our hope and where we hope Kimora's um, can sit in the portfolio the same time. To your point on family offices, we've seen so much of the push for yield. Some of these um, royalty investments or you know, even ABS is making a comeback in the oil and gas space, which makes me nervous. But you know, I think the, because you don't need the operational expertise or as much technical expertise in those areas, you've seen a lot More capital coming in to the mineral space and inherently making it more competitive and therefore driving prices. Um, we saw it as a very large mineral owner, uh, one of the largest Permian landowners, uh, through our former company Citio, which was bought by Viper Minerals last year. And you know, in certain cases we'd be outbid as a public company bidding on the same assets as some of these, either private equity companies or family sort of groups. Um, so I think there's a question of cost of capital there. Um, certainly there are some attractive features of royalties, especially if you're looking at sort of pre development scenarios and it's less of a liquidity trade. Um, but I think it's just become much more competitive. So a place where we've maybe pulled back a little bit, um, particularly in the Permian, where type curves are very well established and folks sort of understand what you have, um, it has been the gift that keeps on giving. So we're very happy to own those minerals today as a shareholder now a Viper. Um, but in terms of accessing new investment opportunities, I think that's more challenging for us. And then in terms of things like ABS or contracted structures, I think there's this perception that they dampen volatility, but I think a lot of it is you're just pushing that out. And sure, you can maybe hedge, but those hedges have rollover risks associated with them. Um, so maybe you can get two, three years out, um, but thereafter you're still subject to the rollover risk and where those commodity prices are at the time. Um, and then when you're looking at longer lived assets, in particular longer lived wells, um, I think you can feel fairly confident in where type curves are, but they do require workovers and that can then really eat into your margins and your profit. Um, so there is some like, operational risk there. And then of course you're left at the end of the day with a massive liability of, you know, owning however many wells that need to be plugged and abandoned and properly taken care of. So those sorts of things, I don't know if the risks are all fully understood. There's this appreciation for a well, you know, I promise 15% free cash flow yields in the next, you know, three years and I can get all my money back in five. Um, that sounds very attractive from a headline perspective, but I think digging a little bit deeper, there are areas to be careful.

Speaker B: Sure. Okay. No, that's super helpful, thank you. Um, and I guess another theme which has come up as an area of concern, or maybe that investors um, aren't necessarily always fully able to wrap their head around is that of resource scarcity and sort of depleting inventory. Um, I mean, obviously we know there's a growing consensus that US shale is maturing. I mean, how real is that constraint? And I mean, how much can technology realistically offset declining inventory quality if we assume a lower commodity price environment over the cycle? What differentiates shale assets that can still compound value from those that, uh, simply survive?

Speaker A: Sure, yeah. I would, um, encourage a small plug, sorry everyone, to go to the Kimmeridge website. We wrote a paper on this called Shale's Golden Years, talking about sort of the maturity of shale and resource maturity, and talked about sort of shale getting older.

Speaker B: I'm sure we can link it in this episode.

Speaker A: Yeah, sure, please do. And, um, I think in that sense it's less about like the US is running out of shale and more that you're seeing declining capital efficiency. So that makes us wonder, okay, well, where are the most economic wells going to come from? Maybe not this year, but in two, three, four years? Um, and I won't go into back too much to Venezuela, but, you know, if you're not getting $50 oil out of your US producers, that, that's telling you something if you have to go and head to Venezuela to try and solve that problem. So, so I think there are limits. I do think that the US in particular has seen its sort of best days in terms of the massive ramp of growth. I mean, going from, uh, earlier in the century of we're going to have to build all of this import capacity and regasification terminals and now, you know, it's all going the other way. As a net exporter of oil and gas, it's a massive revolution that shale has enabled. And a lot of that goes back to the $330 billion of debt and equity that was sort of lit on fire over that decade between 2010 and 2020. Um, but I do think there is a changing regime of, you know, the Permian is the gift that keeps on giving. But is it giving as quickly as it was and at the margins that it was? And, you know, our research, we do a lot of work obviously on the public markets. We pull all the 10k data. We have all of our own models in house, a lot of our own technical staff in house. Um, and our work would show that you're seeing, you know, while improvements in lateral lengths and therefore resource pulled, uh, out of the ground, you're doing it with declining capital efficiency, which is what worries us.

Speaker B: Okay. No, it's interesting. And I think another component is. I mean, you've alluded to the events in Venezuela as an attempt to sort of replace declining inventory here on US soil. But there's been a lot of talk and rhetoric around looking at international opportunities. Mark has voiced his sort of, um, fondness for the opportunities in Canada. You alluded earlier to the fact that you've opened an office last year out in the Middle East. I mean, are there opportunities that you're seeing to create value for shareholders beyond Usshores? And how are you approaching those opportunities?

Speaker A: Yeah, I think there are a couple of things. I mean, one of the things that we talk a lot about too, is just scale. So as shale matures, you need to try and eke out more from less, and a lot of that means consolidation. And Canada is a great example where you have so many small companies doing so many of the same things that really, if they were all combined, could be run much more efficiently. Um, my husband's Canadian, so I feel like I get a little bit of a pass, uh, in talking about Canada. But, I mean, first and foremost, the resource is undeniable. It's there, it's competitive with the Permian. Uh, the biggest issues have just really been egress, getting it out of the ground, getting it to the right markets. Um, but then also some of these social issues around how the Canadian markets are run. The fact that you have so many of these micro caps and juniors, um, that are able to issue equity into the domestic markets, that has meant that it's just run a lot less efficiently than what we've seen in the US So we think about it being probably five, seven years behind the US in terms of a lot of the rationalization that happened here, a lot of the consolidation. Um, so if we can go and be a part of that, we made a lot of money doing it here in the US we don't want to be as arrogant to say, oh, we did it here, we can do it there. Um, but we found that the reception in Canada, uh, from investors, from companies, has actually been quite positive because they appreciate and understand the same issues. Um, you're seeing also, I think, this national fervor around their own resource and understanding. Uh, I speak with investors generally about. Nobody really thinks about Canada when they're talking about oil markets. You talk about Saudi, you talk about the Middle east, you talk about the U.S. now we're talking about Venezuela, Canada. You're up 4.55 million barrels a day. It's one of the third largest single market, um, for production. So I think it's a great resource. You now have a lot of the support politically to go and develop that and to look at other markets. So I think there are a lot of tailwinds that will help Canada generally. Um, as far as the Middle east, our expansion into Abu Dhabi and our partnership with Modela Energy, it's a different but, um, equally compelling opportunity set. I think the Middle east is very keen to understand how they can unlock their own resource. Of course they have a lot of oil, but also from the gas side, um, so they're getting more involved in the LNG markets. We've seen that across Abu Dhabi, across Saudi and others. Um, and I think for us these aren't passive investments, they're partnerships. Where we have alignment, where we have governance, there's strategic thinking and value behind it. Uh, so what we're not doing is chasing sort of every international opportunity out there. I think there are some, uh, markets that, as my colleague Ben would say, I wouldn't touch with a barge pole. Um, there's either too much geopolitical risk or the infrastructure isn't there and the returns required to, um, compensate for that risk are too great. Um, I think it's specific, it's focused, but we are seeing more and more of our E and P brethering looking at other markets, trying to understand where are we going next?

Speaker B: Sure. Okay. No, that's super helpful and I'm mindful of time. So I've got one more question which I'll put to you. I, um, think really looking at. And again it's a theme and a topic that's come up in both meetings today around sort of the value of gas assets? Do you believe that upstream gas assets are, uh, receiving appropriate value today, given the power and AI narrative and you've alluded to, uh, some of the challenges of getting the resource to market. I think infrastructure in midstream in particular has come up as an area of interest for a lot of investors, ah, who are now looking at the space. In your opinion, do us natural gas companies need to have more active management of fiscal flows, Being able to shut in, being able to decide when to bring on new production alongside a more integrated midstream or liquefaction, for example, strategy. And what are the benefits to of kind combining those strategy and those two strategies? And I know that's something that you guys have already done. Um, so I'm sure that sort of, you have a view on that and are able to share your experiences of it.

Speaker A: Anyhow, thank you for sort of the hat tilt. Yes, our business catarists, we have uh, what we call our well head to water strategy of taking upstream molecules and then fully owning them through to LNG and the export markets. And that allows us to take advantage of domestic prices but also international prices. And, and really look at those 20 year contracts I mentioned earlier. In LNG, if you have LNG facilities that are contracted, you get the benefit of those more infrastructure like returns. Um, but you also have the right way risk of owning the upstream alongside it and being able to grow. Uh, so we think through that optionality and where are we able to optimize those flows. Looking at different trading hubs, we've recently entered the Haynesville in addition to our Eagle Ford positions so that we can think about where those different markets price and how we can take advantage of those marketing, uh, sort of discrepancies and margins, the differentials between the two. Um, so I think that's a big piece of it that you can only get really with scale where the value of integration becomes real and you can generate those synergies. I think there is still a meaningful disconnect between like the long term utility of gas versus where those upstream assets are valued today. Um, I think investors have generally been more comfortable and maybe some of it is ESG still as an overhang of owning the peakers or the midstream, uh, the generation which you look at companies like Constellation and some of the more recent transactions have been on a tear. Um, but upstream feels one step too far still and with appreciation for as you were talking about with volatility, volatility around the gas price. I mean 60% of this is still weather dependent. So the front month can be wild and it swings but the back end uh, of the curve has actually been quite stable. Uh, I think what we're seeing more recently is more consensus around this idea that gas is a multi decade growth story, that this is a key transition fuel, that we're not moving away from gas anytime soon. Uh, and now also that you're seeing Asian buyers and sort of non traditional buyers. Some of the, the trading houses for example get more involved in upstream assets because they're covering some of their own exposures. Um, so you have different lower cost of capital investors coming into the space that we hadn't really competed against before. So that's driving up some of the Haynesville transactions for example where we've seen, okay, well if we can't inorganically consolidate some of these assets, maybe we're better off organically Going out and delineating some of this newer acreage ourselves, which is how we came to the Blackstone Minerals transaction in the Haynesville in particular, um, that, you know, we believe you'll ultimately get paid for being able to demonstrate more inventory yourself versus trying to go out and buy it and competing against a lot of these other large players.

Speaker B: Sure. No, that's fascinating. And I mean there's tons that I'm sure we could delve into. There's lots of different directions we could take, but unfortunately time is up. So maybe just a final question to put to you as we close out. I mean, I've asked everyone else that I've spoken to over the course of the day, if you look into your crystal ball and sort of, do you have any big, bold predictions for, uh, the year ahead, any sort of hopes or aspirations for sort of how certain situations might play out? And if we were to sit here again, this time next year in January 2027, what would you hope has played out? What scenarios would you hope have played out? What. Is there anything that you would hope has changed and that could be specifically for Kimridge or for how the broader market views the opportunity set within the energy sector?

Speaker A: Sure. I mean, Kim Ridge, we're never short on ambition. Um, we have a lot ahead of us this year and we're very excited about, um, our Commonwealth LNG facility, uh, what we've been doing in the public markets, getting more vocal there. We are looking at other opportunities to continue to grow our platform. Platform. Uh, and to my point earlier on, the harder my job is, the easier my partners are on the, uh, investment side. Um, I hope my job eases up a little bit this year, uh, and that we've demonstrated that we deserve that capital from our investors, which I'm confident we have. So I'm excited about getting through this year in that respect. I think more generally for the energy space and for investors in the world, really not to get too sort of philosophical about it, but I just hope there's more of this pragmatism coming back in where it's a less polarized discussion around this is good, this is bad, and more about what's economic, what's the reality of today, and how can we deliver the available, affordable and cleaner solution for all consumers. So that's, it's, um, perhaps, yes, more gradual but more achievable energy transition.

Speaker B: Sure. Well, I hope the job does get slightly easier over the course of the year. Uh, we'll be, uh, we'll be following your progress, but Nella thanks so much for the time. Really enjoyed chatting with you and, uh, look forward to keeping in touch.

Speaker A: Thank you, Ben. And thanks, Pragma. It's been a, uh, wonderful, uh, sort of experience to be a part of and see all the great work that you're doing.

Speaker B: Brilliant. Well, we look forward to keeping in touch and hopefully getting you along here back in.