The high oil and natural gas prices we are experiencing right now make us look really smart. Many of the properties we bought when prices were low are generating cash flows for investors at a faster rate than we had expected, and for that we might be tempted to take a lot of credit. Certainly, there is a benefit to being in the right place, at the right time, with the right amount of money, but we need to “tap the brakes” on congratulating ourselves too much.
The fact is, buying an oil/gas property is a singular event, an arms-length transaction that occurs at the end of a lengthy due diligence process. Timed right, it can make you look brilliant; timed wrong, and you may have buyer’s remorse. But senior leaders at established companies know that during the decade(s)-long period of owning a producing property, it is the many small decisions made and actions taken that decide the ultimate outcome of a purchase. These decisions and actions don’t make headlines and may be so small that they go unnoticed, but nevertheless, they can make as much difference to the success of an acquisition as the purchase price does.
Because most of these decisions and actions occur in the background, allow me to pull back the curtains a bit and mention a few to help put this in perspective. Some key behaviors, decisions, and actions include:
To be sure, these actions take a lot of time, commitment, and work; but that’s what Five States investors pay us to do … it’s the role we signed up for when we asked you to invest in our funds. It’s a role we have been playing for 36 years and one in which we are always striving to get better.
As of this writing, NYMEX crude oil postings are hovering around $90 per barrel … the highest level we’ve seen in over six years. Similarly, Henry Hub natural gas postings recently rose above $6 per mmbtu, approaching the highest level in over 11 years. Of course, we are excited about the effect these prices have on the performance of our fund portfolios, but we are also aware that much of the work we do, and the value we add to our investments, won’t change with commodity price movements.
So regardless of whether oil and natural gas prices edge still higher (like we expect through 2Q 2022) or we see a measured return to normal (like we might expect in 2023), the Five States team will be busy working to ensure that the dozens of little decisions, behaviors, and actions we take will extract the most value out of our assets for our funds and our investors.