Hi, this is Chris Mathews. I'm the senior editor of shale and A&D for Hart Energy and Oil and Gas Investor, and I'm joined by Pete Bowden. He is the global head of industrial energy and infrastructure investment banking at Jefferies. Pete, thank you so much for your time and being here in Midland [,Texas].

Pete Bowden: Thanks for having me, Chris. It's a long title, but I'm really just an energy M&A guy and I’m delighted to be here at your conference and to give my thoughts with a great crowd of Permian producers, and you guys always do a terrific job with these events. So thank you.

CM: Thank you, thank you for your time and your expertise here. So let's talk about the Permian. You talked about how Jefferies is modeling Permian output maybe to peak around 7 MMbbl/d maybe [in the] 2030 timeframe. Just talk to us about the trajectory for the Permian.

PB: So today, Permian is 48% of production. You have more rigs across the Delaware and the Midland [basins] than the other major Lower 48 plays combined. And we see that trend continuing. We see the relevance of the Permian escalating. We have done bottoms up analysis around peak production. That analysis would say peak production in 2030 of roughly 7 MMbbl/d. That was not surprising to me. That was directionally consistent with where I thought we would be before we did the work. What was surprising to me is that the tail is more gradual, more of a plateau than I would've expected. And frankly, none of that analysis accounts for new strata. None of that analysis accounts for new fracturing or stimulation techniques. And one of the things that my 25 years in the business has taught me is that good oilfields find a way to keep getting better. The Permian is certainly an example of that.

So I would say there might be upside to the production forecast. I don't think there's downside given the way we're running our numbers, and frankly, Permian production is more relevant to the world just given what's going on in Ukraine, what's going on in the Middle East. I think for a while people forgot [about] the importance of production from rule of law nations that are approximate to good-end markets. And I think recent events, sadly, have been a reminder of that.

CM: No, certainly it has been a masterclass in watching that geopolitics shake out the past few years. You mentioned new strata and in the Permian that's certainly of interest here at the conference and for producers. What do you think we'll see from new or less developed benches in the Permian Basin? Do you think those are needle moving zones underground?

PB: We do. I would start, Chris, by saying that the best delineated geographies have now been largely acquired by the public companies. That doesn't mean there's not more private company inventory coming, there is. But you've seen a massive consolidation of the known strata into the hands of bigger players. That is, as you would expect it to be. That means that intrepid operators need to go back to exploration. I hearken it to real estate. If prices on the best street in town or too expensive, you have to find an emerging neighborhood. I think that's effectively what's happening in the A&D market. There have been some very exciting well results in the Uinta. There have been some very exciting well results in the PRB [Powder River Basin]. We're very bullish on Utica oil. We are interested in emerging oil plays like the Cherokee, like the Pearsall and the Eagle Ford.

But within the Delaware I think it's about new strata and cracking the code on those new locations. Wolfcamp D, Spraberry, Dean, we have seen some interesting well results from customers. It always takes a while for the industry to figure it out, but the industry always does figure it out. So we think there's more resource there. We think it's real in select instances. We have buyers that are underwriting to those discoveries. In other instances, buyers are more skeptical. But what I would say is historically, when my engineers and geologists are excited about something, they're right a lot more than they're wrong and they are very excited about some of these new horizons.

CM: I know some of the producers at our conferences are certainly excited as well. A lot of questions about them. And you also talked about consolidation in the Permian. There's been so much of that over the past couple of years with Pioneer [Natural Resources], with Endeavor, with CrownRock and smaller companies too that have fallen off the board. I'm curious what's left to buy in the Permian Basin? What do you think the future of M&A will look like?

PB: The pace has been quick here. We announced a couple of big deals just last week. We've had a ton of deals this year. There's not an infinite quantity of multi-billion dollar private companies left. There are a handful, and I expect several of them will exit into this market. And by the way, nobody has to do anything. They're making a lot of money right now just from the perspective of cash-on-cash returns. I would say starting from the 30,000 ft level of why is this happening, it makes all the sense in the world for the big guys to get big contiguous positions of known resource. I analogize the major oil companies to the fifth army. They're not going to adjust their 2025 drilling budget on a whim. They are in the business of harvesting this resource. They are very good at it, and they have a plan of attack for doing that.

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I would say the fact that the basin is increasingly consolidated means that people have to get more creative inside the basin and outside the basin. The perimeter of the Permian has evolved. There are wells being drilled in areas that people would've characterized a Central Basin Platform that are behaving like Permian wells. So as soon as you think you have your maps exactly right, as soon as you think you've nailed your type curve areas, there will be changes. But I would say where we've seen a lot of activity are places where there's inventory, that's to be expected. I don't think smaller players want to trade punches with the big guys on harvesting known locations. The big guys are very, very good at the PDP (proved developed producing) game.

I don't think that people are buying deals exclusively for inventory, but we have had several recent deals where the inventory is going to one buyer and the PDP is going to a different buyer. There's a different business model between the producing resource, oil in the ground, your perspectives on pricing versus your perspectives on fresh locations. My view is you'll see some of a lot of different things in the forward M&A market. Years ago when the Permian was 25% of activity, we said it was going to 50%, people thought we were too bullish. We're here today at 48%. So the Permian is still going to be the epicenter of deal making, but you will see deal making in other areas. And we have seen deal making in other areas where the returns work very well. The Uinta is an example, the PRB is an example.

PB: I think you will see transactions in both new operating areas and emerging operating areas. And then I think you'll see continued evolution in the Permian. Where are the deals going to come from? The deals are going to come from the remaining large private companies that are in a market that's functioning where you can get paid fair value for the resource and the opportunity. And everyone has seen that. CrownRock saw it, Endeavor, saw it. I think the big private companies will continue to see this as an open market. If they choose to access it, they know they'll get a deal done. And these are big deals, these are not for the faint of heart. I think you'll see further public company consolidation. If you really think about what happened in the last oil price trough. Large independents became mid caps. Mid caps became small caps.

They've got to consolidate to stay relevant. Everyone is competing for the same capital. The buy side has shown that they like bigger names most of the time, unless it's a smaller name that offers them beta. So there are some emerging oil companies that have done a great job of generating outsize returns. A couple of those have been darlings of [Wall Street]. But in general, the market wants larger-cap businesses, which means you're going to continue to see deals like you saw with ConocoPhillips-Marathon. Two good oil companies, one bigger than the other. They decide together that they're going to basically achieve major status. So if you think about the world as the majors, the mini majors, the large independents — the mini majors want to become majors. The large independents want to stay large independents, or they want to become mini majors. So that's the musical chairs of the public company consolidation.

And then I think for smaller public companies that elect to sell, whether that's a sale to a big guy or whether that's more of a merger of equal transaction, what the last price trough showed is that the world is not a particularly safe place for lower SMID cap energy companies. I think the CEOs that survive those periods will, when they have the opportunity to do smart M&A, either do it to grow for their own account or will sell into an eager buyer at the right point in the cycle. Because this is a cyclical business, it will always be a cyclical business. The last down cycle showed us that the cost of capital little guys blows out way faster than it does for the big guys.

CM: So consolidation yet to come, It all sounds like. And work for you.

PB: Yes, absolutely. I hope so. We're very proud of the franchise that we've had for many, many years at Jefferies. We think there are a lot of years of productive deal making still to come. That being said, the one thing in this business is every time you think what's happening, something changes. So it'll be interesting to see. 2024 was a record year for us. The backlog in 2025 is robust. I am not a cheerleader for our industry. I don't always say it's up to the right, but right now, Chris, it feels up and to the right.

CM: It's exciting times. Well, Pete, thank you so much for helping us understand that a bit more and looking forward to you at the next Hart conference.

PB: Thanks again for having me.

CM: For more, head to hartenergy.com.

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