Chris Mathews, senior editor for shale and A&D, Hart Energy: The Permian Basin is attracting a lot of investment right now and U.S. Energy Development Corporation is putting a lot of its money to work in the Permian. This is your Hart Energy LIVE Exclusive with Jordan Jayson, chairman and CEO at U.S. Energy who's here to give us a glimpse into America's hottest oil basin.

Jordan Jayson, board chairman, U.S. Energy Development Corp.: We were founded in Appalachia by my parents in 1980 and for most of our history were an Appalachian based player, but in the mid-2000s we started looking for opportunities elsewhere and started to expand into Oklahoma, Texas and New Mexico and the Bakken as well. Over the last three to four years, I'd say 85% to 90% of our activities has been in the Permian Basin. U.S. Energy is a privately held family-owned firm founded in 1980, so we're proud to be only on our 44th anniversary this year. We're based in Arlington, Texas and about to move our headquarters over to Fort Worth within the next year. We moved to Texas around eight years ago. We're an operator as well as participate to a great deal as a non-operator as well in several basins across the country.

CM: And why is the Permian attracting so much investment right now from U.S. Energy, I believe you said somewhere around two thirds of your budget is going toward the Permian at this point?

JJ: Yes. We've deployed north of $500 million over the last 18 months in the Permian Basin. The wellbore control in the basin, The level of infield drilling or the amount of infield drilling inventory that still remains in the basin has been the primary driver for what's driven our investment to a great extent in the Permian.

CM: Earlier this year, you announced a major investment in the Permian with the $225 million Mascot Project investment. Can you tell us a bit about that?

JJ: Sure. Our friends in Northern Oil and Gas pointed out that David Arrington and his firm based out of Midland, may be looking for an additional partner in the Mascot prospect. And so Northern was generous and Nick O'Grady and his team to make the introduction to David Arrington and his firm. And so in late November, early December, we were introduced to the Arrington team and were able to successfully close the initial acquisition of $225 million. That also had an additional a hundred million dollars of capex over the next 12 months, which we're currently drilling out. And David and Nick have been great partners to work with on the Mascot prospect.

CM: What interested U.S. Energy so much to deploy so much capital in the Mascot investment?

JJ: Well, there are a few different components. One was, number one, a great operator. David and his team have a very good reputation in the Midland Basin and several other basins as well. Their level of experience is excellent. Having Northern in there as well as a great partner was also very attractive. There were several rigs running at the time that we bought a working interest in the prospect. So it was almost a trifecta of what leads to a wonderful opportunity. And so far the prospect and the execution by Arrington has been nothing short of excellent.

CM: So talk to me about the environment in the Permian right now. I think a lot of producers are keeping production relatively flat or are looking to do so this year and maybe into next year. I'm curious just how flattening production by some operators transitions over into investment decisions on the non-op side. Have you seen any development in that area? Actually, sorry, let me shorten that. How does flattening production in the Permian by some operators and sort of the maintenance mode operations we're seeing there now impact investment decisions for U.S. Energy?

JJ: I don't know if it impacts investment decisions, but it's created more opportunities for us as a non-operator. We traditionally have operated assets in the past but have the flexibility and freedom to also participate as a non-operator as well. And as we've seen capex flatten out in the Permian Basin and investors reward those operators that have steadied their budgets and reduced their costs has led to opportunities for us to participate to a greater extent as a non-operator and other people's projects or other operators’ projects.

CM: And it sounds like there's an increasing amount of competition from the non-op side in the Permian, other basins as well that you are active in.

JJ: I would say the Permian competition is the greatest, but there's other firms that are participating in basins like the Haynesville or the Bakken as non-operators, ourselves included. Were agnostic to which basin that we participate in as an operator as a non-operator, we're really driven by economic returns and working with great joint venture partners.

CM: I'm curious your take on where commodity prices are going and the ability to do non-op investments when it comes to that bid-ask spread and commodity price impact on that.

JJ: Well, when we're evaluating transactions or the opportunities that are in front of our evaluation team, we're risking those for different commodity price scenarios, different type curve outcomes and economic return profiles. So even regardless of where commodity prices are, we're underwriting to make sure that ourselves and our other stakeholders that participate with us are protected against downturns. Now we can't protect that 100%, but we also use significant hedging to protect ourselves as well.

CM: And give me your thoughts on where commodity prices are going. There's been a lift on oil prices in just the last few days, but curious where you think prices will go?

JJ: Well, I'm reading the same articles that everybody else is and listening to the same news. It seems to me that most of the market is fairly bullish on oil and is beginning to become more bullish on natural gas prices as more LNG projects come online over the next 12 to 36 months.

CM: How do you think about gassier plays? I mean, you're active in the Haynesville. What do you think about the investment opportunities on gassier plays right now?

JJ: I think there's a great amount of interest from our firm and others in buying existing producing gas projects where there may be some additional upside in commodity prices over the next 12 to 36 months on drilling new wells. It's very basin specific. Also, where the vendor's costs may be and what an AFE may cost to drill a well in the Haynesville or some of the other gassier plays. So there are certain plays that we don't have the ability to participate in at today's gas prices, but there's other areas like the Haynesville where we've deployed $50 million to $75 million over the last 12 to 18 months.

CM: Okay. And can you tell us about some of your activity in the Eagle Ford and in the Powder River Basin?

JJ: Sure. Opportunistically, we've participated primarily in the Eagle Ford as an operator, so we're still looking for opportunities there. Also looking for acquisitions of PDP. In the Powder, there's a lot of several majors up there that control most of the footprint that we would be interested in. So often we're being brought in not by the majors, but by others that are laying off working interests or some of the risk in AFEs that they're receiving in the Powder River Basin. But both basins have been excellent for ourselves and our partners.

CM: It sounds like there's plenty of opportunity for non-op investments out there going forward. Do you think that it'll keep you busy?

JJ: I think it'll keep us busy, but I think it's also cyclical and that it could dry up at some point. So our team is also, I'll call it baking our own operated projects, smaller scales than most firms where we're looking to go out and put together prospects that are 6, 12, 18 wells primarily, once again in the Permian, but we're also looking at prospects to operate in other areas in the country.

CM: Jordan, thank you so much again for joining us.

JJ: Chris, thank you for having me. And I'd like to congratulate Hart Energy and the team for 50 years of great work.

CM: This has been Your Hart Energy LIVE Exclusive Interview with Jordan Jayson chairman and CEO at U.S. Energy Development Corporation. Thanks so much.

JJ: Thank you, Chris.