Darren Barbee, Hart Energy: Hi, my name is Darren Barbee. I'm senior managing editor at Hart Energy, and I'm joined here at the Energy Capital Conference in Dallas with Eric Mullins. He's the CEO of Lime Rock Resources. So Eric, thank you so much for being here and really enjoyed the panel that you were just on. I guess I wanted to ask first about the general consolidation themes that you've seen and how that's working into your strategy as an asset management firm.

Eric Mullins: Sure. Well, I think of it two ways. One, in our industry, just the sector overall, there's been a huge amount of consolidation recently, and I think that's going to continue. It's been mostly at the larger company size, so far, with a few exceptions to that. But I think some of the publicly traded really small cap and medium cap companies, I think they're in a little bit of no man's land. And the issue is they don't have enough research coverage. They probably don't have as much of the actual capacity to do secondaries as they would like to do. So they can continue to grow or make acquisitions or develop their inventory. And so you say, well, what do you do? You have to pay out all these distributions and yield or stock buybacks and you're running out of inventory. And so that is a recipe for more consolidation. The other way I think about it is there's been a bit of attrition even on the private side in terms of firms being able to go out and raise capital and invest that money in the energy sector. So there's been a little bit of shrinkage, a little bit of high grading, I think, as it relates to private energy, private equity. And on one hand, that creates some opportunities because there's not as much competition.

But on the other hand, I heard somebody describe it as the bar from the investor standpoint now is higher. And so your returns have to be more consistent. The distributions have to come earlier, so you have to perform. So it's a double-edged sword. It creates opportunity, but it creates this higher bar that you have to jump over.

DB: So I know you're in the process of raising your sixth fund, and I know you can't get into a lot of specifics about that because of regulatory issues. I am curious, though, is part of the reason or part of the rationale behind raising a new fund, this anticipation that some of these consolidations are going to splinter off into opportunities for private equity or for your type of company asset management to go out and acquire some the stuff that maybe is not Tier 1 for an Exxon Mobil or Occidental or whatnot, or even Ovintiv. I think just were marketing a [Permian] package. But does work for you and is something that makes, that will generate that IRR you need?

EM: Yeah, Darren, you're hitting on something. I think that's really, really important. If you just look at the five largest E&P consolidation transactions that we've seen over the last couple of years, it represents $185 billion of acquisitions. And in my former life, I was a banker, and I can tell you exactly what's going to happen when these deals close 12 months are going to go by, these organizations are going to get their arms around what they have and what's going to compete for capital and what's not going to compete for capital. And then they'll rationalize some of the assets that don't fit or don't make it. And those rationalizations are going to be on top of the normal flow of supply of E&P properties that the industry has to look at. So right now, the market is fairly tight. When I say that, I mean that asset values are somewhat depressed relative to history. And part of the reason for that is we live in a world where we're targeting between $50 million and $500 million in terms of asset value. Well, in that space, think about it, over the last four or five years, we've averaged between $4 and 8 $billion worth of transactions between 50 million and 500 million.

So if all of a sudden you take, let's say 10%, that's going to be rationalized of $185 billion. That's not the total, that's just the biggest five. You're talking about another $18 billion on top of a $4 to an $8 billion market. That's what gets us excited. In terms of acquirers, this is going to be, I think, a real opportunity if you have capital and if you're looking to buy oil and gas properties, it's going to be a terrific time, not like anyone I've ever seen in my career.

DB: And just to follow up on that, we were on a panel just now, just a moment ago where we were talking about the difficulties in raising funds. Do you think that's helping? Do you think it's helping?

EM: I think it helps on the margins. It's not enough, I think, to pull some of those institutions who have said, 'Hey, we're not going to invest in energy. We're not going to invest in oil and gas.' I don't think it's that much of a pull, but I think for those that are on the margin or those that are still investing in the sector, I think it's a huge plus.

DB: Great. Well, hey, thank you so much for being here. Really appreciate it. A great panel and a great discussion. So that's it from ECC here. Again, I'm Darren Barbee, and if you want more information, please visit our website, HartEnergy.com for more information.

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