“An Intellectually Honest Approach To Climate Change” – A discussion with Goodrich Petroleum

There are some topics that are important to me are around the Dispraportantly Impacted Countries and Communities. Energy policies around the world seem to be written with emotion rather than a holistic look to a comprehensive energy policy. The unintended consequences have negative impacts on the people that typically do not have the resources to counter those decisions.

Rob Turnham, President, and Chief Operating Officer, Goodrich Petroleum stopped by the Energy News Beat podcast to talk about the natural gas markets. I have had the good fortune to have several interviews with Rob, and they have always been fun. Today is no exception and we cover the outstanding performance of Goodrich Petroleum Company (NYSE: GDP) with their performance in the Haynesville natural gas fields.

Taking a look at all energy sources with the lowest impact on the environment and the lowest cost to all people is a good mix. Rob says it as it should be, and thanks for stopping by.

 

Please take a look at the Goodrich Petroleum Corporation’s performance and contact them at  http://goodrichpetroleumcorp.investorroom.com/

 

The automatic transcription is below – we disavow any mistakes or errors unless they make us appear funnier or more intelligent. 

 

Stu Turley, Sandstone: [00:00:06] Hey, good morning, everybody. My name is Stu Turley President and CEO of Sandstone Group, and I’ll tell you what, I have a fabulous, fabulous conversation coming up for you. I got Rob Turnham and he is the CEO and one of the best managers I know out there. And some people call him the best-dressed guy out on the planet. And I have known around for a long time and I got a great natural gas discussion coming up. Welcome to the show. [00:00:36][30.3]

[00:00:37] Thanks. Stu. Great to be with you. [00:00:39][1.3]

Stu Turley, Sandstone: [00:00:40] You know, I’m probably going to be the most fun host you’ve had in a while. So let’s just just have a little bit of fun down there. Everything down there for being rich right now? [00:00:48][8.3]

Rob Turnham, Goodrich Petroleum: [00:00:49] Well, good. I mean, we’re ninety-nine percent natural gas. Obviously, gas prices have risen dramatically. Our volumes are rising, our costs are dropping. And therefore, we’ve got real margin expansion. That’s really favorable right now. So all is well, we’ve got a great balance sheet and growing both production volumes and even a pretty dramatically. So everything’s going well for the company. [00:01:17][28.8]

Stu Turley, Sandstone: [00:01:19] You know, I was taking a look at your Q2 financials and not only having free cash flow. You and I have talked, I believe is over a year ago. And your management of aiming for that. Q Free cash flow, your cost protections, and making sure that is all that has been. Really you’ve got a history. [00:01:38][19.6]

Rob Turnham, Goodrich Petroleum: [00:01:39] Yeah. Thank you. It’s you know, it’s probably because the Haynesville is the most predictable basin we’ve been in. If you drill at least in the core of the play where our acreage position is, if you drill and complete a well, a certain way, it typically comes in within a very narrow range. So our ability to model the future and predict where we’re going is is is as tight as we’ve seen it over the twenty-six years we’ve been public. So if you look at what we have guided to, which is why we’re comfortable in giving guidance further out into the future, you know, we’re talking about we do we generate about twenty-four and a half billion in the second quarter. If you take our production volume growth in the third quarter and the fourth quarter, that EBITDA should go up to call it in the thirty-four million range, the third quarter up from twenty-four point four, and that in the forty dollars million range for the fourth quarter. If you start analyzing those quarterly numbers, you’re looking at a company that’s trading at current enterprise value about two times an annualized fourth quarter. And that is ridiculously cheap, not just compared to our gassy peers, but compared to anyone in the empty space. So it’s our job to get out and kind of tell the story. But you mentioned it. Cash costs going down. Our margins are likely. They were sixty-three percent in the second-quarter numbers. That’s probably going to go north of 70 percent unrealized price in the fourth quarter. So, yeah, things are working very well. You can’t get drunk and, you know, drinking the Kool-Aid because you always have to worry about downside protection. But with the balance sheet in such good shape, we feel like we’re in a good spot. [00:03:33][113.6]

Stu Turley, Sandstone: [00:03:34] You know, your stock ticker is GDP, if I remember right? That’s right. I’ll tell you, that’s kind of a nice stock ticker as everybody talks about GDP around the world and everything else. How did you get that stock ticker? [00:03:45][11.8]

Rob Turnham, Goodrich Petroleum: [00:03:47] Well, at the time we went public in August of ninety-five, it was available and it really started with the G. And so that was that had a nice name awareness or symbol of where it is. So, yeah, it makes sense. Now sometimes you’ll see on our company news there’ll be some GDP report from Europe that will hit our news feed. So it’s not always exactly accurate, but it’s really something that people can remember. [00:04:15][28.6]

Stu Turley, Sandstone: [00:04:16] Oh, I know. You know, I’m from Oklahoma and Texas, so, you know, sometimes it’s a little hard. You’re over in the Haynesville, [00:04:21][5.6]

Rob Turnham, Goodrich Petroleum: [00:04:22] so you got a little bit more of a good thing going on [00:04:25][2.7]

Stu Turley, Sandstone: [00:04:25] there with memory. I mean, what’s right? You got all that. So your investors, I’ll tell you what should be really, really interested in your long-term forecast, because before we got on, we were talking. I’m very, very, extremely bullish on natural gas. And as it’s going to go to LNG, Bloomberg released this morning. We were talking about supply and demand and what’s going to come around the corner. And I mean, this is absolutely fabulous for you. I mean, there are some great takeaways coming away for you, aren’t there? [00:04:57][32.6]

Rob Turnham, Goodrich Petroleum: [00:04:58] Yeah, the the the regional benefit of being in the Haynesville is obviously the demand for oil from the. Of course, it’s not just the 11 to 11 FBC of the day that’s being exported through the LNG terminals, but it’s also seven Bcf a day going to Mexico. So there’s a real fear that that’s the best gas base and the closest in proximity to these real command centers. And we just think that just gets better and better. You combine that with very low storage numbers, both here in the US. We should enter the withdrawal season well below the five-year average. And you look at Europe, I know you pointed this out. Europe is dramatically below the five-year average and they’re relying on Russian gas, which is not a great situation. In addition, LNG exports. So we should be faced with a really interesting winter and people think for all our gas exports, so much better. And it is right. But prices could certainly go higher. You combine that demand with the fact that there’s real pressure to not grow supply here because investors want to see live within your cash flow, don’t grow for growth’s sake if we’re growing, but we’re not growing for growth’s sake. We’re growing because we’re growing a bit. We’re growing PDP value and therefore the enterprise is going to be growing prudently. So there’s real pressure to keep supply outspend. So which is going to keep supply flattish, which is where we’ve been. And you’ve got this real shortage on the storage and a real demand for. So it’s setting itself up really nice. [00:06:45][106.9]

Stu Turley, Sandstone: [00:06:46] You know that is absolutely fantastic. One of the things I really enjoyed about the good rich heritage is the strong commitment to the shareholders, all shareholders, or stockholders of the company. You have a strong commitment. I have really good management, good numbers. And I like your constant, steady term there. Some of the things that your company in the Haynesville and you, how is that marine shale in the Eagle Ford in the Tuscaloosa compared to the Haynesville? Are those even mattering? [00:07:23][36.1]

Rob Turnham, Goodrich Petroleum: [00:07:24] No, they don’t. They don’t compare, frankly, to the Tuscaloosa Marine Shale or the TMS will have its day in the future. We still have thirty thousand net acres there. That’s just a lot of oil. And the last time we or anyone else were drilling and completing wells there, the technology was much poorer than it is today. So much easier to drill those wells once we go back and apply more modern completion recipes. You know, we’re pumping four thousand pounds per foot of sand in the Haynesville, over one hundred foot intervals with a lot of fluid. It’s breaking up the rock much more efficiently and recovering a much higher percentage of the gas that’s in place. Right? Well, when we were back in the TMS, we were completing frac stages, much wider interval and less than call out about a half of the profit. And if you do a regression analysis and you start to look at what’s really driving the results of the Haynesville, it’s really profit per foot to you are estimated also that recoverable reserves and it’s interval spacing. How tight is that frac interval stage links? Because what you’re trying to do is, is rubble’s the near-wellbore and the tighter the interval, we have 40 perforations over that hundred feet and you blast it with a lot of water and high-profit concentration. You know, we’re getting 30 percent of the gas that’s in place, whereas in the first generation in the Haynesville, we were getting about half of that. Well, actually less than half of that. So that’s what’s really revolutionized Haynesville. And that’s why you’re seeing these really high volumes, really low per-unit cost, and in recoveries at a much higher clip. So the TMS will have its day. It just doesn’t compete on a return basis to what we’re doing in Haynesville. And the same as the Eagle for our Eagle Ford is probably tier two. It’s just undeveloped acres. It’s held by production. We’ll have time in the future to go back there. But right now, when you’re generating a hundred percent IRR on drilling Haynesville wells, there’s no envelope. There’s no reason to go anywhere else. But just keep your eye on the ball. Keep keeping spending money on that play. And we’re generating, you know, as I said, somewhere in the neighborhood of sixty-five seventy percent cash margin or return on corporate returns. We were a forty-five percent rate of return in this past quarter. That ranks second among all public companies. So it’s status quo. Keep your eye on the ball. Don’t get distracted by going somewhere else and trying to prove something up. Let’s just put the numbers scoreboard. [00:10:07][163.1]

Stu Turley, Sandstone: [00:10:08] You know that is you you are not normal. And I mean that in the best compliment. A lot of S&P companies did not give back to their shareholders because you’ve always had fiscal responsibility. You’ve not been on that treadmill. I respect that. [00:10:29][21.3]

Rob Turnham, Goodrich Petroleum: [00:10:30] Well, look, six of us owned fifty-four percent of the stock, and every dollar we’re spending is coming personally out of our pocket. So there’s a real shareholder-friendly approach to our company, which is when you have a good thing, let’s just keep pounding away at it and put those numbers on the scoreboard. And as we do, we think the stock will trade better because you can’t trade it two times your annual stevedore. That’s ridiculously cheap, in particular when your balance sheets are in good shape. So we’re not going to get distracted. But one, there is a lot of M&A around that basin, however, and we continue. Participate in bolt-on acquisitions that make sense for us, so you’re expanding your drilling inventory under that scenario. We basically don’t pay much money upfront, but we will commit to drilling wells. They stay in for a real small overriding royalty interest and they get more money by virtue of US drilling wells than they would if they sold the acreage and then developed status. So we’ll continue that and we’ll entertain anything else that comes our way. But a lot of opportunities to expand our footprint. [00:11:49][79.6]

Stu Turley, Sandstone: [00:11:50] You know, this market has just gone bonkers with also the ESG movements and everything else. And now it’s kind of fun that you guys are not having to frack out. I mean, excuse me, flare like out in the Permian and all those other. You have a takeaway. Yes. You do not have to flare. [00:12:09][18.3]

Rob Turnham, Goodrich Petroleum: [00:12:09] Yeah, we don’t turn a well on until we’ve hooked it up and the pipeline is taking the gas. And so that’s a real benefit. Plus, we’re right in the middle of a substantial amount of takeaway capacity, which we have plenty of room to grow in that basin. And the gas that we produce is pipeline great gas. So can you can crack it and turn it into the pipeline right there. So we’re drilling wells within existing facility areas. Sometimes you have to expand your facilities because these wells have such high volumes, but plenty of ability to sell that gas immediately at the well, [00:12:51][42.1]

Stu Turley, Sandstone: [00:12:53] you’re probably one of the most unique positions MP public out there. And Rob, I am so happy for you on those things. Appreciate it. Good management, good numbers, good shareholder and stockholder, investor management. I really like to hear that, especially with the Ezgi. You guys have that no flaring. That was not a loaded question, by the way. I kind of knew that before I ask you. [00:13:20][27.2]

Rob Turnham, Goodrich Petroleum: [00:13:20] Yeah. What’s in our slide deck? And we think it’s important when you really are talking about climate change and we really feel like there needs to be an intellectually honest approach to climate change, which is, you know, it’s we’re all in this together. We should limit our footprint, our carbon footprint. We should do everything that we can to minimize our emissions. But there needs to be a cost-benefit analysis to the benefit of people here. And there are so many people that are in energy poverty that is cooking inside with dog or wood, and they’re dying at early ages and they need energy and it needs to be cheap and reliable. And we just but on the flip side, we need to do our part to minimize emissions. And I think if we’ll take that cost-benefit analysis approach and we focus on the benefit to the most people that I think we can we can get to a point where we’re using carbon storage and utilization in addition to renewables and whatever. That’s an all of the above approaches because, you know, even the IEA, which is pushing renewables dramatically, even their forward-looking models suggest that by 2050, even though electric vehicles are going to penetrate the market and a much bigger way, and in addition to wind and solar, they still think that the demand on gas is going to be significantly higher than it is today, that it may not be market share, but it might be. But it’s going to be we need more and more gas in the future to try to electrify and heat and use for the most people in the world. [00:15:10][110.0]

Stu Turley, Sandstone: [00:15:11] You know, you are spot on and it is fabulous. I’ve got a research team of master’s students working on some stuff for us. And the more we go greener, the more fossil fuels we use. It is not an oh, by the way, it’s either oil, gas or supposed renewables. It is both. And I mean, you cannot go to green nirvana without oil and gas. [00:15:42][30.6]

Rob Turnham, Goodrich Petroleum: [00:15:42] Yeah, I know for sure. And I think gas even wins out when you’re comparing it versus oil just because of the application that we have in our greenhouse gas emissions in the US are down 17 percent over the last 15 years. And none of the other nations in the Paris accord have done that well, even though they’ve documented what they want to do. So I think we’re doing our part now. The US only emits fifteen percent of the world’s emissions. China’s. What if China and India don’t follow suit, then we can do all that we could ever want to do here, it won’t make a bit of difference. So it does need to be worldwide cooperation. But why not adapt to climate change? It always changes versus going a really expensive mitigating strategy where you just throw up so much in the world and you keep people who are really in energy poverty from getting to that point where, you know, where we are in the developed nations. [00:16:50][67.9]

Stu Turley, Sandstone: [00:16:51] You know, what’s funny is right now we have Africa and we have some of the disproportionately impacted countries, not only just areas. And you are right about them with your long-term plan. Natural gas is the lower cost. A lot of time than these other forms out there. And then coal is taking a big head start right now and increasing again because some of the cost on the renewables can’t catch up back to coal. [00:17:24][33.2]

Rob Turnham, Goodrich Petroleum: [00:17:25] That’s right. I mean, China talks about reducing emissions and going green, but they’re building coal plants in India. Again, it’s such a huge portion of their population is starved of energy. And you can’t build a wind farm or a bunch of solar panels in the middle of the desert and expect to really take those people in a cost-effective way to where they need to be. So it definitely knows long term we’re going to have to have all of the above. And why not have all of the benefits of the doubt as we go? And a lot of times we’re building things in environmentally sensitive areas. Maybe you can’t do quite as much of that. You have to be cognizant that you might have some change in weather. So it’s the science, the science that people talk about. There’s a great book by Coolen called Unsaddle with a question mark. Spread is, you know, he was an Obama administration member. Amitay Kaltech, super-bright, super-scientific analysis of where we are, a lot of the models that we’re using to predict the future. When you go back and look at it, two or three years ago, it did it. Did it. Was it accurate? It never it wasn’t accurate yet. We keep following the same models, the same. So taking a full all of the above approaches, doing the right thing, figuring out how best to reduce our carbon footprint makes sense. But let’s just not do things drastic that are going to increase the cost of energy to people around the world. [00:19:08][102.4]

Stu Turley, Sandstone: [00:19:09] Know, I like your opinions in the good philosophy on all of this. You’ve got everything running down the right road, the right attitude, good management, good numbers. I’ll give you the last word. What do you want to tell anybody that’s looking at GDP? [00:19:27][17.4]

Rob Turnham, Goodrich Petroleum: [00:19:28] Well, it’s a pretty easy story to to to follow and understand. It’s one based on where you have consistent well results that has as good a cash margins and rates of return as any play in the world right now. I mean, the oil guys in the Permian get a lot of attention, and rightfully so. It’s a vast oil basin domestically, but their returns are this is what we’re seeing in the Haynesville right now. So I think what you’ll see us continue to do is just keep putting the numbers on the scoreboard, keep growing, but grow your proved developed producing value. The company will be worth more in the future. But you got to be cognizant of commodity prices where they might go future. Always protect against the downside. Keep your balance sheet in good order. And if you look at GDP, I think we’re as well-positioned as anyone to really succeed over the next couple of years. [00:20:27][58.7]

Stu Turley, Sandstone: [00:20:28] I’ll tell you what, thank you for stopping by our video podcast, and it’s on our app. And we will have all of your contact information out there as we roll this out. And I hope you don’t mind stopping by in the future. [00:20:42][14.3]

Rob Turnham, Goodrich Petroleum: [00:20:43] So that’s great. Great to visit about. [00:20:43][0.0]

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