[Editor's note: A version of this story appears in the June 2019 edition of Oil and Gas Investor. Subscribe to the magazine here.]

On a pleasant April afternoon, standing before about 600 people gathered in the Post Oak Hotel in Houston, Karl Brensike was in his element, telling the story of the mineral business.

It’s a personal story for Brensike. He’s the wunderkind co-founder of Haymaker Minerals & Royalties. He’s an overnight success, 20 years in the making. His career has moved forward haltingly, built more on busts than booms—first as tech company CEO and later asset manager, screenwriter, co-founder of upstream E&P Remora Oil & Gas and finally as CEO of Haymaker.

Brensike has rubbed shoulders with would-be Silicon Valley visionaries, New York’s financial wizards, the Los Angeles entertainment scene (not his favorite) and, lastly, wildcatters.

“I think oil and gas has the greatest group of people that you would ever want to be associated with,” he said.

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It shows at the Post Oak, as he stands before his fellow mineral brethren. The Post Oak itself, with elegant décor and an inhouse Bentley and Rolls Royce dealership, underscores the theme of Brensike’s World Oilman’s Mineral & Royalty Conference: business is good. It’s just taken a long time for the sector to convince others that it could be.

Brensike turned toward the giant presentation screen that displayed his slides and couldn’t resist having a little fun. “I kind of feel like a weatherman,” he said, mimicking a forecaster pushing weather across the screen as the crowd laughed.

Brensike asked for a show of hands: Who had ever been to his hometown of Olney, Md.? Few, if any, went up.

In a deadpan voice, Brensike said, “Important statistics about Maryland: 6.1 million people. Currently there are no rigs running.”

As the crowd continued laughing, he added, “and there is actually zero oil production in the state of Maryland.”

Olney is not a place where a person grows up with wildcatter dreams. But Brensike is a full convert.

By 2018, at just 41 years old, Brensike led Haymaker as it plowed through 420 acquisitions of mineral and royalty interests for about $355 million. That year, Haymaker sold its remaining assets to Kimbell Royalty Partners, concluding a divestment program of more than $630 million.

At the mineral conference, Brensike unfolded the broader developments that shaped the oil and gas mineral sector.

The initial hurdle was money. Swaying early investors in 2009 was difficult, and private-equity firms had no interest in investing in minerals. By 2013, as Haymaker was beginning to form, the market was slightly more receptive. More recently, mineral companies have flourished. Most recently, in April, Brigham Minerals closed its IPO, which opened at $18 per share and, in its first days of trading, sat above $20 per share.

The change in attitude, to Brensike’s thinking, can be traced to the June 2014 IPO of Viper Energy Partners LP, which set out to raise $100 million but pulled in more than $130 million by the time it closed.

“In this industry, good things tend to happen when you bring people together.

If history textbooks divide eras by AD and BC, the mineral world is separated by Before Viper and After Viper. Viper, with its general partner held by Diamondback Energy Inc., was a flashpoint for the mineral industry.

“Once Viper went public, the cat was really out of the bag and institutional investors were looking at the mineral space for the first time,” he said.

Haymaker was, at the time, just one year old.

Selling Is Such Sweet Sorrow

On March 21, 2019, a month before the mineral conference, Brensike sat at his desk with a direct line of sight to the entryway of the small, inauspicious office space in North Houston where he’s working.

Brensike shook hands, outfitted in a relatively subdued golf shirt and cap. He was expected later that day for a tee off at the Texas Wildcatters’ Open, an annual event held by the Independent Petroleum Association of America (IPAA), of which Brensike is a board member. Brensike is very active in the oil and gas community. He knows how to network. In addition to the IPAA, he is on the board of World Oilman’s Tennis Tournament and the Youth Development Center’s annual roast committee. He also created the World Oilman’s Poker Tournament 13 years ago and co-organizes an annual A&D ski trip with Meagher Energy Advisors.

“In this industry, good things tend to happen when you bring people together,” he said.

Asked about his golf game, Brensike replied matter-of-factly, “I’m terrible. I’m absolutely terrible. I did however, once hit a hole in one during a round in which I shot a 118.”

A friend offered to let Brensike use the office space as he and his partners unwind Haymaker’s affairs, closing out the business, distributing stock and shuttering the old office near Houston’s Memorial Park.

For a deal that closed in July, Brensike said he had found a surprising amount of work to do.

“It’s funny, anybody that started a private-equity company, you talk to them in the first few months, it’s always like ‘oh, man, I had to get paychecks set up and get insurance and a website and email and furniture and an office and all of this stuff.’ You don’t realize when you sell it, it’s like 10 times more work, because you have to unwind everything.”

Brensike, nearly always self-deprecating, said Haymaker really began with his foray as a convertible bond analyst.

Asked what a convertible bond analyst is, Brensike responded: “I wish I could tell you. I wasn’t very good at it, which is why I got into oil and gas.”

About six years after forming Haymaker, Brensike said the final sale has been bittersweet for him.

For the investors and employees, all of whom owned equity in the company, “they all did really well.” Some, since leaving Haymaker, are also starting their own companies.

“I think that’s one of the more fulfilling things. There are these quotes about ‘judge yourself on how good of a leader you are by how many leaders you create.’ And it’s been great to see other Haymaker alumni go out and do good things.”

Still, on a personal level, Brensike and his partners had a vision of transforming into a public company.

“We know how good we are at buying these assets and managing them and marketing them,” he said. “There’s still probably a little piece of us that wishes that we could have been the big group that went public and are running it all, but at the same time, we did great by our investors and everybody in the company.”

Dot-bomb

Brensike’s early ambitions had nothing to do with oil or gas. He was interested in professional tennis and screenwriting.

While he ultimately took up writing for a brief time, he thinks unkindly on it.

“You deal with the entertainment types in there, and some of them have extremely difficult personalities.”

Both of Brensike’s parents were in the medical field: his father a doctor and mother a nurse.

“My dad was a cardiologist, who, ironically, died of a heart attack when I was seven years old,” he said.

Brensike entered the University of Southern California as a double major in the entrepreneurship school and the film school, which were both ranked top in the nation.

In 1999, fresh out of USC, Brensike entered the dot-com universe, which was then fully booming.

He recalls it as a time when “you could be 22 years old and have a really good idea and you could get venture capital money in order to explore it.”

Like most everyone, he was unaware of the epic collapse around the corner.

Brensike and a few other people formed a company called netHESIVE. The company was focused on using artificial intelligence to connect people together based on shared interests, “to basically improve search capabilities as the web continued to grow,” he said.

“We called it Google before Google. Obviously, it was not as good as Google.”

The company grew to about 25 people before the bubble burst and, in 2001, the company merged with Channel Intelligence Inc.

Google, it turns out, bought the merged company in 2013 for a reported $125 million in cash.

“It’s kind of funny, that deal ended up paying off, but on an hourly basis from 2001 to 2013, I don’t think we got paid very well on it,” he said.

For a while, Brensike kicked around Los Angeles, an unemployed tech company CEO. With an agent at William Morris, he turned to writing screenplays and books—“just paid gigs to work with other writers and producers here and there. I was decent.”

More than anything he found the subjectivity of Hollywood frustrating.

Oil and gas, he would find much later, was far more practical. “At least here, if you drill a good well, you get paid and people recognize it.”

Around that time, a college mentor and USC alum offered him a job in Greenwich, Conn., at Argent Funds Group. He was offered a shot learning about the finance industry and convertible bonds.

“That’s when I hated convertible bonds, but I fell in love with energy,” he said.

Low Yield

While in Hollywood, Brensike had missed the business world, particularly the spreadsheets and the numbers, but he wasn’t quite prepared for the tediousness of an analyst job.

In his April mineral conference, he depicted the job on a slide using a picture of an office worker who looks bored enough to swallow his tie.

Brensike said he found the work dull.

“They just had me reading documents, looking for certain very specific passages on make-whole premiums and all this different kind of specialized financial terminology,” he said. “To be honest, I was kind of ready to move on.”

But in 2003 and the following year, the fund owner wanted to get back into the energy industry even though the firm knew its investors considered drilling funds too risky.

But what caught his eye were minerals and royalties, “because they behave a lot like bonds.”

“You get all the benefits of bonds in that a diversified royalty portfolio distributes a consistent monthly revenue stream, but you have far more upside with very limited downside,” he said. “When we looked across the whole investment universe, we couldn’t imagine a better investment for yield-oriented investors, yet we soon realized there was no way for investors to get exposure to this amazing asset class. That’s when we decided to create Cornerstone Acquisition & Management Co. to start buying minerals and royalties.”

Leaving behind the tedium of the bond business, he instantly took to oil and gas. While the learning curve on convertible bonds was steep—30 years steep—energy was new.

With no energy experts at Argent, “I was able to dig into minerals and get up the learning curve as much as anybody else in the firm at that point,” he said. “I was just incredibly interested in every facet of it. That’s how I got started on this path.”

In November 2004, Brensike began his new job as senior managing director for Cornerstone, where he managed a fund called Caritas Royalty Funds.

Slowly, an economic tsunami was moving toward the company and the global economy.

ZeroInterest

Looking out over the city of Paris, on his honeymoon in 2011, Brensike told his wife he had a confession.

“Honey, you’re not the first person I’ve been with to the Eiffel Tower,” he said.

“Oh god, which one was it,” she asked.

“It was Vasilis.”

“I figured,” she said.

Vasilis Mouratoff was an early partner in a fund they managed for Argent called the Caritas Royalty Funds.

The funds were based out of San Diego, but Brensike wasn’t home often.

“I would be probably traveling two, three weeks out of the month, to Houston and Midland, [Texas], and everywhere else, and really just pick up my mail in San Diego, while I was building out our network at Cornerstone,” he said.

Since half of the fund’s investors were international, Brensike and Mouratoff spent a great deal of time explaining to foreign investors that mineral ownership in the U.S. was radically different than in, say, Europe, where the government owns the rights.

The company ultimately held $130 million worth of assets under management.

“We made some great acquisitions. The Caritas funds were some of the best-performing energy funds over the time period. Things were really great,” he said.

Then 2008 came. With pressure to put more capital to work and oil at $120 a barrel, some speculated the price per barrel could rise to $200. Cornerstone didn’t think that was likely, and Brensike said the company reset all of its hedges in June 2008, locking in prices at $135 per barrel.

“I hated convertible bonds, but I fell in love with energy.”

The Great Recession ravaged the global economy yet Cornerstone “had a fantastic year in 2008. I think we were up 18%,” he said. “But the whole rest of the hedge fund blew up.”

Without the hedge fund’s capital, the company was unable to line up new acquisitions and execute on them. Brensike and Mouratoff turned to private-equity providers for money.

“What we learned in 2009 is that private equity had absolutely zero interest in minerals and royalties,” he said.

Private-equity firms were skeptical that anyone would sell their minerals, and they wouldn’t be able to model returns without operator control.

But the private-equity firms liked the two men and asked them to consider starting an operating company. With friends, Brensike and Mouratoff formed Remora.

After a few years of operating in South Texas and investing in drilling programs in West Texas and the Panhandle, Brensike and Mouratoff were looking back at the mineral space. Cornerstone’s acquisitions had been primarily conventional assets. Now the shale revolution was raging.

They were skeptical that MLPs, which had become a yield investment of choice for energy investors, were sustainable or that they were doing what investors had envisioned as they continued to buy earlier stage, high decline assets and run up debt.

Then, looking back at how Cornerstone had fared, they saw the company continuing to produce a fantastic yield, Brensike said.

“You could just set your watch: every month you were going to get your distribution,” he said.

Minerals, Crystalized

Brensike and Mouratoff saw minerals and royalties as “just the greatest investment in the world.”

They also believed there would be a public mineral and royalty space; that there needed to be one; and “that we should create it.”

Brensike saw minerals as a way for investors to gain access to energy investments without having specialized knowledge of which plays to invest in and without having to divine whether Diamondback Energy Inc., Parsley Energy Inc., Concho Resources Inc., EQT Corp. or some other company was the best investment.

“What we were trying to build at the initial Haymaker was basically an index for the entire U.S. oil and gas energy complex,” he said. “Basically, if you bought Haymaker you would get exposure to conventional, you’d get unconventional, you’d get oil, you’d get natural gas.”

The company purchased interests in every major producing basin.

The proliferation of shale companies had also taken out some of the risk of development timing to produce revenue.

“You kind of knew where the shale was, and that it was going to be developed, and you had better, more reasonable assumptions than” buying into a conventional oil field, he said.

They brought in a third partner, Doug Collins, a petroleum engineer who could look at shale reserves and help guide investments uniformly across the portfolio as COO and chief engineer.

In 2013, the newly formed Haymaker team again sought out backing from private-equity firms.

Haymaker made presentations to 12 firms. Eight of them told Brensike flat out that they were “never going to invest in minerals and royalties because we don’t do non-control investments, and we don’t know what the exit would ever be for these,” Brensike said.

Four of the firms were receptive. Haymaker partnered first with Kayne Anderson Capital Advisors, “under the thesis that we were going to build this company and take it public.” Later they would add funding from KKR.

Five years later, Brensike said, five mineral companies have gone public. And of the dozen firms they spoke with in 2013, all are “heavily invested in minerals and royalties now,” he said.

Brensike planned for Haymaker to be one of the first to IPO, but another slump was on the way.

Body Language

Insiders at Haymaker called it “reading operator body language”—a term of art coined for predicting where and when E&Ps would drill.

Collins, with a background at Exxon Mobil Corp. and Netherland Sewell & Associates, could think like an E&P.

In its partnerships with operators, Haymaker bought mineral interests alongside E&Ps with a degree of confidence in what their drilling schedule would be.

But in other cases, knowing how E&Ps might behave—shifting production to certain areas or the pace of development—allowed Haymaker to “read that body language to get ahead of the drillbit,” Brensike said.

As the company evaluated acquisitions, it was the bedrock of Haymaker’s strategy. Stay ahead of the drillbit.

Collins could read not just how companies were developing but, as a petroleum engineer, which targets were likely to be drilled and even how completions would be set up.

By 2014, Haymaker was just hitting its stride. For most of its maiden year, 2013, the company was busy hiring, seeking out operator partners and building a data map that gave the company a set of coordinates: the location of mineral interests they wanted and their value.

Near the very end of 2013, the company made its first phone calls to sellers and closed two deals for “a whopping $725,000,” Brensike said.

The next year, at a breakneck pace, Haymaker bore down on acquisitions, making 350 deals—nearly one per day—for about $210 million. Haymaker also purchased the Cornerstone assets Brensike and Mouratoff had run years before at Argent.

Then, after Thanksgiving 2014, oil prices began to fall, marking the beginning of one of the worst downturns in the industry’s history. And with it, Haymaker once again found opportunity.

Haymaker slowed down in 2015 by necessity. Haymaker’s staff found its strategy of staying ahead of drilling increasingly challenging because “everybody stopped drilling,” Brensike said.

The company took a breather, streamlining its management systems and regrouping as it organized itself for an eventual IPO.

The company also began to focus on the most active areas—the Delaware and Midland basins.

“We got in there very early, before any of that activity happened, and we were able to aggregate a nice position for a very reasonable price,” he said.

As Delaware A&D began its hot streak in 2016, Haymaker took advantage as other private-equity-backed mineral companies came on the scene, hunting for Permian assets.

Rather than get caught up in bidding wars and escalating prices, Haymaker said the Permian climate “drove us to sell.”

“Prices went up about four times or more from what we were acquiring for,” he said.

A year later, with oil prices still erratic and generally low, Brensike moved to build the scale he wanted for the company with a purchase of mineral assets from Chesapeake Energy Corp.

The Chesapeake acquisition was incredibly complex because of the ways in which former Chesapeake CEO Aubrey McClendon had built the architecture of his mineral ownership through over 80 separate entities, some with various financial strings attached, such as volumetric production payment vehicles.

“If you knew Aubrey McClendon, you know he wouldn’t buy a cup of coffee without putting it in its own separate LLC,” Brensike said.

Haymaker rented out a suite at a local hotel with an unimpressive view of railroad tracks and had the room cleared of furniture.

“We put in a bunch of folding tables,” he said. “We called it Haymaker East.”

There, a group toiled for months over the transfer of ownership, including dealing with some 400 operators spanning 382 counties and 11,000 check stubs.

Straw Man Market

The Haymaker logo—a sketch of an antique horse-drawn hayrake—could be taken straight from a 19th century farm equipment ad.

Sitting the equipment on a sunny yellow field, presumably of hay, underscores its purpose to smooth out the crop so it can dry evenly.

The more modern meaning of haymaker is that of a wildly thrown punch—the sort that the oil market was winding up for Brensike and his partners as they entered 2017.

In January of that year, Kimbell Royalty Partners had gone public with an IPO, and Brensike believed Haymaker would be next. Haymaker was then bigger than Kimbell and, he thought, would be better received by the market.

But market sentiment in the oil and gas industry had soured badly by the summer—a distaste that, with few exceptions, continues.

Brensike recalls meeting with one major bank that told them they loved Haymaker. He was momentarily pleased, before they added, “this is something that we would totally invest in—if we ever make another investment in energy.”

The rules had also changed in the public markets. Where $30 million or $40 million in EBITDA would spark interest, now investors wanted far more liquidity and cash flow.

Ultimately, Haymaker was faced with a choice: continue building scale or join up with another company.

“Minerals are absolutely outperforming every other facet of any market. If you think about what investors want, it’s free cash flow, it’s low risk.”

The company decided to sell, pairing with what it saw as its best natural partner: Kimbell. The companies’ acreage overlaps in many basins and, combined, would total 11.1 million gross across in 28 states.

“In private equity, there’s one goal: return on investment for your investors, and that has to guide all of your decisions,” he said. As Kimbell’s offer came around, “that was the best option on the table to get both Kayne and KKR what they valued most out of the deal.”

Brensike felt comfortable taking part of the deal’s proceeds in Kimbell equity because of Kimbell’s leadership team, headed by chairman and CEO Bob Ravnaas.

As he sees it, the only way to blow up a mineral company is to overlever and make a transaction with too much debt.

“Bob’s been doing this for 30 years,” Brensike said. “He’s not going to do that.”

Since the company wasn’t developing or drilling, “you just keep cashing checks.”

True Believer

In the days before Haymaker was formed, Brensike went on a fact-finding mission. He spoke with five or six of the largest mineral owners, asking why they hadn’t considered taking their holdings public.

“The answer was uniformly, ‘I make $10 million a month sitting at my ranch. Why would I ever want to run a public company?’”

Brensike is possibly the closest the mineral and royalty sector will ever get to its very own evangelist. His mineral conference in April was partly a way to extol the virtues of the business model—and lament that it still doesn’t get the attention it deserves.

What he saw years ago, when he first began examining mineral buying, is a simple business model that gives an investor exposure to energy but eliminates most of the risk.

“We just saw running this company and providing this service to investors that nobody had ever thought to do before,” he said.

The risk remains low even if an operator goes bankrupt: “Another operator just comes in,” he said. “The risk profile is so low, the stability is so great. It was unfathomable to us—why hasn't somebody done this before?”

Toward the end of his presentation on stage at the Post Oak Hotel, Brensike showed a slide of returns by sector since Jan. 1, 2018. The minerals sector outpaced all others, up at least 30%, while E&Ps have been swatted into negative territory.

“Minerals are absolutely outperforming every other facet of any market,” he said. “If you think about what investors want, it’s free cash flow, it’s low risk [investment].”

While the mineral sector is part of oil and gas, he says, it’s a separate business model.

“We are distanced as far as we can be performance wise [from E&Ps],” he told the Post Oak audience. “I think we need to start distancing ourselves a little messaging wise.”

Brensike said he’s also ready to start making plans for what comes next for him. Asked what another company will look like, Brensike cagily avoided any specifics. But he allows, lightheartedly, “it’s most likely to be in minerals and royalties, but that’s all I can tell you right now.”

Darren Barbee can be reached at dbarbee@hartenergy.com.

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