Darren Barbee, Hart Energy: Hi, my name is Darren Barbee. I'm senior managing editor at Hart Energy, and I'm joined by Frost Cochran. He's a managing partner at Post Oak Energy Capital. Hi Frost.

Frost Cochran: Hi. Thank you for having me. Great conference.

DB: Yeah, it has been so far. We're just thrilled to have you here with us and really appreciate you taking the time. I wanted to, obviously this morning, we had some pretty interesting news from Post Oak in that you have backed a team, an equity commitment with a team in the Permian. I wonder if you could tell us a little bit about what the thinking is there. I know on stage you told us it was kind of a younger team, but what's the strategy? Is there really inventory left to capture in the Permian? I'll let you go from there.

FC: Absolutely. So it's actually our third operating platform that we back in the Permian Basin. Aside from our mineral strategies, which is a direct strategy for us and not with a management team. We also have Upcurve and Midway. We’ve had Upcurve [Energy] for many years and Midway [Energy Partners] for the past year. [Permian-focused] Ichthys [Energy Partners] is a team that essentially came out of or spun out of Permian Resources, a group of young guys who are just getting started with their first company, but they're focusing in the area that they know best, which is the Permian and specifically more the northern Delaware. And the team is fresh, so it's a fresh line of equity for them. They don't yet have assets. A lot of our startup teams actually do have a captive asset when they start, but it's an area that has a lot of current activity. There's obviously been a lot of consolidation in the space at the larger scale, but there are still things for smaller startup teams to do even in the Midland Basin. But in the Delaware Basin in particular, that is in and between and commingled with the larger consolidation activities that are occurring.

DB: This comes on kind of the heels of another, we'll call it an investment that you did with Quantent [Energy Partners] in the Haynesville, which was connected I think with the purchase of an asset, you told me. So should we read anything into the timing of these two things, the investment versus, I mean, in other words, are you guys starting to get active or are you starting to see opportunities in both remarkably different but very important shale plays?

FC: I would say yes and no. In the case of the Permian strategies, that's a consistent strategy for us. We're always in the basin. We're always buying and we're always selling. It's just a place where we're very active all of the time. The Haynesville being a dry gas play is something we saw as more opportunistic. Obviously gas prices sold off for the industry significantly due to back-to-back poor winters. It's a very mature basin, the Haynesville is, however, in this environment, a lot of development activity came to a grinding halt. Some assets were sort of left stranded. We took advantage of the opportunity of a low gas price environment to capture something with a team that we knew had a proven track record with us of drilling exactly the type of wells and spacing in acreage that we're used to in the Haynesville versus the Permian, which is just we're always in the Permian. We're always buying and we're always selling.

DB: So you're a board member of Permian Resources, and I know you most recently, Permian Resources I believe bought the Occidental Barilla Draw assets. Does that factor into your thinking with the Permian team and the Delaware assets that they might be able to capture? In other words, are you seeing things that are potential pickups for you or is that Permian team more got a longer window where you're saying, let's hold off, let's wait, let's see what all the m and a that we've seen over the past 18 to 20 months shakes out. So what's the strategy, I think is what I'm trying to get?

FC: Yeah. There's very little connection between the way we think about our large ownership position in Permian Resources and what they're doing is what we think is, and the reason why we are a large shareholder is the most successful regional consolidator and their track record has proven out by their rapid growth. It is on a scale and headed down a path that's very different than our private strategies, which is very targeted to team specific asset capability in a basin on a scale that may not rise to the level of most of the large public consolidators, Permian Resources being exceptional, and if they will step down and compete directly with smaller private equity platforms. Whereas most will not. In our case, our private strategies in the Permian Basin are specifically targeted in the core of the basin, but in areas that are just and assets with teams that are just too small for the large publics to really concern themselves with until we and others have aggregated a large enough position to make sense for them. I don't know if that answers your question.

DB: It does, partially though I am still curious if the team you're backing in the Permian with the equity, a commitment if in the Delaware specifically, I think you said in addition to looking for, hey, these are great areas where we're seeing other people step out, whether it's SM [Energy] whatever, is that a team that's also wait and see on whether there's divestments down the road from all the consolidation we've seen over the past couple of years?

FC: Absolutely. In a sense that it is a—we're just in the first few months of this most recent fund, so our level of strategic patience is very high. We can very much wait and sift through a large volume of opportunities and wait for that right particular one. We have the runway to go do that. However, we've actually been pretty active in deploying capital. I don't know how quick Ichthys will move on their first asset. It'll be opportunistic. I do know that, but this has proven to be a fairly attractive market for small startup teams. We don't have a sponsor team that has failed to capture an asset this year. Ichthys this has just started. So we don't know, but it's been a good market.

DB: And just real quickly, I know you don't back a huge number of teams through each fund, but I'm curious, are we likely to see more teams emerge?

FC: I think it's going to be personally much more measured than what you've seen in the past. For us, several teams in the Permian has been our norm, but not, you know, 10. And I think that's the case with every private equity firm. There'll be fewer backed teams. The opportunity set will be sifted through by every major operator in the area, and the small ones will be sifted through by the small operators. And it's not efficient for all of us to back several dozen teams in each area by private equity. And so we're mindful of that. I think the other private equity firms are too, and our portfolio won't grow. I think eight to 10 operating teams is right for us. Probably most middle market firms are that way, and even the large private equity backers are more measured in the number of teams they're backing. So there'll be fewer sponsored teams going forward in the industry and in each basin.

DB: Great. Well, a lot of great insights there and really appreciate you being here for us. Thanks so much for your time. And that's it for ECC from me. But if you would like more information, please visit our website at hartenergy.com. Thank you.

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