The Exchanges

Q So what's the strategy that you've pursued over the years since?

A The core concept is something that both John and I really saw firsthand at Goldman. The energy industry was a very tradition bound industry. Most of the companies that I was covering, supporting the senior analyst, a guy named Don Texter, big integrated companies, as well as very large independents. These were mostly companies that were spread across many basins and many parts of the world. And Returns on capital for these businesses were not good, and we saw the Canadian oil and gas sector had developed in a faster way than had it happened in the U.S. It was a very different regulatory environment, and capital formation was done quite differently there. You could back smaller companies with 20 or forty million dollars, very much venture capital startup type financing directly into the Toronto Stock Exchange. That allowed the formation of Companies that had management teams that were highly focused on individual plays, individual areas, and just were able to create operational excellence and prove that that was a superior model through returns on capital. And that was the underlying philosophy that we took into Lime Rock. It was putting together a fund, allowing us to back entrepreneurs and management teams that had developed real value-added excellence in individual areas.

AI assessment note: “underlying philosophy that we took into Lime Rock. It was putting together a fund”

Q So when you first went into this investment, you had a management team A couple ideas. What was the structure of the company in the deal?

A Crown Quest operating, which was the name of the company that we formed a joint venture with. We took the crown from their name and the rock from our name. The other option was Lime Quest, which we thought sounded a little too Jimmy Buffett-esque, so we decided not to go with that one. They had achieved some success by buying older fields. They had done some transactions with GE Capital, where they were provided with capital to do Reactivations of existing wells work over existing fields. They had developed expertise in doing that and had achieved really good results, so they had a positive track record. This was a little bit of a step out in that they were trying to pioneer a new resource play, in this case, the Gothic Shale. But we also recognize that the Wolfberry play, which was the company's other area of focus, there were huge in-place reserves there. For many years, this was known as a promoter's paradise because you could drill a well in the Wolfberry and you always produced oil. It just typically didn't pay out. We also recognized that there was technology that was advancing. We certainly didn't expect it to be as successful as it ultimately was, but that was a part of the investment thesis going in.

AI assessment note: “the name of the company that we formed a joint venture with”