#368 - Roe Patterson - Co-Founder @ Marauder Capital / Frmr CEO @ Basic Energy Services - Building & Investing in Oilfield Service Companies

Chris Powers: Roe, welcome to the show. 

Roe Patterson: Thank you. Thanks for having me. 

Chris Powers: I appreciate it. I thought a great place to start would be the transition you made early in your career to go back and work at the family business at Patterson. So maybe some context of what you were doing before then and then what life kind of looked like once you transitioned back. 

Roe Patterson: I had just gotten out of college and was lucky enough to get on with Caterpillar and went into a training program with the West Texas dealership and got to travel to all of the Caterpillar training grounds, improving grounds across the country, Peoria, Illinois, and Tucson. It was a management training program, so we kind of got trained in both management and then also just what it meant to be a Caterpillar dealer. My focus was on the industrial engines because I had the oilfield background. I had grown up working on industrial engines for Patterson Drilling as a kid in the shops and roughnecking around. So, I had a lot of experience. They weren't foreign to me at all. And I got a call from my dad. I'd been there probably right at a year at Cat and was comfortable, life was going good, and he said, hey, we're buying some companies, and you might want to come, think about coming back to work here. And I said, boy, I really don't want to go back to work for my dad, because being the son of a boss is a tough job. And he's like, no, it'll be different. You've got a degree now. I'll treat you right. You can live in Midland. I've got some things I need you to do. They were just about to buy a big company called Wes-Tex Drilling. And that was a 36 rig company out of Abilene. He said, we just need more bandwidth. We need more guys over here helping manage these rigs and keeping them contracted. And I kind of passed, soft no, and then passed again, and then a third time, I told my wife, I said I've never told my dad no three times, I think I better think about this. So, I went over and met with him and met with my Uncle Cloyce, and they were pretty big on it. They thought it was going to be a good idea and a good thing for me, and it was. It turned out to be great. I learned a ton. They had finished an IPO in ’93, this was late ’96. And we were flush with cash and trying to grow through consolidation. So, a lot of bolt on M&A going on at Patterson, and I had not the foggiest idea about due diligence work or transition planning, integration planning. But I got to drink from the fire hose quickly, helping with some of those transactions and learning the business, the oil and gas business as a whole from a professional perspective, not just a grunt and a roughneck. And I learned a ton. This was public company 101 prior to Sorbanes-Oxley, prior to Dodd-Frank. So, still a little bit of the Wild West when it came to public companies. But nonetheless, we had a lot of SEC hoops we had to jump through. And I learned a lot of that stuff. So I probably picked up way more than I thought I did just by being there, but the four, four and a half years I spent working at Patterson were really good for me. I learned a lot. Dad did treat me good. He was hard on me. He paid me the least amount of any guy over there doing what I was doing, but that was okay because I got to learn a ton. I got to be involved in several conversations that a lot of people didn’t. So, just when you're working for the family, you're constantly thinking, am I proving myself? Am I proving my worth? Or does everyone just think I'm here because of my last name? That kind of thing. And so you're constantly trying to measure up. It's a lot of pressure. And when the merger with UTI was on the horizon, it just started to look like things were going to go that way. It felt to me like a really good time for me to try something different. And I also felt like dad had some pressure. He knew his role was about to change from founder and COO, president to more of an employee, because they were about to change the board configuration. The company was about to get twice the size. And he was going to try to figure out how to sunset his career over the next six, seven years. And then what do you do with me? Because you're going to end up leaving me there. And so I could tell there's a little pressure on him too. And I said, I'm thinking about going out on my own and doing some things on my own. And it was like a breath of fresh air. I could tell for him. He was like, oh good, I think that'd be great. 

Chris Powers: All right. Before we move on, I want to pick apart a few things you said. I want to go back to the son of a boss. You kind of hit on it. There's going to be a lot of businesses transitioning in this next 10 years. So, there's going to be a lot of second generation owners, a lot of third. What would you say is the playbook for being the son of a boss? 

Roe Patterson: For me, it was work hard. People that matter will recognize your effort. People that don't are going to put you in the penalty box forever and no matter what. So, you can work as hard as you want and you're still going to get called the son of a boss and they're still going to frown thinking that you've been handed the silver spoon. What they don't know is my family was broke so many times I can't hardly count… It was. It was boom and bust. And you'd go one day thinking this is the greatest thing ever, and then the next day, you're trying to figure out how to make ends meet. I write about it in the book. I can remember many times trying to work on the weekends to help my dad make his interest payments because he had gone to interest only unfortunately. So, I think with a generational company, people don't know your path, they don't know how you struggled, they don't know how hard you worked, they don't know what you went through to earn your bones, and the hell with them. Just go work hard and let your efforts speak for themselves. 

Chris Powers: I love it. Did y'all keep a dad-son relationship or was it work? Was it teammates or do you have both? 

Roe Patterson: It was very much, at the office, it was very much boss-employee. He kept it pretty professional. And then, in a golf cart or in a pickup, he was dad. 

Chris Powers: That's awesome. All right, we'll talk about Basic in a second, but you got on, y'all had gone public a couple years before, so you had a war chest of cash just to go start buying. You talked about multiple phases of buying, which is probably like finding companies to buy, financing them, going through due diligence, and then integration. Did you work on everything, or did you kind of start in one area? And how are y'all targeting things to buy? Did you already know the 10 companies you wanted or is it just smiling and dialing until you find one that fits kind of what you want? 

Roe Patterson: So, Dad and Cloyce knew the targets they wanted, and they usually had some competition. UTI was out buying too. Neighbors was always the 800 pound gorilla lurking as well. So having access to public money, Patterson, it was a new thing for Patterson, but they knew the players, and they knew who they wanted and who they didn't want, and they were targeting good companies. I wouldn't say I was involved in everything. I think dad was pretty specific about what he wanted me to go do. I did a lot of contract review. I did a lot of diligence in the field looking at equipment. He trusted my opinion when I would look at equipment. I would do some inventory work, to go count all the stuff they have. Most drilling contractors back then, they didn't know what they had. And they had stuffed and stashed, and they usually had a pile of really good stuff and they didn't have a clue that they had it. Or if they did, it was somebody's nest egg, and they were kind of sitting on it, hiding it from everybody. But probably the tax man more than anyone else. But he had me do a lot of that kind of stuff. And then integration-wise, he was very hands-on. He wanted everyone to know who they worked for. He wanted them to hear his story and hear his pitch on why he thought Patterson was a good place to work. And so, I listened to a lot of speeches when he would first talk to the roughnecks or the pushers that we were acquiring. And I copied that speech when I worked at Basic when we started buying people and used some of the same talking points because they were good. 

Chris Powers: What's the speech? What's the high level of it? 

Roe Patterson: It was: We're just a laid back company. We do the right thing. Everything here is ethical and honest. If you can't work like that, you can't work here. But if you like working like that, you're going to love it here. And we're going to take care of people, that's what we do. And man, that resonates. People love kind of hearing that. And they love hearing that life's not going to be radically different working for us. We're not going to come in and change everything. If we wanted to change everything about your business, why would we have bought it? That was his story, and it works really well when you're telling people because changes the biggest fear. Getting cut, an obvious one, having someone move your cheese around and maybe getting let go or having your job restructured, those are always very big things, but people are more fearful of change than anything else. 

Chris Powers: Why was the decision made to JV with UTI or merge with UTI? 

Roe Patterson: I think they hit a point where they were running into each other on every single deal. They realized they were running two silos of G&A for really no reason, that they had a much better opportunity being competitive and relevant as a publicly traded company together than apart. Mark Siegel who was running UTI and Cloyce got together. They discussed it. I think, very quickly; the merger came together pretty darn fast, but it made a lot of sense. And so, I think it was just kind of the obvious next step was to quit fighting each other over these purchase prices for companies and let's go to one silo of G&A and let's slam these companies together. 

Chris Powers: And was there a discussion of why your dad didn't take the CEO route and the UTI guy did? Was it based on size? Was your dad older? How do you come to that decision of who's going to be the ultimate leader? 

Roe Patterson: Mark was comfortable being chairman, and so he went to the chairman role. Cloyce was a great CEO, and he was a natural fit to be CEO, and dad stayed as COO and president. And Cloyce and dad had a very good yin and yang, and the whole market knew it, and I think Mark Siegel knew it when he was part of the transaction, that that was a good chemistry, didn't want him to mess with success. He plugged in some of his folks too, and so it was a good mix of social teams. So I think they did a good job. The proof’s in the results; it worked well. So, I think any time you're looking at a merger like that, you want to pick winners and losers, but there's usually an obvious chemistry that sticks out that makes the most sense and that everyone says, that's kind of the way we need to go here. 

Chris Powers: How long did that deal take to make? 

Roe Patterson: It went fast. I mean, if my memory serves me right, I think they- 

Chris Powers: Like from first discussion on a golf course or wherever it was. 

Roe Patterson: I think they flirted around with each other over just a few weeks and had a deal cut. They were so equal in size, similar in size, it made a lot of it pretty easy to do. Now, no deal is perfectly easy. There's always a lot of paperwork and a lot of diligence that's got to be done. So I'm probably oversimplifying it. But I think in terms of big mergers of companies that size, it went fast. So within, I would say, within 90 days, they were probably pushing to close. 

Chris Powers: And just dumb question, probably a good time to plug this, it was Patterson Drilling, so y'all had drilling rigs, and y'all were doing new wells and workovers. 

Roe Patterson: No workovers at Patterson. They had a mud company and they had a petroleum company. So, they operated their own wells, small operating company. 

Chris Powers: Oh, they also operated oil. 

Roe Patterson: Right. Patterson Petroleum did their own drilling and prospecting and took deals, took pieces and deals. And then they had a mud company, which was started with Lone Star Mud and then they acquired some Ambar and some other businesses. So they had a large mud company. Then they had the drilling company, which was the biggest source of revenue and biggest division. Then UTI had a pressure pumping fleet called Universal, and then some other, I think, ancillary businesses and then a large drilling fleet. 

Chris Powers: So, if we just pinpoint Patterson Drilling, it's really good when you're drilling lots of wells, and when wells aren't being drilled, that's why the peaks are high and the valleys are low. Is there any way to mitigate risk on the downward way, or it's just there's got to be wells being drilled? 

Roe Patterson: You have to know how to contract fast. So, you have to be able to get off your variable cost immediately, and then you better know how to reduce your fixed cost if the trough continues. So if the downturn continues, you've got to whittle away at fixed costs. And this is kind of the secret to all oil field services, by the way, it's not just drilling. Variable costs are the ones you shut off immediately. 

Chris Powers: So what are the…? 

Roe Patterson: You can't have roughnecks in the yard shuffling rocks. If the rig's not working and the crown's not in the air and it's laid over on its side, everybody goes home. And unfortunately, they go home without a paycheck. And you have to trim staff and cut those variable costs down. Payroll is usually the biggest thing in all of services. So, it's always the biggest line item. And so it's the natural thing to stare at. And then as the company continues to contract, if the downturn persists, there's additional headcount reductions that have to be made or wage reductions, we call them reductions in force. And then you’ve just kind of got to go through all of your expenses and find all of the nice to haves versus the need to haves, have to haves. And there are no nice to haves. You cut everything. 

Chris Powers: No Gatorade in the fridge Tap water. 

Roe Patterson: Tap water will work. 

Chris Powers: What was I going to say? Oh, on the roughneck side, they obviously have an understanding they're in a cyclical industry?

Roe Patterson: They do. 

Chris Powers: You've probably talked to people that have been in it a long time, they've been laid off many times throughout. What happens in the down years? Do they go to another company? Do they get in construction? Do they just, who knows what they do, and they're kind of waiting to come back? Like, what's it like through their eyes? 

Roe Patterson: They will go find other jobs in other industries. A lot of times they will take a reduction in pay, take a smaller… The more senior guys, rather than working derricks or being a driller, they'll go back to working tongs and working floors. So it's not just pay cuts, it's demotions. And then if you finally get let go, obviously you're looking for a job anywhere you can get on, but you see those guys move to different industries for a while. Historically, they didn't make a lot of money while they were away from the oil field. So they were ready to come back as soon as that rig came back. Today it's a little different. Today, sometimes our guys will switch industries, and they find a pretty compelling wage in another industry, and we can't get them back. 

Chris Powers: Did that happen? I can't remember which downturn it was, but in the real estate development industry in DFW, the talk was all the oilfield hands, I guess maybe it was the 2014 bust or ’17, they all came to DFW to work big construction jobs and kind of were happy with more consistent pay. 

Roe Patterson: That was ’15, ’16. It started November the 25th I think, which was Thanksgiving Day of November ’14… I know that one really well. Yeah, that one sticks and we can talk about it later. 

Chris Powers: I just wrote it down. 

Roe Patterson: But yeah, it's funny, I saw a lot of guys leave our industry during that time, and you're right, they didn't come back. They found really good work in the construction markets, they found good work in road construction, they found good work in over the road hauling. And they just said, man, this thing's thrown me for a loop too many times. I can't trust it. I can't make my house payments when my rig goes down. I'm not going to go back. It's too choppy and the whirlwind's just too much. The lure of the money usually will draw a very large number of them back. But I argue, and I've talked about this in other podcasts and interviews that I've done, the last few downturns we've had, and I would include ’15 and ’16 in that, we've lost some real field intelligence, guys with a lot of knowledge, and that gap is widening. We're not filling that, we're not back-filling that with enough people and enough talent. Our homegrown experience level at the field is pretty limited. We're not as good as we used to be at keeping those guys around because they have relocated to other industries in a large number. 

Chris Powers: You're not seeing it necessarily for the same reasons in real estate, but you have all these master craftsmen, you have these electricians, these plumbers, these craftsmen that build stuff. And our problem is nobody wants to do it anymore. And these guys are aging out of the workforce and they're not training anybody younger than them. And that's why a lot of the construction you see today is just kind of shitty construction with not a lot of effort put into it is because you're seeing them age out for different reasons. I would also imagine it's hard to keep them when things are down, but when things are really good, oil companies can kind of, I'm not saying they can pay whatever, I don't want to say that, but the wages start going up. And so, I've talked to guys that own water hauling companies, and their employees are just bouncing from trucking job to trucking job, just chasing the next highest dollar. So, you're probably catching it on both ends trying to keep people. 

Roe Patterson: That's right. Yeah, when things get really frothy and they get pretty good, these guys will leave you. Someone will woo them away with the promise of more money, greener pastures. 

Chris Powers: And it's not always that. 

Roe Patterson: It’s not always that. So we have to do a real good job in our service companies of reminding our guys all of the benefits we offer… kind of the all-in compensation package that we offer, because a lot of times, they're leaving for a higher wage per hour, but they're giving up a lot of back-end benefits, maybe 401k, maybe the insurance cost, maybe just a company that's kind of fly by night versus a company that's got steady customers, steady workflow, etc. So, the dollar's attractive and it's appealing and it can woo a lot of people away, but you've got to be careful you're leaving for all the right reasons. But you're right, at the top of the industry, we're constantly fighting the wage wars and fighting for good people and to try to keep our people put. 

Chris Powers: Man, I keep wanting to get to Basic, but then something else comes up. On the losing knowledge of folks that are kind of leaving the industry and not coming back, and then we're in the age of AI and there's all this information, is any of that being backfilled by technology, or is technology filling the gap, or is it just kind of old school wisdom in the oil field that is most necessary? Like, is there anything that's going to circumvent that? 

Roe Patterson: There's some obvious technological improvements that we've made in the industry, especially over, say, the last four to five years, efficiencies have just ballooned. We can drill today with three rigs what we were drilling even a year or two ago with five. So I would say in the workover space, the space that I'm probably most close to today, there's not as much technological advancement, but there has been some. So I would say we've definitely seen some efficiency improvements. We've seen some big quantum leaps in technology. I'm not sure AI has been responsible for much of it so far, but I absolutely think AI is going to play a role going forward. And the way AI can work is to take all of the different processes that we have or different processes that different companies try and then kind of run an analysis of them and tell you which ones work the best and where and why, what rock reacts what way to what kinds of bits or stabilization, et cetera. We have a lot of human intelligence around that too, but AI is so much faster. So I think that that will change things. Are we going to drill these wells in five days? No, there's going to be a point where we kind of get them about as good as we can get them. There'll have to be some other big leap. It was PDC bits at one time, and now it's kind of been pump pressure and stabilization and our motor technology, but that's all I see right now. So other than some really good work by AI to pick the best methods and processes and take the guessing game out of the human piece, I don't see a lot of big big jumps from where we are right now. We're drilling these things really fast, completing them very fast. There's always going to be some technology that's churning and burning in the background, guys trying new things, new widgets, new techniques to employ, but I don't see big quantum jumps because we're getting damn good at what we're doing. And then I think you're going to be right back to the human thing at that point. You're going to want really good people who are using their best efforts, taking extra caution, making sure they're safe, making sure everyone's safe on location. We still work in a very dangerous environment, a lot of hands and fingers in the way of moving parts and pieces that are very heavy, and we have to make sure we don't get anybody hurt. It's a constant pressure to keep from getting anyone hurt. The insurance industry is not very friendly to us sometimes, especially when we have high incident rates or anything like that. So there's a balance in there of human technology that we're never going to be done with. We're always going to have to have some really smart guys out there calling the shots. I don't like it that we've got a gap, but this industry has constantly proven to me over the last 30 years that it's able to engineer its way out of almost any problem. So, while I see a gap and I do see some of that field intelligence that's left the industry, I also see some things being done and some guys coming in that are going to probably bridge the gap for us. So, it never fails to amaze me that we're able to engineer our way out of some of these struggles. But it's obvious that we have some gaps. I think AI has really just started in the oil field though, especially on the service side, and I think it has some room to run. 

Chris Powers: All right, let's dive back to the story. So, UTI merges, you decide it's probably a good time to go, dad's relieved, and Basic calls. Well, actually, you went and started companies. We can spend a little time on that, but let's get to Basic. 

Roe Patterson: They weren't super exciting. 

Chris Powers: What'd you start? What worked, what didn't?

Roe Patterson: I started a couple of- Little oil field services, basically servicing service companies. I was doing work for them, building things and servicing their components, parts, pieces, their heavy trucks, their heavy trailers. We were building a lot of moving parts and pieces for them. We built mud pits, we built catwalks, we built a lot of specialty equipment. That business did pretty well, and I was able to sell it in 2005 and do pretty well on it. Simultaneously, I started a couple of other businesses that weren't good at all. I thought I had the golden finger there for a little bit, the Midas touch, when my first business took off and did really well. And so, I started a couple of others and they were just kind of- 

Chris Powers: Why do you think those did- more bad idea or bad execution? 

Roe Patterson: Both. I was not very good at executing. I got in over my head on some things I thought I knew and understood and I got a lesson in leverage. 

Chris Powers: You wrote in the notes personal guaranteed – did you personal guaranteed something? 

Roe Patterson: I did, I personal guaranteed everything. And I found out that those PG's are really problematic if you can't figure out how to pay them back. And so, I tell a story, sometimes guys are asking me how I got started, and I said, I probably did the worst thing you could do. I went and borrowed a bunch of money. And when things weren't going good, the bank called me in and said, what are you going to do about this? And I gave them my plan, and my plan involved borrowing more money from them, which they did. Unfortunately for them, they loaned me more money. 

Chris Powers: You borrowed more money to pay them back the owed money. 

Roe Patterson: Exactly, yeah, worst kind of trap you can get in. But it's funny, the next meeting you have with them, they say, what are we going to do about this? And I'm like, damn, I didn't know I had a partner. I'm glad you guys are on board. So, I guess if you borrow enough money from the bank, you're going to have some friends in this foxhole with you. So luckily for me, I was able to work my way out of it. I sold my businesses in ’05, which was kind of a toppy market for the oil field. I made a- 

Chris Powers: Fracking was just getting started. 

Roe Patterson: It was, yeah. A lot of horizontal drilling was just really getting fired off. Fracking, the new types of fracking that we were doing were just getting started. And it was getting pretty rich, and I thought, well, this is a good time for me to sell all this and then go figure out what I want to do next. And so, I did, kind of broke even, paid all my debts off, and I was really just trying to figure out what I was going to do next when Basic came calling. 

Chris Powers: So, they said, come be our VP of Corp Dev, which basically meant you were going to be out buying companies for them. 

Roe Patterson: Yeah, I had done a lot of work for Basic and gotten to know Ken Housman, the CEO, really well, and we'd become friends. He kind of had a hole he needed filled with corporate development. I was skeptic that I knew enough about his business to really be helpful, and he was encouraging that I probably knew more than I thought I did, and it was true, I knew a little more than I thought I did. I had a lot to learn too, and he was a great mentor and a good coach. But I went in there kind of not really knowing what to expect. I needed a gig, and it was a good gig and they had a great company. They had just done an IPO. And I thought, man, this is… they were always a good customer to me. So I thought, what a good company and what a good opportunity for me to go learn something new. And so, I jumped right in, and, again, they had that IPO money and they wanted to start acquiring, consolidating that well servicing market. Plus, we got into some things like rental and fishing tools. We got into a lot more trucking. We were doing water hauling. We were doing hot oiling. We had a pressure pumping fleet, so we were doing small fracks, cementing and acidizing. We got into wireline. We got into a lot of things. So, we were a multi-service company, and therefore, there really wasn't much we wouldn't look at. We were kind of a buyer of choice. We treated people pretty good and tried not to move their cheese or upset the apple cart when we bought them. We wanted them to feel right at home when we bought them. So, we worked hard at integration. And it was a free-for-all. I mean, we were buying left and right. That first year, I think we bought 15, 16 companies. So that was ’06. I went there early in ’06, end of January, first of February. And I mean, we hit the ground running. And so what I thought I knew about M&A was just the tip. I learned a whole lot more and I learned fast on the fly. 

Chris Powers: Let's spend some time on M&A and integration for a second. How many companies do you think you've bought today in the oil field business throughout your career or been a part of? 

Roe Patterson: So, I tried to do a count not long ago, and I got to 127. Now that was kind of… That was divestitures and purchases and mergers, et cetera. So that's a lot. 

Chris Powers: I'll ask you a broad question, and you can give me your top two or three, or you can just take it whichever direction. What is the key to good M&A, no matter what you're buying? And how do you know, or maybe a better question would be- Well, maybe that's the question, and how do you know something's off in M&A that seems good, or if you were early in your career, you would have missed it or wouldn't have thought about it, but now with 127, you'll see things that it's just an immediate trigger like this doesn't look good or this is probably off?  

Roe Patterson: I think probably for me looking back, the one thing that was a pitfall that a lot of people don't see is when something is running really, really well, you're probably not going to go in there and make it any better than it is today. And it's a little bit of arrogance to think that you will. So I think some of the deals that I did that I look back on and kind of shake my head at and wonder why I bought, I just bought them so toppy. Thinking that I could go and buy them and sustain the kind of cash flow that they were making at the time or improve upon it was really naive. I think that was a big lesson I learned. I think the thing that sticks out probably the most was the people. If I bought good people and I ended up joining forces with really good people at all levels of an organization, not just the top, the deals usually worked out regardless of whether we bought them perfectly or not. So we didn't have to ping the market, we didn't have to buy it perfectly. If we had good people involved, we could usually find a really successful outcome. So, looking back, it's also probably one of the things I'm most proud of is, and all the transactions that I did, and Cloyce Talbot told me early in my career, if you're going to do deals, it has to be good for everybody. And Dad had a mantra of the same thing. He wanted things to be good for customer, for obviously his own company, but for every stakeholder involved, and that included vendors and that included the employees. So everyone involved needs to win for something to really work out well. If there's a loser somewhere in all of this, it's probably going to be an outcome that you're going to look back on and regret. And I think M&A is that way. So, I always tried to feel like, when we were doing M&A, we were winning together or we were losing together, but we didn't win at the expense of someone else. So, we were very good at things like contingent earn out agreements. If we couldn't hit someone's number, we showed them a path to where, hey, if that number's real and we can get to it, we're going to pay you some extra money for this. And so, you're going to roll the dice with us. We're going to give you this much money now, and if we hit these targets, then we'll give you some more, and you're going to win and we're going to win. And it's going to be a really good deal. We did a lot of those, and they worked out well. 

Chris Powers: Was there ever anything that was, again, just a pattern is like when you see someone say this or they negotiate this thing, it's probably not going to work out? I mean, I think we could obviously say if there's bad people at the top or if the CEO's fishy, it's probably permeated the organization. But any telltale signs of like, yeah, they asked for this thing, we know where this is headed? 

Roe Patterson: The thing that sticks out the most was when I thought that the guys that were going to get rich on the deal were going to be hard to salvage or keep around at all. Or if I felt like the guys that were the biggest haymakers in the deal, they were the rainmakers for us, they were buying the work. So, somebody was getting to go to Vegas, somebody was getting shotguns, somebody was going on a hunting trip every other week in Argentina or wherever and getting a $12,000 whitetail bought for them or whatever, and they were buying the work. They never missed a Cowboy game or they never missed the Houston-Texas game. I would say, I can't replicate this because I'm not going to do that. I'm not going to go buy this business like you're buying it. Therefore, when I get it, these guys are going to be really disappointed, and all the work is going to dissolve on me. We also would go in there sometimes and look at pay scales for like salespeople or something, and they've got somebody that is just making a killing, and I can't, if I hire that guy and I bring him on and I pay him that, all of my sales folks are going to be like, what the heck, because the word gets out. Nothing's a secret in the oil field. Everybody tells one person that they trust. And so, nothing's a secret. 

Chris Powers: Yeah. All right, on integration real quick, you buy 16 companies in a year. It's one thing to have money and be able to know how to buy, but that's what gets the headline. Then you’ve got to do the damn thing. What's the key to integration? 

Roe Patterson: Team. 

Chris Powers: So, you had an integration team.

Roe Patterson: I had a good team. And I had not only a good team, I had a bunch of coworkers that understood what we were trying to do. And I think maybe Ken and I did a good job of explaining the strategy and why it was so good to be hospitable to these new employees. And a lot of times, we’d go into a market, we’d buy somebody one day. They were a competitor yesterday and you hated their guts, and then today they're on your team. And you've got to learn how to switch the gear fast and welcome them on board and share equipment and share people and share intel. That's hard for a lot of people. I think we did a good job of going in there and setting the stage and making sure everyone understood what the goal and the prize was. We also set compensation incentives for everyone that, if they went and played ball together, they were going to equally be rewarded. So, I think we were probably good at Basic because we worked hard on the team part. And our integration process was really similar for everything we did. How we how we brought people on board and on boarded them was the same every single time. And so I think we did a good job of assimilating them into our culture. If we bought somebody who maybe didn't have the same safety standards we had, we spent a lot of time on safety. They went back through our training programs. We showed them, hey, this is how we do it, this is why we do it this way, and you've got to do it this way. The worst thing for me was that maybe as COO or even CEO to come back after three months after we bought something and find these guys doing it their old way and not doing it the Basic way. So that was a big key to integration for us was making sure they embraced all of our cultural stuff, our safety stuff. But again, without the teams, without the people on my side and the buy-in, we wouldn't have been able to do it. 

Chris Powers: And then from just the logistics like tech and ERP systems and stuff, you probably had a team that would have a 60-day plan to go get everything accounting-wise and tech-wise. 

Roe Patterson: We did. I was blessed with good accounting help and staffs, and they were very good at slowly migrating them to our ERP, not just dumping it on them. They would go in there and teach them, show them why we picked the ERP that we picked. Sometimes that was a, when they're coming off of QuickBooks and they're going into SAP, it's a big jump. And so, we did a lot of handholding. So, we would never just turn them loose or say good luck or any of that. We would put trainers and plop people in those offices and try to get as much of that training done before we took the training wheels off and let them do it by themselves. We didn't always do that perfect, but we had good teams that tried really, really hard. And they knew, everybody knew what it was like to kind of come through that. And by the time Basic got pretty big, I had a huge staff that had come through integration. So, they knew what it was like to be there. They knew what it was like to be the new kid. They knew what it was like to try the new ERP on for size. They knew what it was like to learn our safety program. So then they could speak from their own experiences. And I think that helped us a lot that we had so many people who had already been there, done that. And they could say, I went through this, so I can help you go through it. 

Chris Powers: All right. You're 39 years old. You've been in the oil field now for almost 16, 17 years. Did you know you were going to become the CEO, or was it one of those black boxes where you maybe knew you were one of the pool of candidates? Or how long until you took the job did you kind of know this was your fate? 

Roe Patterson: Definitely a pool of candidates. Our board went through the process of selection. I felt like I had a good shot. 

Chris Powers: Why'd they pick you? 

Roe Patterson: I'm not sure. You’ll have to go back and ask them. I think they knew that I had a lot of drive. I had a lot of ambition. I wanted a lot for the company. They knew that I had a pretty deep operational background. I think they wanted that because it was such an important function at the time to be knowledgeable there. And so, I think that that was probably one of the driving points. And I think they made a bet. They took a shot on a young guy to come in and not screw it up or come in and take the reins and try to keep driving what we were building at the time. And arguably, what we were doing at the time was working really well, but we were doing it with a lot of borrowed money, we were doing it with a lot of bonds, a lot of public bond debt, and no one saw what was coming in ’15 and ’16. All of our peers were doing the same thing, growing through acquisition, some organic growth, but a lot of acquisitive growth and a lot of public debt through bonds. So that was kind of the play of the day for OFS. 

Chris Powers: And Wall Street at the time was still on board. They weren't… 

Roe Patterson: Very much. So, I didn't come into a time when there was a lot of that ESG. When I came on in ’13, we weren't darlings of Wall Street by any stretch, but we weren't pariahs either. So, I might not have been the choice for CEO had it been a tougher time on Wall Street, they might have said, no, we've got to have someone who understands capital markets and corporate finance a little better than this guy does. But so, in ’13, things were still pretty- the penny was still pretty shiny when it comes to oil field services. 

Chris Powers: Did you know Wall Street at that point? Did you know how it all worked? Did y'all just have a good CFO? 

Roe Patterson: I always had a great CFO. I had Alan Krenek for many years and then David Schorlemer and learned a ton from both of them. So I was lucky that I had good talented CFOs. Ken tried to teach me as much as he could. I had a good chairman, Steve Webster, who also would give me a lot of advice and try to help me navigate. And I had good bankers that shouldered in and would give me good advice. When something like the crash of ’15 happens, no one can give you enough advice. 

Chris Powers: Remind everybody what the ’15 was like, living through it. That was 10 years ago almost. 

Roe Patterson: Yeah, so ’14 was a super year for pretty much the whole industry. We were making big strides in horizontal drilling. The frack technology was just booming. We were seeing IP rates for new wells drilled that were just phenomenal. They were off the chart at the time. They're small in comparison to today, some of the wells drilled today. But a lot of capital in the business, a lot of debt, but a lot of capital. And we were really starting to grow US production. The Saudis did not like it one bit. And we were stealing market share from them is the way they looked at it. And so, when they finally got their fill of it, they were chirping kind of August, September, October, they were starting to say, we're not going to stand for this, we're going to react to it. And their reaction was always to turn the taps up and try to put their excess production on the market. And they flirted with it, but they usually hurt themselves as bad as they hurt everyone else. And so we thought maybe they wouldn't do it. They did do it. So, they had a meeting, OPEC meeting on Thanksgiving Day, 2014, never forget it, and they said, we're opening it up. 

Chris Powers: Was that the November 25th day? 

Roe Patterson: That was it, yeah. And they said, we're going to flood the market, and we're going to go get our market share back. 

Chris Powers: So, Thanksgiving's on a Thursday. What did that Monday look like for you? Had it hit that quick, or? 

Roe Patterson: No, I was pretty naive. I thought it maybe would be short-lived. I thought this would be a bump in the road kind of thing, maybe they would change their mind after a quarter or so, get some market share back. But they kept the tap open for a long time and really busted the whole space. And so, one of our biggest bonds was up for, was callable, sorry, in the spring, early spring of ’15. And so we went out to the markets to try to renegotiate that bond. And historically, Basic had been able to do that easily. In 2012 and ’09, when we had the financial crisis of ’09, we had an oil field mini crash in ’12, we were able to renegotiate our bonds. We paid higher coupons and we had to pay the penalty, but we were able to go and get the things refinanced. ’15 was different. Nobody was wanting to renegotiate anything. And so when we went to market, there was just no buyers. And that starts the clock ticking because all of the bond traders find out you're out in the market trying to refinance that bond. There aren't any takers. We weren't the only ones. There were a lot of guys, I think seven of my peers ended up going through a bankruptcy in the next couple of years, which was ostensibly all of them. The word was out. So all of our bonds started trading down. And then when your bonds trade low enough, you have a new kind of bond holder. Yeah, you've got a guy that's wanting to own it and is going to squeeze every last nickel out of it, take it through bankruptcy and restructure it. And that's who we ended up with. By the end of ’16, we had these really sharp elbow distressed debt players in our bonds. 

Chris Powers: And you have no control over who that's going to be. 

Roe Patterson: Zero control. 

Chris Powers: So do you remember the day you got a phone call that said, hey, I'm your new partner? 

Roe Patterson: I do. I remember the day that one of the lead bondholders called and said, I own the company. And I thought that was pretty arrogant. And I said, well, we're still a public company. We still have shares that trade every day. I don't think you own it. He said, no, I own it. And I want to know what you're going to do to take care of it and what we're going to do to get through this. Because I own the company. He said it multiple times just to see if he, I guess, to see if he could make me mad. I don't know. But yeah, so you start dealing with those guys, too. So now you have your old shareholders, which everyone calls old equity, you have your board, and then you have these bondholders. It's a really- it's the most difficult period of my life for sure. It's such a delicate time talking to every group, trying to keep everybody going, and at the end of the day, I'm trying to protect the employees too. They're probably the stakeholder in all of it that I had the most fear for and the most invested in and the most I cared about. So I can't describe what that process is like, but it's not fun. 

Chris Powers: Is it not fun because they don't know what they're doing? Is it not fun because the whole game turns to squeezing a few nickels out, and it doesn't have to be done the way it was being done at the top of the market? It's easier to squeeze a few nickels out when you're buying for pennies on the dollar than it does when everything's good. Like what's not fun about a distressed partner? Like they might make the argument if they were sitting here is like, look, our job is not to be Roe's best friend. Our job is to buy for pennies on the dollar and sell for a few pennies more. We don't have to get all the way back to the top. I don't know. Just what's their thought process? 

Roe Patterson: Well, I would argue that they probably do feel that way. What they have to be careful of is what they end up with on the back side of a restructuring and what kind of team they've kept together. They wanted me to stay, but yet, they were wanting me to fight the war with my hands tied behind my back. So, we had a piece of debt that we had done kind of in the eleventh hour to try to salvage and whole time you're waiting for oil to recover. If it'll just recover, this goes away. And if it doesn't recover, then writing's on the wall. But the game is trying to wait and live and wait and live until oil comes back. So we did another, we had the borrowing capacity to do another tranche of debt. And we did that. Of course, the bondholders hated that because we put some people in a lien position that was in front of them. We had the right to do it, but they didn't like that at all. Well, when we got ready to restructure everything after another nine to 12 months later, after we had done that piece of paper, they wanted to carry that debt through bankruptcy, and they wanted to keep it in place because they didn't want to give that equity up. So, you asked me what they're doing and what they're thinking, it's all about what you want the company to look like on the backside of bankruptcy and have you set it up for success. You want to have set it up for as much success as possible so that if you're now the equity holder, you're going to reap that improvement in the business. And I would argue that some of our holders had bad plans and didn't set it up for success, kept some debt that we shouldn't have kept, and then I got a brand new board of directors when we resurrected from bankruptcy, and those guys all have marching orders from those larger holders, and they don't always see the world the way management sees it. 

Chris Powers: Was the they want a company that'll do its best coming from the angle of setting it up for success to deliver to customers or setting up a nice financial structure that is high reward?

Roe Patterson: High reward for them. That's it. Don't care about another thing. Customers, employees…

Chris Powers: And they're probably open and honest about it. They're like, look, we… You call us vultures for a reason. It's not like, we're not pretending. If we wanted to do that, we'd go own a Chick-fil-A or something. 

Roe Patterson: We knew who we were involved with, unfortunately, and you don't have a choice. You can't pick, like you said, you can't pick those guys. But if you don't take care of the business from a core fundamental, then nothing else matters. You're not going to get that return that you're looking for. You're not going to get that reward you you went through all the headache of buying these distressed bonds to get to a point where you're going to see an improvement and everything, well, then you better at least know how to play ball. And these guys had ideas about rolling up the space and doing big consolidations and taking all of these distressed companies and smashing them together, which is really, really hard to do in an environment like that, almost impossible. And that's what they found out. All of their ideas sucked. They were terrible. And no matter how much I told them this won't work, we’ve got to try it anyway. 

Chris Powers: Why wouldn't it work? 

Roe Patterson: It's just the wrong time to be trying to do some of the things that we're trying to do. When you've got debt and somebody else has a little debt, but everyone's coming out of the same kind of really bad trough period, and ’17 wasn't all roses. It was a tough period, still, unless you were a pressure pumper at that time with new equipment. We were a pressure pumper with old equipment. So, we were playing a different game than a lot of these guys that had been private equity backed and were coming out with brand new... 

Chris Powers: Why does new matter than old? 

Roe Patterson: Because it was a different generation of pump, and it could do more and was more efficient, and the customers liked it better. So they had a competitive advantage. But when you're trying to explain all of these things to guys who don't understand the industry at all, you get through explaining it all and they look at you and go, yeah, but how am I going to make more money and how can you make me more money and where's my money? 

Chris Powers: They're like, we show in Excel C4 tab that we get the company bought; you're like, this isn’t a spreadsheet. 

Roe Patterson: Right, and I had a bond holder who turned into an equity holder tell me that well servicing was going to go away. There wasn't going to be any well servicing, and we should probably just get rid of the business because wells were so efficient and drilled so well and the IP rates were so good, that if a well had a problem, they would just plug it and go drill a new one. I said, no, it's not the way it works. By the way, you have to have a well servicing rig to complete every well that we have out there too. You're trying to teach them the business, and you're trying to explain why their thesis is wrong. At the same time, you're trying to say, but here's what will work and let's think about it this way. And I tried that for two years. And when I finally got my fill of it, I left. I retired. 

Chris Powers: That guy probably now sits on the board of an Ivy league school doing the… 

Roe Patterson: I don't think a lot of those guys ended up in very good gigs. So, some of those guys that had their ideas about what to do with the oilfield service industry and how to play that roll up game, I don't think they would tell you that their ideas worked very well. 

Chris Powers: All right, we're going to move on to what you're doing now. Just one more anecdote. When Basic was its biggest and you were the CEO, what did the company look like? Head count, value of company, what were you running when it was at its prime? 

Roe Patterson: Man, I'm probably going to get some of these numbers wrong, but about 2.1 billion in market cap, 6,000 employees, 1.5 billion in revenue, and about 350 million in EBITDA, something like that. 

Chris Powers: Because I think that's important for what we'll talk about now. 

Roe Patterson: Yeah, we were under three times levered, so it felt like a good spot, until the Saudis said we're done playing games and we're going to turn the tap on. 

Chris Powers: And that's kind of the oil business in a nutshell is like you can't outsmart cheap oil or the Saudis flooding the market to some degree if you're going to run a big company. 

Roe Patterson: And so now, everything has changed. If you were to ask any insider in the industry what's a comfortable debt to EBITDA ratio, they would tell you one times, maybe under or zero, just don't have any debt, maybe a revolver of some kind that's asset backed, but the less debt you have, the better you're going to be. And it's always been true. We were just always capable as an industry of riding out the storm and refinancing. And what ’15 and ’16 taught us is that doesn't always prove to be the case. You can get caught. 

Chris Powers: So that was a 24-month downturn? 

Roe Patterson: Yeah, about. 

Chris Powers: And how long could you usually ride it out? Nine months to 12? Or was it the extra 12 that was the tough part? 

Roe Patterson: Spikes didn't last longer, usually, than six to nine, and you'd see some sort of improvement. So, we were seeing these kind of short downturns, short spikes, but never a very long downturn so you were able to ride it out. That one was a pretty long trough. We used to describe it as it looked like a heartbeat on an EKG or whatever, and then all of a sudden, it looked like a swimming pool, it fell off and then just you never came back out of the deep end. 

Chris Powers: Yeah, it was an infinity swimming pool. One thing I admire about you and your story is, once Basic was over, financially you probably could have done anything you wanted to do, you weren't staring at an industry that was getting a lot of love. In fact, we could make an argument with ESG and everything else, just that pressure, it's probably more demonized now than ever, even though we can discuss why it's one of the most necessary industries in the world, and it's a total sham that it's even looked at that way. But you said, I'm going to stay in it. So maybe give some context to what you currently own and then you started a new capital business to go buy more of these. So, talk about what you own, what the playbook has been there, and then why you see one of the greatest buying opportunities in oilfield service history right now. 

Roe Patterson: Okay, there's a lot there to unpack but... 

Chris Powers: I'm good at that. I layer in 20 questions and make it feel like one. 

Roe Patterson: So, I took about 12 months and thought about everything that I had done. But within the first six months, I knew I was going back into OFS. I had a non-compete, so I had to be careful of what I went and looked for. I knew that Basic had a package of assets in Haynesville that they were compelled to sell and monetize. It was one of the thematics that the new board had come up with, that they wanted to get rid of it. It was non core to them. Natural gas was still a pretty soft area in this was ’21, ’20 and ’21, especially with COVID and what it did. By the way, I left in kind of December ’19. And I mean, I missed COVID completely as a CEO. And I was just fortunate that I didn't have to ride through that. And all of the companies that did, if they were in really good financial shape, they barely made it. And if they were in mediocre financial shape, they probably didn't make it. So OFS got a real shellacking from COVID. It was hard on the industry, hard on everybody, hard on our customers, our EMPs too. So coming out of all of that, I got to thinking, well, I know these guys don't want these assets and I know I can go run them. And I can do it much better than what they were letting me do as CEO. They weren't letting me put any capital into it. And basically, we're stripping all the field level intelligence and G&A out and where I didn't have any control over the business over there. And so, I said, I'd love to have those assets if they don't want them. And so, we started talking, and we made a deal. I hope, I think they were happy with it. I was happy with it. I felt like we got it at a reasonable valuation, and I immediately started trying to turn that business around. I got a break in my non-compete just for those assets and just for that market, and I went to work. Hired a good team of folks and we went to trying to do what we thought needed to be done with that business all along, and it worked like a champ. 

Chris Powers: Which was what? 

Roe Patterson: We went in and we created a lot of field level efficiencies. We got rid of assets and we were able to sell off assets that we didn't want. We right-sized the fleet. We moved things around where they needed to be, and then we started putting money back into it, and we put a lot of capital back into it. It needed a lot of capital. But we knew if you could improve the overall quality of the asset, you would improve the performance of the asset. This is like saltwater disposal wells that need chemical treatment and work over and new liners and pipe systems, et cetera, starting to take water within a field just being predominantly moved by truck barrels and move them over to pipeline barrels so that that water is a little stickier coming to your SWD than a truck barrel that can move around and go other places. So, we started selling off things that we didn't want, creating efficiencies, and then reinvesting in the assets. And it worked very, very well. By the- And we kind of did that with the pass the hat, unsponsored fund, friends and family, raised capital with with partners that we knew and liked and then went after it. 

Chris Powers: Any debt or all equity? 

Roe Patterson: A little debt, not much, but enough to get us off the ground, probably more debt than I would have liked, but we were able to manage it well. One of the ways we managed it was by selling off all the excess stuff and then paying it right down. So, got that going. That's called Ventana Midstream. And then, kind of the end of ’21, I was watching Patterson was buying Pioneer Energy Services assets, and I still had a lot of friends at Patterson UTI, and so I was trying to stay as close to that as I could because I really liked those well servicing assets that Pioneer had, and I knew my non-compete was about to expire in that business, and so I made a run at that. And sure enough, we were able to win the bid, raise the money, again, friends and family and private sources, unsponsored fund. Did it all with equity, no debt, other than just a small ABL. We're able to get that bought January 1st of 2022. Now I'm right back in the well servicing business. And we went in there to a bunch of guys who had been owned by bondholders. I knew the world and the land that they had been living in. They had been told no on every good idea they thought they had and been given no money, and no one would reinvest in their equipment. And so they were struggling. And we went in there and said we're going to systematically start to make this fleet more efficient. We're going to get rid of some things that don't work so well. We're going to close some yards that don't make money. And we're going to quit some of these things that... One of the worst things that you find out when you do an acquisition or you're in an integration period, transition period, is guys that will say, well- we say, well, why do you do that? And they say, well, because that's the way we've always done it. Well, if I showed you that it doesn't make any money and your sub scaling this market and you're never going to make money here doing what you're doing, would you quit? Well, sure. Okay, well, I can show you. So let's stop. And so we did. We stopped doing it, and we started improving things. And so that business is called ClearWell Dynamics. They didn't do P&A, plug and abandonment. We started that business within ClearWell. It's worked really well. Again, we distribute capital to our partners early and often. We love the distribution model, the yield model, it works really well, low to no debt, and just fleet efficiency. These businesses inherently within OFS run right with low leverage are and should be very good cash generators for yield. A lot of companies just, they get that money that comes in when they're cash flowing is like crack cocaine. They can't get enough of it and they want more, so they start growing. And so their organic temptation to grow and add capacity is the dangerous thing. We took the approach that, look, let's right-size the fleet, let's get it in a really good cash-flowing position, and then we don't have to grow it anymore. We'll just sit here and enjoy a good company with good employees, and we're going to make some really good money. And that's been a damn good model. And when you have that kind of yield, buyers start coming out of the woodwork and saying, I'll buy that, I'll buy that yield. And that's kind of where we are today. We've kind of done everything we needed to do these first two years to turn the business around. And now we're at this point where we have a lot of flexibility. We can keep it and run it for mailbox money, or we can listen to some of these guys that are coming along and take some of these unsolicited offers and consider them. But I think these businesses run correctly are great yield cos, and that's what we've set out to do. If we didn't want to sell it, we didn't want to feel like we ever had to. 

Chris Powers: Right. I think it's just weird that in today's world, and maybe it's always been this way, but especially in the generation of private equity and as Wall Street's kind of gotten more financial engineering, you saying like, hey, we just want to own a good company with good people and low debt is like more of an anomaly. It's like you sound- like how dare you not? 

Roe Patterson: No, why don't you, where's your growth story, and growth for growth's sake. That's the temptation with a public company is everyone wants to know what you're going to do next quarter. You can tell them all about last quarter and how great it was, and then everyone says okay, what's next? And their stocks going to trade on what's next, and that's the treadmill that an OFS really probably never ought to be on. So I could argue sometimes that there's some parts of OFS that should never be a public co and then some that it fits really, really well. But anyway, back to what the idea was, I did a couple of other businesses that are a little smaller, subscale, same way. And Adam Hurley, who worked with me at Basic, we got to talking, he had gone on to kind of some non-energy CFO roles, but he was seeing what I'm seeing in the energy space, no one has brought capital since 2014 into the space. It's been completely under invested in, and we can talk a minute about what that's really going to do to EMP because of the underinvestment within OFS. It's a cliff that we keep driving closer and closer to. And we said, look, there's a lot of stale investment companies out here that private equity has invested in. It's at the end of the fund life. These guys want off the assets. These are still, most of the time, if they've made it through covid there, they cross the Rubicon, they're pretty good companies. They've got good cash flow, maybe a good team. But the sponsors are like, I'm out. I've crystallized my return, and therefore I'm not going to put any more money in this one way or another. And we said, let's put up a standing fund of capital, and let's go specifically and do the things we know we need to do – low to no leverage, good people, start with a great team, good assets, don't need anything that we've got to go replace or rebuild within the next few years, something that's been a big maintenance capex burden that's coming down the road, that kind of thing. And let's go find companies that have the cash flow model that we like, and let's go see if we can buy them. And so, we did. We went out and raised our fund. We did our first close in June. And man, we have found a lot of opportunities out there. We've said no to a lot of things. We're pretty specific in particular about what we like. We like the production side of the business. We're not really into drilling and completion. We don't like businesses that are inherently tied to the rig count or the frack count. We like businesses that are kind of critical to every barrel of oil that's going to be produced in the US and every MCF of gas that's going to be produced in the US. 

Chris Powers: What kind of businesses? Rattle off a few. 

Roe Patterson: So, this would be things like contract compression. We love remote power generation because the grid is constantly in flux, and everyone's like on course trying to build out to people, but it takes them two years. They’ve got to have remote power to be able to run artificial lift in these remote fields. So that power is a good business. Things like production chemicals. I like artificial lift, by the way, a lot of ESP out there. I like pipeline maintenance, monitoring, service repair. There's good businesses in the infrastructure piece of building out our takeaway capacity, both in gas fields and oil fields, and that generates a ton of service capacity. So these are all businesses that if they're not there, or what they operate and run is down, the oil is not moving. And so we really like those businesses. Widgets and cool things within drilling and completion, they're fancy and they're sexy and sometimes they make really good margins, but that's not really what we're looking to invest in. 

Chris Powers: So, you basically want stuff that is in demand whether oil is being drilled for or not. 

Roe Patterson: That's right. 

Chris Powers: You've said efficiency in the fleet several times. Can you give an example? I know there's technology and software that makes things efficient, but are there other things outside of that that could make a fleet more efficient? Is it headcount, getting the people right? You've mentioned it so many times as a value add, and we can talk about the software, I'm not trying to get away from it, but that's always an easy answer in today's world is technology. Is there anything else that you, to the extent you can share, say like, here's part of our playbook of what we can do to make a fleet efficient?

Roe Patterson: Sure, I don't mind. I always give away the secret sauce anyway. 

Chris Powers: Most people won't do it. 

Roe Patterson: No, no, I don't mind. You hit the nail on the head with technology. Obviously, if we can automate things like ticketing and payroll, even AP classification for tickets at the field level, things like that take away a whole person that's necessary to process all that paperwork or payroll. So, we've got tablets on every location with every single one of our supervisors, and everyone on the payroll that day is checked off. We know how many hours they work. They went through their JSAs and their safety meetings. We know what bills we paid that day. And we know how many hours we worked and what our ticket looks like, and we know all of our add-on charges. And by the end of the day, we know exactly what happened on that location. That hasn't been a common practice always in the oil field. There's some people that are still doing paper tickets. So that's one thing we can do. And that's, like you say, an obvious thing. Another thing we do is a lot of preventative maintenance to keep our service costs low and our maintenance costs low. And you have to work that program. You have to make sure you're on top of it because when things go too long without oil changes or hydraulic fluid changes, et cetera, you wind up wearing out components and pieces that you shouldn't have worn out and you have a failure. That can be costly, especially when you're over the hole like we are with a well servicing company. And so just good maintenance, CapEx, good service on our own equipment, and then investing in some newer technologies. And then lastly is understanding and managing our fixed costs and labor down to the penny. A lot of companies just will still throw money at expense over a cost and really not analyze why do I have that, what could I do to enhance that, what could be different about that that's going to lower my G&A and raise my cashflow and EBITDA levels. And you've got to dive into it and dissect it a little bit. It doesn't take much work, and once you're kinda good at it, you can go fast at it, but you'd be surprised how many times I look at a company's income statement and I see all this fat that I could go trim and turn it into some real lean meat. So those are the opportunities. That's what I'm looking for is to get in there and see if I can figure out a way to improve it. 

Chris Powers: What are the multiples on businesses you can buy and how much of that is… because I think some of your thesis is like, there's just no capital here, so multiples are low. What are you buying at now, and what would those multiples be if there was just a healthy capital market for this stuff? So much of the discount is just, we have money that nobody else has. 

Roe Patterson: Right. Well, that is kind of the crux of a lot of this whole thesis that we have, is that the multiples are so depressed. They're probably in the kind of, for most of OFS, generally they're in this three range. If you've got contracts, if you've got a cooler business that's maybe making a little higher margin, you're going to trade up from there. If you've got more of a equipment manufacturing, one trick pony, very drilling to completion oriented, you might trade even lower. I guess the ugly part of the story is that some companies trade at a really low multiple because they should. Because they're really expensive to run and they're really dangerous to be in when the rig count moves around. So these businesses that are stickier and have good returns during high rig counts, low rig counts, doesn't matter, they tend to trade a little higher. But even then, you're seeing a lot of depressed multiples. So we can buy some really cool stuff at three times. And that's where we underwrite it. We don't underwrite it that it has to go to four and a half or five and wait around in a window. That's old private equity. That's what we did seven, eight years ago. We had to have a window or we couldn't get out. And guys always had a chance to sell those companies, by the way. They just weren't going to hit that multiple expansion that they thought they were, so they wouldn't let go of it. They were waiting around on that window. We don't do that. We underwrite it right where it's at and right where we buy it. And so if things are flat, good. If we go in and improve EBITDA and we get efficiencies improved and we can get cash flow into a meaningfully higher range, we're going to make our return. And it doesn't matter where the multiples move when we decide to sell it or we decide to exit. So that's the way we look at the business. I think one thing you need to know about capital not in the business is that it will come back. Returns chase each other. And so we're already seeing the migration of capital back. It's green shoots, so it's small. And this is like infrastructure funds or energy transition funds that are dabbling in contract compression. Well, they'll say, well, that's infrastructure and that's midstream. Well, two years ago, it was OFS, and it was pure OFS. And it wasn't anything you'd see big private equity funds that called themselves infra dabbling in. But they turn the lens a little and they squint real hard and they say, oh, that's infra. I can go buy. Well, why are they doing that? Because everything over here in infra has got an eight handle on it or a nine handle on it, and they can come over here and play around in the four or five handle market, and it makes a lot more sense to them. So they'll turn the lens on you. So we've already seen that kind of creeping capital migration of capital coming back. Commercial banks aren't there yet. Big banks aren't there yet. Public debt's not there yet. I would argue the equity markets and the public markets are pretty soft. You're not seeing it there yet, but it's migrating, it's creeping. So I think, with Marauder Capital, we're way out in front. It's definitely something that is contrarian. So, not everybody buys it or loves it. A lot of people lost a lot of money trying to play the oilfield service private equity game and just did it wrong in our opinion. But a lot of people got burned enough and in the equities that it's going to take a while for them to come back. But we do see that capital coming back. If we don't reinvest in that side of the business pretty soon, we're going to start to see it in our oil production numbers. I mean, if we want to keep making 13 and a half million barrels a day as a country, we better reinvest in OFS at some point or we're not going to be able to do it. 

Chris Powers: So essentially, as long as we can get OFS rebranded infrastructure, there's going to be a funnel of money. Everything that's hated will just need to be rebranded infrastructure and then we're back. 

Roe Patterson: That's right. If you can get a lot of OFS branded ESG somehow, we're really going to be hitting on all cylinders. 

Chris Powers: If you had to guess, you might not have the percentage in your head, but if you just had to take a guess, how many, you said the private equity model didn't work, taking on a bunch of public debt didn't work, how many OFS businesses went under just because of a bad capital structure rather than a bad business that would have stayed alive if they had no debt? 

Roe Patterson: I would say the majority. 

Chris Powers: Okay, so a lot of it's a financial structuring issue because it's so cyclical. 

Roe Patterson: Right, and they just got caught flat-footed. When the capital markets closed to them, the debt refinancing markets closed, and there was no way they could keep up with their debt service with their cash flow position. So, it was just too burdensome. So there was a few that had probably bad businesses and businesses that were going to have some rough spots no matter what because they just kind of had the wrong model. But most of the companies that I saw have to restructure back during that period, they were good. They were good companies and had survived for years and years without having to restructure. But this was a downturn for all downturns because of its longevity. And you never got your head back above water. So a lot of times in previous downturns, you'd have these little spikes and these little chances to make a little more money, and it would just kind of keep you alive until you could refinance. That didn't happen this time. 

Chris Powers: Do you care about the basin you're in? Are you just in the Permian or would you do work in any basin? 

Roe Patterson: We're agnostic. So I would argue the Permian sometimes is the hardest place to be in OFS. Even though it's the gift that keeps on giving and the greatest basin in the world probably for production, it's one of the toughest places to run a service company because it's very competitive, there's a lot of capacity there, and there's other markets where the competition is much smaller and margins are a little better. So the Permian is a volume business for sure, for most service companies. It's not about the margin you're making, it's about how much work you get. 

Chris Powers: One more question and then we'll wrap it up. On just the contract side, I'm imagining, like you said 2014 was an awesome year. You got contracts with every big operator. And maybe this is some like hearsay from what I used to hear about like Chesapeake back in the Barnett is like they'd pay on 90 days. They had so much leverage, maybe over the small, or maybe this wasn't like leverage over basic, but if you were a smaller mom and pop… I don't even know what the question is. It's like, are contracts good until oil goes to 10 and then nobody's getting paid, or like what's the culture of making sure you're paid even when times are bad? 

Roe Patterson: Well, I think, so contracts in general in OFS are about as good as the paper they're written on. 

Chris Powers: All right. You got where I was headed. 

Roe Patterson: Everybody says, we've got a take or pay contract. Well, when your customer shuts down because they can't generate the financial returns they need to and they say we're not going to do that work. And you say, well, here's my invoice. And they say, well, we aren't going to pay it either. What are you going to do? Are you going to sue them? You're going to sue your customer? It's really hard to do. So there's always some compromise or people are trying to work and wiggle their way out of those things. So when I say they're not worth much, they're really not worth much. When times are good, they're worth a lot because it's locked up capacity, customer's happy, you're happy usually. Sometimes when things are getting much better though, they can be a cap on rates, and so you really want to charge more for your services because you can, but you can't because of the contract. So, it's a tough spot to be in. I will say in the midstream world, the contracts for things like pipelines, acreage dedications for things, those are real contracts and they have some real teeth to them. I would say drilling contracts that are written on IADC format are pretty sticky, they're tough to get out of. But a lot of times, these take or pay on sand or frack or other capacity and other services out there, they just don't hold up and hard to enforce, and people end up wiggling out of them. I've had it happen to me many, many times. I'd love to go to Wall Street and brag on my contracts. And then, the next quarter, you're having to say why you don't have it anymore, or you let the guy out of it, or everybody took a time out. So, you’ve got to be careful about that. But I think as far as stretching vendors, EMPs, they're probably a little better than they used to be. For us, the way we navigate it is, if we've got low leverage and we've got a lot of flex, somebody doesn't pay us, we rig down. We go away. We say, we can't work for you. If you can't pay us, we can't work for you because we have to pay our employees. We have to pay our diesel bill. We have to pay all the other high fixed costs that we have. We can't not pay or no one's going to sell us fuel. So, if you don't pay us, we're banking you now at this point, and I'm not a bank. So when you've got a lot of debt and you're up against the wall, a lot of times you'll put up with that stuff and you're forced to and it eats into your margin, it eats into your cash. But when you've got no leverage, you play the game of, look, I'll come back and work for you anytime, but only when you can pay me. 

Chris Powers: All right, you're looking for businesses to buy. Let's just end on this. We’ve got some private equity family offices, probably owners of businesses listening. What is like the ideal profile for something to buy? And we'll put your information in the show notes so people can send anything they have. But if you were to say like, if it fits this box, we're looking to buy it, size, industry, we kind of know what you're looking for, but anything else? 

Roe Patterson: So, production levered OFS. We want good teams, good assets, good equipment. And I don't want to have to redo someone's cap stack. I don't want to have to go in and figure out how to get them out from under a mountain of debt or whatever. So, they kind of need to be in a pretty good spot when it comes to cap stack. And then at the end of the day, if you kind of have all those boxes checked, why would you sell, it's a motivated seller. It's someone who wants out for whatever reason. Maybe it's they're aging out, ready to retire, need to sell it. The principal wants off. There's no heir apparent. Maybe it's a family office that's lost its zeal for being in that business. It's still a good business, but they just don't want it anymore. Or it's a private equity backed. They're at the end of the fund life, and they just don't want to own it anymore. So we're looking for someone who's motivated to sell. Doesn't mean they need to be desperate. That's not necessarily the case in a lot of the things we'd like and look at. We just want some motivation. They have to have a compelling reason to want to unhook from the asset and turn it over to someone new. So those are the big things we're looking for. 

Chris Powers: Size?

Roe Patterson: I guess if it's super small, it doesn't do a lot of good. We're a $100 million fund. So, checks we write in the $10 to 20 million range are kind of our sweet spot. We have a lot of co-invest opportunities with our LPs that want to do co-invest, so we can do bigger deals. But we would be probably, our opinion would be, let us look at it, because I hate to say that, oh, that's too small or that's too big. We'd like to look at everything that's out there. 

Chris Powers: Roe, thanks for joining me today. 

Roe Patterson: Absolutely, man. Great to be here. Appreciate it.