April 2020

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We started Viking in May of 2012 so it’s been nearly 8 years. Prior to that, I worked at a family office doing real estate for about 9 years, which has some interesting parallels to minerals and is one of the things that got me interested in the space in the first place.

Real Estate and Royalties and Minerals – PARALLELS

One of the main jewels of my real estate work was the 2 mil square feet office space that was purchased in downtown Oklahoma. This was a very large turnover and at that time I really understood that investment class, the yield and management components.

There were also some failed projects and some bureaucracy, and the lack of speed that became challenging for me. This was 2010 and Eagle Ford was booming. But I had no energy expertise. I'm not an engineer. And so we just started from zero.

Millions of acres had already been leased by then and we came in at the tail end of what you would consider a land grab phase. In the beginning, People just drilled their first well and went from there.

“We were really just trying to play guess work and be out ahead of the drill bit.” 

There was one Oklahoma City company that was a real driver of this back in 2012, drilling in the Woodford Shale and in Canadian County, where they started doing pad drilling. They would drill 10 wells in a section with decent results. That became the innovation that everybody started to do.

Now, for us it's really about understanding the development, the operator and the pace. We are trying to put together not just a portfolio of great inventory for future development, but also one that receives enough cash flow.

Any time you go into a new industry from a technology company or a real estate company or an oil and gas company, it’s the lingo that is a barrier. You just you have to stick your nose in there.

The truth is that there are all sort of lessons to be translated across industries. Yield is yield, you know. Real estate and oil and gas are similar. If you own an office building, you've got property managers, you've got tenants, you've got people that take care of various parts of the property; it is a living and breathing organism that requires a tremendous amount of management.

Then from a purchase perspective, depending on your marketplace, is it midtown Manhattan or Dallas or Oakland City? Geological risk in oil and gas isn’t very different to where your building is located in real estate

“Generally speaking, we see mineral investments as an equity only deal.”

Really good underwriters understand where the right place to be is and that it is not wise to take any massive risks because you are a non-operator. In an office building you manage, you're doing everything to recruit the right new tenants, keep your existing tenants happy and improve the building where you can.

I think the key for us is being out there in the market at scale and to continue to do that. As far as the LP base goes, I think that I would just encourage you to think about that message. I always like to make the real estate analogy, because I think for people that are familiar with real estate, or just an investing thesis, what we offer is a good combination of what you would get from a sophisticated retail buyer at the wholesale level.

Tim: Why should LPs be involved in these opportunities?

We always preferred to raise the kind of local friends and family capital because we believe in our asset class and so we're always going to want to be aligned with whoever we're working with.

There are a number of ways to do this. Firstly, you can either have a sidecar deal where you are customising and putting assets together for a potentially larger partner while co-investing alongside them. We like this idea. The question is: do you want to staff up to do it or not?

Another way is by backing a team which was traditionally done by private equity. This is an interesting structure too because being able to get as close to the company as possible and understand each other is a huge benefit.

The Evolution of Viking

Between 2012-2014 we were in the discovery phase: big land title companies, big land machines that are operating on day rates and running two hundred guys for Chesapeake and Devon. That was a very inefficient way to go out and access the mineral market so we had to find a better way to do that.

“Our first real innovation was finding efficiency through a software system that bypassed traditional land based systems.”

We aggregated the information and internalized it and this made it easier to contact these people at a lower cost. It was basically taking third party work and bringing it internally so that we have a fully funded internal ecosystem from phone call to closing to management.

2014-2017 is when private equity came into the space. That's when we started to see $100 mil to $200 mil and partner with some of the other firms for specific buy areas. We were creating new efficiencies through software CRM technology to create scale.

2017-present. Over the last three years we got good at the aggregation game. Now we need to become experts at the underwriting piece of the game and do it at scale for the reasons I mentioned previously. We raised our first fund in June 2017. We sold it and also got the timing right. We made it in 15 months and we had a good yield component, we weren't just buying acreage that didn't have any ancillary value, we were buying heavily cash flowing assets at 15-18% annualized yields during just that 9-month window.

We're fortunate to have a decent network to be able to continue to scale up on friends and family and we're now about $20-25 mil per fund.

Yeah, I would say just from a strategic standpoint, I think people can look at us and say that we are willing to really narrow our focus on both the operator and the play and we are South Texas focused. We've bought acreage in most plays here and there but we really honed into the Eagle Ford for a number of reasons. I think they should associate us with the fact that you've got BP, Conocophillips, most majors, Devon and EOG – that is what makes it prime real estate.

I think those are the key things that that people should know about Viking.

With our returns in the mid to high teens, we're giving you direct access to the actual owner. In fact, we have not bought a marketed deal in our history. Every deal we've ever done has been direct sale from an existing owner. We just want to stick our nose in there and continue to work with the people in the areas that we are comfortable with and that fit our profile that will give the returns.

 

Ran Oliver featured on Royalties and Minerals Podcast Channel by the Oil & Gas Council on the February 11, 2020. Register your Interest here to get an update about our next weekly podcast or explore our Digital Platform for more options