Everything old is new again.
Back in the 1970’s and 80’s, natural gas producers were often very small. They were shops built by an individual, typically a certain type of reservoir engineer or a geologist. The missus would answer the phones, the uncle would do the accounting kind of thing.
See, finding oil and gas was/is a function of a certain type of skillset and personality. Half art, half science. And good rock hunters are not common.
I met a few of them along the way. And some of the most successful were very atypical of the ‘downtown businessperson’ stereotype. They appeared more to me like prospectors, and would be away for extended periods on a hunt. Hanging off a helicopter with one arm while shooting a .30-30 at a pissed off bear chasing them off a lease kind of stuff.
Romanticism aside, these little producers (‘juniors’ in the parlance) held no transport, had little expertise in marketing their product, and often looked to 3rd parties to sell their production.
One I met once sat in a meeting with a company I worked for in the mid ’90s. We were an intermediate, and industry consolidation was just beginning (Enron Online was fresh out of the box). One of these prospector type squirrels was in a meeting with us and the CEO of the time, tossing a pen into the air, completely disinterested in the conversation. I asked my boss afterward – the CFO – “wtf was that?” He told me the guy rolls through occasionally, will drop a few lease hold names on a post-it note, the CEO will buy them, and we make money. End of story.
Ultimately, these types are exceptional at finding strategic reserves, and just want to get rich.
A decade or two earlier, industry consolidation hadn’t happened yet. Value chain differentiation was begging to be introduced.
And companies emerged to aggregate production from these small producers. These ‘aggregators’ bought long term transport, went downstream to find utilities and other end use markets for the gas, and provided anetback to producers for their production.
Much like the Canadian Wheat Board, and other ‘marketing’ outfits, aggregators essentially live on a percentage of the total dollar throughput after costs. And are relatively common in commodities.
This is not royalties, nor is it streaming. It’s an extension of the value chain that lives solely in the marketing link though.
I came across a company doing this in cannabis, and it reminded me of the whole concept of aggregators.
I’ll be very surprised if there isn’t a few more emerging over the next year or two, especially as regional market supports or offering strain specific portfolios from craft producers.
It’s already there that service companies exist to help in filling out government forms, or that tactical security and advisories sell their services to prospective cannabis producers.
The marketing side though is what anchors it all into revenue. If this model is successful, I’d look for these to be the main collollary to vertical integration of the sole source supplier.