Executive Q&A with Katana: Oil, Junior E&Ps, Western Canada and Private Equity

Ross Stewart Campbell (RSC) from The Oil Council: Jess, many thanks for joining us to share your thoughts on today’s markets. Some of our readers might not be familiar with Katana; can you quickly introduce your company and the investments in your portfolio?

Jess Larsen (JH) from Katana: Thanks Ross, Katana is a Calgary based Private Equity Firm. We invest growth capital into junior oil and gas and renewable energy developers. We typically target what we believe are more reliable returns; limited- exploration risk for oil opportunities and non-technology risk for renewables projects. Our other soap box is low-cost production like our high net-back Bakken play in Manitoba that provides our limited partners with ongoing disbursement checks.

RSC: Looking first at the small-cap (junior) oil and gas sector Jess, what is the role of juniors in today’s oil and gas landscape? And how significant a role will they play in determining the future success of the industry as a whole?

JL: Juniors will be responsible for enabling the progression of our industry. Many young engineers at large firms seem too concerned about protecting their bonuses to be willing to really push the envelope or scrounge for every last drop of oil/gas in a property/field. In contrast we often see the best talent leaving those firms to start junior companies, where going the extra mile can not only make them millions personally but also very strong rates of returns for their investors. This form of reward usually seems to win when compared to the modestly bigger bonus
Juniors will always have a significant role to play because they are statistically so much better at finding and proving up new reserve additions than larger producers. For stock prices these larger producers need to replace the oil they pump each year and when they fall short of finding enough reserves the answer is simply to buy up some juniors and top up their [possible] growth reserves.

RSC: Many believe in the potential and strong upside of the junior sector but conversely many also believe that the sector is too risky to be involved in. With this in mind would you say Katana has a greater appetite for risk in your investments, or, that in fact you’re geared up for greater growth potential and higher returns on investment?

JL: Listen, there‟s no getting around the fact that many CEOs in this end of the business are total gamblers who want to make their next big bet with your money. Without the right team to verify stories and top-shelf technical talent to confirm reservoir characteristics, it can be very hard to tell the difference between the gamblers and the really great and reliable management teams. That said, so many of the truly great management teams are just not willing to settle for a few hundred thousand a year, riding a desk, when their own track record has proven they can consistently create millions for themselves and others by simply running their own junior company. At Katana we spend a lot of time sorting through the chaff until we find these guys, and it works for us.