The Kranz Dictum: A Timeless Lesson From a NASA Apollo Program Flight Director

This Saturday–July 20, 2019–will mark the 50th anniversary of mankind stepping foot on a non-Earth celestial body, a feat accomplished through the Apollo 11 mission. President Kennedy put forth the highly ambitious objective in 1961 to land an American on the moon before the end of the 1960s, made in the backdrop of the Soviets having recently beaten the United States into space with Yuri Gagarin being the first human to orbit our planet. Achieving that goal of landing man on the moon would take great mettle, effort, and sacrifice, but would become a resounding demonstration to the planet of what great feats America is capable of. Much of what we will hear about this week will be of the Apollo 11 astronauts particularly: Neil Armstrong, Buzz Aldrin (the two moonwalkers), and Michael Collins (who remained in lunar orbit). However, one of the unsung heroes and driving forces of the Apollo program who most people don’t know about was Gene Kranz, Flight Director of many of the program’s missions (the odd-numbered missions), including Apollo 11.

The Apollo program was created to succeed Project Gemini, which was designed to test human spaceflight in low Earth orbit and serve as a foundation for Apollo’s stated aim to eventually land man on the moon. However, the first mission in the program (Apollo 1) would be met with unthinkable tragedy when the mission’s three astronauts perished in a launch rehearsal test when a fire broke out in a pure oxygen environment of the flight capsule. Inquiries and investigations were conducted, and the consensus takeaway was that NASA had not sufficiently planned for contingencies, and flaws in the design of the vehicle contributed heavily in the astronauts’ deaths. On the Monday morning that followed the Apollo 1 disaster, Kranz assembled his team and told them the following, which would later be dubbed the “Kranz Dictum”:

Spaceflight will never tolerate carelessness, incapacity, and neglect. Somewhere, somehow, we screwed up. It could have been in design, build, or test. Whatever it was, we should have caught it. We were too gung ho about the schedule and we locked out all of the problems we saw each day in our work. Every element of the program was in trouble and so were we. The simulators were not working, Mission Control was behind in virtually every area, and the flight and test procedures changed daily. Nothing we did had any shelf life. Not one of us stood up and said, “Dammit, stop!” I don’t know what Thompson’s committee will find as the cause [of the disaster], but I know what I find. We are the cause! We were not ready! We did not do our job. We were rolling the dice, hoping that things would come together by launch day, when in our hearts we knew it would take a miracle. We were pushing the schedule and betting that the Cape would slip before we did.

From this day forward, Flight Control will be known by two words: “Tough” and “Competent”. Tough means we are forever accountable for what we do or what we fail to do. We will never again compromise our responsibilities. Every time we walk into Mission Control we will know what we stand for. Competent means we will never take anything for granted. We will never be found short in our knowledge and in our skills. Mission Control will be perfect. When you leave this meeting today you will go to your office and the first thing you will do there is to write “Tough” and “Competent” on your blackboards. It will never be erased. Each day when you enter the room, these words will remind you of the price paid by Grissom, White, and Chaffee. These words are the price of admission to the ranks of Mission Control.

Kranz still is able to deliver a good portion of this speech by heart, as demonstrated by this excerpt from a NASA documentary aired several years ago. It’s an amazing demonstration of self-reflection and the realization that NASA’s standards would need to much higher if they were going to successfully get a crew out of low Earth orbit and back, much less landing men on the moon. I and many others, despite the tragic circumstances that were at the root of Kranz’s speech, have found inspiration in his words and his ultimatum of not tolerating anything less than excellence that he delivered to his team.

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Bet You Can’t Guess Where the First Gas Well in the U.S. Was Located

If you’ll indulge me for a few moments it would be appreciated: although many people already know the answer to the question posed by the title of this blog post, those who don’t know are often surprised to learn the mystery location of our nation’s first gas well. Most people in our industry know of the first commercially productive oil well in the United States – the Drake well in western Pennsylvania was the first of a litany of U.S. wells that would bear oil. Although some people not in the know might guess that it was in Texas, or Oklahoma, Pennsylvania still seems like a logical place for the first oil well given what we know about Appalachia’s abundance of hydrocarbons subsurface.

But the surprise on some people’s faces when they learn that the first gaswell in the U.S. was drilled in New York State is noticeable, and the irony is palpable. The well was in Fredonia, New York, a smaller town in the Southern Tier of Western New York roughly halfway between Buffalo, New York and Erie, Pennsylvania. I’m routinely reminded of this when making the sojourn between Pittsburgh and Buffalo that I make a few times a year.

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Taken last week not far from where I was born and raised in Western New York.

The company formed after the discovery of the Fredonia gas well would eventually become a company known well in my birthplace, National Fuel (whose E&P arm is Seneca Resources). There are not many positive ties between this industry and my home state, particularly currently, but I think that this is one of the more interesting ones.

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Buy-and-Flip-Quick Becomes Buy-and-Be-Patient in the Private Equity-Backed Energy Space

Back in 2015 and 2016, the lows of the oil market provided a painful reeducation of the volatility and whipsaw nature of the energy industry after a period of high prices and ceaseless optimism. Those same lows flushed out some less efficient operators and companies; in their stead came private equity-backed outfits looking to get into the Permian Basin while prices were still relatively low on the bet that oil prices – and consequently asset values – would proceed to march higher going forward. Flipping land and lease deals quickly became the transaction du jour and money poured in on the prospects of quickly multiplying money. For a few years lease and mineral deals seemed to be going that way. At this point, though, most of those easy deals are not being transacted quite as quickly or easily.

On the mineral side, not long ago the model was aggregate a large amount of mineral and royalty interests across a large chunk of the core areas in the Permian Basin, and then cash out to a buyer or buyers who would purchase large amounts across larger swaths of the Midland and Delaware Basins. Now, both E&P companies who choose to acquire minerals as well as institutional mineral/royalty funds are being much more selective about what they acquire and where. There are multiple reasons for this, the main ones being that the wild pace of drilling has been tempered (which slows down when minerals slated to be drilled upon would be producing cash flow), and even that some larger buyers are digesting a series of major acquisitions in the last couple of years. The consequence to private equity outfits is that now more effort will be required to hustle up and sell the acquired minerals; the days of one or a few massive firesales to liquidate large mineral and royalty portfolios would seem to be scant moving forward.

On the leasing side, for some time it had been easy to take some leases and quickly flip them to someone else who would either develop themselves or then pass it on to someone else who would. Blocking up an acreage position was just a function of taking leases strategically and then selling for the right price. Now the model requires more out of the lease reseller – oftentimes developing and proving the viability and value of the lease acreage, and then selling an end-stop buyer more of a turnkey asset. For private equity-backed companies, this represents far more risk and commitment then they may have anticipated going in. A good number of these private equity groups backing short-term acquisition companies probably did not anticipate having to sink millions of dollars into the ground in order to make their assets more attractive, nor the increased risk and potential operational and legal snafus that come along with holding and maintaining an operated asset producing oil and/or gas. This article from last month in the local Midland newspaper touches on these issues well.

So what does this all mean? At the surface level it means the typical amount of time from when a PE-backed company gets its funding to when it finally sheds itself of all of its acquired assets is surely going to increase. There will be more risk and exposure involved, particularly on the leasehold side where buyers in the market looking at a PE-backed company’s assets will insist on seeing wells drilled in order to assess how good the rock is before committing to purchase.  These are all manageable issues; the most important factor in all of this is that participants understand that the rules of the private equity game in the Permian Basin are ever-changing.

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Fuel for the Fire: Career Progression Through the Lens of Logarithmic Growth

Even at my earliest stages working in the energy industry I have been very intentional about ensuring that I am always doing what I can to continue learning, both practically and theoretically. Fortunately for me the company at which I work has, over the past two and a half years, been progressively taking on more challenging and complex deals – this has nicely dovetailed with my own professional growth in the industry. Regular attendance at industry conferences and seminars also help; they broaden my perspective with respect to my practice areas as well as those areas that are a bit outside of my day-to-day work. But as I have argued to no shortage of people who know me, progression through one’s career and knowledge in a particular area does not occur in a linear fashion:

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Rather, my point of view is that this progression is best mapped as a series of many logarithmic patterns (don’t worry – I definitely had to look this up to put the word to how I saw it in my mind’s eye since I was not a stellar math student). It’s pretty much the opposite of an exponential pattern, which starts slow and then begins to take off. Here is what a logarithmic pattern looks like:

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But the chart above is not meant to represent one’s entire career – rather, it should be seen first as representing a particular skill or function, and then from there the collection of skills and functions that make up your current role in your organization or firm. As a basic example, being able to intelligently negotiate an oil and gas lease is a good example of a skill that we can use for this thought exercise. The first dozen of leases that one was to read and attempt to negotiate would provide a great deal of education; the next dozen would still provide education, and then after several dozen the rate of education would tail off and there would not be too many matters of first impression for someone negotiating oil and gas leases save for once in a while. So any given person is generally working on and improving a multitude of skills and competencies at any given time, and so there are as many logarithmic patterns attributable to a professional as they have a repertoire of regular skills and functions in their role. If one were to average these logarithmic patterns for a given professional then you get what I would consider their aggregate logarithmic pattern.

In a micro sense, as a person gets more reps with respect to a particular skill or function the better they become and the less educational each rep becomes; building on that, in a macro sense the average of the person’s evolution in all of their current skills or functions gives us an aggregate pattern that begins to collectively tail off after some time. What this means is that a person who is in a job performing the same functions and utilizing an unchanging set of skills for an extended period of time learns and grows at a diminishing rate. So what’s the point?

For someone who is complacent and content to have their job and doesn’t really desire much more, it won’t matter to that person. But for anyone who is conscientiously wanting to continually be challenged in their work and forced to grow, the “tailing off” phenomenon that I’ve alluded to several times above will be a difficult period for such a person to go through. The key is to seek out opportunities to learn and grow – examples include but are not limited to:

  • To the extent possible, work on new types of workproduct and matters (ideally with the oversight of a more experienced colleague) and solicit feedback.
  • Take on the task of proactively learning/researching things in your field that haven’t yet come up in your work but could in the future.
  • Attend continuing education seminars and conferences.

Ultimately every professional is responsible for their own growth and development, and should be cognizant over the long term about how their current work and trajectory fit into their overall career roadmap. For anyone who desires to avoid stagnation professionally one should regularly reflect on what part of their own logarithmic pattern(s) they are currently in and proceed accordingly. Alright, algebra lesson: over.

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SCOTX Upholds Lower Decisions in Retained Acreage Disputes (Endeavor v. Discovery; XOG v. Chesapeake)

After having waited with baited breath for a few years, oil and gas professionals dealing with land, title, and leases heard from the Supreme Court of Texas (“SCOTX”) on a few anticipated disputes pertaining to “retained acreage” provisions. These provisions enable mineral owning lessors to encourage fuller development of the leased acreage and prevent lessee operators from holding an undue amount of acreage based on the production from one or a few wells.

In Endeavor Energy Resources, L.P., et al. v. Discovery Operating, Inc., et al., (No. 15-0155), SCOTX agreed with the lower court that, given the particular language of the lease’s retained acreage provision conditioning the amount of acreage retained to the assignment of acreage to a proration unit, that Endeavor’s inadvertent assignment of fewer acres than which it may have otherwise been entitled resulted in a termination as to their interest as to the leased lands not so assigned to the unit. At the urging of Discovery – as well as the numerous amici who chose to make their thoughts known to the Court – the justices determined that the idea of “assignment” used in this context is a term of art in the oil and gas industry, and can only reasonably be understood to mean the filing of a form with the Texas Railroad Commission assigning the number of acres according to that agency’s rules. While the Court agrees that the Railroad Commission does not have the power to adjudicate and determine property rights, in this situation the parties contracted in their lease such that the acres to be retained was expressly conditioned on such an assignment of acreage made with that regulatory body. Ultimately, as Chief Justice Hecht succinctly observes in the companion XOG case discussed below, Endeavor‘s holding is that a regulatory proration unit “assigned to a well” means acreage that is actually assigned by the operator, and not automatically by consequence of the applicable field rules governing the well.

Of note to the author was the discussion regarding “obtaining the maximum producing allowable,” a concept where the size of a proration unit in a given field can sometimes vary between a standard number of acres with the inclusion of up to a defined number of additional “tolerance” acres – this increase in size is tied to breadth of production. In a regulatory sense, larger units can produce more oil. In this case, Endeavor argued that because it could have assigned all of the tolerance acres available to it with the regulatory agency, that meant they could rely on language saying that the proration units were to have the “number of acres required to comply with [Commission rules governing obtaining “the maximum producing allowable for the particular well.” This reasoning did not persuade the Court; given that they assigned a number of acres per unit that was in between the standard and maximum sizes (with tolerance acreage applied), they were determined to have retained merely the lesser amount. More interestingly, toward the end of its discussion on this topic the Court briefly addressed the concept that the use of tolerance acreage – which affords the operator the ability to produce more oil from the well on that unit – in situations where the tolerance acreage is not needed nor warranted by the low production in an effort merely to squat in bad faith on more lease acreage than one would otherwise be entitled. The Court observed that “if a well is draining a certain amount of acreage, but the operator intends to claim more than the amount, the operator may open itself up to claims that it is not acting in good faith in purporting to retain a substantially greater amount of acreage.” Obviously this was not at issue here in this case, but this author believes that the Court is providing a preview of coming attractions in the next frontier of retained acreage disputes, where an operator assigns the standard acreage and also some or all of the tolerance acreage for a total greater than what it should be entitled to given lackluster production from the well in a given proration unit and purports to retain such excess acreage.

In XOG Operating, LLC v. Chesapeake Exploration LP (No. 15-0935), the Court leaves for the Endeavor decision the discussion on regulatory frameworks and lease provisions more broadly, but suffice it to say oil and gas practitioners know after reading these cases several things:

  1. “Assignment” of acreage is, in the eyes of the Court, understood to mean an operator’s assignment of acreage with the regulatory agency (here, the Texas Railroad Commission).
  2. The Court will consider any retained acreage dispute on the facts and particularly on the given language of the provision at issue, not unlike how the Court handles fixed vs. floating royalty disputes.
  3. Scrutinize any retained acreage provisions that you or your client will be subject to quite carefully, because courts will apply them as written regardless of novel factual circumstances or unwitting clerical errors.

This blog post is also available at my LinkedIn page.

Resolution Without Reflection & Implementation = Writing Without Drafting

If you’re reading this, then congratulations – you’ve made it to 2018. Maybe it’s just me but the ten years making up 2008-2017 felt like a lifetime to me in and of itself…so much change and innovation interspersed with decline in other areas. One constant trope that pops up at the start of every new year is the New Year’s Resolution. While I obviously think that resolving to make some positive change to benefit yourself (and hopefully others also) is good, sometimes the ways that people attempt to implement that change is not likely to lead to success. In my mind, making a resolution without solid reflection and outlining a detailed implementation plan means that you will become a statistic and fail early on in trying to maintain your resolution. In addition, not planning on how to implement your resolution into your life will mean that your resolution formed after reflection will likely still not work. All three legs on the stool are necessary.

1. Reflection

Although I don’t do it as much as I probably should, many influential people that I follow and even try to emulate swear by the benefits of daily meditation as a way to hone focus and cut through the “noise” we all have in our lives. For some it may be prayer, and for others it may just be quietly practicing mindfulness regularly, but either way it makes sense why this would be a worthwhile pursuit. Meditation is a more deliberate and regular form of reflection, but I would submit that even taking stock at the end of year to assess achievements and areas for growth has great value.

In terms of your career, those of us who are ambitious probably do have longer-term goals that are broader in nature – but do you have shorter-term and intermediary goals designed to allow you to take step up after step up to get to that longer-term goal? The former could be seen as battle plans with the latter being seen as an overall map and strategy for the greater war. To further this analogy, then, a long-term goal without the underlying smaller goals is making a plan for war without considering the nuances and subtle factors comprising each unique battle.

In terms of your own personal growth, if you have the stomach for it, something that I saw last year and tried out boils down to asking those close to you to honestly and critically comment on where you might need to grow yourself (e.g., being more patient with people). The personal growth branch of the “reflection tree” is probably most important as it undoubtedly feeds into one’s ability to grow and succeed in their career. Whether it’s meditation or a more basic end-of-year reflection process, any resolutions you make will be undergirded by some sort of reflection process.

2. Resolution

This is in my mind the sexier part of the self-improvement process. Resolutions by themselves are easy because to many they are affirmative declarations to do or stop doing a thing: “I will quit smoking,” “I will get in shape,” “I will work to improve my marriage.” The resolution is really the tip of the iceberg, the visible reference point and the north star to which your compass will guide you.

An important consideration would be to make a specific resolution. “Live a healthier life” is probably not sufficiently specific to allow a person to meaningfully progress toward that goal. If I wanted to lose twenty pounds, I might make the goal something to the effect of “Lose twenty pound through diet and exercise by July 31, 2018.” Beyond that there probably is now much to say…resolutions are probably the easiest and most self-explanatory part of the process.

3. Implementation

At this point you’ve reflected and made your resolution…so this is the part where it magically happens, right?

RIGHT?

Well, no. Without some sort of underlying foundation for how to actually implement these well-intentioned resolutions formed after some form of reflection, they are prone to sputter out into nothingness. An action plan is required to really make sure the resolution comes to fruition.

Since getting in shape is a pretty common choice, I would implement this resolution by laying out smaller objectives/steps that would help me get there – for example:

a. Cardio at gym 4 days per week, at least 45 minutes per visit.

b. Make shopping list of nutritionist-approved healthy foods, do not deviate from the list while shopping.

And on and on. So the way the process would play out might go like this:

REFLECTION: “I’ve been lax in eating well and have been getting a lot of fast food lately. I feel slower and sluggish, and I’ve put on twenty pounds. I’d like to drop that weight but I know that it will take work.”

RESOLUTION: “I want to lose twenty pounds through diet and exercise by July 31, 2018.”

IMPLEMENTATION: “So my plan is to do cardio at the gym down the street four times per week for at least 45 minutes per visit. I’ll have to do research on healthier foods and make my shopping list based off of those recommendations…that way I won’t deviate when I see something tempting in the store.”

So that pretty much constitutes the process. This can be used for both personal and professional goals, though most of the time people think of them as being used for the former (thus my focus on that area). Hopefully your 2017 was enjoyable and prosperous, and may your 2018 be even more so.

This article is also available at my LinkedIn page.

Finding Value in Mistakes When the Value is Not Immediately Apparent: Adding Arrows to Your Quiver

Last week I had the unpleasant task of informing our team that, due to an inexcusable and incompetent mistake for which I was solely responsible dating back almost a year, a property that we had acquired around that time was effectively half of what we thought it was (i.e., we paid double) because of the information prepared only by me and relied upon by my superiors. There will likely be material ramifications, both in terms of excess money paid for the property, as well as my colleagues having to drop what they’re doing to try to salvage things on the asset going forward in light of my mistake. Being that I am someone who takes his work and profession quite seriously (probably too seriously, to some), it’s a pretty jarring precept to come up against: your error singlehandedly cost your colleagues and your company significant time and money.

I’ve just completed Ray Dalio’s new book Principles (which I highly recommend to anyone reading), and he spends some time in the section titled “Work Principles” discussing the value of making mistakes, and then learning from them. In his lead-in to Work Principle #3, “Create a Culture in Which It is Okay to Make Mistakes and Unacceptable Not to Learn From Them,” he writes:

  • Everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don’t. By creating an environment in which it is okay to safely make mistakes so that people can learn from them, you’ll see rapid progress and fewer significant mistakes…[I]f you look back on yourself a year ago and aren’t shocked by how stupid you were, you haven’t learned much.

A prior manager of mine a few years ago told me something that I’d not heard before but, upon reflection, I couldn’t really disagree with – he said something to the effect of “the thing I like about you is that you rarely make the same mistake twice.” This probably makes sense for someone like me who is borderline neurotic about learning from my mistakes, and even the mistakes of others, mainly out of a fear of failure, fear of losing my job, and even the fear of having the confidence I have in myself and that others have in me partially or totally negated. I can point to specific situations in my career where I did a particular thing wrong, analyzed what caused the error, and took care to implement steps to prevent the same error going forward – the analogy I prefer is that another arrow was added to my quiver.

However, in considering the aftermath several days later of how the error I referenced at the start of this writing affected myself, my team, and the company, the most difficult part to deal with in this particular instance is that I can’t yet seem to distill a good guiding principle to take with me going forward; I can’t yet grasp what arrow has now been put into my quiver. Usually mistakes are a bit more granular in nature, so it’s easy to say “do X next time” or “don’t do X next time,” but in this instance all I’ve been able to arrive at is a general self-admonishment of “be more careful;” a hardly satisfying lesson when you do want to make each mistake count going forward. It so happens that the particular mistake I made was performing a function that I rarely perform anymore (though I did for some time beforehand), so the granular lesson is seemingly less applicable. Learning to deal with our company’s rapid growth and expansion has, at times, felt like drinking from a firehose. It’s probably safe to say we have collectively made many small errors or mistakes that cost smaller amounts of money, or maybe cause redundancy and/or duplication of efforts. But such a large mistake coupled with such a generic principle with which to take away is profoundly unsatisfying to me. Perhaps the arrow will show itself at a later point once some time has passed.

It’s gratifying to work with people who have instilled a company culture of being forthright and upfront in a professional and ethical environment. It was profoundly deflating realizing how poorly I erred (and am still working through that); but, given that our culture is one of transparency and honesty, I always knew it would be far better to head off the situation and preempt the matter as opposed to quietly sitting on it and allowing the problem to fester. This seems to be the best way to run a team with regard to “failing well” – a work environment where someone gets excoriated for any mistake will lead to mistakes being swept under the rug rather than brought out to the open, leading to more problems and pain. To the credit of my colleagues, they’ve jumped in immediately to try to find the best workable solution in light of my mistake rather than casting blame or pointing fingers, although I certainly deserve plenty of both.

And now, if you please, this crow is getting cold…

This article is also available at my LinkedIn page.