Rainmakers #10 Natural Gas Partners: The Rainwater Thesis
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Jul 11, 2024 Dive into Richard Rainwater's early investment decisions in the oil and gas industry. Explore his unique deal-making approach and meticulous research process. Learn how events in the mid-80s led to the creation of Natural Gas Partners. Uncover the secrets of one of the most brilliant minds in investing.
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Impact of Oil and Gas History
- The U.S. oil and gas industry's history significantly shaped Richard Rainwater's investment approach.
- Wildcatters, initially reliant on risky gambles, became more strategic with the introduction of proration and bank loans.
Rise of ABC Loans and M&A
- The demand decline in the 1950s halted independent oil production, leading to the rise of ABC loans and M&A activity.
- This allowed big oil companies to acquire smaller firms with minimal upfront investment and reduced tax liability.
Shift in Lending Practices
- Increased competition among banks led to relaxed lending practices, prioritizing deal-making over thorough due diligence.
- Petroleum engineers, initially hired for valuation, were gradually replaced by loan officers focused on business development.