Peter Zeihan 2017 Shale Revolution Interview

Geopolitics February 15, 2017

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Q&A with Peter Zeihan

How the Shale Revolution is Reshaping America and the World Part 1: Productivity & Innovation in the Resources Sector We recently met with geopolitical strategist Peter Zeihan to discuss world events since the American election and his new book, “The Absent Superpower,” released last month. In the book, Peter credits energy and resource innovations with reshaping the global geopolitical environment. He predicts by 2019, US oil production costs could drop to $25 per barrel, making US shale producers potentially the lowest cost oil producers on the planet. America’s move into energy independence he says, will reshape global dynamics for at least the next three decades. We’ve also been thinking hard about America’s newfound energy independence, but from an investment opportunities angle: we’re keenly interested in capturing the innovation going on in the resources sector. sector. We see large-scale large- scale productivity increases all over the resources sector and are tracking the companies in a new Knowledge Leaders Resources Index. We covered so much ground in our visit with Peter, we’ll publish two reports. In this first one, we cover the broad impact of the Shale Revolution, which he calls, “the greatest evolution of the American industrial space since 1970.” We hope you enjoy the discussion. GAVEKAL CAPITAL: CAPITAL: In the book, you write that innovations in the resources sector have given rise to an American Shale Revolution that is “reshaping the energy politics and energy economy of the United States, and in turn the global system.” What happened to cause this shift? PETER ZEIHAN: Shale was supposed to be on the brink of demise when oil prices crashed in November 2014, but due to a confluence of events, the industry has matured far faster and more holistically than I could have expected. During the past two years, the shale sector has evolved in dozens of ways, for the most part in a desperate effort to survive. The resulting changes have transformed the American shale patch from a critical piece of the

The end of American dependence upon extra-continental energy sources does more than sever the largest of the remaining ties that bind America’s fate to the wider world, it sets into motion a veritable cavalcade of trends: the re-  industrialization of the United States, the accelerated breakdown of the global order, and a series of wide-  ranging military conflicts that will shape the next two decades.

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American energy system to a globe-changing revolution. Understand those changes and you can understand just how transformative shale is about to become. The best place to start is probably about what's changed in the shale oil industry. The general technology, fracking, fracking, where you drill d rill down, then go laterally, laterall y, and then put in water and sand at high pressure and crack it apart … that's nothing new. Everybody talks about the horizontal drilling and the pressurized fracking as what made it possible. And I don't mean to suggest that that tha t is not true, but what really allows shale to be something more than a big boondoggle is seismic technology. tec hnology. Now, Now, seismic has been around in the industry since the late 1970s. It's not new, n ew, either. either. But the old seismic is a radically different creature from what we have today. It's like comparing a Toyota Toyota hybrid to an 18wheeler from the 1950s. Yes, technically, they're of the same technological technolo gical tree, but they're so radically different. With the old seismic you have these giant bulbs of oil-saturated rock that didn't require much of a sonar cross-section to show up when you would do your seismic. The new ones can pick up deposits about the size of a 500 ml water bottle. GC: How is this different from traditional drilling techniques? PZ: When the oil forms, it forms in a source rock, and then it tends to migrate through to different types of rock until it hits something that it can't can 't pass through, a “cap rock” in the lexicon. There, it will continue to build and form up more pressure but not necessarily more heat. The heat is in the source rock. That doesn't mean that your cap rock can't be warm, however. Sometimes, the cap rock is hotter than the source material. But if it's too hot, it will quickly go from kerogen to oil to natural gas to nothing. So, if you have the storage area, for lack of a better phrase, and it’s really hot, you have to drill it at the right geological moment or the oil o il is going to be gone. That's why conventional oil has always been seen as a terminal window because there's only so much of that. And you can drill deeper and you can make money off of smaller deposits, but at the end of the day, there're only so many places where you have that perfect mix of geology to create the oil, capture the oil and then hold it in a condition for more than a few eons. GC: Does most oil sit in such an environment, under a cap rock? PZ: No. It's easier to think of it as a pool of liquid, but it's not actually a big chasm full of liquid. It's porous rock that happens to have a lot of oil saturated through it. The difference about shale rock is it's not as porous to the same degree that the conventional reservoirs are. So, if you have a highporous rock, the liquid, the oil, the gas can migrate through it until it hits a barrier that it can't pass through. At this point it builds up pressure and when you tap those, you get a gusher. Shale is porous at the micro level but not the macro level, so the oil can form in it but then it can't get out. If you have a shale rock versus another oil-bearing rock, the shale rock is much heavier. It's super-dense, and you can't squeeze it; you have to shatter it. With the conventional reservoir, you drill down into it and you don't even have to crack it. The water, which would be the liquid, will seep out on its own in most circumstances. With shale, you have to beat the hell out of it to get it to give up the crude. Microseismic allows you to get a more accurate picture of all of that, and micro-seismic is so new it

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did not exist 30 months ago. More than four-fifths of the petroleum in North America is trapped within the source rock, and most of those source rock are shales. The shale industry is all about developing technologies that make it possible to access the oil that isn’t perfectly packaged. The only way to get shale rock to give up u p appreciable amounts of petroleum is to turn conventional drilling techniques on their ear – literally. Instead Instead of drilling vertically down through the formation, you instead drill horizontally along the formation. Total reservoir contact between the wellshaft and the shale layer would be but a few dozen feet per well with vertical drilling, but by going horizontally you can now establish over two miles of contact. GC: Are technologies technologies like micromicro-seismic seismic allowing drillers to access this this trapped oil that was inaccessible before? PZ: Right. Seismic technology has been around for a while and that's gotten better and better, and we would've never had the shale revolution without it, but micro-seismic has changed the approach by sending a series of geophones down an existing well shaft and detecting noise across the entire cross-section. Then, as people are doing other drilling around it, it's listening to how those much smaller sound vibrations, ergo micro, are bouncing around within the formation. They can now map out the formation as they're doing other drilling. And there's dozens of variations on this that are still coalescing around whatever the new tool is going to be, be , and each company excels at a different piece of this. It's disseminating far more rapidly than any other technology in the energy sector ever has. The geophone is basically a big wire that has dozens of sensors going all the way down to the bottom of o f the well shaft, and they leave that in place as long as they’re doing operations. Now that we're getting into things like re-fracking and going back to fields for the second, third, and fourth time, you basically can leave that installed. So, in places like the Permian, where we've been doing conventional operations for decades, they'll go into a depleted area where the conventional oil's gone, they'll run the geophones down an old well, and then they'll frack in new wells all around it. The more layers you have, the thicker the petroleum bearing layer is, the more economically viable it is. It is a massively disruptive technology that alone can lower the break-even price by at least $15 a barrel. Remember, it's an emerging technology and the pace it is moving is lightning fast. You could say that some bits of this book are already out of date, because it's moving so fast and we are at a stage that not everybody is even using it yet. I would wo uld say it was probably used in just 5% to 10% of the wells that were drilled last month (December 2016). A year before that, it was probably only used in 1% to 2% of the wells. Now that oil prices have rebounded a little bit, and you've got a broader array of companies that can make profit at this margin, you might not see that percentage creep up very quickly because there's a little bit more breathing space in terms of breakeven costs. But the companies that know how to do it are the ones that are going to grow the fastest. GC: What else is going on in the shale industry? PZ: Other advances are more linear than logarithmic. Liquid pits are now a thing of the past; it's all 3

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water tanks. So, you don't have to worry about site set up, you don't have to worry about site breakdown, you don't have to worry about land reclamation or rehabilitation. The water is all in a tank. Operators recycle it as they go and mix the frack fluid on site. The footprint of a well is 5% of what it was two years ago. You also need a lot fewer rigs. Instead of going down a mile and over 6,000 feet, down a mile, over 6,000 feet, now you hit the same well but at every vertical layer. By hitting the next layer again and again, you're getting up to 50 miles of horizontal contact out of one well. That’s why I ignore the rig count now and view it as basically a meaningless number. GC: You've also seen a 60% jump in rig count off the the bottom too. w ould not read into that too much because PZ: That's some of the older rigs that are coming back. I would last year most of the rigs that were we re in operation were the multilateral rigs. Now that prices have come up, some of the older single spike rigs are coming back. They can work at $50 per barrel, but they can't work at $40 or $30. So, I would caution you that a lot of the companies that might be seeing really big growth right now will not be able to sustain it. If you take these technologies and you compress them down to a nice little package, the companies that can do that are going be able to ride out any price shock, and the companies that can't do that will make money only when the prices are higher.

The only area where the volume of inputs has not dropped is sand. Everything else has become more efficient. They are actually using more sand per foot of well stage. The general areas where efficiency has improved is with stronger pumps and cramming more sand to create bigger fractures. The good news is sand is cheap and they've also discovered that the fancy designer sands that are made out of artificial materials really don't do much for you. You could just buy the absolute cheapest brown sand that Texas puts together and you're good. So, we've seen a bit of a sand recession, if that's even a thing, in Wisconsin. It wasn't as bad as what happened in the rest of the energy sector se ctor because everybody still needs some sand, but then they started experimenting with cheaper and cheaper sand, and they discovered it didn't make much of a difference. So, all the good sand out of Wisconsin is kind of falling by the way side, now they're just using that for glass. Instead they are using cheap sand from wherever you can dig it up. And they're using two, three, sometimes even five times as much per foot of well stage. The length of the fracks is much shorter now. It's now 20 to 80 feet; an 80-foot one is really a long one. They've gotten good enough with the precision application that the industry is now fracking stage-bystage. Those cracks might technically go a couple hundred feet, but they are so tiny that the sand only goes a quarter of that distance and the water maybe half. The cracks are so thin you don’t have to worry about seepage nearly as much as you used to so that problem has gone away, and the Obama administration even signed off on it. The EPA report on water quality finally came out in 2016, and it basically said, "Yeah, fracking, fracking, don't worry about it." There have been instances of contamination, but they're not statistically significant – and that’s according to the Obama administration’s administration’s EPA. EPA. 4

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GC: You said operators are now seeing up to 40 miles of horizontal horizontal access per vertical well. Is that a significant increase? PZ: Back in 2004, it was 600 feet. In 2007, it was about 6,000 feet. We’re talking about a 10-fold increase since 2007, and that's all with one horizontal. Now,, remember pad drilling? Pad drilling's going away. With pad drilling, you'd Now go down vertically and then go over a mile. And then you'd have another vertical shaft and then go over a mile, and then another vertical shaft. And you could do up to 20 of those on one pad. They've done away with all these vertical shafts. Now there's just one. The apparatus turns around in the main shaft and goes out again and again, so they are using half the steel. Multilateral drilling is another linear advance, although a pretty steep one. They use much less water, and that’s huge on the environmental side of things. Micro-seismic is the logarithmic advance. Gathering infrastructure required absolutely no changes with what they were doing, but when you have 20,000-30,000 barrels coming out of one vertical well, because of all that horizontal connections, you need a bigger pipe, and you need fewer of them. So, you're using less steel on the surface, less right of way, less royalties, less transit fees for the same collection capacity. And now, they've figured out how to go into areas that have already alrea dy been fracked and using Author Peter Zeihan  micro-seismic, for example, to look for new places and use exactly the same well and exactly the same gathering infrastructure, but do a completely fresh approach. The next big breakthrough will be doing that on pre-existing wells which is called refracking. They're still working out the kinks of that, because once you've already fracked a zone, you already have a lot of cracks in the area, and keeping the pressure different from stage to stage is difficult because with the older wells the cracks intermingle. So, if you put a lot of pressure into one stage, you might actually be fracking the next stage. But if they can figure out a way around that, and there's a few technologies that Halliburton is working on for that, something called the "sliding sleeve", then everything we've done before, we can come back and do it again and get three times the oil out of it. So just in additional additio nal induced recovery, recovery, that could be another an other six million barrels per day. GC: With all the new techniques, techniques, productivity productivity and cost savings, where where do you see production going? Do you see a repeat of almost a doubling of production over five years? calen dar year 2017 is just baked in now, and that even PZ: I think that a million barrels per day added in calendar assumes a certain price giveback from where we are at right now. The break-even price in the big four fields is now $40. And what you're seeing now is this initial spike from relatively new players coming in with relatively old technology because the numbers make sense and they don't have the debt overburden. It's easy to get a little bit of money to start something fresh right now. It's when the players who survived this get their fresh funding which is happening right now, that probably by the end of the first quarter that output will really increase. So one million barrels per day of new output I think is a very conservative estimate, but a very safe one. Two million is possible. 5

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GC: You describe an environment of consolidation from June 2014 to June 2016, during which experimental technologies were shared much like tech’s open source culture, driving output rates higher even while they drove per-barrel product costs lower. Was this a result of the Saudi price war? w ar? PZ: Exactly. Saudi Arabia’s price war inadvertently created a dream scenario for American innovation. What’s happening now is a leaner, meaner, meaner, greener set of technologies that is allowing shale to tackle what detractors rightly see as its greatest Achilles’ heel: high upfront production costs. Such tech advances comprise the bulk of shales recent price advantage. In 2012, before any of those technologies had been operationalized full-cycle costs were about $90/barrel. In November 2014, when the Saudi’s launched their price war, the full-cycle break-even cost across the shale patch was probably about $75 … by August 2015 that figure f igure had plunged to $50 in the Big4 fields. As operators started to redesign wells with the entire lifecycle of production in mind, that per-barrel production cost for new wells dipped to the vicinity of $40 in November 2016. North American shale already is more cost-competitive than the global average. As these technologies continue to mature and play off on another, a price structure of around $25 sometime some time in 2019 seems within reach.

 Your  Your average well involves inputs from more than 100 companies from start to finish. With the technology that exists now, each well now likely can be relied upon to at least triple its long-term output compared to 2014 norms for on average avera ge less than a 50-percent increase in cost, with less surface infrastructure. By my math, all in, North America is less than 0.8M barrels per day from being a net energy exporter.

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GC: How do you measure domestic oil production? m illion PZ: I include condensate. If you include condensate the domestic production is up to about 13 million barrels per day. day. There are four types of crude. You‘ve You‘ve got heavy sour, sour, "heavy" means it is thick and viscous, "sour" means it's packed with contaminants, contam inants, primarily sulfur. ItIt has the consistency of toothpaste, sometimes it has the consistency of rock. Very difficult to process, very difficult to produce. US refineries are the best in the world at handling it because we've believed for decades that that was all that was left. We thought we'd already run out of all the good oil and all that was left was the crap. We changed all of our refineries to work on the crap, like what we see from Venezuela and Canada. Next, you've have light sour. ItIt is thin in consistency, but still sour. sour. This is most of the new deposits that have been discovered in the last 20 years. It flows, so you can produce it without too much difficultly, but it's sour, it's full of containments; you still need a good refining system. This is what is produced in Mexico, Kazakhstan. Then you've got heavy sweet. sweet . It's gooey, but it's high quality. Almost nobody produces that except Libya. It's just the mix is not there, and nobody wants it. Then you have light sweet, and that has the consistency consis tency of nail polish remover. remover. I call it "white chicken oil" because you wave a white chicken over it and you get gas out. It always sells at a premium, because anyone can process it. All shale oil is better than light sweet. It's super light, super sweet, because it's never migrated through the rock strata. It never picked up contaminants. So you're basically blasting it out of the cradle. You're getting the stem cell equivalent of a crude oil. GC: And from a refining standpoint, is condensate easier and cheaper c heaper to work with? PZ: Exactly. Condensate is basically a super light, super sweet crude. It's still crude, but because it doesn't fall on that four-point f our-point matrix, it's usually considered a different category, and because so few places produce it, it's not in the data in most places. But it is now our number one crude grade. That's why I include condensate. Because the US now produces more condensate than the rest of the planet put together and it only comes from shale deposits for the most part. The US produces about nine million barrels of “conventional” crude oil and another five million barrels a day of condensate. Remember the condensate is the best quality oil out there.

The ironic part is that our refineries were designed to work on sludge. So we are now in a situation where we're loading the lightest, sweetest, most pollutant-free crude grade in human history into refineries that are designed to process asphalt. We have to add 2% to 10% of contaminates to it so that the refinery can handle it. So stuff that we won't even use to pave a road is now a premium product in the American refining sector because refiners can then load it into the refinery re finery to dirty up the crude blend enough that the refineries can stomach it. It's hilarious. hilarious . GC: Is there a way to retrofit retrofit the refineries? refineries? PZ: There is, but you basically have to take out tens of billions of dollars of refurbishments that we've put in over the last 30 years to handle lower and lower and lower crude grades and remove all of the high value added investments that you've spent decades installing. I can understand why they're 7

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hesitant to do that. This is why the refiners were okay with getting rid of the oil export ban because that meant they could export the light sweet stuff and import the crappy stuff and not have to change the refining metrics. And that blend is going to determine how internationalized the United States is five, 10 years from now. The crude stream continues to get cleaner in the United States, and the refineries are hesitant to match their throughput capacity to match the crude stream because they don't know how permanent this is. GC: So politically if we eliminate the export ban, you would would expect then that we begin exporting a lot of that light sweet shale oil? PZ: We're starting to. GC: And import import the crude? crude? PZ: There are infrastructure bottlenecks, but that's the situation we are in right now. The export ban is gone, the light sweet stuff can be exported, the condensate can be exported; everyone on the planet wants to get a hold of the condensate. Mexico and Canada, which produce sour crudes, are taking condensate from us because their refineries can't handle their crudes. GC: Because they didn't make make all those investments investments over all those years? years? PZ: Right. So they're importing American refined product or American condensate to fuel their systems while we're exporting the best crude that humanity has ever produced. GC: The environmentalists environmentalists claim the shale revolution revolution is adding greenhouse greenhouse gases due to drillers allowing too much natural natural gas to escape. Do you have an estimate for the the amount of natural gas that's just being wasted that could be captured? PZ: There are a lot of estimates, but a lot of people have a vested interest in lying about that number. As of two years ago, the best estimate es timate I saw was about two BCF, BCF, which comes out to about 2.5% of total US natural gas output. And then another 1% to 3% leaks out of the pipes, which is going away as the tech improves. If the leakage from natural gas is above 3.4%, I think that is the number, then shifting from coal to natural gas power generation is a wash. But if you're down below that, it's a net gain in terms of GHG impact. The real number of the leakage percent is probably in the 1.5% to 2%, and we have the technology, easy fixes, cheap fixes, to get that down to 0.8% if we want to, and I don't know anyone in the industry that doesn't doesn 't want to. The question is the speed at which you do that. GC: What about about coal? coal? PZ: Coal's screwed. GC: There were election promises about bringing bringing jobs back to West Virginia. Virginia. Doesn’t sound like that will happen? 8 PZ: No way. All the Appalachian coal will be off the market within five years, maybe less, and that

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assumes no new regulation. Rocky Mountain coal, specifically Powder River Basin coal, will linger on because its caloric content is so much higher than Appalachian coal, it's about triple Appalachian Coal. That Montana-to-Arizona stretch that uses that coal will probably persist until regulation kicks it out. But keep in mind that the coalition that has kept coal in the fuel mix is gone. That coalition came from Texas and Pennsylvania, and they're gone now. So the number of states that are using it right now is about 40% less than what it was seven years ago, and within two years the Midwest will be gone from that coalition as well. GC: The power generation facilities now run on natural gas?  Yeah. You’ve You’ve got companies like Southern Company that ran on strong majority coal 10 years ago, PZ: Yeah. who are now down to 30%, and the pace of the change is accelerating. They went out and actually bought a pipeline company to make sure that the Marcellus natural gas got rooted through their service area so they could take advantage, full disclosure, they are a client. I did not tell them to buy the pipeline company, I think they figured that out themselves. But yeah, I remember getting into a bit of an argument with their CEO who is not a wilting flower, over the future of coal in their industry. And he had just got done saying that he thought that t hat shale was a flash in the pan. It'll be gone in two tw o years. GC: What new rules or regulations regulations could Trump Trump change that would either either accelerate or decelerate the pace of production? we lls that have been drilled in the PZ: That's the thing … not much. Ninety-nine percent of the shale wells last 10 years were done on private land. That makes it a state and a county legal prerogative, not a national prerogative. If he were to bring some sort of harmonization harm onization between the rules for drilling on federal lands with the rules that are on state lands that increase output somewhat. Remember, there's a lot of federal land in the American West. Right now, it's not that that's technically off limits to drilling, it's just that the permitting process is 300 days. The permitting process in Texas is 30 hours. So, you bring the federal closer to that, you could see an explosion in activity on federal lands. There's no one that's really chomping at the bit for that outside of a few local operators who are near the border of these zones. But if you were looking for something that would actually make a change in the market, that would be it. Anything else he does, the federal authorities autho rities really don't have authority. The EPA, EPA, even under the Obama administration, where the EPA was basically given charge of traffic, didn't expand their bailiwick to include a lot of shale stuff because it was so clearly a state prerogative. So, you had the water question, eminently local where they basically just rubber-stamped. You had the natural gas leakage out of the pipes, which was probably the biggest one that you could do something with, but even that is a shared responsibility between the local, state and a nd federal authorities. So, there's not a lot that I would expect him to shift unless it comes on the federal land, and to be perfectly p erfectly blunt, the bureaucracy of that touches so many different agencies, that's not going to be a quick turnaround. Certainly, not this year ye ar.. GC: Has the earthquake earthquake issue with shale been resolved? resolved? PZ: We are getting there. There are actually two different issues when we talk about earthquakes

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and fracking. There's earthquakes that come from the actual fracking. Those are a non- starter. starter. The strongest fracking-related earthquake we've ever had is 3.1, which is about the strength of what you get when you use a sledgehammer. Those don't cause anything. Nobody can detect those. The real ones, the ones you do need to worry about, are wastewater injection. Because you can only recycle the water so many times, and some of these wells, particularly in Oklahoma, produce a lot of water byproduct. When you frack it apart, you'll get these water deposits. They'll come up right with the shale stuff. You have to separate the water out, do something with it, or re-inject it. When you frack, you put in several million gallons of water to frack it, and then the water comes back out. It doesn't stay. So you have adjusted the local lo cal micro-geology, but not hugely. With a wastewater well, you're putting billions of barrels of water down there and you're leaving it. And that causes slippage and actual earthquakes. GC: Those wastewater wells, are are those former former oil wells that have have been depleted, or are they totally separate things? PZ: They're separate. And they usually go down a lot deeper. If you're in an area where you don't have a lot of wastewater production, or a lot of bi-water production, it's not nearly as much of an issue. So in the Permian and the Bakken, there hasn't been a lot. But in the Barnett, and in SCOOP in Oklahoma, there's been a fair amount. Oklahoma is the one, of course, where this is the biggest because their local geology for disposal is seismically prone to react to this sort of activity. The volume of wastewater and bi-water production they get out of their wells is much higher than it is anywhere else in the country, so that's why Oklahoma has been ground zero for all that. GC: But that’s another state problem as opposed to federal federal problem?  Yeah. The smart money in the industry is figuring out how to solve that. So, recycling is a big piece PZ: Yeah. of that. The water that comes up is often laced with toxicity, so you can't use it for irrigation, and sometimes it's even radioactive. Remember, uranium is the eighth most common element in the earth's crust and it's underground. So it's an issue.

There's a lot of really interesting experimentation going on in Oklahoma to figure out how to deal with it. You can't use it for drinking, you can't use it for irrigation. But if you run it through an evaporator and condense it again, it's normal water again. You'll have this sludge you'll still have to dispose of. But it's formerly dissolved solids. It's less than one-10th of 1% of the volume that it was before. All of a sudden, you have a manageable issue even if all you do is re-dissolve re -dissolve it in water and re-inject re -inject it. You've You've now injected 90% less water. They've discovered in places where they reduce the input, they reduce the earthquakes. The question is the cost because the good evaporation and condensation process adds like eight bucks a barrel to your crude cost. That's not insignificant. insignif icant. But, that is the nature of the problem. It's not from the production itself, it's from the aftermath. And it's not everywhere. 10

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February 15, 2017

GC: Where are the federal government rules with respect to import and export of various crude products or refined products? PZ: At present, the export oil ban has been rescinded, so you can export raw crude without a presidential waiver now. However, However, as soon as we have any sort of energy shock… GC: That'll That'll stop? stop? PZ: It'll stop, yeah. Think of how populist Congress is right now. If you have a situation where you can expose the American population to oil prices that are $100 a barrel less than everybody else's, that export ban is going right back into play. For now, it's a nice little moment in time where we've having the last hurrah of the free market, where we export the high hi gh quality crude and we import the low quality crude. We produce more refined product now than we use and we export that again. People are making money left, right and center, but as soon as it becomes a national security issue, that's gone. Stay tuned for part 2 of this interview, on the world’s geopolitical environment since the US  presidential election. election. Peter Zeihan is the best-selling author of “The Accidental Superpower.”  Superpower.” 

The report is for informational purposes only and should not be considered investment advice. The views are expressly of Mr. Mr. Zeihan and are not necessarily the views of of Gavekal Capital or its investment professionals. professionals. Mr. Mr. Zeihan provides consulting and research to Gavekal Gavekal and is compensated for those services. 11

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