Thought Leadership

  • White papers and videos with our latest
  • thoughts on the ever-changing energy market.

WHERE WE WERE • WHERE WE ARE NOW • SHORTER, LOWER AMPLITUDE CYCLES

Then

From the 1970s through the 2000s, energy cycles were lengthy and dramatic. The “supercycles” were the result of low exploration success rates (~30%), while reserve replacement was dependent on higher-cost discoveries. OPEC, historically an opaque and unpredictable force, was viewed as the guardian of price stability.

Now

With the advent of shale, these key variables flipped in a matter of years: shale drilling success rates are often >90%, the most prolific shale discoveries are onshore in countries with strongly-guarded property rights, and shale’s production is subject to hyperbolic declines, requiring constant reinvestment.

Shorter Cycles

While unconventional resource development has been underway for well over a decade, the investment implications of shale are still emerging. During the last decade, growth-oriented "megatrends" separated winners and losers, and profligate spending was interpreted by the market as being "opportunity-rich"; going forward, we expect this decade's "winners" will be low-cost, return-focused companies, spread across the energy value chain.

TX vs. OPEC Era.JPG

EFFICIENCY • DISRUPTION • CHANGING OF THE GUARD

Efficiency

Where the North American oil and gas industry has been focused for much of the last two decades, resulting in drastic changes to the industry’s cost structure. The marginal cost of producing a barrel of oil or a cubic foot of natural gas in the US has declined by 60-80% in the past 10+ years. Those are cost efficiencies that you might expect from semi-conductors or microchip manufacturing, but they’ve come from oil and gas wells.

Disruption

Not typically a word associated with the oil and gas industry. The oil and gas industry is often associated with the “Old Economy,” where the time-tested interplay of dirt and steel takes precedence over innovation and technology. The pace of today’s oil and gas industry – the introduction of new technologies, and the pace of company creation (and obsolescence) – looks a lot more like Silicon Valley than the Rust Belt.

Meet the New Boss

While unconventional resource development has been underway for well over a decade, the investment implications of shale are still emerging. During the last decade, growth-oriented "megatrends" separated winners and losers, and profligate spending was interpreted by the market as being "opportunity-rich"; going forward, we expect this decade's "winners" will be low-cost, return-focused companies, spread across the energy value chain.

Our principals’ past energy research has included some of the following topics:

  • Oil Supply in a “Dispatch Curve” framework: US shale as the new “peaker plant” for global oil (Laskin, 2016, BP Capital Fund Advisors)
  • A return to shorter oil cycles and a US-centric market following the end of the OPEC era (Laskin, 2015, BP Capital Fund Advisors)
  • The End of the Northeast Premium – a prediction of prolonged bear market for Northeast US gas (Olsen, 2013, Tudor, Pickering, Holt & Co.)
  • Coming sea change for NGL prices due to insufficient petrochemical demand (Olsen, 2011-12, Tudor, Pickering, Holt & Co.)
  • Changes in the relationship between stocks and oil price before and after the 1983 oil crash (Laskin, 2006, Morgan Stanley Investment Management)
  • The seasonal impact of gasoline demand on the price of WTI in the mid-2000s (Laskin, 2005, Morgan Stanley Investment Management)

Recurrent - Oil Markets as a Dispatch Curve

Recurrent - Shale's Impact on the Shapes of Cycles