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    Petrie: Four categories of risk for long term development of unconventionals

    There are four categories of risk that must be addressed when talking about long term development of unconventional fossil fuels, said Tom Petrie, chairman of Petrie Partners.

    Petrie was among other senior industry executives sharing insights on sustainable growth at this year’s Winter NAPE Business Conference held Wednesday, February 5 in Houston.

    Tom PetriePetrie, a long-time industry veteran, spoke to OGFJ in August 2013  about the excitement of what would become the North American unconventional revolution. “It's an amazing time,” he said, talking about one of the last major deals made at Petrie Parkman, an energy investment banking firm he co-founded prior to joining Petrie Partners in 2012. In 2006, Devon Energy acquired oil and gas properties from Chief Holdings for $2.2 billion. The nature and scale of privately-held Chief Oil & Gas's assets in the Barnett Shale made the deal a “wake-up call for the industry,” he said.

    “Within about nine months, there were 12 different shale plays” and while not all of them were successful, the transformation of the industry began. “Suddenly we saw a transformation in the supply elasticity expectations of the industry for producing gas. This has enabled the US to morph from a country that was looking to import gas to meet domestic demand to one in which we are currently constructing export terminals to sell US gas abroad. That's a pretty big macro-trend – probably one of the most exciting ones going on in terms of staying power over one, two, three, maybe four decades,” he told OGFJ.

    Fast forward to 2014 and the focus is on the sustainability of the North American shale revolution. In his presentation to the NAPE audience, Petrie touched on four categories of risk for long term development of unconventionals.

    Environmental issues and constraints, infrastructure challenges, energy price volatility and shifting globalization trends are four risks that shale developers and investors need to consider when thinking about sustaining the US oil and gas revolution, he said.

    The opposition to hydraulic fracking is real and organized, Petrie said, echoing Former Secretary of the Interior Ken Salazar’s presentation to The NAPE Business Conference attendees earlier in the day regarding the need to proactively address the issue in public forums.

    Fugitive methane, water quality and availability, as well as air emissions are factors that also must be addressed, Petrie continued.  Positively, the energy industry is now “highly sensitized” and has not only become more effective in its response to issues as they arise, but has gained knowledge that helps anticipate issues beforehand.

    “When analyzed in the context of competing alternatives, most environmental issues can be effectively addressed especially by explaining the option to mitigate impacts,” Petrie continued.

    Infrastructure also poses challenges. The magnitude of new requirements is enormous, Petrie noted, but the challenges of infrastructure build-out represent major opportunities for economic growth throughout the US. Oilfield inflation is still possible in a mildly deflationary overall economy, and concerns about capital availability remain.

    Energy price volatility, another concern, will likely survive the unconventional revolution, Petrie said, albeit likely within a dampened range of variability.

    Shifting globalization trends are another risk factor, but the shale revolution should present US leadership with an enhanced ability to deal with such challenges.

    The bottom line, concluded Petrie, is that all such challenges are manageable.

     

     

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