Exploration and Production

Independent oil and gas companies produce approximately 68% of our domestic oil and 85% of our domestic natural gas. Within the framework of our current energy mix, these companies are critical to our domestic economy. Even in the face of a growing renewable energy contribution, hydrocarbons will still be the primary source of energy generation decades from now. As our economy recovers and because gas is the environmentally friendlier choice for electric generation (as compared to coal), the market for natural gas in the US should remain robust. In our opinion, global warming data will lead to an age of legislation that tips the scales toward gas, and we are already seeing regions where coal plants are closing and natural gas generation is taking their place.

Technology has played an enormous role in increasing domestic natural gas reserves in the US. Improvements in hydraulic fracturing have led to the discovery of several significant gas resource plays, and today unconventional shale gas reserves in the US are estimated to be over 600 tcf (and growing). The sheer size of these reserves will be yet another reason to turn to gas as a baseload power generation feedstock, and eventually as a greater segment of transportation fuel. On the oil side, Asian developing economies continue to thirst for oil. While overall demand in Asia on a per capita basis is small compared to the US, large populations in countries like China and India can greatly sway the worldwide balance. Oil prices will continue to be influenced by the global economic recovery, particularly in Asia, and of course, the geopolitical situation du jour.

Our Oil and Gas Equity Research is focused on companies that have the right “real estate.” We concentrate primarily in resource plays such as the Eagle Ford, Haynesville, Bakken and Marcellus, and target equities of smaller capitalization companies where a large, well-placed acreage position in a good play can be a game-changer. Further, we apply net asset value (NAV) and cash flow metrics to assess valuation and seek those companies that do not yet have their position and growth trajectory reflected in their share price.