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Our Perspective

The United States energy industry is undergoing a period of technological change, driving falling costs. Lower costs are creating a more dynamic and competitive landscape for energy producers, while reinvigorating energy-consuming industries throughout North America.

Our Vantage Point

We are a team of experienced energy investors championed by T. Boone Pickens. Our company has deep energy experience, as well as shared DNA with some of the most successful energy companies operating today. We created the TwinLine funds for investors who want to invest in the companies whose cost leadership are driving the energy industry forward, rather than the companies who defined the industry’s past.

 

BP Capital Fund Advisors is an active manager for investors who want to invest in beneficiaries of technological disruption in their energy portfolios.

Understanding Energy from a Technological Perspective

When you encounter words like “technological disruption” in the financial press, you probably think of Silicon Valley – not the energy industry. But over the past decade, the cost of producing oil and gas in the US has fallen by 60-80%, driven by technology. In a commodity industry, success is determined by cost competitiveness. In the 21st century, the United States has led the global energy industry by harnessing technology to lower costs of energy production, which benefits consumers of energy as well.

Given fierce competition and technological change, passive investing may tether investors to energy companies who dominated a bygone era. Similarly, many active managers simply ignore energy consumers – the very manufacturing, transportation and consumer goods companies whose margins are expanding sustainably thanks to lower energy prices across North America.

 

The Coming Era of Shorter Energy Cycles

Technology is also changing the very shape of the energy cycle. Prior to the large-scale development of shale, drilling success rates for conventional reservoirs was 30-40%, and large-scale projects required 4-7 years from planning to production. After startup, production continued for years with minimal declines. Low probabilities necessitated high payoffs, pushing oil above $100 for much of the last decade. With “high probability” oil reserves primarily in the Middle East, OPEC exerted significant influence on oil price, effectively deterring or encouraging large projects years in advance.

With the dawn of the shale era in the late 2010s, that all changed. Shale drilling success is typically 90%+. Shale can be moved from planning to production in 6-12 months, although declining dramatically once online. In contrast to the mega-projects of the last era, shale is a resource which is highly predictable and highly responsive to price signals. High prices will rapidly encourage shale production, while low prices curtail drilling, leading to rapid declines in short order.

The result is the ongoing transition to an energy market where shale serves as the marginal global supply, balancing supply and demand. Price peaks and troughs are less dramatic than the pre-shale era, and the tug-of-war between producers and consumers is much more fluid than in the past. This new era likely favors investments that are liquid, with the ability to invest in both producers and consumers.

US Oil and Gas Reserves 1964-2014

US Oil and Gas Reserves 1964-2014 - EIA fig_1

US Oil Reserves – Production – Imports 1982-2014

US Oil Reserves - Production - Imports 1982-2014 EIA fig_4

US Natural Gas Reserves – Production – Imports 1982-2014

US Natural Gas Reserves - Production - Imports 1982-2014 EIA fig_5

ECOFYS 2015 Electricity Costs of Energy Intensive Industries

ecofys-2015-electricity-costs-of-energy-intensive-industries

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Our investment strategies, process and investment vehicles are crafted to provide access to opportunity across the energy supply-demand value chain.  Explore our strategies and investment vehicles to learn more.