Monday, July 6, 2009

A Little More on European Ambitions

The recent deal between EXCO and BG Group of Britain for Haynesville acreage has caused great excitement in the press, as I noted last week. I read a recent blurb on an investment site with a few more details about the motivation of the big European players.

The article noted that a prime motivation for the European producers is to exploit resources elsewhere in the world to break their dependence on natural gas from Russia.

The article also noted some key cultural differences between the big European producers and the nimble U.S. independents. The European companies have deep pockets but they lack the technical knowledge to exploit the shale plays. Also, they are ill-equipped for the speculative nature of new plays. It is hard for them to slowly and quietly build a land position and take the risk that their efforts might amount to nothing.

It equates to the investment world. The independents are like venture capitalists, finding and funding early stage plays. They take immense risks and are richly rewarded when they pay off. They face big losses when a play doesn't work out. The big multi-nationals are like "private equity" firms and the public markets. They come in after the play is established and most of the risk has been squeezed out. They step in when big capital is needed to blow it out.

Now that the big plays are established, the production techniques have been refined and capital is needed in great quantities, it's time for the multi-national producers to participate.

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