By Tung Nguyen, a student at the University of Saint Thomas and Level II candidate.
On Tuesday, September 12th, 2017, CFAMN hosted Rey Baribault. Mr. Baribault is the co-founder and Vice President / Engineering of North Plains Energy, LLC, a Denver-based exploration and production operator. He has served in several executive roles in oil and natural gas companies in different regions including Fort Worth Basin, Denver Basin, Bakken Basins, etc. He was elected to the Matador Resources Company (NYSE: MTDR) Board of Directors in June 2014 and currently serves as the chair of the Board’s Operations and Engineering Committee.
Five main topics
In his talk “Energy – Where Are We Headed?” Mr. Baribault shared his perspective regarding the current and future of US and global energy. The five topics he wanted investors to focus on are highlighted below:
- US Energy independence
- Is shale still a good investment?
- Permian Basin’s dominance
- Canada, Mexico and Unconventional Frontiers
- OPEC Decision
US Energy Independence
Mr. Baribault spoke highly of US energy’s current stage. Ten years ago, it was unthinkable to believe that US energy could be independent in terms of demand and prices. After the end of export ban in late 2015 however, the US has become one of the biggest players producing 9 million barrels of oil per day, exporting 1.1 million barrels daily. The US has emerged as net gas exporter as well, reducing its dependence on Canada and Mexico imports.
Is shale still a good investment?
The answer depends on the level of involvement. Mr. Baribault believes that for operation business like himself, shale is still a good investment, but fiscal prudence, due diligence, and capital discipline are the keys to success. Mr. Baribault said his company was able outperform its peers during 2012, when oil price was $120/bbl by strictly following these criteria. He forecasted that the $45-$55 oil price window will not likely change substantially in the next few years.
Permian Basin’s dominance
The Permian Basin (West TX and South NM) has been the highlight for US energy over the past few years. This basin accounts for nearly half of the US’s oil production. 40% of E&P M&A activities occurred in the Permian Basin. Mr. Baribault expects that the Permian Basin will be around for a long time (approximately 30 to 40 years). E&P capex is expected to increase by 400% over the next five years. However, in the end, production is still dependent on price.
Canada, Mexico and Unconventional Frontiers
Canadian heavy oil sands have the potential to be second to US shale as the biggest contributor to global supply growth. Oil sands’ weakness is high operating cost, but efficiency has been improving lately. Mexico is in a transition period: The government has been deregulating its E&P marketing, but it will take time. Mr. Baribault expects US exports to Mexico to continue to grow. Regarding unconventional production, Mr. Baribault mentioned Enhanced Oil Recovery (EOR), which is currently a high-cost technique, but he expects it to become a regular part in the future. He also noted Mexico, Argentina, Colombia as some countries that might see strong shale development 5 to 10 years from now.
OPEC Decision in 2018
Rey Baribault expects OPEC to continue to cut production. However, if US shale operators continue to struggle to break even, then OPEC should be less concerned. He suggested investors keep an eye out on Saudi and Kuwaiti plans to tap natural gas reserves to fuel domestic energy consumption displacing oil-fired burn. These plans will lower demand for oil consumption and increase supply for exports to the global market.
Mr. Baribault does not expect oil prices to change significantly from the $45-$55 range. The Permian Basin will continue to play a big role in US energy production in the next few decades. Investors should keep an eye out for Canada, Mexico and other emerging countries as they might see strong shale development in the near term.