American Oil and Gas Reporter - November 2018 - 121

"There are no major producers with significant positions in both the
Marcellus/Utica, the top gas play in the
United States, and the Permian Basin,
the top oil play," LeBlanc notes.
Increasingly, the report says producers
are becoming pure-play companies, focusing on only one basin, or even subsections of a single basin. Pioneer Resources is selling its Eagle Ford assets to
go all-in on the Permian Basin, where it
holds a large, market-leading position.
"The question becomes what happens to
those single-play specialists when their
plays no longer are competitive with
other shale basins," he asks.
According to "The Promise and Peril,"
the push toward specialization also risks
sapping a company's ability to explore new
frontiers. "In today's environment, new
ventures investments are a costly distraction
from near- and medium-term objectives,"
LeBlanc says. "The problem becomes apparent over time if the company fails to
successfully mitigate from its core asset."
Perhaps the greatest risk of specialization comes from environmental volatility,
the IHS Markit report says. A specialist
company is fragile to unanticipated
changes, the kind corporate giants were
built to withstand. For instance, a sudden
public turn against fracturing in the form
of a regulatory ban or judicial stay-similar
to that threatening Colorado's Wattenberg
play, or what occurred with regard to the
banning of offshore drilling in the Gulf
of Mexico following the Macondo spill-
could spell disaster for a company with
no other options in its portfolio outside
its area of specialization.
Additionally, other options of cheaper
supply could undermine the economics of
a single type of asset. A breakthrough in
renewables technology, or more forceful
government policy to cut carbon emissions,
could sap value from a company's portfolio
quickly if it is unable to adapt and compete,
"The Promise and Peril" warns. Investors
will be quick to abandon a company that
loses out in these market shifts. This divergence of exposure creates a capping wedge
between management and shareholders in
an era of specialists, LaBlanc says.
"In the past, investors wanted asset
diversification to protect the company's
long-term viability as an investment," he
describes. "Today, investors seek diversification through their own investment
in many different companies, so they are
more focused on a company's short-term
of potential performance, rather than its
long-term viability. That works for the
investors, but it may run counter to a
company's long-term best interest. With
that in mind, it is imperative for company
leaders to assess and understand the spe-

cific risks and then create strategies to
mitigate those risks without sacrificing
short-term growth."
Every U.S. onshore play is in the
process of down spacing, IHS Markit
says, adding that the point is that every
asset-and especially the disproportionately
small core areas in which some operators
specialize, is finite and will deplete. In
the long term, it says companies will
need to transition to a new asset.
In addition to exhaustion concerns,
specialization in the development phase,
which constitutes most companies' approach at this point in unconventional
plays, also makes it difficult for companies
to add significant shareholder value,
LeBlanc details.
"We see oil and gas companies typically
creating the most shareholder wealth by

taking chances on unproven rocks, and
delivering big new reserves in the proving
and optimization stages of a play. A company focused on the efficient manufacturing of shale wells at the mid-life stage
must invest the bulk of the lifetime capital,
but enjoys relatively little value-add from
low-risk capital deployment.'
He points out that opportunities for
value creation are especially thin for later
entrants that must pay an entry premium
for premier plays such as the Permian.
"The key here is specialization works
... Until it doesn't," LaBlanc says. "The
industry's rush to focus is exposing companies to systemic and company level
risks that 'diversification' previously reduced. Specialists would be wise to consider these hidden risks, and develop options to mitigate them."
r

IER Online Tool Tracks Grants
Bestowed Upon 'Green' Groups
WASHINGTON-The Institute for Energy Research has released Big Green
Inc., which it describes as a powerful new
research tool that shines a long overdue
spotlight on the money that is fueling the
massive national environmental lobby.
According to IER, Big Green Inc. uncovers the scope of the environmental
movement's funding as well as the role
this interrelated network of organizations
has on energy policy. Taking the form of
a searchable database, Big Green Inc.
tracks 8,821 environmental grants from
2008-2016, totalling $3.7 billion. This
money flowed from 10 foundations to
more than 1,500 environmental activist
groups spanning all 50 states, IER says.
The tool includes an interactive map
allowing users to track the funding sources
across a variety of dimensions including
state and year, and identifies the issue
areas for which organizations received
money, including climate change advocacy,
anti-coal initiatives and political activism,
IER continues.
Noting that the information is retrieved
from foundation 990 tax returns, IER
highlights some of its findings:
· The three largest grantmakers included in the database are The William
and Flora Hewlett Foundation, with $2
billion in grants; Energy Foundation, with
$444 million in grants; and Sea Change
Foundation, with $373 million in grants.
· The three largest recipient organizations are Climateworks, with more than
$1.7 billion received; Energy Foundation,
with more than $309 million received;

and Natural Resources Defense Council,
with more than $79 million received.
· Between 2008 and 2016, a significant amount of foundation funding flowed
to coastal epicenters including California,
which received more than $2 billion; The
District of Columbia, which received
$424 million; and New York, which received $175 million.
According to IER President Thomas
J Pyle, Big Green Inc. helps dispel myths
and false impressions about a large share
of environmentalist activism.
"The environmental left likes to portray
itself as a modern day David battling the
mighty fossil fuel giants in an epic struggle
to save our dying planet. While it may be
compelling, this narrative is simply false,"
Pyle maintains. "The truth is, the environmental left is a deep-pocketed and
powerful force in American politics that
is working to stop all natural gas, oil and
coal production in the United States. And
it has a strong ally in the mainstream
media, which, all too often, has become
a cheerleader for its harmful agenda."
By displaying such figures at a central
online location in a user-friendly format,
IER says it hopes to illuminate the public
discussion around issues pertaining to
energy and the environment.
"Big Green Inc. is a first-of-its-kind
research tool that provides a detailed accounting of the billions of dollars that
flow into and throughout the green movement," Pyle concludes.
The site can be accessed at instituteforenergyresearch.org/big-green-inc/. r
NOVEMBER 2018 121

https://www.instituteforenergyresearch.org/big-green-inc/ https://www.instituteforenergyresearch.org/big-green-inc/

American Oil and Gas Reporter - November 2018

Table of Contents for the Digital Edition of American Oil and Gas Reporter - November 2018