The global oil and gas industry boasts enormous potential for raising the capital needed to finance its future, including growing desire by China for investments in North America, financial experts on a panel at the CERAWeek energy conference in Houston agreed Tuesday.
"There is a wall of money ready to come into North America from the national oil companies," said William Wicker, vice chairman for investment banking at Morgan Stanley.
Elaborating in a brief interview on the sidelines, Wicker noted that he was referring primarily to Chinese interest in both oil and natural gas plays, but declined to estimate the size of that wall in terms of investment dollars.
He said political constraints are making Chinese entry difficult.
In general, however, Wicker said: "The ability of the industry to raise capital is unprecedented."
Speaking at the 31st annual CERAWeek conference held by consultancy IHS CERA, Wicker was joined on the panel by two other experts who agreed with that observation: Howard Newman, CEO of the private equity firm Pine Brook Road Partners, and Maynard Holt, managing director of Houston-based investment company Tudor Pickering Holt.
Newman called the private equity sentiment for oil and gas "equally robust" with Wicker's assessment for investment banks, and Holt told the audience of about 150 that all companies "would like to have more North American resources." Holt called that view a contrast with the interest in previous years, before the revolution in shale-exploration technology.
Wicker said the global industry needs about half a trillion dollars each year to continue its aggressive E&P programs while recycling cash flow back into spending plans.
"I think we will have enough capital," Wicker said.
All the panelists cited ExxonMobil's $41 billion acquisition of independent XTO Energy in 2010 as a milestone event marking the return of the major integrated oil companies to the US and providing confidence that they could integrate acquisitions.
Before ExxonMobil successfully integrated that huge acquisition, investors held serious doubts about the ability of the majors to buy back into the US resource plays pioneered by the smaller independents, according to Holt.
Wicker cited ExxonMobil's recent creation of a small ventures acquisition unit as a sign of a new level of acceptance among the majors that they should be more open-minded about buying discoveries made by other operators.
Those large companies for years had preferred investing in their own exploration projects, instead of acquiring proven discoveries, and that preference delayed their entry into resource plays, Wicker said.
"The majors were late to resource plays in North America, but they will get there," Wicker said, citing another source of the capital needed for future development of those reserves.
While complex plays require more investment, Holt indicated that investors now have greater confidence in the industry's ability to make them work.
"Exploration in the last five years has seen a higher percentage of success, so it is easier to convince investors their chances are good," Holt said. "We're going to see private equity making bigger and bigger bets."
