Majors Explore New Frontiers & Develop North American Shales
TWST: As you look at the space, what are investors focusing on?
Mr. Molchanov: Day to day the stocks still trade predominantly on oil prices. And because oil has been linked almost one to one with macroeconomic dynamics, unemployment, the dollar exchange rates, consumer confidence - things like that - the stocks have generally been drifting in recent months ever since oil prices peaked at around $115 and began to decline. These stocks really have been drifting.
From a more substantive, longer-term standpoint, there are couple of interesting themes in this space. One is that, after neglecting North America for about a decade to focus entirely on international opportunities, these companies are engaged in a big homecoming. And we're seeing that overwhelmingly in their investments in unconventional resource plays, mainly the shale plays. Just yesterday we saw Marathon Oil (MRO) plunged down $3.5 billion for some acreage in the Eagle Ford shale. And that's only the latest example. In fact, in the last 12 months, there has been over $30 billion of M&A by integrated majors in U.S.-based unconventional resource plays such as the Eagle Ford, the Bakken, the Haynesville and the Marcellus - that's theme number one.
Second theme is frontier exploration. This is something that a little bit closer to what the majors have historically focused on, which is international exploration, but with a twist. In general, the modus operandi of the majors has been to wait until a smaller company discovers a significant resource base in a new producing area before swooping in and buying them out. In this case, more recently, what we're seeing is the fight for resource access is so intense that the majors are not taking a risk that someone will swoop in ahead of them, and they're actually going out to drill these frontier exploration areas themselves. What we mean by frontier exploration is countries and territories that have never produced oil. Not just today - they have never produced oil.
TWST: So a real frontier?