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Wednesday, September 19, 2012

Unconventional Resource Plays - Upside Without the Exploration Risk


My latest Seeking Alpha article:
I'm a sucker for a good story. And in the oil and gas business there are a lot of good stories.
The most interesting stories to me are those about companies likePetrominerales (PMGLF.PK) or IPC Oil and Gas that are drilling high-impact exploration wells. For these companies, success on one high-impact exploration well has the ability to create a step change in value for shareholders.
Exploration success can result in fantastic returns, huge value where previously there was none. Exploration however involves a high level of risk. For that potential of a huge payoff from a successful well is the possibility of a dry hole.
For me that risk is tough to stomach. I'm more interested in getting an opportunity for a step change in valuation without the risk involved in exploration.
And with the changes that have taken place in the oil and gas business over the past decade, I think an investor can now avoid taking on exploration risk and still invest in companies that can create step changes in valuation. I believe that opportunity lies in companies focused on unconventional resource plays.

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