Andrew McCarthy, CEO of Emperor Oil
"High Risk Investing - The New Trend in Energy: Interview with Andrew McCarthy" November 8, 2012
"Risk perception isn’t what it used to be. Ask the swelling ranks of Canadian junior oil and gas companies braving high-risk venues like Sudan, Iraq and even Yemen.
Technological advances and the shale revolution are making risk easier to digest. And political risk is no longer limited to developing countries. Plus, risk is increasingly relative: Ask anyone who’s been caught up in the politics of the Keystone pipeline.
Sudan is a case in point. While instability and a very fragile peace with South Sudan remains a threat, there is also growing optimism. The philosophy is this: Sudan and South Sudan will come to terms for the sake of economic growth, and oil will get them there. The prize: An estimated 5 billion barrels of oil.
In an exclusive interview with Oilprice.com publisher James Stafford, Emperor Oil CEO Andrew McCarthy reveals:
• Why investors are hitting up high-risk regions
• Why Africa is more opportunity than risk
• How political risk is no longer limited to developing countries
• Why Shale WILL live up to the hype
• Why conventional oil is still a great investment
• And why human ingenuity will prevail
Emperor Oil (TSXV: EM.V) is an international oil and gas company with a focus on the Middle East and North Africa. Most recently, the company has renegotiated the terms of a joint venture gas deal in Turkey and introduced a significant conventional oil project in Sudan.
James Stafford: Oil and gas juniors are now setting up shop in high-risk countries like Sudan, Iraq and even Yemen. What’s behind this new era of risk, and are we likely to see more of this?
Andrew McCarthy: This question creates an opportunity for risk comparison – is it less risky to drill a mile below the ocean surface and create the kind of disaster we saw BP (NYSE: BP) deal with in the Gulf, or do we continue to look for work in regions that have accessible resources and are anxious to advance their economic position along with the health and welfare of their community?
James Stafford: So you are saying that on a comparative level even North America has become a political risk? And that in this balancing act, volatile places like Sudan do not necessarily pose any greater political risk?
Andrew McCarthy: Yes, there are always risks associated with any investment. The US halted all exploration in the Gulf of Mexico for extended periods following the BP disaster. This is a risk that few would have foreseen when exploration and development began in a country whose level of political risk is considered to be negligible.
James Stafford: Furthering your point, there have been a number of other unforeseen political risks, both in the US and Europe…
Andrew McCarthy: Certainly. The US banned all exploration and production in the Marcellus Shales in the State of New York. The US has also stalled the construction of Keystone XL pipeline that would link the US to Canada’s oil sands. In Canada, we have seen the province of British Columbia place a moratorium on offshore drilling. Across the Atlantic, we have also seen Europe place a moratorium on all shale exploration and development.
James Stafford: What is your message to investors who still view Africa and the Middle East as too risky?
Andrew McCarthy: Based on all of these North American and European developments, is it any less risky than operating in developing countries?
James Stafford: Which brings us to Emperor’s operations in Sudan. When South Sudan declared independence in July 2011 it took with it some 75% of the known oil resources. Since then, the situation between Juba (the capital of South Sudan) and Khartoum (the capital of Sudan) has been tense and even bloody. How will this affect exploration and extraction?
Andrew McCarthy: Well, now we have healthy competition due to the secession of the south and the need for both countries to maximize their economic opportunity. The skirmishes fought in the spring were quickly squelched when both countries realized the impact it was having on their economy and their people. Rather than fight over existing production they have chosen to expand their resource development so that there is a larger pie to share...
...Andrew McCarthy: I think we have seen a bottom in North America but Europe’s moratorium on shale exploration and China’s environmental concerns and air quality issues create a huge demand for natural gas, which in turn creates a long-term, sustainable model for natural gas exploration, development and export.
James Stafford: Will the shale revolution live up to the hype?
Andrew McCarthy: I really don’t believe the hype has even started yet. Unfortunately, the uninitiated are still focusing on the concept of ‘fracking’, while this is in fact one of the oldest technologies. We’ve been ‘fracking’ oil and gas wells since the 1930s. What has changed and continues to change is the technology applied – do you know they actually use CAT scan equipment to check shale porosity? It’s truly a fascinating region of science. The shale oil developers refer to 2010 like its ancient history and there is no reason to expect this rapid pace of development and advancement to slow...." WHOLE ARTICLE