Former BP Geologist On Energy

SL Advisors Talks Markets
SL Advisors Talks Markets
Former BP Geologist On Energy



Last week my partner Henry Hoffman and I had the opportunity to chat with Peter Hill. Peter holds board seats or is on the advisory committee of several companies where he provides energy advice, including Edge Natural Resources, Jaguar Exploration and Citizen Energy LLC. His long career includes 22 years spent at BP in various executive positions including Chief Geologist. He still retains contact with a number of people there. We were interested in Peter’s outlook for energy. His views are summarized below.

Peter thinks many commentators underestimate the scale of change that the energy transition entails. It will be a very slow process, as it has been so far. He expects that we’ll still be using oil and gas in 2100, and says the most effective way to reduce emissions is coal to gas switching. The Energy Information Administration regularly reminds us that this is the biggest source of US emissions reduction – far more impactful than solar and wind.

Peter thinks OPEC’s production at around 28.5 Million Barrels per Day (MMB/D) is at or close to its peak. He doesn’t think they have much undiscovered oil remaining. The Ghawar field, which was discovered in 1948, has produced around 65 billion barrels, far more than expected.

The US is becoming the swing producer, a consequence of the shale revolution. Peter noted that shale formations exist in Saudi Arabia, but there’s no appetite to exploit that resource at $60+ per barrel since they currently produce at under $5. They would also struggle to find enough water for fracking, and the oil services business is dominated by American firms who would have to invest significant sums in Saudi Arabia.

Saudi Arabia’s Jafurah Gas Field has 200 Trillion Cubic Feet (TCF) of recoverable natural gas, according to Crown Prince Mohammed bin Salman. This is enough to swamp world markets if produced, but Peter thinks the Saudis will never be willing to invest the $BNs necessary.

For reference, US daily consumption of natural gas averaged 90 Billion Cubic Feet per Day last year.

Peter thinks Russian production will tail off within 12-18 months. Having lived there, he feels Russia’s oil industry has no culture of maintenance. Given a new truck or any piece of equipment, they’ll use it until it breaks down and then discard it.

The Bezhenov Formation shale that sits at the base of the Siberian Basins in Russia is the biggest source rock system in the world according to International Energy Agency. Reserves are estimated at 2,000 TCF gas in place and 1,200 billion barrels of oil. The sanctions that followed Russia’s invasion of Ukraine have cut off any western expertise in extracting these resources. Peter dryly notes that Putin has inadvertently settled who will own these stranded assets once the energy transition takes hold.

For all of these reasons, Peter thinks crude oil is going higher.

BP made a big mistake with their focus on renewables, which has so far consumed $40BN of capex. As a result, they neglected their core oil and gas business, something Peter called “a huge mistake”. This strategic error was ultimately responsible for CEO Bernard Looney’s firing. He was an unapologetic champion of renewable energy. Looney’s admitted affair with a subordinate, in violation of company policy, may have provided a convenient opportunity to shift BP’s strategy back towards more profitable fossil fuels.

We’ve seen this regularly – big energy companies feel pressured to invest in the energy transition but find that the returns are poor. American investors are more inclined to reward more disciplined capital allocation, which is why NY-listed energy companies trade at higher multiples.

Both TotalEnergies and Shell have publicly ruminated on shifting their stock listing to NY. In recent years pressure from left wing politicians created disingenuous enthusiasm for intermittent energy, for a while displacing astute financial judgment. Remorse is now common among those who drank too heavily of the progressives’ Kool-aid.

Peter has great admiration for Exxon Mobil. They are resilient, and seem to produce an endless succession of talented executives. He described the company’s culture of career specialization, aimed at putting the world’s best in each key role and paying them enough that they rarely want to leave. He contrasted this with BP’s approach of regular rotations, to develop more rounded executives.

On the Deepwater Horizon disaster in the Gulf of Mexico, Hill attributes it partly to a failure to follow the company’s own operating manual, a document on which he spent much time and describes as BP’s “bible”.

Peter feels the Eagle Ford basin in south Texas is a misunderstood shale formation with untapped potential. Current activity focuses on the “hard bands” of rock which are more easily exploited than the soft bands in between. He thinks improvements in technology and technique will eventually allow these soft bands to be more readily drilled.

In terms of emerging technologies, he puts hydrogen in the “too hard” basket, noting the significant technical challenges in handling it. We commented on this recently (see Discussing The Energy Transition With An Expert). Hydrogen has to be super-cooled to reach a liquid state so that it contains enough energy to be worth transporting, a process that is itself very energy-intensive and costly.

AI on the other hand offers huge opportunities. Peter said, “Seismic is made for AI.” He expects it to provide a “significant improvement in 3D.”

With data centers driving power demand higher, the energy sector is well positioned to be a winner from artificial intelligence.

Peter Hill offered many fascinating insights. We hope to check in with him regularly for an update.

We have three have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Real Assets Fund


Print Friendly, PDF & Email
SL Advisors Talks Markets
SL Advisors Talks Markets
Former BP Geologist On Energy

Important Disclosures

The information provided is for informational purposes only and investors should determine for themselves whether a particular service, security or product is suitable for their investment needs. The information contained herein is not complete, may not be current, is subject to change, and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors and other terms that are contained in the disclosure, prospectus, and offering. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy,  completeness or timeliness of this information. Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments.  Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and do not reflect the deduction of the advisor’s fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase. Indexes and benchmarks may not directly correlate or only partially relate to portfolios managed by SL Advisors as they have different underlying investments and may use different strategies or have different objectives than portfolios managed by SL Advisors (e.g. The Alerian index is a group MLP securities in the oil and gas industries. Portfolios may not include the same investments that are included in the Alerian Index. The S & P Index does not directly relate to investment strategies managed by SL Advisers.)

This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involves a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of SL Advisors LLC or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made. r

Certain hyperlinks or referenced websites on the Site, if any, are for your convenience and forward you to third parties’ websites, which generally are recognized by their top level domain name. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with SL Advisors LLC with respect to any linked site or its sponsor, unless expressly stated by SL Advisors LLC. Any such information, products or sites have not necessarily been reviewed by SL Advisors LLC and are provided or maintained by third parties over whom SL Advisors LLC exercise no control. SL Advisors LLC expressly disclaim any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.

All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

Past performance of the American Energy Independence Index is not indicative of future returns.

Print Friendly, PDF & Email
0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.