Entry and Exit Strategies in International Shale Opportunities

Haskett, William J.
Decision Strategies Inc., Houston, TX.

The ability to enter or exit unconventional plays in a manner that creates material opportunity and value for a company is more than luck. While many recognize Shale Gas and Liquids potential, there is a distinct opportunity to create manage a Shale strategy that delivers high value, leverages industry learning (and investment), and creates a material presence in a play.

There are three periods of frenzied activity in new unconventional plays (the "Three Frenzies") and astute companies can position themselves to take advantage of these peak market periods (and lulls) in order to obtain material interests in material plays, as well as limit downside exposure.

The first Frenzy occurs as rumours of potential circulate through our info-leak prone industry, and initial land acquisition occurs with intent. Early-in majors and larger intermediates grab beach heads into the plays and then set about initial evaluation. The second Frenzy occurs as proof of concept is shown. Most of the remaining land is taken up by players of various sizes. The Third Frenzy occurs as late-comers (typically foreign based companies) nudge, or sometimes stomp their way in through large interest purchase or company acquisition.

Frenzies related to Shale Liquids tend to be infrastructure creative. Frenzies related to Shale Gas tend to be infrastructure demanding, and therefore in new international plays, tend to be slower and weaker. As such, Liquids Frenzies should be anticipated to create a sustainable infrastructure for lower cost Shale Gas development.

The particular entry/exit strategy chosen should be synergistic with the company's regional or global aspirations. Two examples of strategies at opposite ends of the spectrum are ExxonMobil's massive but leveraged by OPM ("other people's money") entry into Poland, and Buru Energy's efforts in the Canning Basin, Australia.

Regardless of the individual strategy, recognizing the business pinch points, the scarce resources that all competitors scramble to control or access is vitally important to retaining as much of the profit as possible. The companies who control the business pinch points control the profit. However, if a company has neither the resource nor the capability to control, it is often sufficient to simply be in the way.

AAPG Search and Discovery Article #90155©2012 AAPG International Conference & Exhibition, Singapore, 16-19 September 2012