How Will Blockchain Technology Be Adopted by the Energy Industry? [Gaille Energy Blog Issue 64]

The headlines may be filled with stories about Bitcoin and other cryptocurrencies—but it’s the underlying innovation called Blockchain (rather than cryptocurrencies themselves) that is poised to impact the energy industry:

“Blockchain is a special technology for peer-to-peer transaction platforms that uses decentralised storage to record all transaction data. . . .  Essentially, a Blockchain is a digital contract permitting an individual party to conduct and bill a transaction . . . directly (peer-to-peer) with another party. The peer-to-peer concept means that all transactions are stored on a network of computers consisting of the computers of the provider and customer participating in a transaction, as well as of the computers of many other network participants. Traditional intermediaries, e.g. a bank, are no longer required under this model, as the other participants in the network act as witnesses to each transaction carried out between a provider and a customer, and as such can afterwards also provide confirmation of the details of a transaction, because all relevant information is distributed to the network and stored locally on the computers of all participants.”  PWC, Blockchain – an opportunity for energy producers and consumers? (2016).

The following PWC figure illustrates how a Blockchain eliminates the need for a central institution:

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By distributing identical copies of ownership records to many computers around the world, property owners no longer need institutions (such as banks, exchanges, or governments) to verify transfers of property.  The decentralized network itself performs this function by recording information “on a ledger that is distributed across every node (i.e., computer) in a network on the internet, and is structured and encrypted in such a way that it cannot be altered without agreement by a majority of the nodes in a network (which automatically and simultaneously check the change against the ledger)” Deloitte, Blockchain: Overview of the potential applications for the oil and gas market and the related taxation implications (April 2017).   The following figures from PWC illustrate the security feautures of Blockchain technology:

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While it is difficult to predict how new technologies will be adapted, possible impacts for the energy industry include the following:

(1) Petroleum Chain of Ownership

A few years ago, I had the opportunity to spend a day boating through the bayous of West Africa’s Niger Delta.  While doing so, I met a stream of rickety boats filled to the brim with barrels of stolen crude oil.  About 100,000 barrels a day of Nigerian production is stolen, with ~75,000 barrels being transferred to offshore tankers and sold on the global market.  When the Islamic State captured oilfields in Syria, it also found ways to export its illicit oil.  Blockchain technology could make such sales of stolen/sanctioned crude more difficult:

“Blockchain could provide a fully transparent and secure record of the entire supply chain.  Using a distributed ledger, digital tokens can be used to represent the asset being transacted. These tokens can be issued by a trusted authority for the needs of the companies or participating parties; for example, if oil and gas companies used a Blockchain ledger to buy and sell barrels of oil, transactions could include digital tokens named Brent or WTI. These tokens would represent the underlying asset of a barrel of oil and would remain digitally attached throughout its supply chain journey.”  Deloitte, Blockchain: Overview of the potential applications for the oil and gas market and the related taxation implications (April 2017).

(2) Decreased Political Risk

Weak property rights is a significant factor contributing to political instability in the developing world:

“The great economic divide in the world today is between the 2.5 billion people who can register property rights and the five billion who are impoverished, in part because they can’t. Consider what happens without a formal system of property rights: Values are reduced for privately owned assets; wages are devalued for workers using these assets; owners are denied the ability to use their assets as collateral to obtain credit or as a credential to claim public services; and society loses the benefits that accrue when assets are employed for their highest and best purpose.”  Phil Gramm and Hernando de Soto, How Blockchain Can End Poverty (Wall Street Journal, Jan. 25, 2018).

The more secure property rights are for all citizens, the less susceptible a nation is to socialism and other revolutionary movements.  When people have little or nothing to lose (because their property is insecure), political risk is higher.

“If Blockchain technology can empower public and private efforts to register property rights on a single computer platform, we can share the blessings of private-property registration with the whole world. Instead of destroying private property to promote a Marxist equality in poverty, perhaps we can bring property rights to all mankind. Where property rights are ensured, so are the prosperity, freedom and ownership of wealth that brings real stability and peace.”  Phil Gramm and Hernando de Soto, How Blockchain Can End Poverty (Wall Street Journal, Jan. 25, 2018).

Such an effort is already underway in the African nation of Rwanda, where “the first phase of the Rwanda Blockchain project will see the Rwanda Land Registry digitized to ensure control of authenticity. This will use WISeKey’s WiseID suite of mobile applications and digitally store necessary the necessary land registry data to enable authenticity of identification and the validation of assets”  Rwanda Government’s Blockchain Project Gains Momentum (Iafrikan News, Oct. 13, 2017).

(3) Title to Mineral Rights 

United States private mineral rights and leases can be challenging to verify, manage, and transfer.  For example, one Eagle Ford development in South Texas involved the acquisition of ~20,000 acres of mineral leases.  The leasing process required the execution of ~800 different leases, each of which required various documents to establish ownership:

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When all of the leases were signed, the energy company was left managing ~6,000 documents totaling more than 50,000 pages.  Before a well could even be drilled, lawyers then had to comb through the historical chain of title for each lease, ensuring that good title had been acquired.

Fraud is a problem, too.  Brokers have exploited the complexity of the title process to embezzle funds that were supposed to have been paid to the mineral rights owners.  Signatures have been forged, with leases being “sold” without their rightful owners’ knowledge.  Blockchain technology could be used to improve the efficiency and security of mineral leasing.

(4) Peer-to-Peer Energy Transactions 

“Blockchain technology appears capable of enabling a decentralised energy supply system. It may be possible to radically simplify today’s multi-tiered system, in which power producers, transmission system operators, distribution system operators and suppliers transact on various levels, by directly linking producers with consumers.”  PWC, Blockchain – an opportunity for energy producers and consumers? (2016).

The following PWC figure illustrates how Blockchain could disrupt the traditional model:

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PWC’s further figure below provides a helpful overview of possible Blockchain applications in the energy industry:

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Nobel Prize-winning economist Milton Friedman actually predicted the rise of cryptocurrencies before his death:

“I think the internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing but that will soon be developed, is a reliable e-cash.”


The anonymous creator of Blockchain realized Friedman’s vision:

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”

Perhaps it’s not so much any specific application of Blockchain that will transform the energy industry, but its broader impact on the regulatory state.  Energy companies are both shackled and protected by governments in many ways.  As technology enables individuals to increasingly bypass governments, the status quo that many in our industry take for granted will be disrupted.

About the Gaille Energy Blog.  The Gaille Energy Blog (view counter = 53,849) discusses issues in the field of energy law, with periodic posts at  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).

Images available on the Internet and included in accordance with Title 17 U.S.C. Section 107.



Venezuela’s Oil Production Crash: Another Sad Chapter of Socialism [Gaille Energy Blog Issue 63]

When I last visited the Venezuelan cities of Caracas and Puerto La Cruz in 2007, Hugo Chavez was sowing the seeds of the nation’s economic destruction: “Venezuela demanded changes to the agreements made by international oil companies that would give PDVSA [Venezuela’s national oil company] majority control of the projects.  Total, Chevron, Statoil and BP agreed and retained minority interests in their Venezuelan projects.  ExxonMobil and ConocoPhillips refused, and as a result, their assets were expropriated.”  Robert Rapier, How Venezuela Ruined Its Oil Industry (Forbes, May 7, 2017).  Whether they stayed or left mattered little to future investment.  The international oil industry had lost faith in Venezuela, and its capital and expertise would be reallocated to projects in other nations.

The results of such policies are exemplified by Venezuela’s oil production.  The year that Hugo Chavez took power, Venezuela’s oil production stood at ~3.5 million barrels per day.  By the end of 2017, the nation could only manage ~1.7 million barrels per day, and the slope of the decline was steepening:

“Over all of 2017, [Venezuela’s] output was down 29%, among the steepest national declines in recent history, driven by mismanagement and under investment at the state oil company . . . . Generals with no industry experience have been named to run the [state oil company].”  Anatoly Kurmanaev and Kejal Vyas, Venezuela’s Oil Production Is Collapsing (Wall Street Journal, Jan. 19, 2018).

Venezuela’s 2017 production collapse is shown in the following figure from the Wall Street Journal:

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Interviews with Venezuelan oilfield workers on Lake Maracaibo illustrate the extent to which the industry has been plundered:

“[State oil company] workers sat in empty air-conditioned offices adorned with Socialist Party posters.  Roberto, a foreman, said his oil barge had been waiting for three months to sail. Each day something was missing: food, motor oil, a tugboat. His team of a dozen people comes back each day and waits—until it is time to go home.  After two decades in [the state oil company], Roberto earns an equivalent of $8 a month. This Christmas, for the first time, he had no presents to give his seven children. . . . Of [the state oil company’s] 560 speed boats in the lake, only six are operational . . . . Supplies sent by the company to his offshore rig in the lake usually run out days before the end of the shift, he said. To cope, workers ration lunches of boiled plantain or spaghetti with mayonnaise. . . . . In November, [a] rig was attacked at night by nine pirates in balaclavas armed with machine guns. They knocked out two workers with pistol butts, took a female worker hostage and went cabin to cabin, collecting each worker’s valuables, including loaves of bread, before releasing the hostage and leaving.”  Anatoly Kurmanaev and Sheyla Urdaneta, In Venezuela’s Oil Hub, Prosperity Turns to Crime, Hunger (Wall Street Journal, Jan. 19, 2018).

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The rest of the nation’s economy has collapsed alongside the oil industry:

“Venezuela, by the numbers, resembles a country hit by civil war. Its economy, once Latin America’s richest, is estimated to have shrunk by 10 per cent last year – worse even than Syria’s. GDP shrank by 19 per cent. The South American country also has the world’s worst inflation at more than 700 per cent (nearly double that of second-ranked South Sudan), rendering its currency almost worthless. In a country with the world’s largest proven oil reserves, food has grown so scarce that three in four citizens report involuntary weight loss, averaging 19 pounds in a year.”  Max Fisher and Amanda Taub, How Did Venezuela Went from the Richest Economy in South America to the Brink of Financial ruin?  (The Independent, May 21, 2017).

“Parents . . . go days without eating, shriveling to the weight of children themselves. Women line up at sterilization clinics to avoid having children they can’t feed. Young boys leave home and join street gangs to scavenge for scraps, their bodies bearing the scars of knife fights with competitors. Crowds of adults storm dumpsters after restaurants close. Babies die because it is hard to find or afford infant formula, even in emergency rooms.”  Meredith Kohut and Isayen Herrera, As Venezuela Collapses, Children Are Dying of Hunger (New York Times, Dec. 17, 2017).

Venezuela’s outcome is similar to that of other nations that have embraced forms of socialism—only faster.  Over the last century, “the effort to eliminate markets and private property has brought about the deaths of an astounding number of people. Since 1917—in the Soviet Union, China, Mongolia, Eastern Europe, Indochina, Africa, Afghanistan and parts of Latin America—communism has claimed at least 65 million lives.” Stephen Kotkin, Communisms Bloody Century (Wall Street Journal, Nov. 3, 2017).  The difference between the 20th century and now is that technology has made capital and people much more mobile.  Even the poorest residents of Venezuela can access the Internet and compare their plight to others around the world.  Consequently, more than two million Venezuelans have fled the nation (along with their talent and money), and those who remain have found ways to bypass the Venezuelan economy using technologies such as cryptocurrency.

Yet many young Americans still romanticize socialism.  The image below is from a Young Marxist club at an Oklahoma high school.

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And the Communist Manifesto is the most frequently assigned college textbook in six American states.

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What about Adam Smith’s Wealth of Nations?  Just one quote from Wealth of Nations sums up why capitalism works and socialism fails:

“[B]y directing [one’s effort] in such a manner as its produce may be of the greatest value, [each person] intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. . . . By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.”

This is how the spread of capitalism around the world has lifted billions of people out of poverty.

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Capitalism is why we have abundant food, medical care, technology, and transportation—and a plethora of comforts and entertainments. Notwithstanding this, “[n]early 45 percent of [American] millennials polled said that they would prefer to live in a socialist country compared to the 42 percent who said they preferred a capitalist one.”  Perry Chiaramonte, Millennials Think Socialism Would Create a Great Safe Space, Study Finds (Fox News, Nov. 3, 2017).  For every young American who pines for socialism, there’s a Venezuelan who would gladly trade places to escape it.


Adam Smith (1723-1790)

About the Gaille Energy Blog.  The Gaille Energy Blog (view counter = 53,386) discusses issues in the field of energy law, with periodic posts at  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).

Images available on the Internet and included in accordance with Title 17 U.S.C. Section 107.


Shale vs. Deepwater Exploration Part II: The Risks [Gaille Energy Blog Issue 62]

Last week’s issue on Shale vs. Deepwater Returns [Issue 61] featured the below figure from Hess Corporation:

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Several readers questioned to what extent the figure’s economics reflected different risks, including the chance of success (during exploration) and political risk.  This week’s issue elaborates on such risks based on my own experiences.  At Oxy and several private equity-backed companies, I worked on deepwater projects in Africa and South America—including ventures with ExxonMobil, Chevron, Shell, and BHP Billiton—and as the General Counsel of a shale developer, I participated in several Eagle Ford shale joint ventures—including with EOG and Hess.  This gives me some perspective on the principal risks of deepwater versus shale opportunities.

(1) Exploration Risk.  Deepwater wells can cost more than $100 million each, but the chance of commercial success may only be 1-in-5, or less.  The key to managing exploration risk is portfolio economics—participating in enough wells that the odds should pay off.  For example, by drilling ten wells (each 1-in-5 chance of success), the probability of at least one successful well improves from 20% to ~90%.  My exploration models at Oxy and elsewhere assumed sunk costs of several dry holes in the early years, and the economics of the assumed successful ones had to be robust enough to absorb those early losses.  Practically speaking, this meant that each and every prospect being drilled had to be large enough that it could carry the costs of several failed wells and still achieve the investor’s return thresholds.  The below slide from Kosmos’ investor deck shows varying rates of commercial success in frontier plays (from 0% to about 33%) for companies such as Anadarko, BP, ExxonMobil, Petrobras, Repsol, Shell, Statoil, Total, and Tullow:

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American shale exploration is less risky because the wells are cheaper and the results less binary.  Shale exploration wells typically cost 5-15% of deepwater wells, mitigating losses.  Even a bad shale well usually produces some hydrocarbons, and that oil and gas can readily be sold on the American market.  In contrast, a marginal discovery in deepwater is no better than a dry hole because the capital required to produce it would exceed the value of its production.  Thus, shale investors can be confident that they will at least get some of their money back.

Even so, greenfield shale developments are still exploration.  Just because one method of hydraulic fracturing worked in one part of the Eagle Ford does not mean it will work a few miles away.  What I witnessed in new Eagle Ford developments was a process of trial-and-error.  The operator might drill a vertical well and test the same completion technique at different depths, trying to identify the most productive location to land horizontal wells.  Or a horizontal well might receive three different types of hydraulic fracturing (one in the toe, one in the middle, and one in the heel of the lateral), with each being flowed back independently.

The characteristics of the shale encountered in a well also are compared against a growing database of thousands of samples extracted from other shale wells.  This enables the operator (by analogy) to deploy those completion techniques most likely to be successful—and avoid those that previously yielded poor results in similar shale.  Thus, operators can reduce shale exploration risk using a variety of approaches that are not available in deepwater wells.

(2) Production Profile Risk.  Another challenge of deepwater exploration is the lag time between the drilling of a discovery well and the time when first production is achieved.  The below figure from Kosmos shows how deepwater oil averages 8 years to first production:

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In contrast, shale wells (at least in the United States) can be brought to sales within a matter of weeks.  Shale developers also can optimize the timing of future wells, drilling in periods of high prices, and pausing when prices drop.  The Hess figure below illustrates how companies can time certain wells based on oil price:

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Deepwater projects (subject to some opportunities for phasing) tend to come online all at once and continue to produce over decades—irrespective of price environment.

(3) Concentration/Magnitude Risk.   A deepwater development relies on a few wells (the Hess Guyana development has eight)—whereas a comparable shale development has hundreds.  This creates a concentration risk with deepwater wells.  When one well has an issue, the economic consequences are much higher in deepwater than in shale.  Deepwater wells also can be more challenging to control when something goes wrong, and the human and environmental toll can be much greater.

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(4) Political Risk.  Energy companies also worry about political risk—typically that a government will do something to impair the value of their assets.  Deepwater exploration often takes place in the developing world, where government institutions may be unstable and vulnerable to conflict.  Nonetheless, the perception of political risk for deepwater may be greater than the reality.  Even if the government changes, the new administration may be dependent on the international oil companies to operate the offshore facility and keep the revenues flowing to its treasury.  Deepwater platforms also are usually far from the shoreline.  Militants are less likely to sail 60 or more miles into the ocean searching for a deepwater platform when there are plenty of softer targets on land.

Shale developments, even in the United States, actually may be more vulnerable to political risk.  Shale imposes considerable inconveniences on local populations, with upwards of 100 trucks per hour descending on a single well location.  Drilling density is high, which can fundamentally change the rural landscape and lead to not-in-my-backyard opposition from local residents.

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Environmental activists have targeted shale, most notoriously with the movie Gasland, which showed natural gas leaking into residents’ tap water.

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Such issues have led states such as New York and nations such as France to ban shale development altogether.

Political risk can be tough to predict, though.  Venezuela was the pillar of stability and prosperity in South America before Hugo Chavez took power.  In the United States, oil and gas production is regulated mostly at the state level—thus, political risk varies according to which political party controls which states.  Republican or “red” states tend to support the oil and gas industry while Democratic or “blue” states can be hostile (e.g. the 2016 Democratic Party Platform states: “We believe America must be running entirely on clean energy by mid-century”).  Texas seems to be among the lowest risk states, but even it has been trending blue over the last two decades (particularly in its largest cities):

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Deepwater projects are exposed to political risk in another way—up-front sunk costs.  Deepwater capital costs are front-loaded whereas shale capital costs occur over a period of many years, as additional wells are drilled.  Should political risk increase, shale developers can cut their losses and redeploy capital elsewhere.

While deepwater and shale have different risk profiles, it’s hard to generalize and conclude that one or the other is less risky.  Many risks are project-specific or site-dependent.  What are the exploration risks for a particular set of wells?  Where is the project located?  As Mark Twain once quipped:

All generalizations are false, including this one!

About the Gaille Energy Blog.  The Gaille Energy Blog (view counter = 52,682) discusses issues in the field of energy law, with periodic posts at  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).

Images available on the Internet and included in accordance with Title 17 U.S.C. Section 107.



Shale vs. Deepwater Exploration Rates of Return [Gaille Energy Blog Issue 61]

Last week, the Trump Administration announced that it would open new areas of the United States coast to deepwater exploration:

In a striking about-face, the Interior Department announced yesterday that it wants to allow drilling in nearly all U.S. waters, the single largest expansion of offshore oil and gas leasing ever proposed by the federal government.  The agency said it will hold 47 lease sales in every region of the outer continental shelf but one between 2019 and 2024. The updated five-year plan, required by President Trump in an executive order in April, puts regions that were long off-limits to oil and gas development back in play.  Planning areas in the Pacific Ocean and the eastern Gulf of Mexico are included in the new plan, as well as more than 100 million acres in the Arctic and along much of the Eastern Seaboard. Brittany Patterson and Zack Colman, Trump Opens Vast Waters to Offshore Drilling (Scientific American, Jan. 5, 2018).

While oil and gas investors have been focused on investing in onshore shale developments, there is renewed and growing interest in offshore exploration and development.  This has been driven in part by investors being disappointed in shale returns:

Fed-up investors are demanding that U.S. shale-oil producers make money for a change, write The Wall Street Journal’s Bradley Olson and Lynn Cook.  In the past decade, the shale-fracking revolution has made the U.S. the world’s largest oil-and-gas producer and upended global markets.  Nevertheless, shale has been a lousy bet for most investors. Since 2007 energy companies have spent $280 billion more than they generated from operations on shale investments.  Neanda Salvaterra, Wall Street to Shale: Show Me the Money—Energy Journal (Wall Street Journal, Dec. 7, 2017).

The below chart compares shale with conventional development returns:


The numbers get even more interesting when one looks at a specific deepwater project.  Guyana’s Stabroek Block on the northern coast of South America is estimated to have total recoverable resources of more than 3.2 billion barrels of oil equivalent.  On January 5, 2018, Hess announced another discovery there:

[Hess] and ExxonMobil affiliate Esso Exploration and Production Guyana Ltd. began drilling the Ranger-1 well on Nov. 5, 2017 and encountered approximately 230 feet (70 meters) of high-quality, oil-bearing carbonate reservoir. The well was safely drilled to 21,161 feet (6,450 meters) depth in 8,973 feet (2,735 meters) of water.

Hess’ September 7, 2017 presentation at the Barclays CEO Energy-Power Conference included the following comparison between the economics of its Guyana deepwater discoveries and shale:

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When I was Director—Business Development at Oxy from 2004-7 and President of private equity-backed West & East Africa Oil from 2007-9, my geological teams identified dozens of 200 million-plus barrel deepwater prospects on both sides of the Atlantic.  Among these were the Stabroek Block and the adjacent waters in Suriname.  Most of our prospects are still waiting to be drilled.

About the Gaille Energy Blog.  The Gaille Energy Blog (view counter = 48,566) discusses issues in the field of energy law, with periodic posts at  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).

Images available on the Internet and included in accordance with Title 17 U.S.C. Section 107.


Gaddafi’s Violent Legacy Continues to Haunt Libya’s Energy Industry [Gaille Energy Blog Issue 60]

More than six years after Muammar Gaddafi’s death, the violence in Libya continues.

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Attackers bombed a major Libyan pipeline, reducing the nation’s production by ~100,000 barrels per day:

“Libya is rife with rival militias and armed groups, some in competition with the internationally backed government.  Oil was trading at more than $65 (€55) a barrel after the incident, close to its highest price since mid-2015. . . . The pipeline is operated by a subsidiary of the National Oil Corporation (NOC) and a joint venture with Hess Corp, Marathon Oil Corp and ConocoPhillips. . . . Libya produces about 1 million barrels of per day, but production is often cut due to sabotage, politics and instability.”  Explosion at Major Oil Pipeline in Libya, (Dec. 26, 2017).

The impact of such attacks is evident in the nation’s recent production history:

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All of this started in 1969, when Colonel Gaddafi (then 28 years old) deposed King Idris and took over Libya.

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Most American oil companies—Conoco, Marathon, Amerada Hess, and Occidental Petroleum—managed to coexist and work with Gaddafi’s regime, but Exxon and Mobil eventually abandoned their Libyan assets in 1981 and 1982, respectively.

Things turned worse in 1986, when two American servicemen were killed and 79 were injured when a disco was bombed in West Berlin.  The United States blamed Libya for the attack, and President Reagan retaliated with air strikes and sanctions. The other American companies had to walk away from billion-dollar oilfields in the Libyan desert.  The best these companies could do was enter into Suspension Agreements—whereby Libya’s national oil company assumed all of the American companies’ Libyan obligations (e.g., operating the oil fields) in exchange for receiving all of their oil revenues.  When the Americans left, Libya got to keep all of the Americans’ oil for itself, which only further enriched Libya’s dictator. Eighteen years would pass before anything changed.

In 2004, Colonel Gaddafi finally reached a deal with the Americans.  He agreed to rid Libya of weapons of mass destruction and cooperate in America’s war against terror.  In exchange, the United States lifted its sanctions.

In the last three years of Libyan sanctions, I was responsible for looking after Occidental Petroleum’s dormant Libyan contracts, and then afterwards, with transitioning them back into operations.  I spent much of 2004 shuttling back and forth between Libya and Malta.  In the process of working with the Libyans, I heard many stories of Gaddafi’s decadent lifestyle and brutality.

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Gaddafi Palace Indoor Pool

A journalist I knew went to interview Gaddafi just after the sanctions were lifted. She was escorted to a private room and left there alone, waiting for him.  Then the Colonel entered, wearing a green velour leisure suit unzipped to his bellybutton.  He was smiling broadly and holding two martinis.  Gaddafi offered her one, which she accepted but only pretended to sip–fearing it might be drugged.  My friend tried in vain to interview the Colonel, while he pursued her around the room, repeatedly groping her.

The journalist was lucky to have escaped:

[I]n April 2004, Gaddafi was visiting a school in his home town of Sirte, on the Mediterranean coast 350 miles east of Tripoli.  She had no idea that the pat on the head, seemingly so paternal, actually signified something far more sinister. The car arrived the next afternoon. The girl was working at her mother’s hairdressing salon when in walked three women, one of whom was dressed in a military uniform. The women told the girl’s mother that her daughter was needed to present another bouquet to ‘Papa Muammar’ because she had conducted herself so ‘beautifully’ the previous day. Despite the mother’s protestations, the girl was driven away at high speed to an encampment in the desert. There she was once more introduced to Gaddafi, who was sitting in a red chair holding a TV remote control. He looked her up and down and barked to one of the women: ‘Get her ready!’ Now terrified, the girl was taken away and undressed. . . . Guy Walters, The Terrible Truth about Gaddafi’s Harem: How Libyan Dictator Kidnapped and Raped Dozens of Women to Fulfil His Perverted Desires, Daily Mail (October 23, 2013).

In another gruesome story, the husband of one of Gaddafi’s victims complained.  Gaddafi had him executed by tying each of his arms to cars and sending them in opposite directions.  He literally ripped the poor man apart.

The end of Gaddafi’s life was similarly violent.  The Colonel’s last moments were spent hiding in a drainage pipe, before he was pulled out, tortured, and summarily executed.

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What’s in store for Libya in 2018?  Rising from the ashes of Gaddafi’s fallen regime is Khalifa Haftar.

Screen Shot 2018-01-01 at 12.36.43 PMHaftar participated in the 1969 coup and led numerous military campaigns for Gaddafi before turning on him:

In March 1996, Haftar took part in a failed uprising against Gaddafi in the mountains of eastern Libya. . . .  Haftar moved to suburban Virginia outside Washington, D.C., living in Falls Church until 2007. He then moved to Vienna, Virginia. From there, and mostly through his close contacts within the American intelligence community, he consistently supported several attempts to topple and assassinate Gaddafi.  Wikipedia.

Two days ago, General Haftar threatened to seize power in Libya:

Libyan strongman Khalifa Haftar has said he will support 2018 elections in the war-torn country but also implied he would seize power if the polls did not occur.  Late on Thursday, Haftar said presidential and parliamentary elections were ‘a fundamental solution’ to Libya’s crisis and should be held ‘without delay or fraud’.  Oil-rich Libya has been wracked by chaos since a 2011 uprising that toppled longtime dictator Moammar Gaddafi.  A UN-backed unity government in Tripoli has failed to impose its authority nationwide, and has been rejected by a rival administration backed by Haftar in the east of the country.  This month, Haftar said the unity government had definitively lost all legitimacy after the expiry of the December 2015 UN-brokered agreement that gave rise to it.  ‘But the accord is one thing and the UN mission’s work (towards holding elections) is another,’ he told the Al-Hadath television channel on Thursday. Haftar’s opponents accuse him of wanting to seize power and establish a military dictatorship, while his supporters have called for him to take control by ‘popular mandate’.  Haftar said this ‘mandate’ could be a possibility ‘if all classic mechanisms allowing a peaceful power transition via free and democratic elections were exhausted’.  Libya Strongman Says Backs 2018 Elections, AFP (Dec. 30, 2017).

But Khalifa Haftar is not a young man.  At 75 years of age, his reign is unlikely to be a long one.

About the Gaille Energy Blog.  The Gaille Energy Blog (view counter = 48,566) discusses issues in the field of energy law, with periodic posts at  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).

Images available on the Internet and included in accordance with Title 17 U.S.C. Section 107.


France Passes Law Banning Fossil Fuels [Gaille Energy Blog Issue 59]

Toreador Resources Corporation was one of the first companies to exploit international shale in the late 2000s.  Hydraulic fracturing was working in the United States, and similar shale formations exist around the world.  One of the largest sits in the middle of France, just east of Paris.  The EIA estimates that France has among the largest natural gas reserves in Europe:

Screen Shot 2017-12-24 at 9.24.02 AM

France also is a large importer of natural gas, burning more than 1 tcf of gas produced elsewhere.

Toreador’s CEO was American Craig McKenzie, a graduate of Northwestern’s Kellogg School of Business.  He was among the first to see the Paris Basin shale opportunity.

Picture mc

I like to understand people’s life stories.  What events have shaped them?  What did they have to overcome?

“[One study] found that less than 15% of their famous men and women had been raised in supportive, untroubled homes, with another 10% in a mixed setting. Of the 400, a full 75%—some 300 individuals—had grown up in a family burdened by a severe problem: poverty, abuse, absent parents, alcoholism, serious illness or some other misfortune. ‘The ‘normal man,’’ the [study] wrote, ‘is not a likely candidate for the Hall of Fame.’”  Meg Jay, The Secrets of Resilience, Wall Street Journal (Nov. 10, 2017).

Craig McKenzie lost his father at 13.  William W. McKenzie was a pilot for Southern Airways. Captain McKenzie’s plane encountered a terrible storm, and hail stones broke the cockpit windows and destroyed the plane’s engines:

“At 4:18 P.M. on April 4, 1977, a powerless DC-9 . . . on its way to Atlanta, made an emergency landing on a rural two-lane highway in this small community, about 30 miles northwest of Atlanta. The pilot brought the plane down right on the yellow line. But the plane clipped roadside power poles and trees with the tips of its wings . . . . Twenty-two survived, including the two flight attendants.”  Kevin Sack, Memories and Healing Two Decades After Crash, New York Times (Apr. 14, 1997).

While Captain McKenzie perished, his miraculous landing on the road saved the lives of 22 passengers.  Twenty years later, the New York Times reported how Craig and his mother attended a reunion of these survivors and their descendants.  Such experiences do shape people.

Craig McKenzie saw the untapped supply in the Paris Basin shale, and the growing energy demand in Europe.  He pounced, betting the company on French shale.  McKenzie led the acquisition of nearly a million acres there.

Screen Shot 2017-12-24 at 9.44.23 AM

He then partnered with Hess Corporation to develop them.  Just when it looked like Craig’s vision would be realized, disaster struck.  In 2011, France banned the use of hydraulic fracturing.  Without hydraulic fracturing, Toreador’s 780,000 acres of shale concessions were worthless—because the natural gas could not be produced.  About $350 million of Toreador’s stock value evaporated.

France offered no compensation to Toreador’s shareholders, and McKenzie had no choice but to sell Toreador for the value of its existing wells.  Texas’ ZaZa Energy Corporation entered into an agreement to acquire Toreador in mid-2011.  The new ZaZa Board of Directors elected McKenzie as the combined companies’ initial CEO.  That same Board also appointed me as ZaZa’s Chief Compliance Officer & General Counsel.

As General Counsel, my responsibilities included trying to realize value from the distressed Toreador assets.  I hired experts on French politics, who helped me understand the behind-the-scenes maneuvers leading to the shale ban.  I also traveled to Paris and met with the French ministers responsible for energy and the environment.  What I learned in 2012 and 2013 was that it was unlikely the shale ban would be reversed.  One minister candidly told me:

“The ban on fracking is merely the start.  We will ban fossil fuels in all forms.  We will ban production.  We will ban importation.  We will ban motor vehicles.  One day, France will be green.”

Words like these made it clear there was no future in France for my client.  The Toreador assets were eventually broken-up and divested to others with rosier views of France’s future.

But had Toreador been sold prematurely?  Five years later, my assessment of the French political situation was proven correct.  The 2011 ban on hydraulic fracturing was just the first step toward ending fossil fuels in France.  As the minister had predicted, a new law was passed, paving France’s path to zero fossil fuels:

“No new permits will be granted to extract fossil fuels and no existing licenses will be renewed beyond 2040, when all production in mainland France and its overseas territories will stop.  France bans fracking and oil extraction in all of its territories.  . . . [The French] government plans to stop the sale of diesel and petrol engine cars by 2040 as well.”  The Guardian (Dec. 20, 2017).

It looks like France’s 100+ TCF of natural gas will remain forever locked in the planet’s crust. So, too, will France’s law affect the economic prospects of its distant dependencies in South America and Africa:

  • French South America. South America’s Guyana basin is estimated to have as much as 13 billion barrels of oil—spread across the two nations of Guyana and Suriname and France’s overseas territory, French Guiana.  Explorers have been excited about the Guyana basin for more than a decade.  I first traveled there in 2005 to negotiate a series of farm-ins and production sharing agreements to lock-up acreage in Guyana, Suriname, and French Guiana.  While the big discoveries have been outside of French waters, the Zaedyus well in French Guiana intersected 236 ft of oil pay (although subsequent appraisal wells failed to extend the reservoir), and there are numerous other undrilled prospects in French waters there:


  • French Africa. Other territories within French control that could harbor petroleum reserves include the Indian Ocean islands of Mayotte and Juan de Nova. These islands sit between petroleum discoveries in Mozambique and Madagascar:


The French President tweeted jubilantly about the ban:

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But does #keepitintheground actually help #makeourplanetgreatagain?  If France’s goal is to reduce carbon emissions, the surest way to accomplish that goal is by substituting natural gas for coal.  Burning natural gas—instead of coal—would reduce carbon emissions by ~50%.  French gas could be used elsewhere in Europe, perhaps enabling Russian gas to be sold to China (the world’s number one carbon polluter due to its reliance on coal).

greenhouse map

Yet France apparently believes that a 50% reduction in carbon emission is not enough.  They are purists.  They want zero emissions.

Unfortunately, purists often end up with nothing.  Twenty-two years from now, how will France’s quest for environmental perfection be viewed?  Will France have successfully led the world to ban fossil fuels?  Or, will President Macron have squandered an opportunity to curb carbon emissions by developing its shale gas?  As another French citizen, Voltaire, once warned:

“Le mieux est l’ennemi du bien. (The perfect is the enemy of the good.)”


About the Gaille Energy Blog.  The Gaille Energy Blog discusses issues in the field of energy law, with periodic posts at  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).

Images available on the Internet and included in accordance with Title 17 U.S.C. Section 107.

Dr. Ray Irani & the Emperor CEOs: Where Are They Now? [Gaille Energy Blog Issue 58]

I was a young lawyer at Vinson & Elkins when one of its partners recommended me for a job in Oxy’s new Dubai office.  My first interview was with Oxy’s General Counsel, Donald de Brier.  When I was escorted into his cavernous office, Donald had his back to me and was gazing toward the distant Pacific Ocean.  His assistant introduced me, and I sat down, but Donald did not acknowledge my presence.  One minute after another passed while I waited patiently for my interview to begin.  Finally Donald spun his chair around and asked:

“I see you went to the University of Texas for college.  Couldn’t you have gotten into a better school?”

Notwithstanding my choice of college, I was offered the job of Legal Manager for Occidental Middle East Development Company, which chased new deals for Oxy’s CEO, Dr. Ray Irani.  Dr. Irani was a graduate of American University in Beirut, Lebanon.  He spoke fluent Arabic and was personally acquainted with many Middle Eastern rulers.

Our team in the Middle East would get 95% of a deal negotiated, and then Irani would arrive on his Boeing Business Jet—a Boeing 737 turned into a flying palace with an office, bedroom, and shower. During one of these meetings, an Abu Dhabi sheikh complimented Dr. Irani’s new BBJ. The sheikh then bragged about how he had a fleet of them, each configured for 24 passengers.  Dr. Irani, witty as ever, quipped back:

“My BBJ is configured for one.”

The sheikh laughed so hard he almost fell over.  When Dr. Irani was in his element among sheikhs and sultans, there was no one more charming.  He remains the best deal closer I have ever seen.


Dr. Ray Irani

I also had the opportunity to support Irani during Oxy’s 2004 reentry into Libya (after sanctions were lifted):

Irani wanted to be first in line and was granted a meeting at Kadafi’s desert retreat. Speaking in fluent Arabic, the Lebanese-born Irani made his pitch – even though Kadafi seemed noncommittal.

“He was courteous, but clearly he wanted us to have a cup of coffee and leave,” Irani recalled.

But the 70-year-old Irani pressed on, Kadafi kept listening and the pair met again two months later. Then, in January, Libya awarded its first batch of 15 exploration sites – with nine going to Occidental.

“That’s not a bad batting average,” Irani said in an interview. “I was pleasantly surprised.”  James F. Peltz, “Well-Oiled Turnaround” (Los Angeles Times, June 5, 2005).

Dr. Irani was the second CEO in Oxy’s storied history—succeeding Armand Hammer, who ran Oxy until his death at 92.  Irani’s reign as Emperor of Oxy lasted for ~23 years.  His 2013 departure was the result of a “brutal boardroom struggle” with his chosen successor, Steve Chazen. Clifford Krauss, “Occidental Chairman Agrees to Step Down Ahead of Schedule” (New York Times, May 3, 2013).

Notwithstanding his premature exit, Dr. Irani’s tenure at Oxy was impressive.  During his time at the helm, Oxy’s market cap increased 15-fold.  Irani’s best (personal) year was 2006, in which he earned ~$460 million, mostly from equity gains.  While such extreme payouts made Irani the target of executive compensation crusaders, many believed he was worth it:

The rebound “has been nothing short of spectacular,” analyst Ben Dell of Sanford C. Bernstein & Co. wrote in a report . . . Occidental is “one of the few genuine turnaround stories” in the exploration-and-production industry, he added.  James F. Peltz, “Well-Oiled Turnaround” (Los Angeles Times, June 5, 2005).

How’s he doing now?  The 82-year-old Irani has a net worth of ~$1.5 billion, and he’s been selling off Oxy stock to fund his charitable endeavors and investments elsewhere:

Working out of his Westwood family office, Irani further diversified his portfolio, which includes investments in medical-related real estate properties, private equity, and bonds. . . . He is a trustee of USC, his alma mater. Irani donated $20 million toward the university’s under-construction USC Village complex. . . .  His wife, Ghada, was recently named to Unicef’s national board.  “Wealthiest Angelenos” (Los Angeles Business Journal, August 28, 2017)

During my time at Oxy, I had the opportunity to interact with several other Emperor CEOs:

  • Exxons Lee Raymond.  This quote from Lee Raymond summed up his view of the world—“We see governments come and go.”  Raymond was the emperor of emperor CEOs, and he knew it.  I saw him in action at a closing ceremony, where he wanted little to do with the other two CEOs in the room—who were both from smaller multi-billion dollar companies. Raymond retired from ExxonMobil with a $400 million package at the end of 2005. The 79-year-old Raymond currently serves on the Board of Directors of JPMorgan Chase.


Lee Raymond

  • Totals Christophe de Margerie.  While at Oxy, I spent a year as the Senior Advisor for Gas Marketing to the Dolphin Gas Project—a 2 bcf per day Qatari gas field development and pipeline jointly built by Oxy, Total, and the government of the United Arab Emirates.  At various Dolphin events, I had the opportunity to become acquainted with Christophe de Margerie.  He reminded me a lot of Dr. Irani—another larger-than-life deal closer.  De Margerie boasted that “[n]othing replaces human warmth and handshaking.  You don’t win a contract by telephone.”  Sadly, his private jet crashed in 2014, ending his life and career prematurely at age 63.


Christophe de Margerie

  • BPs Lord John Browne.  I first met Lord Browne at the World Petroleum Congress in Johannesburg, South Africa, when he was still CEO of BP. Not long after our first meeting, he left BP and joined Riverstone.  I had been working with Riverstone for several months to finalize the firm’s backing for round two of my African oil and gas exploration company—Passenger Energy Partners.  I recently sold my first company (which had acquired interests in Cameroon, Madagascar, and South Africa) and was looking for $100-$200 million of equity to build a new portfolio of non-operated interests in West and East Africa.  The “Passenger” name came from my concept of riding alongside first-class operators such as ExxonMobil, Anadarko, and BHP—letting them absorb all the risks of operatorship.  After a few trips to New York, I had the backing of Riverstone’s board—except for Lord Browne.  I flew to London for a one-on-one meeting to change his mind. Browne was a formidable opponent for my non-operated concept because he had an “operator only” philosophy at BP.  I was unable to win him over. In 2015, Lord Browne resigned from Riverstone to become “Executive Chairman of L1 Energy, an oil and gas investment vehicle which acts as a subsidiary of LetterOne Holdings, co-owned by Russian billionaire Mikhail Fridman.” Wikipedia. john-browne-lg

Lord John Browne

  • Anadarkos James Hackett.  Hackett is now a partner at Riverstone and CEO of Silver Run II, a $1 billion publicly-listed energy investment fund.  Hackett also is on the faculty of Rice University.


James Hackett

  • ConocoPhillips James Mulva.  Mulva exited with a $260 million package in 2012 and currently serves on the Boards of Directors of General Electric and General Motors.  He has made significant donations to the University of Texas at Austin, including $50 million to create the Mulva Clinic for Neuroscience.


James Mulva

All of these personalities could sit with world leaders as equals—wielding power that, for better or worse, few current industry CEOs have.  When one of these men made a promise, everyone knew it would be kept.  At their heyday, no one was second-guessing them.  Were these CEOs any more talented than their companies’ current leaders?  Probably not.  But they were able to do more—because of their authority.  Maybe such supremacy gave them the confidence and presence to stand toe-to-toe with kings, emirs, sultans, sheikhs, and, well, dictators.

Over the last decade, the Internet has lessened the power of CEOs.  Their every move is subject to criticism on social media and message boards.  Boards of directors are more powerful than they used to be, too.  While the transparency created by the Internet has rightfully ended the careers of many who should not have been CEOs, it also has shackled and diminished those who could have been great ones.

We now live in an age in which there are no heroes.  Even past heroes’ mistakes are dissected, paraded about, and focused on until that’s all anyone remembers about them.  The current state of affairs brings to mind a Japanese proverb: The nail that pops up is always hammered down.  Our current crop of industry CEOs may be more focused on survival than achieving greatness.

About the Gaille Energy Blog.  The Gaille Energy Blog discusses issues in the field of energy law, with periodic posts at  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).

Images available on the Internet and included in accordance with Title 17 U.S.C. Section 107.



Energy Construction: Can Change Orders Be Used as Amendments? [Gaille Energy Blog Issue 57]

A common area of confusion in construction agreements is whether a modification to the agreement and its exhibits should be papered via a change order or an amendment.  Both change orders and amendments are signed by the owner of the project and the contractor undertaking the work.  The principal difference is that change orders usually are used to modify certain exhibits related to work—whereas an amendment can modify any part of the construction agreement.

Below is a typical definition of a change order:

“Change Order” means a written document in substantially the form of [attachment reference] signed by both Parties that contains the terms agreed upon by the Parties with respect to a modification of the Contractor’s work.

Standing alone, what does “modification of the work” mean?  The strictest interpretation is that change orders can only be used to modify the “Scope of Work” exhibit—the actual description of the work that contractor is responsible for undertaking.  But can the change order also be used to modify exhibits that are related to the work, such as the specifications, policies (safety and environmental), and price (including time, material, and equipment rates)?  For example, if the work being performed by a contractor is changed, the price may need to be revised.  The broadest interpretation is that a change order also can amend the body of the agreement (terms and conditions)—since the entire agreement is about the contractor’s work.

The use of change orders to modify the body of the agreement is problematic.  While lawyers are required to review amendments, they may not be asked to review change orders.  The prospect of non-lawyers drafting amendments (via change orders) to complex construction agreements can create conflicts and ambiguity across the documents, thereby increasing the probability of litigation.  Another problem is that there are usually far more change orders than there are amendments—reflecting various additions and subtractions to the contractor’s Scope of Work. Tracking amendments separately from change orders ensures that there are no “forgotten” amendments lurking in the voluminous change order files.

The best practice is to include a provision in the construction agreement that states unambiguously which exhibits can be modified by change orders.  Consider the following example:

“Change Orders can never be used to modify: (a) the Terms and Conditions [i.e., the body of the construction agreement] or (b) any Exhibits other than the following Exhibits [list those exhibits related to the work, typically the Scope of Work, specifications, and pricing].”

The parties then know that any requirements of the project included in those listed exhibits are subject to modification via a change order—but nothing else.

Chapter 6 of my textbook, Construction Energy Development, offers a further description of the construction change process.

CED Cover

About the Gaille Energy Blog.  The Gaille Energy Blog discusses issues in the field of energy law, with periodic posts at  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).

Images available on the Internet and included in accordance with Title 17 U.S.C. Section 107.



Dollars vs. Percentages & the Probability of Busted Asset Deals [Gaille Energy Blog Issue 56]

“[H]euristics are simple, efficient rules which people often use to form judgments and make decisions. They are mental shortcuts that usually involve focusing on one aspect of a complex problem and ignoring others. These rules work well under most circumstances, but they can lead to systematic deviations from logic, probability or rational choice theory. The resulting errors are called ‘cognitive biases’ and many different types have been documented. These have been shown to affect people’s choices in situations like valuing a house, deciding the outcome of a legal case, or making an investment decision.”  Wikipedia.

Much of my career has been spent on the merry-go-round of buying and selling petroleum assets.  The price dance usually starts with the buyer making the first offer—either in a competitive process (in which the seller solicits multiple offers) or a direct negotiation (in which one of the parties has approached the other).  I have noticed that dollar differences—rather than percentage differences—tend to predict whether the bid/ask range will be closed.  The greater than the gap in dollars (even if the percentage is relatively small), the less likely the price will be agreed.

All things being equal, why would a seller be willing to accept a 10% discount on a $50 million deal—but not on a $500 million deal?

“It isn’t that people are lazy or irrational, says Gerd Gigerenzer, managing director of the Max Planck Institute for Human Development and director of the Harding Center for Risk Literacy in Berlin. It’s that over the course of human history, people have typically encountered statistical information in ways they can count (say, seven instances out of 10), rather than contemplate in the abstract (as in 70%). People make better statistical projections, he says, when information is presented in concrete ways they can understand, such as a dollar amount. . . . Tell consumers the fee for a $100,000 investment is 1%, and they won’t think it’s very high . . . But say the fee for that $100,000 investment is $1,000, and they will think it’s much higher, even though the dollars involved are the same. . .”  Charlie Wells, Percentages vs. Dollars—a Battle for Investors’ Attention (Wall Street Journal July 6, 2014).

Offers in asset purchase agreements are expressed in dollars, and it may be harder for an executive to accept an eight-figure discount than, for example, a seven-figure one.

Large dollar gaps, irrespective of the percentage, also create other issues, including enhanced scrutiny by seller’s stakeholders. Large bid/ask spreads tend to arise from more valuable assets, which are material to the seller.  This means that the selling price for a major asset will be scrutinized by other executives, the board of directors, and investors.  Decision makers may fear that a big discount can be used by others (with the benefit of hindsight) to criticize their judgment.

A few years ago I was sitting with Lord John Browne (former CEO of BP) in his Riverstone London office. Browne said that the most valuable lesson he learned at BP was “do the biggest deals possible.” He went on to explain that if two deals yield the same percentage return, the larger will be more profitable.  He also noted that the transaction costs of big deals are often similar to those of smaller ones.

Lord Brown

While Lord Browne’s observations were correct, he left out the risk of busted deals.  Of course, large companies such as BP can more easily absorb such costs.  But what about start-ups?  Even if they have private equity money backing them, PE may not start funding a management team until they have acquired their first asset.  This means the legal fees and other overhead for busted deals are absorbed by the management team.  PE-funded teams usually have a limited runway of savings with which to fund their ventures.  They may only get one or two shots at closing a deal before having to go back to work elsewhere.  As such, start-ups can improve their probability of success by pursuing middle-market acquisitions—where the bid/ask spreads are more manageable.

About the Gaille Energy Blog.  The Gaille Energy Blog discusses issues in the field of energy law, with weekly posts at  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).

Images available on the Internet and included in accordance with Title 17 U.S.C. Section 107.

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