Long Term, The US Energy Revolution Will Disappoint -- The Legendary Jim Rogers

Updates

Later, 1:55 pm: in the original post below I mention that I only had a snippet of the Jim Rogers interview. Don sent me the link to the full interview.  I read through it quickly; it's a wide-ranging interview, and it appears the snippet below is about all that he said about the US energy revolution. Even with the full interview, I would not change a thing I wrote below regarding his comments on shale.

Original Post

That was the headline at the SeekingAlpha article -- that long term, the US energy revolution will disappoint. The writer posted a short  (one answer) from a longer interview with "the legendary Jim Rogers":

Q: Many believe the U.S. shale revolution is going to solve our energy problems? Is it over-hyped?

A: Yes, I believe it is. Regarding natural gas, the fundamentals on the ground are not nearly as good as the hype. The number of rigs on the ground has gone down 75% the last couple of years, as the wells are very short-lived, and it takes an enormous amount of money to keep them up. A number of companies have had to lower estimates of their reserves. As for oil shale, typical wells deplete at 38 percent the first year. Thus you need a lot of drilling, money, and a high price to keep up production rates. All you have to do is go out in the oil patch. I believe the investment world will be disappointed with the notion that supply is so great that oil will collapse.

We don't have the full interview but it seems the headline is misleading for investors like me, and/or I'm missing something (probably the latter).  But that last line in Jim Rogers' response didn't seem all that concerning:

I believe the investment world will be disappointed with the notion that supply is so great that oil will collapse.

Why would the investment world be disappointed with the notion that supply is so great that oil will collapse?

I'm seeing mixed messages in that reply. I guess it depends on where one is invested.

So, that's one point.

The second point: Jim Rogers does have one flaw in his argument: tracking rig counts as a 30-second proxy for the state of the oil patch. We've talked about that ad nauseum. Rig count is only one data point and is less useful for tracking/anticipating production; more useful for tracking "activity."

I, too, once tracked rig count as a proxy for production, but about a year ago or so, I realized that was no longer a valid metric for that purpose. I now track rig count in the Bakken to give me a feeling for the level of "activity" in the Bakken: jobs, trucks, pipeline being laid weekly, etc. For the operator, less rigs might be seen as "good"; for the oil service companies, less rigs might be seen as "not good."

Rig count is not even indicative of pad development any more. Once upon a time, a rig meant a new pad; now with 4, 6, 8, who-do-we-appreciate, wells on one pad, the number of rigs and/or the number of new wells correlates poorly with the number of pads.

I have to run, celebrate Father's Day, but there is one more data point that is missing from the little snippet in the Jim Rogers interview. And that data point is generally missing in every interview or story that I listen to or read about the Bakken and the US energy revolution.

I agree with the writer of the linked article. There are some great investment opportunities in the Bakken.

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