Independent capital for independent producers.

James A. Gibbs

The Changing Face of U.S. Exploration

I recently heard a speech by the chairman of a large financial institution that provides funds to oil and gas companies drilling wells in the U.S.  The primary theme  of his talk was that “petroleum exploration is dead in the United States. We know  where all the oil is now, and the industry’s job is just to learn to get it out more  efficiently and profitably.” As a geologist who’s spent a long career exploring for oil and natural gas, his  statement struck me as naively shortsighted.  I’d never considered that all our  nation’s oil fields might already have been discovered, and that nothing is left for  oil and gas explorers to do but pack up the maps and retire to their basements. After all, within the last three years, two friends, Jim Musselman, president and  CEO of Caelus Energy in Dallas, and Bill Armstrong, president and CEO of Armstrong  Oil and Gas in Denver, have each discovered new oil fields that are the largest found  in the U.S. in 30 years.  Situated on Alaska’s North Slope, each of the fields is  expected to yield more than a billion barrels of oil, and both Jim and Bill say they  believe many more fields are waiting to be discovered in the state.  I’m certain  neither expect their new discoveries will be their last. Both new fields were found by “conventional” methods:  i.e. utilizing inferred  models of geological “traps” where oil could be contained, then drilling vertical  wells to test their ideas.  For more than a century, oilmen and women have  employed a variety of geological theories, methods and technologies to explore for,  find and produce oil from the now‐known fields around the world.   About a decade ago, the combined technologies of horizontal drilling and hydraulic  fracturing  (“fracing”)  made  possible  the  drilling  and  production  from  rock  formations previously known to contain hydrocarbons but thought to be too dense  or “tight” to yield them in commercial quantities.  Oil and natural gas produced  from this new resource base are known as the “unconventionals”. Consequences  of  the  “unconventional  revolution”  have  been  profound.  The  technologies have opened vast areas of the U.S. and around the world as new  targets for drilling.  For the U.S., 2009 ended an annual decline in oil production  that dated back to 1971.  Since then, a steady annual increase in daily production  will allow the U.S. to reach or exceed 1971’s peak this year.  In doing so, the industry  has employed thousands of new oilfield workers, decreased our reliance on foreign  and often adversarial countries to make up our petroleum shortfalls, decreased our  negative balance of trade deficits, and enhanced our nation’s security and influence  abroad. For the oil industry, the unconventional revolution is changing the nature of the  business ...

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Rules of the Road

This year begins the thirty-third year of business for Five States Energy Company. Some of our early investors have been participating with us almost as long, and continue to join us in new offerings of partnerships and funds. When Don Malouf, Arthur Budge, Jr. and I organized Five States in 1985, we agreed to...

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America’s Shale Oil and the Changing Geopolitical Landscape

Rarely do I read a book that is sufficiently interesting and provocative that I keep it on the shelf for further reference. One such book that has been so influential for me is The Clash of Civilizations and the Remaking of World Order, (1996) by Samuel P. Huntington, a political scientist at Harvard. His...

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Is the World Facing “Peak Demand” Rather Than “Peak Supply”?

For at least 100 years the world has been anticipating the “rapid exhaustion” of crude oil supplies. Will we continue to be as concerned in future years as we have in the past? “Peak Oil”, the idea that global oil production would soon reach a maximum and then begin to decline, attracted a significant...

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What a Difference a Year Makes!

2017 opened with a much brighter outlook for the petroleum industry and the future for America’s energy security than did 2016. At year-end 2015 the U.S. oil industry was in a funk. In the last seven months of 2015, oil prices declined 38 percent, from more than $60 per barrel in June to $37...

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Election Year Choices

On the threshold of the November elections, we are being assailed by both major presidential candidates with charges and counter-charges, uninformed rhetoric and strident babble. Neither candidate appears willing or able to discuss energy matters with reason, nor almost any other major issue. The creativity and ingenuity of American geoscientists and engineers have led...

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When Good Wells Go Bad

Like people, oil and natural gas wells have productive lives—they are born, decline over a period of time, then are put to rest. Also like people, the length of their lives can be affected by a variety of circumstances, both physical and economic. Ultimately, however, all wells reach their economic limit and can no...

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Good News – Bad News

The US Energy Information Agency (“EIA”) recently announced that production from wells drilled since the start of 2014 made up 48 percent of total US crude oil production in 2015. With the increased use of hydraulically fractured horizontal wells, new production as a percentage of total US production has more than doubled from 22%in...

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What Happened in 2015?

As the oil industry stumbles into 2016, everyone is asking the same questions: Why did oil and natural gas prices fall so far and so fast in 2015? Did anyone see the collapse coming? Did anyone forecast it? Were OPEC or non-OPEC countries or groups to blame? Were individuals? How long will current conditions...

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Riding the Cycles

No one needs to inform west Texas citizens that the oil and natural gas industry is currently in a slump. All one has to do is drive from Midland to Odessa and count the number of drilling rigs standing idle in storage yards, or pick up a copy of Midland’s The Daily Observer to...

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30-Year Anniversary Events

Five States is celebrating our 30th year in business! We gratefully acknowledge the confidence and support of the many financial advisors, investors, business associates, employees, and friends who have been a part of our success and growth through the years. Many of the company’s current activities are “business as usual”: reviewing investment submittals, analyzing...

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The Oil Glut

Global oil prices are now near five-year lows. US producers are feeling the pain; they are not alone. Low oil and natural gas prices are causing companies and governments throughout the world to reexamine their budgets, rethink their priorities and, in some cases, make major policy decisions based on the possibility that significantly higher...

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2015 Energy Issues Outlook

Each year, JP Morgan writes a “deep dive” piece on energy. The report is a well-researched analysis that covers several specific topics. We find the report to be informative and useful as a basis for understanding current issues and forming opinions pertinent to our industry. This year’s topics include the history of energy development...

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Fracking Good

America’s shale is changing the dynamics of world energy. The reemergence of the United States as a global energy superpower is addressing many of the major problems in the United States and is having profound strategic and geo-political effects throughout the world. In November 2012, the U.S. replaced Saudi Arabia as the world’s largest...

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