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Producer Articles

Capital Rationing

Capital Rationing is a reflection of limited capital in an industry segment. Following the collapse in crude oil prices, capital in the oil and gas sector is now more disciplined, providing a greatly improved investment environment for Five States.

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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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Crude Oil: A Market Perspective

The decline in crude oil prices over the last six months has been dramatic. Since early summer, the spot price for crude oil traded on the New York Mercantile Exchange (“NYMEX”) has dropped from the $90 - $100 per barrel range, where it has been trading for the last several years, to about $70...

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Oil Fundamentals: Supply & Demand

As with all commodities, the price of oil is determined by supply and demand. People often think that oil is “special” because we are “running out,” and do not understand how prices can fall. But like all commodities, the daily price of oil is determined by daily demand and deliverable supply. When supply is...

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Shale Revolution

The vast majority of new production in the US is from shale formations. It has been understood almost since the beginning of the oil and gas industry that shale deposits are the source rock for conventional crude oil and natural gas deposits. Over geologic time hydrocarbons migrate under pressure and high temperatures from the...

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Forward Curves, Markets & Trading Strategies

Energy commodities—crude oil, natural gas, heating oil and gasoline—are bought and sold globally through Futures contracts (“Futures”). These are legally binding agreements for the physical delivery of a specified volume of a commodity at a specified time and place for an agreed upon price. Futures are not derivatives; they are contracts to actually purchase...

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Price Differentials

As the US has become a much larger oil producer over the last few years, regional market dynamics are playing a larger role in the price of oil at the wellhead. Today, we do not focus only on global factors that affect oil prices. Of equal importance is a strong understanding of the regional...

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Great Expectations: Revisiting Peak Oil

Crude oil supply expectations have changed over the last twenty years. In the late 1990s, the idea of “peak oil” was gaining popularity. The theory was presented by M. King Hubbert in the 1950s and popularized in the last quarter of the 20th century. Working as a geologist for Shell, he predicted US oil...

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OPEC in the Modern Era

Founded in 1960, the Organization of the Petroleum Exporting Countries (“OPEC”) is a coalition currently comprised of 12 member countries predominately located in the Middle East. OPEC’s stated mission is to provide “steady income to producers and a fair return on capital.” This mission has historically been accomplished through production restrictions. Founding members Saudi...

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Where We See Opportunities in Oil & Gas

Historically low interest rates continue to drive capital away from traditional “safe” liquid investments such as CDs, money market funds and bonds in pursuit of yield. Investors are paying ever higher prices in an attempt to lock in current return. The increasing flow of capital into riskier assets–such as stocks that pay dividends and...

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A Shakeout at $100 Oil?

I have received several inquiries regarding recent articles (such as “Shakeout Threatens U.S. Shale Patch as Drillers Go for Broke” which I distributed in June) asking my thoughts on a shakeout for the industry and the impact such an event could have on Five States. The following are my comments on (1) the Case for...

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When Things Change, Things Change

Only a decade ago, many economic seers were predicting that oil prices would be in the $150 to $200 per barrel range in this current decade.  But there is an old adage in commodity industries: “the cure for higher prices is higher prices”.  It is analogous to a most basic economic concept, “change begets...

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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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