Knowledge is power when it comes to picking winners
by TOM FOWLER
Bobby Tudor knows knowledge is power, particularly in the energy business. That's why the Goldman Sachs veteran teamed with the 25-person research business run by Dan Pickering to create Tudor Pickering & Co., a new boutique investment bank with an emphasis on the exploration and production businesses.
Tudor, a Rice University graduate who spent 19 years with Goldman in London, New York and Houston, said the current bull market in energy is still looking good, but it has its limits. Tudor, the CEO of Tudor, Pickering & Co., spoke with Chronicle reporter Tom Fowler recently about how rising costs and the recent pushes into alternative energy will affect the industry.
Q: Are spikes in drilling rig rates, engineering costs and other E&P related expenses making it harder to close deals?
A: I wouldn't say it's harder to get things done, but it clearly is impacting the way upstream companies are seeing the world. The economics have escalated to the point where in many, many cases producers need quite a high price deck to make projects they're working on viable. There's a lag time between when prices come down and field operating costs come down. We're in that period right now, and it's making it difficult for producers. A lot of stuff they thought were high return/highly economic just a few months ago now just don't work.
Q: What's been the effect of the influx of hedge funds and nonenergy investors into the business?
A: You have to distinguish between the sectors of the energy industry. There has not been all that much of the new class of capital chasing the upstream. There has been some of it, but it's more about providing cap-ex requirements for startup management teams. You haven't seen big buyouts of upstream energy companies because of hedging markets that are available to upstream producers and because of their overall lower cost of capital.
Q: Is Washington's new-found enthusiasm for biofuels and alternative energy having a real impact on the business?
A: I would say there's a fair amount of skepticism as to whether much of this will have a short-term impact, meaning in the next two or three years. There is a fair amount of money chasing alternative energy, ranging from biodiesel and ethanol to wind and solar. Is that really going to impact the domestic oil and gas industry? Certainly not in the near term. That is fundamentally why most observers say while we are likely have a lot of volatility around commodity prices, we still think the trend remains upward.
Q: Is the window for initial public stock offerings still open?
A: The bar has moved higher, that's for sure. In almost any sector when there's uncertainty around any fundamentals, which in energy tends to be commodity price, it's harder to get IPOs done, particularly those that look a little riskier. Until there's more of a consensus around commodity prices for the next six to 12 months, you're likely to see an IPO market that's relatively light.
Q: Everyone talks about Goldman Sachs being the best place to work. Why would you want to leave, particularly to create a new shop?
A: I spent almost 20 years at Goldman, and it was fantastic. But at some point you feel you've accomplished what you can at a place like that. They're very much interested in senior partners moving on and doing other things. It was a combination of that and my age, where I'm young enough to have a second career. I feel like I have another run in me. So my choice was, do I hang around Goldman Sachs and not have a second career, or make a break and get on with it.
Tudor, a Rice University graduate who spent 19 years with Goldman in London, New York and Houston, said the current bull market in energy is still looking good, but it has its limits. Tudor, the CEO of Tudor, Pickering & Co., spoke with Chronicle reporter Tom Fowler recently about how rising costs and the recent pushes into alternative energy will affect the industry.
Q: Are spikes in drilling rig rates, engineering costs and other E&P related expenses making it harder to close deals?
A: I wouldn't say it's harder to get things done, but it clearly is impacting the way upstream companies are seeing the world. The economics have escalated to the point where in many, many cases producers need quite a high price deck to make projects they're working on viable. There's a lag time between when prices come down and field operating costs come down. We're in that period right now, and it's making it difficult for producers. A lot of stuff they thought were high return/highly economic just a few months ago now just don't work.
Q: What's been the effect of the influx of hedge funds and nonenergy investors into the business?
A: You have to distinguish between the sectors of the energy industry. There has not been all that much of the new class of capital chasing the upstream. There has been some of it, but it's more about providing cap-ex requirements for startup management teams. You haven't seen big buyouts of upstream energy companies because of hedging markets that are available to upstream producers and because of their overall lower cost of capital.
Q: Is Washington's new-found enthusiasm for biofuels and alternative energy having a real impact on the business?
A: I would say there's a fair amount of skepticism as to whether much of this will have a short-term impact, meaning in the next two or three years. There is a fair amount of money chasing alternative energy, ranging from biodiesel and ethanol to wind and solar. Is that really going to impact the domestic oil and gas industry? Certainly not in the near term. That is fundamentally why most observers say while we are likely have a lot of volatility around commodity prices, we still think the trend remains upward.
Q: Is the window for initial public stock offerings still open?
A: The bar has moved higher, that's for sure. In almost any sector when there's uncertainty around any fundamentals, which in energy tends to be commodity price, it's harder to get IPOs done, particularly those that look a little riskier. Until there's more of a consensus around commodity prices for the next six to 12 months, you're likely to see an IPO market that's relatively light.
Q: Everyone talks about Goldman Sachs being the best place to work. Why would you want to leave, particularly to create a new shop?
A: I spent almost 20 years at Goldman, and it was fantastic. But at some point you feel you've accomplished what you can at a place like that. They're very much interested in senior partners moving on and doing other things. It was a combination of that and my age, where I'm young enough to have a second career. I feel like I have another run in me. So my choice was, do I hang around Goldman Sachs and not have a second career, or make a break and get on with it.
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