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January 12, 2012 
Sutherland LTIle

Squire Sanders attorney Aaron Ball filled us in on what's nagging senior oil and gas execs. (Hint: The fate of The Situation on Jersey Shore barely registers.) Aaron feels they're likely pondering global demand and how it will explode as developing countries reach for economic prosperity.
We recently snapped Aaron in his office, perched near the top of the Chase Tower downtown. He says for non-national oil company execs, there are three major challenges: cost, the availability of skilled personnel, and access to resources to replace reserves. Global geopolitical forces are creating a highly volatile, rapidly fluctuating crude oil and gas market. He says the organic reserve replacement leader is Shell (164%) followed by BP (115%) and Hess (113%). (None of whom seem to understand the basic tenets of fractions.) Shareholders are pressuring companies for a return on investments that's commensurate with other long-term strategies.
Sutherland Mini
Oil demand growth is led by Asia, Latin America, and the Middle East. Price increases will impact these areas as well as former Soviet Union countries and Africa. These areas represent 80% of projected demand growth. Long-term, these countries will drive a larger share of demand in the global economy. China, for example, has surpassed the US in number of automobiles and India is expanding its vehicle production. Aaron says China has changed the way the global game is played. While most companies focus on returns, Chinese companies place an emphasis on securing resources allowing them to accept losses or less favorable concession terms in order to secure future supply.
Somebody dropped a contact lens. Aaron says profits remain near record levels for “Big Oil” and the big independents are growing larger. In E&P, income is up for both production income and cash on cash returns (cash flow from production divided by cash costs to add reserves). Integrated oil financial expectations and valuations are higher than they've been in a decade, and BP, ConocoPhillips, Chevron, Occidental Petroleum, and Hess continue to hold strong investment potential. ConocoPhillips' equity has led its peers over the past few years and appears to ready to perform at even higher levels in 2012.

Saratoga Resources CEO Thomas Cook takes a question from a reporter on the floor of the NYSE yesterday. The company’s senior management team was in The Big Apple to ring the bell. The company, which has offices in Houston and Covington, La., was listed in July of last year (NYSE: SARA). It saw its market cap increase from less than $35M just over a year ago to more than $190M at year-end 2011. Thomas says he's excited about its deep and ultra-deep prospects in the Gulf of Mexico.
Thomas, joined by members of the Saratoga management team, opening yesterday’s trading session. The company’s principal holdings cover 33,625 gross acres located in the transitional coastline and protected in-bay environment on parish and state leases of South Louisiana. The company is in negotiations with a major operator in its ultra-deep GOM play to form a JV to explore its prospects.

The demand for talent is so intense in the oil and gas sector that it needs to look at retraining people from heavy industries NES Global Talent managing director Simon Coton told us yesterday. Within three to six months, the increase in E&P activity and budget reviews will lead strong demand for engineers, particularly those with a subsea, design and process background. Simon predicts a surge in oil and gas jobs in Norway, West Africa, Australia, and Asia. He says salaries are on the rise, especially in Australia.
Bisnow is going to observe Martin Luther King Jr. Day on Monday. We'll be back Tuesday-Friday next week. E-mail story ideas and photos to greg.miller@bisnow.com. And Go Texans!
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