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It can be dangerous to play "follow the money" when it comes to commodities investing--watching where big investors put their dollars, and then attempting to go along with the trend.
Sometimes such investments by big funds or private equity groups turn out to be little more than shots in the dark. Or even worse, top-of-the-market bets on hot sectors, which collapse when the industry turns.
But one recent trend in private equity buying in the energy space seems very different. Namely, a move toward mature acreage in shallow-water offshore plays globally.
This week we got another big example. When energy investment superpower Riverstone Holdings announced it is going to a new spot: Europe's North Sea.
Riverstone said it is part of a conglomerate committing $525 million to a new E&P venture called Origo Exploration. A start-up run by veteran North Sea explorers, that will now pursue acreage in both Norway and the U.K.
Particularly interesting is the type of plays that Origo is looking at. With the company's stated aim being to grab projects in the shallow-water continental shelf of the North Sea.
That follows on similar deals in places like the Gulf of Mexico. Where Riverstone has invested up to $4 billion pursuing acquisitions on the continental shelf.
The reason may be ease of working. With such shallow-water locales perhaps being the easiest places to apply new technology like advanced seismic, directional drilling, and fracking in the offshore. All of which are starting to look like they can unlock substantial new production and reserves from mature basins such as the GOM and the North Sea.
Riverstone isn't alone in making such bets. This week's investment in the North Sea also includes big names like Barclays Natural Resource Investments ($200 million), and Singapore sovereign wealth fund Temasek ($125 million).
It could be just hot money chasing one of the few oil plays on Earth that isn't over-crowded. But it just might be the quiet beginnings of a trend that's going to revolutionize the business.
Here's to going where others aren't,
Dave is Managing Geologist of the Pierce Points Daily E-Letter.