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Monday, March 2, 2015

Shale Revolution Did Not Pay Investors Well

"In short the shale revolution has not produced the types of returns that one would expect. In fact, returns have been marginal for most of the “best” companies. This would seem a curious irony. And yet, perhaps it is not so curious after all. Interesting dynamics are occurring in the energy markets and old paradigms are being challenged. Given the markets role as a leading indicator, the trend that is emerging appears to be that investors see more potential in clean energy companies within the entire energy sector than the tried and true oil and gas vehicles of old. Solar stocks in some cases have outperformed their oil and gas counterparts by multiples. And all during the “shale revolution”. During this same time, investment banks have made extraordinary statements to their most sophisticated clients about hydrocarbons becoming “extinct” within the next decade, a notion which was virtually unthinkable less than five years ago. And in another almost unbelievable example the automobile manufacturer, BMW, has announced that they will no longer make an internal combustion engine by 2022. That is only 7 years away. But all of this is another story.