After 41 onshore domestic deals involving $112 billion in transaction value during the last five years, Ralph Eads , vice chairman for Jefferies & Co ., finally took a breather in early September to share his perspective on why he thinks the energy industry is in the midst of a once-in-a-generation transformation.
“We sit today at the confluence of two of the most important economic tsunamis of the last century,” Eads told attendees at Hart Energy ’s recent A&D Strategies and Opportunities Conference in Dallas.
“One of those is the world is seeing the developed economies print money on a scale that is unprecedented in world economic history. What that means, especially as Europe and U.S. deal with massive amounts of leverage, is that they are printing money and that is providing financial investors a huge amount of liquidity on a scale that is really hard to understand.”
The result, according to Eads, is that foreign investors in particular want to trade dollars for hard assets.
“Oil and gas is at the top of the list of hard assets you want to own and that is explained by the huge capital flows we’ve seen — and are likely to see going forward.”
Eads should know. Jefferies has been the advisor on 11 of the 15 largest U.S. onshore transactions since 2008. The company introduced several foreign firms into the North American energy market, including CNOOC Ltd , Korea National Oil Co , Sasol Ltd . and Gas Authority of India Ltd ., among others.
Jefferies has also been involved in several private-equity-backed transactions, including the November 2011 $7.2 billion leveraged buyout between Kohlberg Kravis Roberts & Co (KKR) and Tulsa’s Samson Investment Co . But the investment banking firm also claims to have pioneered the joint venture transaction model that transformed unconventional shale development in North America after 2008.
Eads told the story of talking to the chairman of a Chinese national oil company who explained that China had $3 trillion in U.S. treasuries and planned to put 20% of that into North American resource assets.
“That is $600 billion,” Eads recalls. He compared it to one-and-a-half Exxons in value. Eads said he did a quick mental calculation and told the Chinese executive: “For one percent, I’m your man.”
The other tsunami economically, according to Eads, is the discovery of the unconventional shales in North America, which, because of the