TULSA, Okla. – If Tom Petrie peers into a crystal ball in his home in Colorado, he likely sees clouds. Not dark clouds, necessarily, just enough to mask conventional wisdom.

“One thing I’ve learned over 40 years is that the future usually turns out differently than the emerging consensus at any one time,” the chairman of Petrie Partners told an attentive crowd on Monday at Hart Energy’s DUG Midcontinent conference in Tulsa, Okla. “And I think that’s likely to prove the case today.”

The former vice chairman of both Bank of America Corp. (NYSE: BAC) and Merrill Lynch is no pessimist. He has overseen more than $200 billion in energy merger and acquisition deals in his career and possesses a keen understanding of the relationship of the industry to global geopolitics. At the moment, he sees a wealth of potential in the North American unconventional oil and gas bounty, but he tempered his rosy outlook with a list of risks and challenges that he believes the industry must recognize and confront.

“The pursuit of those shales and the power of that pursuit has become something of enormous proportions and strategic significance for the U.S.,” Petrie said. He noted three major trends that led to today’s boom in unconventional exploration and production:

  • Oil price supercycle: “The industry’s pricing prospects are very event-driven and many of those events are very geopolitical in nature. And that’s something we should not lose track of because it’s where the surprises could very well come.” Influential events in the past four decades include the Iran-Iraq war, Iranian revolution, OPEC quotas, Iraq’s invasion of Kuwait, OPEC production cutbacks, the 9/11 terror attacks, “peak oil” fears, “fiscal cliff” concerns and the Syrian civil war.
  • Three M&A consolidation waves: The first was in the first half of the ’80s; another occurred in the late ’90s with the creation of oil supermajors; and the third and most important in 2001-2005 resulted in a major consolidation of publicly traded independent companies. This last consolidation freed up a lot of intellectual capital that went back to work for private-equity and played a major role in the rapid pursuit of shale opportunities.
  • Evolution of technology: “The power of that notion that the old model was giving way to a new one.” M. King Hubbert built his projections of peak oil on the old model, one that involved multiple risks of generating hydrocarbons, having them migrate in a timely way, be captured in highly productive reservoirs and have a good seal. Multiplying out each of those factors creates an industry formula for wildcat success of one chance in eight.

The result: “Unlocking hydrocarbons from tight shales and doing it economically, making sure the energy in is meaningfully above the energy out, and doing it with the now-evolved state of technology where we can drill deep, go horizontal, stay in zone and achieve an unlocking of those hydrocarbons with ever-more-effective fracing designs, well seals and so on – it is, in fact, incredibly transformational.”

Petrie compiled his life’s worth of insights into a recently published book, Following Oil: Four Decades of Cycle-Testing Experiences and What They Foretell about U.S. Energy Independence (University of Oklahoma Press). He paints a picture of today’s industry with these main elements:

- Powerful production increases.

- Land rush is over for this phase of the cycle.

- Efficiencies in stimulation.

- High-grading projects are the new priority.

- Avoidance of pitfalls still matters.

- Tremendous potential.

Petrie cited research in The Future of Natural Gas, published by the MIT Energy Initiative in 2011, for his argument in favor of U.S. natural gas exports. One of the study’s co-chairs was Ernest Moniz, now the U.S. Secretary of Energy.

“This is a critical pressure release valve,” he said. “If one just poses the alternative of not allowing gas exports, which is clearly off the table at this point, one would realize that, in the absence of this pressure relief valve, we’d be snuffing out one of the great economic opportunities of this century, or the first half of this century.”

The MIT study reinforces a favorite theme of Petrie’s: The interaction of seemingly disparate events and how they influence the course of actions.

“If you look at this forecast that was done in 2010, there was a big component forecast by MIT for Haynesville,” he said. “We’re falling well short of that. What’s happened is the Marcellus, coming on in the way it has and with its potential to actually exceed the productivity of the state of Qatar later in this decade, squeezing down productivity and the prospectivity, at least for a while, for both the Haynesville and the Fayetteville. And it’s that kind of interaction – that dependent interaction, if you will – that I think is going to characterize some of the other plays as we go forward. It’s worth keeping an eye on that.”

Petrie warned of a number of risks that demand attention by the industry. Fugitive methane is a major one. He also focused on opposition from environmental entities opposed to hydraulic fracturing.

“We really need to take the anti-fracing initiatives in Colorado and elsewhere quite seriously,” he said. “The fact is, if they gain momentum as in the past we could begin to change the supply prospects later in this decade and certainly in the decades beyond.”

And that’s a future that Petrie does not want to see.