Charles T. Maxwell is Weeden & Co.'s senior energy analyst, focused on the biggest international companies and macro industry trends. Although nearing 80, the day we spoke he was nursing a charley horse he got playing tennis, still one of his greatest passions—aside from the oil industry, which he has covered since 1968.

Educated at Princeton University in politics and Arabic, he became intrigued by geology while working at the geology library as an undergrad. Next, he was a Marshall Scholar at Oxford, specializing in Middle East languages, literature and history. Upon his return to the U.S. in 1957, his love of the Middle East and geology naturally led him to accept an offer from Mobil Oil Corp., where he worked for 11 years in the U.S., Europe, the Middle East and Africa.

In 1968, he joined C.J. Lawrence as an oil analyst and was ranked by Institutional Investor as No.1 in his field in 1972, 1974, 1977 and from 1981-1986. In addition, since 1984 he has been an active member of an Oxford-based organization comprised of OPEC and oil industry executives from 30 countries. They meet twice a year to discuss macro energy trends.

Maxwell retired in 1997, but in 1999 he was lured back, joining Weeden in Greenwich, Connecticut. He also serves as a director at Chesapeake Energy Corp. and American DG Energy.

Investor What surprises you these days?

Maxwell I'm surprised when the government analyzes a problem, comes up with a solution and solves it. We have to make that happen a lot more often.

Investor What major changes have you seen since you've been following this industry?

Maxwell Three come to mind. First and foremost the political pressures have changed. Oil has always been political, but the means of production has steadily and gradually been taken over by the national oil companies. They now control 80% of the world's reserves, making for an entirely different industry dynamic. Second is the growing time lag between when a company decides on a project and first production. It's taking anywhere from five to eight years when it used to be two or three. This makes it difficult to analyze oil prices and volumes, and figure out when these things are going to produce.

Third, there are now questions about vertical integration. Tight integration was always the rule, but now it's not. In many cases the companies have had part of their production nationalized.

Investor What do you think about ConocoPhillips and Marathon changing their model?

Maxwell My guess is it isn't as important as it might have been a few years ago. Political realities make it so. Investors are getting used to it and managements are smarter. We'll find the industry continues to do well, so I'm not too concerned. It will be difficult for downstreamers to secure enough crude and make more than an average return, which in America is, I think, about a 12% return on capital.

Investor What about the peak oil issue?

Maxwell That issue has really come into the business. You have only to look at the Chinese, who've been buying up reserves all over the world and paying what some say are high prices. It reflects their world view, that this must be done now, before it's too late.

Investor What's the best advice you ever got?

Maxwell How to tie my shoes so they stay tied all day, whether I am playing tennis, running or at the office.

Seriously, a gentleman told me we've seen 150 years of rising oil production and Mother Nature has been generous. But it cannot last forever. There has to be a beginning, a middle and an end. That was Colin Campbell. I know this is controversial, but we keep getting more data points all the time. Oil-production growth is slowing. It began in the 1980s and is now down to about 2% a year as it continues to fall. We've seen the peak happen in the North Sea and Russia. Ten non-OPEC countries have peaked and one OPEC country, Indonesia, has. Next in OPEC will be Algeria and Libya, in about five years. I think the world peak should be sometime between 2015 and 2020 because of social, military, economic and political reasons, not necessarily all geology. Meanwhile, demand will increase. I can foresee $180 oil by then.

The challenge is, how do we deal with an end to oil production growth? It will have to be fuel substitution, more efficiency, or we'll have to do without. Can we continue to grow the number of cars and trucks, our road system, our human mobility? Our factories? Can we make a better world for our children?

Investor But what about the Bakken and other revived oil plays?

Maxwell Every barrel we get is a blessing. Maybe the Bakken will get up to a million barrels a day. There are enough reserves in America to allow us to come back up a bit, but we'll never get back to the peak production we had in 1970.

Investor You are a big fan of the oil sands in Canada.

Maxwell My top picks are Suncor and Cenovus. It is not just a question of producing more oil, but they will be able to spread their costs among many more barrels. Traditional oil producers are going to struggle with costs over the next 10 or 20 years but the oil sands will have an advantage. And, you get a very high amount of reserves per $100 of capitalization. For investors, it has to be a question of growth.

—Leslie Haines

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