A personality test, somewhat unexpectedly, determined Manuj Nikhanj’s choice of a career in energy research. After graduating from the University of Calgary with a degree in commerce, he interviewed at a trading firm, where a test showed he was better suited to research. His resume was forwarded to Ross Smith Energy Group, where he has worked for the past decade. It was acquired by ITG Investment Research in mid-2011.

Nikhanj joined as the recently launched firm was defining its business strategy. Today he is managing director and head of energy research, specializing in research and analysis of unconventional-resource plays and the companies involved. He and Jim Jarrell, a petroleum engineer, co-manage day-to-day operations.

The business model Calgary-based Ross Smith adopted provides research and analysis of the upstream industry to institutional and corporate clients, relying upon the same tools and staff used by energy companies. Today the firm has 35 to 40 employees—engineers and other technical experts, financial analysts, economists, and more.

“Essentially, we mimic the business development or A&D departments of a large oil and gas company,” Nikhanj says. The firm doesn’t get involved in banking, leaving its research free of bias. “We say it as we see it.” About 10% of its clients are E&Ps; some 75% of its clients overall are U.S. institutional investors.

Nikhanj, who holds CFA and FRM charters, devotes his free time to family—his second child is on the way—and to sports. In a recent interview, he discussed U.S. and Canadian unconventional plays and the outlook for oil and gas markets.

Investor What are you focused on lately?

Nikhanj I love the research side of the business, so I still spend a fair amount of time writing. We do a lot of technical and economic analysis of the various plays in North America. In terms of play-specific work, we’re spending time on the Marcellus and Utica shales, the Tuscaloosa, the Brown Dense, and Permian Basin plays like the horizontal Wolfcamp, among others.

Perspective is key. It’s not just about how one asset or play is doing in isolation, however—it’s about how they are doing relative to one another. With all of the significant discoveries over the last several years, the competitiveness of the industry is only increasing and how you stack up will ultimately determine how successful you will be.

We also spend a lot of time answering clients’ questions. Our clients play a big part in idea generation.

Investor Your outlook for natural gas for 2012?

Nikhanj The year 2012 will be tough for gas. Even if the rig count peels back, there’s tightness on the completions side—just a massive backlog of uncompleted wells built up over the past 18 months or so. It will take some time to chew through the inventory. In the Marcellus, about 1,300 wells are waiting on completion, so that’s about 4 to 5 Bcf of instantaneous production. In the Haynesville, about 500 wells are waiting, and in the Eagle Ford, about 600. Only 16-or 17 billion cubic feet (Bcf) a day of incremental production is needed to replace annual declines, so that backlog creates a problem. Additionally, operators are getting faster at drilling wells. On a good note, the cost structure of industry, based on plays that attract capital, is coming down. People can make money in the lower gas-price environment, but you still need north of $4 gas, even in some of the best plays.

Investor Will we have enough gas for LNG export?

Nikhanj We’ve discovered a massive amount of resource over the past several years—enough to supply markets for a long, long time.

But it’s not so much the resource as it is the cost of doing business. At different price points, the resource numbers change. But just looking at the best areas in the Marcellus, assuming that 60% or 7.2 million acres of the 12 million total core acres works, with 72,000 locations, times the average well estimated ultimate recovery of more than 4 Bcf, the result is 288 trillion cubic feet (Tcf) of resource—a big, big number.

Obviously, it’s a dynamic market, and what we know today can change dramatically tomorrow. But, based on the North American plays we know of right now, just in the core areas, shale gas has 475 Tcf of potential. That’s 25 years of supply.

Investor What’s drawing attention in Canada?

Nikhanj Industry is very focused on the Duvernay shale in Alberta. It has similar minerology to the Eagle Ford and is one of the most prolific source rocks in the Western Canadian Sedimentary Basin. There will be a lot of testing of it in 2012.

Investor Will oil prices hold up?

Nikhanj Our chief economist expects WTI to stay around $90. Given the current disconnect between oil and gas prices, there is no question as to where operators should be focusing capital. According to our analysis, “oily” plays in North America have a weighted average break-even of $53 per barrel versus $100 per barrel WTI on a 20:1 equivalence basis for gas. We have identified a dozen North American oil plays that could yield 40- to 50 billion barrels of unrisked recoverable resources at sub-$70 WTI.