Next Steps In Shale M&A

Consider Petrohawk Energy Corp.'s merger with BHP Billiton, a deal that valued the U.S. shale-focused independent for $15 billion. When Floyd Wilson founded Petrohawk in 2003 with investment capital and a traditional conventional focus, it was never in doubt that the experienced build-and-sell guru would eventually flip the start-up. It was just a matter of when. After all, he had performed the same round trip twice before—selling Hugoton Energy Corp. to Chesapeake Energy Corp. for $326 million in 1998, and 3Tec Energy Corp. to Plains Exploration & Production Co. for $403 million in 2003.

But in an era long ago, when the Barnett shale was just an experiment and Haynesville, Fayetteville and Eagle Ford were still known only as communities, Wilson likely didn't dream that he would be selling his nascent company into an evolutionary shift of oil and gas assets.

The fact that Petrohawk's buyer is BHP Billiton, an international major based in Melbourne, Australia, and well known for its mining arm, is not to be taken lightly. Following the rise of shale plays in the U.S. as a world-class hydrocarbon resource, international oil companies (IOCs) now want a chunk of the resource potential housed in the U.S. resource plays, and they'd just as soon buy the expertise to extract it as take a nonoperated position in a joint-venture partnership to learn it.

Enter the second phase of the shale revolution, according to Bernstein Research.

If the first phase is defined as one of emergence and fast growth over the past decade, the next is witnessing consolidation in the maturing earlier plays, and a change of focus from gas to liquids. Even now, these trends are shifting how assets are held or are changing hands.

"It's not enough to go grab the land; you have to eventually farm it and build railroads," says Bob Brackett, Bernstein senior research analyst in New York. "We see a similar transition in stage two. We believe that the pace and quality of new discoveries will slow and that, ultimately, the search is going to look nearer to the oily and gassy hydrocarbon-rich basins that work, and deeper."

Upon initiating coverage of North American E&P companies recently, Brackett released an in-depth study, "Unconventional Manifest Destiny," on the economic extent of existing shale plays and the prospectivity for finding new ones. The Bernstein team evaluated and ranked 84 basins in North America.

"The majority of the resource plays have been found in the early days," suggests Brackett, who joined Bernstein in 2010 and most recently was director of E&P planning for Hess Corp. "Therefore, if you're late to the game or want a bigger share of the resource, you're either going to look to consolidation, or look to the third stage." More on that third stage later.

Consolidation is moving to the forefront as the dominant theme, particularly in the more mature and gassier shale plays. The questions remain: who will own these vast, prized resources in the end, and is ownership in unconventional resource plays a limited window of opportunity?

The waning JV?

The first sign of a shift in the transaction markets might be evident in joint-venture activity. Since Plains Exploration & Production Co. joined with Chesapeake Energy Corp. in the Haynesville shale in 2008, the JV surged ahead as the technique of choice for U.S. independents to fund their drilling programs in capital-intensive shales. Foreign national oil companies (NOCs) were more than eager to latch onto these upsized farm-outs to gain nonoperated access to the large reserves and the opportunity to learn the developing technology and organizational processes to export back home.

While popular for the past three years in low-risk, repeatable resource plays such as the Haynesville, Marcellus, Barnett and the Eagle Ford, the JV wave may now be passing in favor of direct ownership.

"Joint ventures are certainly slowing down," observes Rob Bilger, managing director for energy investment bank Macquarie Tristone in Houston. Many international oil companies have satisfied their desire for exposure to North American shale plays, both from an economic standpoint and from satisfying their desire to learn the technology and to be able to transfer that knowledge abroad.

"They've already learned enough from their U.S. independent partners and are ready to operate on their own. Several of the most prominent NOCs don't want more JVs."

And some of the economics are going to prove to be pretty tough for the foreign investors, he says, especially on early plays that are more dry-gas oriented, which have been economic for the operator, but not so much for the nonoperator.

"Once that reality sinks in, it's going to be harder for them to justify more investments in North America on a promoted basis. If they're going to invest more in North America, they're going to want to do it more on an operated basis without a promote."

Bank of America Merrill Lynch's Randy King thinks the JV structure is a brilliant strategy for independents to take advantage of the economics of drilling on a promoted basis for a period. "Those are strong economics. It gives the operator credit for putting the position together and managing the position while the JV partner gets what they want, which is exposure to long-lived big resource developments."

He sees the trend continuing, with a twist.

"I don't think we've run the string on that yet," he says. "We've had people traveling the world showing deals both in the U.S. and Canada. There is still interest from foreign parties that don't have exposure yet. I think there's more to be done."

But the sizes of the interested parties have changed, he observes. Thus, rather than a slowing of the joint-venture deal flow, King anticipates a downsizing of deal size. Instead of the supersized $1-billion-plus partnerships, most JVs in the next year will likely fall in the range of $500 million to $1 billion. "That will be the sweet spot."

Recent examples: Japan's Mitsui & Co. Ltd. buying into SM Energy Co.'s Eagle Ford position for $750 million, and Korea's Atinum Partners signing on with SandRidge Energy Corp. in the Mississippi Lime for $500 million.

Another reason for slowed JVs is free-flowing capital from readily available public debt and equity markets. This has kept drill bits turning without independents needing to seek as many JVs, Bilger notes. Still, many companies continue to face lease-term issues and are outspending cash flows to hold onto acreage. "Particularly in the Marcellus," he says. "That's the No. 1 area where there is going to be a shortage of capital, rigs and infrastructure to hold acreage by production."

Also, with a hefty 65% premium paid, the Petrohawk deal may have caused some shale flippers to pause. Is it better to forego a diluting JV and instead sell noncore assets for capex and to keep the portfolio pure, as did Petrohawk?

"If you decide at some point you want to sell the company, there's the question of would a buyer want the JV in its current state. If not, how do you unwind one of these JVs?" asks Bilger.

Two NOCs with existing JVs have stated their desire for U.S. operations: India's Reliance Industries Ltd., with JVs in the Marcellus shale with Chevron Corp. and Carrizo Oil & Gas Inc., and in the Eagle Ford shale with Pioneer Natural Resources; and Norway's Statoil ASA, which is partnered with Chesapeake in the Marcellus and Talisman Energy Inc. in the Eagle Ford.

The question is, how will they make the shift—by organic growth or by acquisition?

Major intent

ExxonMobil Corp.'s consumption of XTO Energy Inc. in June 2010 foretold what is becoming a corporate M&A trend, and further sets the stage for consolidation as an advent to the second phase of shales. What's more, the world's premier supermajor continues collecting companies and assets in high-profile U.S. resource plays. Since XTO, where it became a prominent player in the Barnett, Haynesville, Fayetteville, Marcellus and Bakken shales, ExxonMobil has purchased Phillips Resources Inc. and TWP Inc. with 317,000 acres in the Marcellus, Ellora Energy Inc. with 46,000 Haynesville acres, and 157,000 additional Fayetteville shale acres from Petrohawk.

Shell Oil's purchase of East Resources and Chevron Corp.'s takeout of Atlas Energy last year, on a smaller scale and both in the Marcellus shale, show the appetite of international oil companies (IOCs) for shale reserves. Now BHP has joined the shale party in the Fayetteville.

Notably, the majors have set up camp in the once popular but now de-bloomed shale-gas plays, amassing giant positions. As U.S. independents are pulling hard left to restructure portfolios toward oil and gas liquids for the near-term cash flow, IOCs are following up behind, stockpiling gas.

In addition to the majors' stake in the economically favored Marcellus, they now control the vast majority of core acreage in the Fayetteville, Haynesville and, to a lesser extent, the Barnett—all dry-gas reservoirs, with challenged economics at today's spot prices.

Wells Fargo analysts Michael Hall and David Tameron emphasize that this highlights the driving force behind the long-term thinking of the majors. "We believe the move into development is likely to be accompanied by a push toward consolidation. Consolidation of resource plays remains an obvious path toward greater average economies of scale."

BHP made its intent clear with the Petrohawk acquisition. CEO Marius Kloppers, in a conference call, said, "Against a backdrop of heightened awareness on climate change, and with the discovery of new energy resources like shale gas, the world is going to adjust and adapt its energy mix. Restructuring the U.S. shale industry is a logical progression and BHP Billiton is a natural owner of these large, long-life, high-margin assets. We deliver more dependable and stable cash flow through all parts of the cycle, and we can, therefore, fund accelerated investment growth almost regardless of the economic backdrop."

He assured: "This is not a price play on our part. We take a multi-decade view of price."

"We heard a clear message that the acquisition was as much about expanding the company's gas position in the U.S. (and globally) as it was about the advantaged economics of liquids developments," note Hall and Tameron. "While the E&Ps have been undergoing an aggressive round of rebranding over the past year, plus minimizing the importance of gas exposure while touting the impact of liquids growth ramps on the bottom line, it seems their suitors are still interested in the value proposition represented by gas."

Magnum Hunter Resources Corp. chief executive Gary Evans is a first-hand witness to the shift occurring in the shales, having grown his company via acquisitions in three of the most desired shale plays. "The majors and large internationals are coming into them at full swing. Nobody can show that kind of growth in other plays around the world this quickly."

And they are all looking for more. "They haven't even partially quenched their appetite. We're going to see a lot more activity in the next year or two. The transactions you've seen recently are just the very beginning."

Within two years, Evans anticipates, U.S. shale plays will be held 50% by IOCs and NOCs.

Says Brackett: "Future consolidation might be driven more by efficiencies and cost structure than just getting the resource."

People, too, are a motivating factor. BHP first entered the Fayetteville shale with its $4.75-billion asset purchase from Chesapeake, retaining the seller to operate. Then the Sydney-based company followed up by buying Petrohawk's top-notch shale team, which had built and sold its own Fayetteville position to ExxonMobil just months before.

"We may see similar deals by those companies needing to build or expand their operating capability, as much as to add unconventional assets," says Michael Bodino, senior analyst for Global Hunter Securities. "Rigs, good crews and people with expertise are hard to find," he says. "You're looking for groups of people that work the basin and know the models."

Expect majors to continue consolidating independents with shale of scale, says TPH Asset Management energy strategist Dan Pickering. "Oil prices are high, gas prices aren't getting worse, the world is emerging from recession, balance sheets are strong, organic growth is difficult to achieve and access to high-quality assets isn't great. Why wouldn't big players keep buying Petrohawk and its peers?"

Built for shales

Like Petrohawk's Wilson, Magnum Hunter's Evans has started, built and sold an E&P for a tidy return. His last was the first iteration of Magnum Hunter Resources, a company with an onshore/offshore focus, which he sold to Cimarex Resources Co. for $2.3 billion in 2005.

The new Magnum Hunter, born from a company he took over management of in May 2009 and rebranded with his favorite moniker, embraces the concept of the second phase of the shale manifesto: the company focuses on liquids-rich shale plays and is eager to be a consolidator within them, by acquisition or merger.

In just over two years Evans has built positions in three of the nation's premier unconventional resource plays—the Appalachian Basin, including the Marcellus, Utica, Huron and Weir shales; the North Dakota Williston Basin targeting the Bakken, Three Forks-Sanish and Madison formations; and the South Texas Eagle Ford shale oil window. The company's market value has grown from negligible to about $1 billion.

"We realized these were some opportunities that might not be around every day, and we worked hard to build something big and fast," says Evans. "I don't think there's another public company with a $1-billion market cap that can say they're only a liquids-focused, unconventional-resource company and actively drilling all three of them."

Where his old business model was to buy mature assets from majors exiting the U.S., Evans now seeks only resource plays, and only those with liquids. "We aren't doing anything in the conventional," he says. "We're not drilling any vertical wells."

Why all shale all the time? "Unquestionably, there is not another way to generate the kind of returns we're generating in conventional plays. When we run the economics on the conventional, nothing comes close." With a bent for liquids, the Houston-based Magnum Hunter is realizing a 50% return on investment across its entire portfolio.

In a turn of events, today it's the majors knocking on the independents' door, he says. "It's ironic. We were buying from them 15 to 20 years ago. Now they're chasing us this go-round."

The company entered the year producing 2,000 barrels of oil equivalent (BOE) per day, and anticipates exiting the year with 10,000 BOE per day.

In the Marcellus, the company has purposefully steered wide of the Pennsylvania shale rush, avoiding steep lease costs and regulatory and water issues. Instead, the focus is on some 58,000 net acres in West Virginia and Ohio, in which 20,000 acres are prospective for the Utica shale as well.

"The economics are much better in West Virginia and Ohio than they are in Pennsylvania because of the liquids."

The company has drilled and completed five Marcellus wells in Tyler and Wetzel counties, West Virginia, and in Monroe County, Ohio. Lateral lengths have grown from 3,000 to 5,000 feet, with 11 to 13 fracture stimulation stages. Twenty-four-hour initial production rates range from 3.3- to 7.2 million cubic feet of gas per day. Four additional wells were drilling or completing at press time with 18 frac stages, and up to seven more wells are expected by year-end.

"We're trying to go as long horizontally as possible and open up as many stages as possible," he says.

Via an acquisition of financially distressed NGAS Resources, the company now holds an additional 273,000 Appalachian acres in Kentucky and Virginia. Here, with some 484 locations, the company plans 20 wells in 2011 targeting the Huron shale, which produces 1,200-Btu gas, slightly below the Marcellus on economics but rich nonetheless. "We looked at NGAS as a huge option value to future natural gas prices. We're much more bullish on oil than gas, but we're not afraid of gas at this price environment," he says.

Evans was admittedly late to the game in the Bakken, and established a sizeable footprint with an acquisition earlier this year of NuLoch Resources, adding to a small, existing position. NuLoch was geology- and engineering-heavy, and Evans bought the team along with good rock near the U.S.-Canada border in North Dakota and Saskatchewan. "I wouldn't have bought the company without the team," he declares.

Straddling the international border, the acquisition was well north of other industry activity in the Bakken. But Evans wasn't fazed. "What might have been viewed a year ago as being on the outskirts is now being viewed as inside the play."

Currently, Magnum Hunter holds 80,000 net acres in the Williston Basin, with 486 drilling locations targeting the Bakken and Three Forks-Sanish, with further upside to the Madison. To date, the company has drilled 36 wells, with another 18 waiting on completion. It has planned 33 wells this year.

The Eagle Ford, though, is his most prized position. With 18,000 acres of a total 25,000 located in oil-rich Gonzalez County, Texas, Evans declares, "We're in the very heart of the basin." Magnum Hunter's acreage is surrounded by EOG Resources Inc., which he views as the "big gorilla" of the Eagle Ford.

Nine wells have been drilled and completed, with the latest IP rates topping 800 BOE per day on a 24-hour flow rate on 5,000-foot laterals. A new well waiting on completion extends to 6,600 feet horizontally.

Even as the wave of consolidation continues, Evans is not shy about acknowledging that he is building Magnum Hunter to sell. "I'm a big believer in striking while the iron is hot, but I don't think the time is now. We've got to prove up more of our plays." He thinks the company would be more attractive to a major or IOC at a value of about $2- to $3 billion. "Our goal is to get there as soon as possible."

Although, "we might sell a shale play if we get offered enough."

Targets for takeout

Petrohawk won't be the last shaley E&P absorbed by a major. Who is ripe to be consolidated? A better question might be who isn't? Bernstein's Brackett thinks running room in a quality resource is the No. 1 motivator, but companies with a varied portfolio like Petrohawk's have an advantage above single-basin players. "Single-basin players may have valuations too transparent to achieve high premiums, and therefore may be less preferred to companies with mixed portfolios."

Companies that stand a better chance are those that have a crown jewel—a shale everyone wants—plus some "noise," that is, less-understood stakes in other basins. This extra sizzle is what buyers can use to justify paying a premium.

Brackett's top targets for take out: Whiting Petroleum Corp., SM Energy Co., Goodrich Petroleum Corp., Cabot Oil & Gas Corp., Rosetta Resources Inc., Bill Barrett Corp. and Forest Oil Corp.

Private companies, however, will be first targets, he believes, as their lack of transparency allows acquirers to frame the debate as to their valuation.

Subash Chandra, an analyst with Jefferies & Co. Inc., fingers Chesapeake and Brigham Exploration Co. as candidates. "Chesapeake is a multi-basin, dual-commodity company with a massive undercapitalized resource base. Brigham will be in perpetual need for capital as they drill up a large, prolific and economic oil asset."

Others believe Chesapeake's numerous JVs (mostly with foreign entities) will shield the company from a buyout offer.

Following scuttled take-private maneuvers, gas-centric Quicksilver Resources Inc. and Exco Resources Inc. each now has a price on its head following fairness opinions, and each has sizeable shale resources in quality basins. Quicksilver is entrenched in the Barnett and Muskwa shales; Exco operates large holdings in the Haynesville and Marcellus. Each already has an international partner: Total of France and BG Group of Britain, respectively, that might desire U.S. shale operations.

Tudor, Pickering, Holt & Co. analysts point out that Petrohawk's stock discount in relation to its peers at the point of purchase was because it did not have enough cash vs. asset size, and they see Chesapeake, EOG, Range Resources Inc. and SandRidge as "falling into the same bucket."

Proficient operating companies top Global Hunter's Bodino's list. These include: Range, Continental Resources Inc., Brigham, South- western Energy Co., Cabot, Concho Resources Inc., Plains, Ultra Petroleum Corp. and Exco.

Second movers

Not all consolidators will be majors, however. Private-income-oriented funds and master limited partnerships (MLPs), targeting long-lived assets for investor returns, are likely buyers as shale plays mature.

"An evolution is occurring as these plays mature," says Merrill Lynch's King. "Those types of entities can start to be aggregators."

Once the rush and cost to hold the acreage by production has passed, the ability to manage the capital program in a repeatable play opens the door to such companies. "They've gained a comfort with the risk and predictability," King says. "More developed assets are going to move into the hands of the more production-oriented companies."

Take EnerVest Ltd. in Houston, which recently made a $960-million acquisition of Barnett shale assets. The privately held, institutional-investor company hasn't been known as a shale player heretofore, but according to president and chief executive John Walker, that's because the company is not a first mover in the shale plays.

Following its Barnett deal and a million-acre Ohio position fortuitously overriding the emerging Utica shale, the company finds itself suddenly in the conversation.

"Second movers like ourselves are buying into the play either because it's mature like the Barnett, or we had good luck, as we did in Ohio."

The maturing of older shale plays has provided an entry point for more conservative E&Ps such as EnerVest. EnerVest raises capital from institutional investors, such as the recently closed Fund XXII of more than $2 billion, and redeploys that into asset portfolios ideally targeted at 50% proved developed producing reserves, and 50% upside. It works in tandem with its publicly traded subsidiary MLP, EV Energy Partners LP, which tends to absorb the higher-PDP properties (80% plus) from the EnerVest portfolio.

"Our objective is not to be the biggest independent, but to deliver the best return."

While Walker does not balk at the risk of development drilling in horizontal plays, he does not want the risk of exploration in an unproven shale play.

"We can't afford to waste money. For every Haynesville and Barnett and Marcellus that we can name, there are another three shale plays that have been tried where literally hundreds of millions of dollars have been wasted."

The Barnett shale acquisition is a perfect example of a mature shale play by Walker's definition. "The Barnett is a place we feel like is mature. It's been de-risked. Once that well is drilled it is just another well."

EnerVest acquired more than 20,000 gross acres and 1.1 trillion cubic feet of gas equivalent proved from Dallas' privately held Talon Oil & Gas LLC in October 2010. The acreage is in western Tarrant and eastern Parker counties, in what Walker classifies as the Core and Tier One of the natural gas liquids (NGL) window of the Barnett. "The wells we are drilling now have over 50% rates of return," he says. "Roughly 30% of our cash flow is in NGLs."

The Barnett properties feature 300 drilling locations on 250-acre spacing. Another 100 to 200 existing wells with older completion techniques will be refractured as well. "In a new well, our expectation is getting 2 billion cubic feet (Bcf) of estimated ultimate recovery. In a refrac, we're hoping to pick up another incremental 1 Bcf."

With capex just shy of $100 million in the play, EnerVest expects to drill 47 Barnett wells by year-end 2011 at $2 million apiece. Drilling time has dropped as low as nine to 10 days by drilling as many as 12 wells from a single pad.

"The Barnett shale is a world-class reservoir, and we've got a long way ahead of us." The company is not yet done amassing Barnett gems, and plans bolt-on acquisitions in its new core region. "But a bolt-on might be $500 million to build concentration," he says.

Likewise, the Woodford and Fayetteville shales are at similar stages of development as the Barnett, making them prime acquisition targets for second movers, he says. Walker points to the decision by Range Resources to sell its legacy Barnett shale position to Legend Oil & Gas Ltd., another $1-billion deal. Range wanted to deploy the capital into its developing Marcellus shale position, and Legend was seeking long-lived reserves.

Are other plays going to be like the Barnett was for Range? Walker asks. Will Newfield Exploration Co., operating in the Woodford, for example, decide the play is not as exciting as it once was and sell, too? Both plays are ripe for EnerVest to enter, he confirms.

In Ohio, EnerVest is the largest gas producer with more than 8,000 wells targeting the Clinton formation. It just so happens that much of that acreage is prospective for the Utica shale, an emerging and as-yet unproven play. The company holds some 300,000 net acres in a 50-50 JV with Oklahoma City-based Chesapeake, and another 400,000 acres separately, all deemed by Walker to be in the heart of the play.

The Utica is a lookalike shale to the Eagle Ford, with three distinct zones consisting of oil, condensate and dry gas. "It's more liquids rich than the Marcellus," says Walker.

And as a self-confessed second mover, Ener-Vest is letting Chesapeake—a first mover with a desire to be the biggest player in the premier shale plays—do the drilling. And with little risk: Chesapeake is picking up EnerVest's tab on some of its drilling for a carry that should last the first two years. With all of its acreage held by production, EnerVest is not currently drilling Utica wells on its wholly owned acreage.

The companies have focused on the Point Pleasant formation of the Utica, an organically rich trend in the oil and NGL window. "Most of our position is in the NGL window," he says. Results from early wells are pending but weren't available at press time. Are they meeting expectations? "We haven't drilled all windows yet, but where we've drilled we haven't been disappointed."

With some 1.3 million acres in the play, Chesapeake is currently looking for a joint-venture partner, a habitual act; EnerVest will likely do the same on its acreage in one or two years.

Emerging running room?

If successful, the Utica may be one of the last large-scale shale plays, according to Bernstein's research. Brackett says, "We did a lot of work trying to find the next resource play. We found that 75% to 80% of the opportunity set has already been found."

Source rock is the reason. For an unconventional resource play to be successful, a world-class source rock is key. In all cases examined of the top 200 oil and gas fields in the U.S., the Bernstein study showed that successful unconventional resource plays were always preceded by conventional production. In other words, the conventional production is an arrow pointing down to a viable source rock, and lack of conventional production in a region suggests no quality source rock exists below.

"Whether it's oil or gas, we've already found the resource plays associated with three-quarters of the largest fields. The evidence is that the ones associated with giant fields have already been picked off. We've found the elephants. The search has to take place in the last 20% to 25%," he says.

Yet even with the advent of the second phase, the shale revolution is not petering out just yet. The best future unconventional plays will occur near and below already well-known hydrocarbon producing areas, according to the report, such as the Permian, Gulf Coast and Rockies.

"Winners in this stage will be the companies with the best positions in these plays and the organizational ability to fund and drive development," according to the manifesto. The take: an additional 10 Bcf per day of gas growth and an incremental million barrels of liquids remain undiscovered.

The hunt has now shifted from gas to oil, due to the economic differential in the commodity prices. Mirroring Bernstein's forecast, operators are taking technology honed in the shales to previously exploited, conventional formations in known fields.

"The market is looking at some of the existing formations differently by trying to do things with our drilling technology that we've developed in the shales," Walker says.

Even within the parameters of the Bernstein study, Global Hunter's Bodino sees vast room to run. "There are still opportunities for big shale positions in the U.S." He clicks off the Rockies, Appalachia and the Permian basins as regions with numerous unconventional reservoirs unevaluated or being tested.

"The unknown plays are intriguing to us," he says. "What happens long term with the Heath, Utica, Brown Dense and Tuscaloosa Marine shales? It's going to take data points before large amounts of capital are committed in those basins."

Phase three

Rest assured, the second phase of the shale revolution will keep the industry active for another 10 years; more if gas prices improve. But at the end of that period, while drilling programs will be executing and growth modest with a long plateau, shale acreage will have been captured, predicts Brackett. "We will be in a stage where the flurry of activity we've seen will have settled down to a more stable level."

Enter phase three. Brackett anticipates growth-oriented companies will need to look cross-border by next decade, and focus on a variety of international opportunities post unconventionals: deepwater exploration, liquid natural gas, oil sands, extra heavy oil, enhanced oil recovery, and pre-salt and frontier basins.

"The future is about owning a mix of those things. It's not a single theme. We're not just going to take everything we know about shale gas and export it, because other countries have so many conventional opportunities that make much more money than a shale-gas opportunity. Looking out 10 years, if we have to go international, it won't be just for shales."

And even though the post-unconventional world remains five to 10 years out, "winners will already be starting to position themselves for this stage," he says.