Between Fossil Fools and Peak-Oil Prophets

Written By Brian Hicks

Posted May 17, 2007

There’s a fine line between fools and prophets. Talisman Energy CEO Jim Buckee treads it boldly, and his recent Peak Oil proclamation is certain to ruffle some feathers.

"I think it’s fair to say the era of cheap energy is over," Buckee told his company’s annual conference last week. And he should know.

From his office in Calgary, Alberta, Dr. Buckee (who holds a Ph.D. in astrophysics from Oxford) oversees his company’s operations on five continents.

From Vietnam to Scotland to Trinidad and back home to Canada, he’s got a bird’s eye view of the international oil industry. Though his calls might not always be popular, the market has rewarded Talisman (NYSE:TLM) for Buckee’s big ones.

(image) Chart

He got into war-torn Sudan for its half-billion barrels of oil, then pulled out in 2002 before the Darfur genocide and subsequent political firestorm led Fidelity Investments to sell 91% of its stake in PetroChina just this Wednesday.

Sitting just south of the world’s most bountiful new hope for fossil fuels–the Canadian oil sands–Buckee has opted to cash in his company’s property rather than invest hundreds of billions in the local extraction methods he sees as questionable technology.

Yet his company is a member of the Jantzi Social Index, a group of listed Canadian companies picked for their social and environmental merits.

The reason why will surprise you: Talisman is doing what should be impossible, mixing oil and water to wrest new life from dying fields.

Talisman has deepwater drilling operations in Norwegian and Scottish sections of the North Sea, where the head of the UK Offshore Operators Association has a somber outlook. "This basin is a mature oil province," Malcolm Webb, chief executive of the UKOOA told a gathering in London this February. "It has higher costs and needs a lot more investment to keep it going. My concerns are that costs are continuing to escalate at an alarming rate . . ."

North Sea EIA map

The UK and Norway, the primary beneficiaries of North Sea oil, say unequivocally that regional oil is in decline, at a rate of around 11% per year since 1998.

That realization comes just a few decades after significant oil and natural gas reserves were first discovered in the region, in the 1970s. So Buckee is in a good position to extrapolate the North Sea production peak to his company’s other operating regions.

But he doesn’t despair. Instead, Talisman has become the vanguard in what I call the Transitional Energy Economy, a movement to turn the corner from Peak Oil doom-and-gloom towards a more efficient and profitable energy horizon.

You see, last spring I ventured to Scotland, spurred on by articles in the British press that highlighted the Highlands and Lowlands alike for that country’s green energy potential.

No coverage Stateside meant I would get there ahead of my countrymen, which I always love to do.

My favorite part of my time in Scotland was my visit to Talisman’s Beatrice Wind Farm Demonstrator project, on the northeastern coast across the Firth of Forth from the capital Edinburgh.

Beatrice is a two-turbine demonstrator project meant as a keystone in what could be a 200-unit wind farm unlike any the world has ever seen.

What is the Beatrice project going to do with all that blistering North Sea wind it harnesses?

It will power an aging oil rig, then thousands of Scottish homes.

Oil, water, and wind mix.

"Scale is all when you move offshore." That’s what Allan MacAskill, supervisor of this pacesetting project, told me when I visited his giant factory. You see, in the past, wind farms in the ocean have been poorly anchored. In shallow waters just off the coast, sands shift, support structures move, and giant rotating turbines add another dimension of potential instability.

This new project is specially engineered for long-term rigidity in deep water, even down to the corrosion-resistant paint and coating. Eminent Norwegian engineer Gunnar Foss, the project’s lead designer, could not tell me the competitive specifics of his plans, but the gauge of steel being used is also highly advanced, with a thickness of only one fourth of traditional rigs, which drastically reduces construction and installation time as well as material cost.

Of course, this keeps Talisman’s bottom line from corroding as well, as economies of scale are established with growth.

Since it’s a publicly-traded company with an enterprise value in the tens of billions, Talisman can float big ideas like this in a way small start-ups could never realistically plan.

As Dr. Buckee continued his talk at Talisman’s conference last week, he evinced exactly the sort of justified optimism I have grown to expect:

Asked what the worldwide reality of Peak Oil would mean for Talisman shareholders, he quipped that it would be "constructive . . . it means the price of oil goes up."

And that, my friends, is how you run a company.




Sam Hopkins

To learn more about the Transitional Energy Economy, sign up for your FREE Orbus Intel e-letter by clicking here .

Angel Publishing Investor Club Discord - Chat Now

Brian Hicks Premium