Ziff Energy Group Now In Its 30th Year

September 2012, Vol. 239 No. 9

Jeff Share, Editor

Now marking its 30th year in business, Ziff Energy Group has earned a worldwide reputation for stellar consulting services that focus on groundbreaking operational benchmarking studies of onshore and offshore oil and natural gas fields along with long term natural gas supply, demand, and price forecasts for North America.

The company, with offices in Calgary and Houston, provides analyses of business operations, expert consulting and expert witness services to energy leaders in North American and to 41 other countries. Ziff Energy Group also hosts a number of high-level energy conferences where the latest energy trends are always on the agenda.

While there are no sectors of the industry that Ziff Energy Group does not cover, in recent years it has become especially well-known for its long-term forecasts for the gas industry, benchmarking reports, and oil and gas production consulting. From assessing comparative oil and gas benchmarks among offshore production companies in various countries, the company has built the largest database of operating costs in the world that it says can quickly be filtered down to extract ‘equivalent’ production fields for almost instant comparisons.

The goal, according to founder Paul Ziff, is to assist clients in practical initiatives for cost reduction, production enhancement, and best practices. He is an honors graduate of Harvard University, and attended the Université de Paris (Sorbonne) and the Institut d’Études Politiques.

In this interview with P&GJ, Paul Ziff, whose intense, high-energy level belies his wry sense of humor, talks about his company, the industry he has served for the past three decades, and some of the major changes he was witnessed.

P&GJ: How would you compare the oil and gas industry from when you started to what it is today, both onshore and offshore, in North America and oil vs. natural gas?
Ziff:
First, the industry is deregulated today across North America, and onshore the majors have a smaller footprint. On the gas side, shale and tight gas are the dominant sources vs. conventional plays in ’82. For oil, deepwater and the Bakken dominate in the U.S., and oil sands have emerged in Canada as a supply source of ‘politically friendly’ oil and as a large market for natural gas.

P&GJ: What differences do you perceive in how different countries or regions view the energy industry?
Ziff:
Onshore worldwide there is a fresh conviction that horizontal drilling and multi-stage frac technology can revolutionize supply. Unfortunately, the viewpoints of countries can be quite volatile, influenced by the last disaster. However, countries that are short of energy do appreciate the critical role energy plays in their economy, and hope that technology will allow them to become less dependent on imports.

P&GJ: What are the biggest changes that you’ve witnessed since you began your consultancy?
Ziff:
Gas deregulation has changed the players a number of times, especially in marketing, and also in the upstream. Oil and gas prices have pulled apart from the traditional valuation (the heat value is 6:1, however, typical price ratios used to be 8 or 12:1).

P&GJ: What prompted you to start your company and how has it evolved through the years to follow a constantly changing industry?
Ziff:
After several short careers in banking, government and investment, I realized that I would do best in an entrepreneurial platform that allowed for frequent changes in focus, and an opportunity to deal with various industry leaders, which I find the most challenging and rewarding.

P&GJ: What industry developments have surprised you the most that were perhaps unexpected?
Ziff:
The rise and fall of the gas mega-marketers; and the missile-like growth of shale gas in recent years.

P&GJ: When did you first suspect that shale gas would become such an important factor and has it exceeded its expectations? How can the market continue to exist with prices so low?
Ziff:
Several years ago it became clear that the lessons of the Barnett Shale could be applied to other shales – then the race was on! Today’s gas markets can’t continue at such low prices. Today, partial cycle economics are setting the price, and the price is too low for most shale plays, especially with liquids prices now under pressure. However, the weak U.S. economy is postponing the gas price recovery, which will come with more power generation from gas.

P&GJ: Looking forward the next five to 10 years, what do you expect the North American energy landscape to look like? Will there be fewer or more majors, NOCs, and who will be the key players? Will alternatives find a viable market?
Ziff:
There are two types of supply – highly unconventional and onshore. By highly unconventional I mean deepwater and oil sands mining – these types of oil require investments usually in the billions to play. By contrast, the shale phenomenon was kicked off by start-ups such as
Southwestern and Petrohawk that literally raised billions on a concept. Start-ups are also found in in-situ oil sands development.

Alternative energies like solar and wind should be viable; however, they face the constraints of unreliability and storage of energy. Improved storage will help, but doesn’t overcome calm days or overcast skies.

P&GJ: What challenges – environmental and others – stand in the way of natural gas becoming the preferred fuel of the 21st century, for at least the first half of the century?
Ziff:
Natural gas today sells at fire sale prices – imagine going into a grocery store and finding all the food reduced to half price. On the one hand, gas is fairly abundant; on the other hand, North America has only weak environmental policy. If there were a price on carbon, the superiority of natural gas would be more apparent in the marketplace.

P&GJ: Do you see natural gas becoming traded as a global commodity similar to crude?
Ziff:
Gas is becoming more global; however, there are, and will remain, anomalies largely due to the expense of liquefying, shipping natural gas, and regasifying. The cost of many billions to establish an LNG supply chain imposes much more financial discipline than that found where natural gas markets are deregulated.

P&GJ: What do you think the future holds for LNG?
Ziff:
LNG is becoming less exotic, due to the large price differential between some domestic gas markets and the prized Asian markets. However it’s a capital-intensive market dominated by really large players – the super majors, a few national oil companies, and the odd special-built exception like BG.

It’s like oil sands mining – not readily accessible to independents, with considerable risk between the resource and the market. The key is mitigating this risk, for instance, through user-customers as joint venturers/partners.

P&GJ: How competitive is the consulting business and what has made Ziff Energy Group unique in this field?
Ziff:
Consulting competition comes from three areas: from the mega-consultants, who often have great client access; from peer firms; and price competition from solo practitioners. It’s necessary to have a niche and build a brand, and then be very client-focused, and always vigilant. One cannot rest on past laurels.

P&GJ: What is your definition of energy independence? Is this more theoretical than realistic in today’s global economy?
Ziff:
Energy independence means having multiple sources of energy so that an economy is not beholden to any one source. Diversity is a critical factor. For the U.S., the Holy Grail would be reducing costly oil imports, either through reducing gasoline demand, and/or through increasing domestic supply.

Energy independence could also apply to the Alberta oil sands industry, which currently has only one market – North America. Although energy is critical to any economy, the track record of continuity for enlightened energy policy has been fairly dismal, particularly in the U.S. Energy is usually a junior portfolio despite its key geopolitical role.

P&GJ: What would you consider as the most important technological advances since you began following the industry?
Ziff:
Deepwater drilling and production is truly amazing, significant changes progress every several years, and the field offers tremendous potential worldwide, including many marine countries that we don’t usually think of, e.g. Israel, and countries on the east coast of Africa.

Especially striking is the overall strong environmental and safety record, compared to say, the aviation industry. This is not to excuse several incidents; however, their occurrence is remarkably rare, considering the huge scope of operations.

P&GJ: Do you think the industry is too tightly regulated today, and where do you believe regulation is most needed?
Ziff:
We live in a global world with instant democracy of news coverage. We’ve seen even the largest companies such as the super majors have regrettable accidents with both environmental impact and loss of life. The bar of social review is ever being raised, and that’s just a fact of life. Most disasters have led to considerable learning for all companies in the industry – no one can be complacent.

P&GJ: Was the Deepwater Horizon the wakeup call the industry needed to improve its safety for offshore projects? What’s your view of the future of Arctic development?
Ziff:
Every decade or two there is a new disaster that moves the industry ahead for environment and personal safety. I do have concerns for Arctic development, due to the pristine condition of the environment and the much greater challenges of cleaning up a spill. This is a valid area for regulators to help guide the industry, to meet the requirements of strong societal concern.

P&GJ: Being in close proximity to the oil sands, is the environmental impact worth the development of projects such as Keystone XL?
Ziff:
There is a considerable amount of naiveté about energy and hypocrisy among the general public and legislators. For instance, there are many tens of thousands of miles of oil and gas pipelines in many jurisdictions across North America – the new pipelines typically are the safest.

The environmental impacts of energy use cannot be escaped – there are high GHG emissions from coal, there is waste from nuclear plants, and there are spills from shipping oil by either tanker of pipeline. It is hypocritical for critics to drive solo in low-efficiency cars and at the same time stifle new projects which are necessary to deliver the fuels they need.

At the same time, there is the moral issue of the use of energy windfalls by petro-despots. A more holistic energy strategy approach is needed; however, often ideology reigns supreme, and dooms sound policy.

P&GJ: Looking at the pipeline grid of North America, where do you see the potential for the most significant construction prospects?
Ziff:
Wherever supply is expanding, pipelines are critical to move the new energy to market. So that means the oil sands first and foremost, for at least the next decade. Further out, there may be new offshore frontier developments.

P&GJ: From your perspective, what changes would you like to see in the energy industry? Do you think more diversity would help?
Ziff:
The industry works within a societal context, and must meet expectations. However, the energy literacy of the populace is extremely low. It’s not an easy task; the energy industry doesn’t really have any option but to help educate the public today along with legislators and the school kids who are the public of tomorrow, regarding the role of energy and the types of energy.

We have seen some good initiatives, e.g. the recent drive to use natural gas in vehicles in the U.S.; however, the initiatives have often been very issue-specific and intermittent. A much stronger effort is necessary to enable more informed and better quality discussions about energy options and choices.

P&GJ: Are there any changes coming in the next year at Ziff Energy Group that we should be aware of?
Ziff:
We continue to grapple with the main issues of our clients. Our upstream operations analysis spreads across 42 countries, and we are seeking to further expand and deepen this. On the gas side, the entire industry is grappling with the effects of the very low prices, which we address in our White Paper series “Natural Gas Under Siege’ (available free at Ziff Energy’s website, www.ziffenergy.com).

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