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Age demographics do not care about the price of oil. Whether oil is at $100/barrel or at $30/barrel, babies get born, people age and pass away, and when they do, their assets get passed on to their families, dear friends, favorite charities, or alma maters.

This could be the great, untold story of the Great Crew Change – the massive transfer of mineral wealth that is happening each and every day.

However, this article is not about that.

Instead, we’re going to look at how the next generation of mineral wealth might be identified.

The Current Unconventional Wisdom

In the midst of the economic pain that all sectors of the fossil fuel are enduring, virtually all discussion has centered on how a price recovery will be shaped by the massive portfolio of unconventional wells that we have drilled.

But, how will DUCS (drilled, uncompleted wells) moderate price appreciation as independent operators gauge their margins and IRRs and model when and where to complete and bring production into a precariously balanced market?

Who has the available cash, or the access to financing, to engage in targeted acquisitions of seemingly attractive unconventional assets? Given the volatility in prices, how will they be allowed to book their assets, especially if much of their acquired acreage is in that never-never land between proved producing and proved undeveloped. How will banks that continue to finance energy clients set their loan covenants with their borrowers? How has the pace of innovation to best practices been slowed by the downturn in activity—since each well is an experiment that delivers and amplifies the knowledge base of the industry?

And, most importantly, how do you model the price of oil—or at least constrain your price risks—given the huge numbers of independent variables that affect both demand and supply? If it’s that difficult to model, how do corporate risk officers control for the financial risk to their enterprises?

The Conventional Option

Maybe you don’t. Maybe you target your acquisitions toward conventional assets by focusing on economic drivers that require less financial engineering and which are more predictable.

The universe of players is almost infinite in its complexity, ranging from financially responsible large companies to salvage buyers who may be looking for pre-plugging behind pipe potential.View Full Article