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U.S. Seen Exporting Shale Technology to the World

Seeds from the North American shale gas revolution have been carried around the globe and planted, and it's only a matter of time before many countries have their own where natural gas is concerned, longtime energy industry executive Chuck Watson told a Houston audience Thursday.

He predicted "discoveries all over the globe" during the next five years.

"There has been an enormous technological change that has swept our industry, and it has been absolutely a game-changer," Watson, one of the founders of the natural gas market, said at Bentek Energy LLC's Benposium. "I believe this technology is going to permeate the rest of the globe, and it's going to have a dramatic impact on global trade, global gas, global energy..."

Citing data from Goldman Sachs, Watson, currently chairman of Twin Eagle Resource Management, said there are 330 known exploration and production "investable" projects around the world, but only 74 of them are in North America.

"We don't have a lock on new drilling and new opportunities. I see this as very much a global expansion, and I think it's going to have dramatic impacts around the globe." Watson led the original Natural Gas Clearinghouse which started up in the mid-1980s to handle gas sales in the newly deregulated market.

In the meantime back home, capital markets have been on a tear. "In my career I've never seen anything like this," Watson said. Following a lull, there was a bit of a resurgence last year, but then during the first half of this year things have really taken off.

Leveraged loan markets, investment-grade bonds, high-yield bonds and equity capital markets have all taken off, surpassing all of last year's activity in just the first six months of this year, Watson said. "May was a record-setting month, both in the number of issuances and offerings and the dollar volume." In May alone the United States saw 24 executed initial public offerings, the most since November 2007.

"Capital markets are rich with both entries and exits," Watson said. "Equity markets are dominated by private equity exiting, and debt markets are dominated by refinancings and revolver paydowns." Watson said he doesn't expect a let-up for the next six months and maybe throughout next year.

An investor "yield frenzy," driven by low yields on treasuries, can be credited for all the deal-making, he said. However, one has to ask whether the capital activity is growing businesses. Hopefully, companies focused on paying down debt are planning to redeploy capital to growth opportunities in the third and fourth quarter, Watson said. "Lots of activity in the capital market dedicated to only paying down debt ain't so good."

Watson also noted that $16 billion of foreign money has entered the U.S. E&P sector over the last 18 months, but the United States isn't foreign capital's only target. "Foreign capital is going around the globe, and technology is being transferred around the globe, our technology, our people are being transferred."

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