Maybe it's the gloomy Seattle weather that has made investment manager Jim Hansen and his son and partner, Kevin, at Ravenna Capital Management immune to oil and gas industry hype about the supposed U.S. shale gas "revolution." More likely it is thorough research focused on making their clients money and keeping that money out of harm's way.
The Hansens are patient contrarian investors whose time horizon is generally several years. They can't help you if you want advice on next week's or next month's natural gas price. In fact, they're not sure anyone can reliably help you with that. So they focus on much longer-term trends, and they think they've spotted one in the U.S. natural gas market.
About a year ago when domestic natural gas prices hit levels reminiscent of the 1990s, they began to move their clients into natural gas related investments. Amid the media hype about cheap natural gas for decades, they saw a different reality.
They believed that high production decline rates in shale gas wells--which now provide about 40 percent of U.S. production--were combining with rapid reductions in the drilling of new wells in a way that would eventually cause falling production and sharply rising prices. They weren't exactly clear on the timing. But, with their patient strategy, they just needed to sit and wait for what they felt was the inevitable.
"We are long-term investors and include investments that allow us to get paid to wait," Jim Hansen said, referring to securities that generate regular payouts to holders.
A year after their call, they have seemingly been vindicated as natural gas rose from a low of $1.82 per thousand cubic feet in April 2012 to over $4 currently. Prices might dip again, Jim Hansen added, but for long-term investors the trend still looks good.
What clues led the Hansens to their contrarian views? Kevin explained in one phrase: Look at what the industry does, not what it says.