Energy & Entrepreneurs #74                                                                               

Oil and Entrepreneurship

by Raymond J. Keating

The market works. Specifically, when prices and profits rise, the signal goes out to the supply side of the marketplace to step up production, entrepreneurship and innovation.

And that's exactly what's going on in the energy industry.

On Monday, September 15, The Wall Street Journal ran an article by reporter Isabel Ordonez illustrating this phenomenon. The article - titled "Into the Wild" - mainly focused on experienced managers in the oil and gas industry who are now striking out in entrepreneurial ventures.

The story captured the entrepreneurial impulse quite well.

For example, one individual talks about being treated well at the firm he worked for, but that he considered himself an entrepreneur. Others, according to the story, wanted to shift from managing people and processes to getting back to finding oil, "back to where the action is," returning to their passion. There also is the opportunity to strike it rich in terms of being an owner.

But the article also provided interesting and important data/trends:

"Driving the trend: investment from private-equity firms and hedge funds. With energy prices high, investors are eager to back energy start-ups, especially those with the know-how to retrieve hard-to-get oil and natural gas from fields in the U.S. and Canada. Consider this: The money flowing from specialty energy investors into oil and gas companies surged 93% to $12.7 billion in 2007 from a year earlier, according to the Cosco Private Capital Energy Index, which tracks 25 capital providers in the U.S. and Canada. Private-equity firms closed 331 deals in the energy industry last year, 28% more than in 2006 and 113% more than in 2005, according to the index."

Again, the market works. And here are the stories and numbers illustrating the point.

Our policymakers in Washington would do well to take note. The answers to our energy needs do not lie in more government intervention, interference and subsidies. Instead, policymaking should be focused on removing governmental barriers to investment, innovation and entrepreneurship in the marketplace.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.