American Oil and Gas Reporter - April 2015 - 117

SpecialReport: Offshore Tech Trends
limited to multiphase pumps with an
output power capacity of three mw. This
analysis indicates that high-power subsea
multiphase pumps have the potential to
improve the Paleogene economics. Specifically, a six-mw multiphase pump can
provide a flexible, robust and reliable
solution for deepwater Paleogene fields
where a balance between total recoverables
and maximum ROI can be achieved over
a field's life.
r

FIGURE 4
Three-Well Scenario ROI Results
700%
600%
500%
400%
300%
200%
100%
0%
6 mw MPP

3 mw MPP

2 x 3 mw MPP

High PI (3 bbl/d/psi)

ESP

ESP + 3 mw
SPP

Low PI (1.5 bbl/d/psi)

Editor's Note: The preceding article
was adapted from OTC 25215, a technical
paper prepared for presentation at the
2014 Offshore Technology Conference,
held May 5-8 in Houston.

'Divestment Campaigns' Are Ineffective
WASHINGTON-As opponents of oil
and gas development continue to attack
the industry by waging symbolic campaigns aimed at forcing colleges and universities to divest their endowments of
fossil-fuel related stocks, research commissioned by the Independent Petroleum
Association of America suggests the costs
associated with adopting such policies
are likely to be enormous, resulting in
the displacement of billions from school
endowments that otherwise could be used
to improve services, enhance academic
programs, and provide support to students
from disadvantaged backgrounds.
Led by professor Daniel R. Fischel,
president of economic consulting firm
Compass Lexecon and a professor emeritus of law and business at the University
of Chicago Law School, IPAA says the
study team tracked the performance of
two investment portfolios over 50 years:
one that included energy-related stocks
and another that did not.
Based on those models, IPAA says
Fischel and his team found optimal portfolios that included energy stocks generated average, absolute returns 0.7 percentage points greater than portfolios that
excluded them, meaning the "divested"
portfolio lost roughly 70 basis points relative to the optimal scenario for each
year in which the portfolios were active.
Applying that figure to the roughly
$456 billion that constitutes total U.S.
university endowment assets, IPAA calculates the collective impact of divestment
on school endowment and investment

funds has the potential to approach $3.2
billion a year. "And that is before accounting for the hundreds of millions of
dollars in additional management fees
that schools will be required to pay in
order to comply with divestment policies,"
the association observes.

Study Findings
Among the results of the study, which
is available at www.divestmentfacts.com,
a new campaign microsite launched by
IPAA:
* The "optimal" study portfolio experienced an average annualized excess
return from 1965 to 2014 of 6.5 percent,
while the similarly-calculated return for
the nonenergy stock index was only 5.8
percent. This indicates a gross reduction
in return of 0.7 percent a year as a result
of divestment. A 0.7 percent decrease in
portfolio performance impact on the estimated $456 billion in university endowment assets would decrease annual
growth by more than $3.2 billion.
* As of Dec. 31, 2014, $100 invested
in the optimal risk-adjusted portfolio in
1965 would have grown to $14,600,
whereas $100 invested in the divested
portfolio would have grown to only
$11,200, indicating a loss of 23 percent
as a result of divestment.
* The National Association of College
and University Business Officers reports
that university endowments hold $23 billion in energy-related assets. If all those
were divested, the benchmark would indicate a total cost for processing and ex-

ecution of $40.2 million. In addition, if
divestiture generated a 0.35 percent price
impact for stock sales and a 1.0 percent
impact for stock purchases, this additional
price impact would add $308.0 million
in transaction costs.
* An increase in compliance costs of
1.0 percent on the estimated $23 billion
of those endowments invested in energy
stocks would decrease annual growth by
an additional $230.0 million.
* Of the 10 (industry) sectors, the
energy sector has the lowest correlation,
and therefore the largest potential diversification benefits, relative to the other
nine sectors. Moreover, the sector with
the second lowest correlation with other
sectors is utilities, another sector that includes many likely fossil fuel divestment
targets.
"Every bit of economic evidence available demonstrates that divesting fossilfuel investments is a bad idea," says professor Fischel. "The costs of divestment
are clearly substantial and stand to have
real financial impacts on the returns generated by endowment funds."
Adds IPAA President and Chief Executive Officer Barry Russell, "It turns
out those who argue that divestment is a
harmless, symbolic act, with no ability
to impact either a company's stock price
or a school's endowment performance,
were only half right. In fact, this study
confirms that the costs associated with
divestment are real and enormous, all
while having no discernable effect on
the companies actually being targeted.Ì
APRIL 2015 117



American Oil and Gas Reporter - April 2015

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