With Peter Gaw, President of CIT Energy

Elliott: Welcome to Five Minute Capital, CIT’s executive insight series which takes on financial issues in five minutes or less. Today we’ll be talking about capital trends in the oil and gas industries with Peter Gaw, President of CIT Energy. Thanks for joining me.

Peter: Thank you, Elliott.

Elliott: And congratulations on your new position.

Peter: I appreciate that.

Elliott: Give us your sense of the big picture on the oil and gas markets right now.

Peter: Well, I think we’re at an unprecedented period in the oil and gas business. It’s very much a boom cycle right now. If you look at where the price of oil is a barrel, it’s one hundred dollars a barrel approximately, as we speak. If you look back ten years ago - ten years ago almost to the day - the price of oil was ten dollars a barrel. So you can see the significant run up and what that’s created is a huge investment opportunity in this space and it’s created a real opportunity with CIT Energy’s client base.

Elliott: You say it’s a boom time. We know it’s cyclical, the business, it could bust. Does that concern you that it goes back and forth like that?

Peter: Always concerns me. I’ve been doing this for 25 years in this business and anyone who thinks the price of oil or the price of energy is going to stay up is usually proven wrong on a consistent basis. So as we look at where we’re investing and where we’re supporting our clients in the middle market we’re very careful to sensitize how they are impacted on both a recession or a decrease in oil prices, so we look at the market place right now it’s a pretty resilient market place as we see in the oil and gas business. But it can change very quickly.

Elliott: Where are you encouraging the search for new energy exploration?

Peter: Well, it’s really our clients that determine where they are going to search and we provide support and financial solutions for them as they go out. It’s a global business. It's clearly a global business. Most of our clients and most of the opportunities that we’re seeing are really in old basins, basins that were abandoned by the major oil companies and now the smaller mid-cap players, the real entrepreneurial clients in this business; they’re the ones that are now developing, exploring, and drilling for the new oil supply.

Elliott: Commodity prices are robust. We’ve hit some records lately, particularly with oil. How does that impact the market?

Peter: Well it has two impacts on the market. Obviously, if you’re in the energy space, the time is great - great opportunity to invest. A lot of companies have enormous cash flows and very strong financial condition, but the flip side of that is that energy is pervasive in the economy, it’s a critical component in our economy and many industries now face rising energy costs and that’s caused inflationary pressure on our overall economy. You know, if you look at the economy right now, its really a tale of two cities You’ve got the city of New York which is going through a more challenging period with the financial markets and you have a city like Houston, which is booming in the oil business. So the two impact each other.

Elliott: Peter, I think people would be interested in the latest technology regarding oil and gas. Is there some?

Peter: Well, I think one of the misnomers in the oil and gas business is it’s an old economy business. At CIT Energy we like to say we support our clients from the drill bit to the light switch. Some of the most dramatic technological developments have occurred in the energy business. From new technology on horizontal drilling - where they drill deep into the core of the earth and go horizontally to reservoirs - have really revolutionized the search for oil and gas. At the same time you have things like alternative energy development, photovoltaic, smart homes, advanced metering, all these applications of technology are deep in the energy industry. Elliott: So the term old technology referring to oil and gas. You reject that?

Peter: I absolutely reject it. I think as you see now, maybe our teenagers aren’t applying the same technology in the oil and gas business, but I can tell you oil and gas players are.

Elliott: Given the history of these industries, and the current economy, what’s your best long-term plan?

Peter: Well, I always hesitate to forecast cause I am usually proven wrong, but I think if you look at the oil and gas businesses right now it is a very challenging time to figure out a negative scenario. We have robust energy prices with very little pressure downward on prices. I think that’s why we see these consistent run ups. At one time, 20 years ago, you’d see a dramatic dampening in demand for energy if the US went into a recession. You are not seeing that as much and I think that’s a factor of we’re much more of a service-oriented economy than we are a manufacturing economy. Economies like China and India drive this business for demand so much more and the emerging markets in general than the US does. It’s a pretty positive picture for the next twelve months in the energy space and I think we are going to continue to see these higher energy prices.

Elliott: Okay. Peter Gaw, CIT Energy President. Thank you so much for joining me.

Peter: Thank you Elliott.

Elliott: And thank you for listening to Five Minute Capital. Please log on to podcasts.cit.com for more. I’m Elliott Forrest. This has been a production of CIT. CIT – Capital Redefined.