Viewed as energy goods instead of substitutes for credit assets or currency, Glass warned that fossil fuels remain in a risky state of oversupply. Shale production, still too new for reliable projections, threatens to create a glut of natural gas. Oil leaned on a shaky crutch provided by notoriously precarious agreements among the Organization of Petroleum Exporting Countries to turn off output of four million barrels per day.
Glass wrote, “Until such time as there is an indication of sustained U.S. recovery that would affect crude demand – and until decreased drilling brings about a production decline in natural gas – the current price increases may be setting us up for false hope. This also occurred in June 2008 when speculation, rather than a sustainable supply-demand equation, drove prices.”

A genuine recovery, with markets tightened up by growing consumption and reduced surpluses, could come in 2010, Glass added. His caution was echoed by the fine print in a headline-grabbing summer monetary policy report by the Bank of Canada. It lit fires under stock exchanges by proclaiming a “nascent” recovery, sired by government spending and signs that consumers were regaining enough confidence to open their wallets again. Lost in the excitement was fine print in the central bank’s report: “However, the higher Canadian dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the overall pace of overall growth.”

Within days of Glass publishing his warning, oil slid by about 30 per cent most of the way back towards $50 a barrel. Natural gas went into a tailspin that prompted Calgary investment houses FirstEnergy Capital Corp., Peters & Co. and Raymond James Ltd. to raise possibilities of widespread production shut-ins on top of the drilling slump.

The trademark wariness of AJM’s price reviews grows naturally out of its bread and butter. The firm competes in a tough league – notably with industry household names Sproule Associates and GLJ Petroleum Consultants – as a specialist in evaluating, auditing and reviewing oil and gas reserves for corporate performance reports, mergers, asset transactions and regulatory cases. The work requires intimate knowledge of mineral rights, production, geological and engineering records as raw material for accurate portraits of companies and the industry. “We are, in theory, the guidepost for the financial world,” Ashton says.

Like law and accounting firms, oil and gas consulting services are pure expertise – and the stronger, older and purer, the better. “All the customers have a concern,” Ashton reports. “Are you going to be around next year? They want consistency and capability.”

A consulting house has to be big enough both to tackle intricate technical reviews of substantial production companies and work simultaneously for many of them, Mann says. “You do not want one account to dominate your sales. You want to be independent and be seen that way by financial and energy regulators.”

Oil and gas consulting houses abstain from owning shares in energy companies and build large rosters of loyal customers. “As a rule of thumb, no one corporate client should be more than 20 per cent of your business,” Mann says.

Like the rest of the oil and gas industry, consulting houses long for stability that would simplify planning and let firms align their payrolls, equipment, costs and takeovers or asset acquisitions with predictable revenues, Mann says. Glass suggests the global market should head for $100 oil as a sustainable sweet spot, saying 2008 showed that to be a price point where consumers keep on buying the stuff and producers earn enough to develop adequate supplies.

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