“Intellectual Capital”

Title: “Intellectual Capital”
Author: Don Greenwood
Publication: The Outcrop, April 2011, p. 18

In the book “The Way the World Works” by Jude Wanniski, published in 1978 by Regnery, he compares “intellectual capital” to “monetary capital.” Mr. Wanniski was a long time Wall Street Journal editorialist. In this book he coined the term “supply-side economics” and illustrated the “Laffer Curve” for those familiar with that concept. Messrs. Wanniski and Laffer had considerable influence on President Ronald Reagan. Wanniski asserts that the wealth of nations is related to their investment in intellectual capital more than their investment in monetary capital.

We are all very familiar with drilling wells for a profit from monetary capital. How many of us are familiar with 1) wells drilled for intellectual capital only and/or 2) dry holes that result in intellectual capital? Both scenarios can result in considerable intellectual capital that in turn can be used to generate enormous monetary capital. Have you ever heard of the “strat test”? So, when you are looking at a map with someone and they say “Ghseeesh, how did they justify drilling that deep, expensive turkey dry hole” you can say “I don’t know but it sure did make a lot of intellectual capital.”

One thought is that all intellectual capital is created in the petroleum industry by accident. All investments are made for monetary capital. While that is ultimately true, some investments create advantage by first creating intellectual capital without a clear objective of the amount of monetary capital that will occur. Vertical evaluation wells that are drilled ahead of Haynesville horizontal development, Lewis “data wells” drilled every ninth development well, and 3D seismic acquired over stacked, tight gas sands that lead an independent to the best earnings-per-share in its class, are examples. Recommend a well in a potential play for its return on intellectual capital and see what happens.

Good night Ripley and Lamina wherever you are.