WEBVTT
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What does the future hold for the oil and gas industry?
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Perhaps no one really knows.
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But if anyone does, it's probably Dan Pickering, founder and chief investment officer of Pickering Energy Partners.
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In this episode, Dan D'Arty, host of Core Conversations and editor-in-chief of Oil and Gas Investor Magazine, talks to Dan Pickering and gets his take on everything from deals.
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So our company is going to be spending a lot of money now.
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I think the industry would still love to grow.
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The challenge to that is twofold.
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One, the market doesn't need a bunch of U.S.
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production growth.
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And two, the asset base is less resilient than it was.
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I don't think we have the inventory that we did.
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To tech, why not just continue pushing the tech to get to you know 20%, 25% out of sale instead of um taking the risk, the exposure of going abroad?
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20, 20% recoveries?
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Maybe.
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But is it going to be 20% recoveries in the next five years?
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Probably not.
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The power for AI data centers.
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Maybe is this a bundle conup?
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Absolutely.
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Welcome to the Core Conversations Podcast, brought to you by Heart Energy, your source of actionable intelligence for the oil and gas industry.
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We invite you to sit back and listen or lean forward and take notes.
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Either way, we hope you enjoy the conversation.
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And now, here's Dion.
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So thank you for joining us.
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We are super excited to have you and your perspectives, as always, the inevitable Dan Pickering.
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Let's talk about spending money for this growth to meet this new demand that's emerging or has emerged.
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Yeah, Capital Is One has been the name of the game for the last 10 years or so.
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And I want to come back to that point and whether or not it's resonated.
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But so our companies going to be spending a lot of money now.
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Is A and D going to pick up?
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Yeah.
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So I'll I'll say on the capital discipline front that it really COVID sort of broke the back of the industry in terms of spending.
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And that was when I think capital discipline really got ingrained.
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But that's COVID's now five years ago.
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So I think the industry has proven that it now gets the concept of growth for the sake of growth doesn't work.
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It doesn't help the macro.
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It doesn't help stock prices or equity valuations or shareholders.
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And so I think we've moved away from that.
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So I think capital discipline is very ingrained.
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I think the industry would still love to grow.
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The challenge to that is twofold.
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One, the market doesn't need a bunch of U.S.
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production growth.
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And two, the asset base is less resilient than it was.
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I don't think we have the inventory that we did five years ago or 10 years ago.
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And so growth has to be very carefully balanced against, you know, how do we replace it in terms of inventory?
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So my expectation for capital spending is let's watch the 2027 oil strip.
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Um that price was in the mid-60s when the war broke out.
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It got as high as maybe 76 at the peak of the uncertainty around the conflict, and it's now sitting at about 74.
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That's a decent number, but it's not, it is not screaming, go accelerate your cap your year spending.
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Um, you know, you put that number in the 80s, and the math, you know, that's a market signal that I think folks pay attention to.
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But until absent that, absent some kind of compelling price signal, I think that we, you know, I think we see more of the same, which is, you know, somewhere between 50 and 75% of cash goes back to to free cash goes back to shareholders.
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You know, companies build build cash on the balance sheet.
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Um and I I think that makes sense.
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I think that's very prudent because notwithstanding I'm pretty bullish.
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My expectation is next year and the year after will be quite good years, but why be speculative about it?
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I I can investors, investors can be bullish, change their mind, and be gone really quickly.
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You know, you put in motion increasing your rig count or spending increases by 20 or 30 percent or something like that, and all of a sudden that's a six-month ramp up and a six-month ramp down.
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And what if you're wrong?
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You need a market signal, and I don't think the market signal is compelling enough yet.
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So, but what about concerns?
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Uh, you know, on the earnings calls uh for the EMPs, yeah, you could count on hearing two things capital discipline and inventory.
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Yep.
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So how do you reconcile this need for continued capital discipline, but the concern about running out of inventory?
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Yeah, so I think capital discipline keeps you from accelerating growth, which keeps you from accelerating your inventory burn.
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So that all sort of ties together.
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The how do you how do you build longer term?
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I think what it points to is you know the companies are adding inventory via consolidation.
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So you're saying, you know, the publics by the privates, you're seeing the publics by each other.
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Um that that is solving the problem for some.
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Uh for others, I mean, you now have, right, Devon is a is a more balanced oil and gas company after doing the Katara deal.
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You're seeing single basin companies turn into dual basin or triple basin companies because you know doing what you've been doing in a very concentrated area is getting a lot harder.
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I think that's just the you look at productivity per foot of new wells, if you look at just remaining tier one or tier two locations left, it just says we can't keep doing exactly what we're doing.
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So the playbook, I think, is changing gradually, but it's changing.
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And you're seeing more interest in folks going to Canada.
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Um, you know, deep water lease sale was well attended.
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Folks are investigating quietly things like Argentina.
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Um, you know, the North Sea's even got a little bit of a renaissance.
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So, you know, I've had a view for a couple of years that the next, you know, if if the last decade was the single basin shale company, the next decade is going to be re-diversification.
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And so I think we will see more of that, Dion, including, you know, maybe even exploration sneaking into the mix as well.
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And the companies have the money to do that, whether loudly or quietly, they've got money to spend on new things.
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And I think they're going to spend some money on new things.
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And that will help inventory over time.
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Not in 27, but 2030.
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And the big gaps come in the 2030s.
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So I think guys have the companies have you know a few years here to start really thinking hard about that diversification.
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And that's so interesting.
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It's I actually um just watching with uh, you know, before Katara and Devon got together, uh, you know, Kinridge was talking about the the single single single base and focus versus being um splintered.
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Um what you say just totally aligns.
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That makes a lot of sense to me.
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Um I want to know though how so I guess it was two years ago, uh, talking with Case Van Hoff and Midland at one of the conferences about going abroad, you know, looking for for inventory internationally.
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And um the sentiment was that, you know, it can scare your shareholders.
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Yep.
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So has that is that still the case?
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If companies, you know, EOG, Continental, Coneco are looking at investing abroad, uh, what does that say to their shareholders who are, you know, as you've noted many times, the the market is still kind of iffy toward energy.
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Yeah, so that's the that's the balance.
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Um the balance is shareholders, and and you can look, you know, the the companies with a more diversified asset base.
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Uh, you know, Murphy was a a good performer this year from the stock perspective.
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Apache's been a good performer.
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Oxy, Coneko.
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Um, I I think the answer is there's a uh a challenge, right?
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The perception is, well, if you have to go do those things, then what you're telling me you already own isn't as good as you've said, right?
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There's this there's this perception that um that it's a downtick in your existing asset base.
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And um, and so I think some companies are waiting for investors to get more comfortable with call it a globalization, if you will.
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Um, you know, EOG is doing this uh shale stuff in the Middle East.
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So, you know, that's laying groundwork, right?
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Uh okay, gosh, if EOG is doing it, then can I do it?
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Uh from uh it's it's helping educate the market about opportunity sets.
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You know, uh there was a recent contract signing in Iraq, right, with with uh Exxon and Conaco, I think I can't remember who exactly was, but you know, this whole there there are opportunities out there that are competitive with and additive to, you know, just growing in shale.
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So the more concentrated you are, the more you've talked up your existing asset base, the harder it is to change that.
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And and so I think some of those companies, and and you mentioned Diamondback, Diamondback's a bit of a an outlier in that their inventory is pretty deep.
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You know, you look at them and say, I don't know that they need to do anything else for a while.
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Uh, but I'll bet you a dollar right now that 15 years from now, Diamondback is not simply a Midland basin or a Permian Basin company.
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Because even as deep as that inventory is, you're gonna have to do something to offset it.
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And who knows, maybe maybe we'll have EOR and maybe we'll have more zones, and maybe you can just keep on going.
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Uh, but I would say in aggregate, that doesn't feel like it's the case, it's it's the situation.
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Okay.
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So when we're talking about, you know, and just with the technology and and doing more with what you have, you know, it wasn't that long ago that uh we weren't getting anything out of the out of the ground as far as Shell goes.
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And now uh we're leaving 90%.
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I'm I believe that's the the percentage you were taking economically.
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Um but you know, again, at one point, none of it was economic.
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So what why not just continue pushing the tech to get to you know 20, 25 out of shell instead of um taking the risk, the exposure of going abroad?
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Yeah, so I think timing's the element to that, right?
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So there is no doubt that people are pushing, you know, surfactants and um different kinds of frack techniques and whatnot.
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And so if you look at the productivity per foot or EURs per acre or however you wanted to look at it, um, we are absolutely getting more than we were.
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And that's the history of the oil business since Colonel Drake, you know.
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Um so I think we will continue to do that.
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Uh 20, 20% recoveries, maybe.
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But is it going to be 20% recoveries in the next five years?
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Probably not.
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And the issue is with decline curves, what they are, you know, uh a company that's counting on technology enhancements to offset the decline curves they've got.
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That seems pretty doubtful.
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So, you know, great.
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If 20% recoveries happen over the next 20 years, there's a lot of value left in the ground.
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And the companies attacking them could be half the size by the time that starts to happen.
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So, you know, you've got to balance.
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And that's why bigger companies, you know, if you look at the production out in the Permian now, you've got, you know, Exxon, Chevron, Congo, Diamondback, Devin, you've got big companies with some staying power that can afford to invest in technologies.
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You know, they've got enough inventory to do tests on new technology spacing, all that sort of stuff, test new zones, and not shrink a ton while they're doing it.
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So I I think that that if you own an acre in the Permian Basin and you're counting on getting more oil out of it over time, absolutely.
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Um, but there's timing effects that I think are very relevant the bigger you get.
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And um, and so I don't think you can just sit back and wait for higher retombics.
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Okay, okay.
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And you know, some of these technologies, uh I'm sure there's far more going on than I could ever dream up.
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But EOR, we've been talking about that for a long time.
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Um not quite there yet.
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Um, do you is it realistic, Dan?
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Uh so never count out the ingenuity of the oil patch.
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Uh, what I can tell you is today, you look at a a new drill project versus doing EOR, an existing project, and you know, the required pricing, you can do new projects at 50, tier one, and you know, you need 75 or 85 or something on a sustained basis to feel like EOR as it sits today with where the technology is today.
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And so the answer is you just don't do it, right?
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You spend the money on the neutral wealth because you can, and you keep trying to get the cost down.
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So I think it's a function of oil price and sustained oil price in the view of longer-term oil prices.
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And so, no doubt in my mind that at some point in time, you know, we'll be doing more EOR, and that EOR will be better, but we're probably not going to do it in a world where you think the mean price of crude 70 or 75.
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You're going to need a higher price expectation or some more time to get slump.
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When we return, Dan will offer his glimpse of the future.
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I think we'll see more consolidation.
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I want to kind of bounce back over to the idea of more consolidation.
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I think um if you look at today's publics, uh, I think all of them would tell you that they don't need to sell the business to be successful.
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And I think the best the best way to be attractive to a buyer is to do things that make your company better.
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And I think you know, you're seeing you're seeing the publics try to do that, whether it's with costs or with acreage or um the swaps they're doing or the types of wealth centrilling.
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So um why is consolidation happening?
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Consolidation's happening because I do think there are benefits to size.
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And that's in the field, costs, et cetera.
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There's there's probably also disbenefits to size.
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The bigger you get, the more meetings you have, and the more rules you have, and the slower things work, and all that.
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So there's some optimal in there.
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But um, so there's benefits to size.
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There's certainly benefits to size in the stock market if you look at it.
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In most instances, bigger companies trade at better valuations and these bigger companies have you know more staying power, more ability to weather a downturn or whatnot.
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Um and shareholders who have limited bandwidth to look at public energy companies these days with the sector at 3.5% of the SP.
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Um, you know, there are many, many, many big real investors who have no idea who Matador and PR are.
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Why?
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Because they they look at Tonico, EOG, Exxon, Diamondback, Oxy, Devin, Devin now, maybe not Devin before, but Devin now.
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And they don't they don't go much deeper than that.
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So um so size gets you some attention from investors, dedicated energy guys know all these names, but lots of diversified guys don't.
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Um, so there's some value to to that from a stock market perspective.
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Um, and then you know, the other piece of consolidation has been that you wanna, you know, you want to expand your inventory great, and you can do it.
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You know, folks are paying up big time to get organic assets at lease sales, for instance.
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You know, these are high quality leases, of course, but um but the point is you get access to more rock with this consolidation, and more rock has been something that some folks need.
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And consolidation's been cheaper than going to lease sales, I can tell you that, right?
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The average companies are trading at a discount to the sort of tier one acreage valuations that people are doing organically.
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So um as long as the market is trading at pretty compressed multiples for companies, and there are these benefits to being bigger, why wouldn't these companies continue to get bigger?
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I think they will.
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And and we had a pause with the war because there's a lot of volatility.
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And should I be buying something?
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Should I be buying assets assuming oil is going to be 90 or assuming oil is going to be 60?
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And I think we've now spent six months realizing that it probably isn't necessarily either one of those.
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And therefore, you're you're seeing you're now seeing folks get back to business.
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The lease sale activity, Magnolia buying the wildfire assets.
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Um, and so my expectation is with another 18 months left under the Trump DOJ, where they're probably going to be pretty friendly to companies combining.
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And we're now in a position where all of the really big guys have digested their deals.
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Exxon Pioneer, Chevron Hess, Kanico Marathon, Dimy Back Endeavor, Devin Kotera, still a little bit newer, but you know, all these folks are going to be ready to go again.
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And so, you know, are things going to be as cheap as they were?
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No.
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Stock prices are up, but they're still not expensive.
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So I think we'll see more consolidation for the reasons I've rambled about here for the last five minutes.
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Okay, great.
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Yeah, that's super perspective.
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I do want to jump over to power though.
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Yep.
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Um, and and the the very strongly emerging theme of of power in the perming, you've got major signing power projects and some mystery folks.
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The the oil health services guys are getting involved.
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What's going on and is it going to work?
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Um, we've heard about a lot of projects that I think are being underwritten by not the companies involved.
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So there doesn't seem like they've got the skin in the game.
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Um I think maybe is this a bubble coming up?
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Great question.
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So power um power is the way the energy patch is getting involved in the whole AI.
00:22:00.400 --> 00:22:05.039
theme and and the world is wild about AI and they should be.
00:22:05.279 --> 00:22:13.759
I mean spend spend any time using AI and you know that it's a game changer and it matters a lot.
00:22:17.839 --> 00:22:23.039
There are probably six projects being talked about for every project that's going to get done.
00:22:23.279 --> 00:22:26.400
And so there's a lot of double and triple counting.
00:22:27.119 --> 00:22:43.200
And we've we have seen we've seen this dynamic with the shale boom where people went aggressively as they could to buy assets and the market rewarded upstream companies for increasing their spending.
00:22:43.359 --> 00:22:45.839
That's what's happening in AI these days.
00:22:46.160 --> 00:23:09.279
But you know we're grounded in the fact that AI does need power, that there is cheap gas and land available in uh in the oil patch and and there's an expertise around developing big projects and delivering power um you know certainly fits in into that bucket.
00:23:09.440 --> 00:23:10.799
So this is real.
00:23:12.640 --> 00:23:26.079
It is it is a growth but it's but it's measured Exxon's not spending speculatively chevron's not spending speculative speculatively they're doing things with partners on projects.
00:23:26.319 --> 00:23:29.119
So I think as long as we see that it's good.
00:23:29.920 --> 00:23:31.440
Is there going to be a bubble?
00:23:31.759 --> 00:25:34.640
Absolutely the Texas just slowed things down in terms of their approving their power interconnections but I think the mass I'll get it wrong we got 150 gigawatts in Texas that's all the power coal you know nuke natural gas wind solar that's everything 150 it's not how much we run our peak day is like 95 but 95 gigawatts but available capacity 150 gigawatts the interconnection queue request was 475 incremental um and there's a a bunch of folks jumping in line to try and capture optionality not all those things are going to get done lots of money going to be spent trying to do powerly and that then but then doesn't get a project um you know we will have too much uh mobile power capacity at some point but not right now and so we've seen this movie we've hopefully learned from this movie energy ought to benefit we're going to use more gas lord knows we got enough of it in Texas for instance um so it is a it is a good demand source for us that's incremental and um so we shouldn't we shouldn't be too dismissive but we shouldn't expect that this tree grows to the sky either I think we have three to five years where we're up and to the right and projects keep getting announced um we may have seen peak valuations you know oftentimes you do these projects may get more realistic in terms of what someone's willing to pay for them but um but right now this build outs ongoing if the AI bubble develops and crashes the market maybe it's not three to five years it's two to three but there's still a lot of stuff in progress that has to be done our speed rail where we're just going to talk about fun stuff.
00:25:35.359 --> 00:25:52.079
So I would like to know and I'm sure all of our listeners would too what do you drive to work I drive a uh Toyota Land Cruiser 2019 okay older than mine on the 2021 best I will probably be driving that car for the next 10 years.
00:25:52.160 --> 00:25:53.920
I am not a new car every year guy.
00:25:54.160 --> 00:26:06.559
What do you listen to when you're driving to work in your in your car um some combination of CNBC and uh country music on Sirius XM.
00:26:06.960 --> 00:26:15.119
Okay so that answers a question I was kind of not sure about asking you which one is Pearl Jam, Johnny Cash, David Bowie or Metallica?
00:26:15.279 --> 00:26:16.240
What do you listen to?
00:26:16.319 --> 00:27:21.920
I'm guessing Johnny Cash no I'm I wouldn't know I would probably lean toward I would I would rank those Pearl Jam Johnny Cash what were the other two Metallica and David Bowie yeah Metallica and David Bowie in that audit um where do you do your best thinking if we're truth telling and willing to live with embarrassment um always the quietest time of the day is uh between brushing my teeth and getting out of the shower right because there's just not a lot going on my house and there's not a lot of distractions no TV no anything else so really good thinking there or on a plane where I am I'm the world's worst seat mate because I probably haven't said 50 sentences to my seatmates on planes in the last three years.
00:27:22.160 --> 00:27:25.440
I get on put on my headphones and do my own thing.
00:27:25.519 --> 00:27:26.960
So that's also a good spot.
00:27:27.200 --> 00:27:54.559
What's the best advice you've been given that you did not take yeah best best advice I I didn't take um was somebody told me probably should get out of energy stocks at at the kind of peak uncertainty back in in March uh around the Iran conflict that would have been pretty good advice for three or four months I don't know about two years but pretty good advice for three or four months.
00:27:54.640 --> 00:28:00.319
That's that would be some recent good advice uh that I didn't listen to you.
00:28:00.480 --> 00:28:41.680
And you know if I think longer term beyond um I I I'd go back and probably say we had some really good advice back in the um TPH days where we were thinking about finding a partner and um probably we should have been uh slower to do that than than we were so there was some good advice to say wait a second what's your hurry and um we thought we'd be a public company in 2017 and it took to 2021 so we probably didn't need to be in as much of a hurry as we were back in 2016.
00:28:41.839 --> 00:28:45.279
That'd be that'd be another piece of advice.
00:28:45.759 --> 00:30:49.039
You know are similar it's you know trying to hurry things up why do you think that is why are we in such a hurry um um the the simple answer is uh more faster is viewed as better and and a lot of times you think if you go faster it will translate to more uh sometimes you go faster and it doesn't so uh folks who ages and ages ago and I'm I'm breaking the rule of uh quick lightning round kind of thing but ages ago um I was working for Matt Simmons and he made a comment that's always stuck with me he said you know we were talking about being a research analyst or something and he goes you know doing this for five or six years that's when you that's just when you start to get good and you know you sort of think like wait a minute I've been doing this for six quarters I am good and the reality is sometimes you know sometimes things do get better do get better with with age and probably pattern recognition and experience experience has value we just how do we get experience faster is a lot of times the question all right dan thank you so much thank you for indulging us on the on the lightning round or speed round um really what what a good thoughtful things for for people to contemplate and always appreciate your perspective and your time thanks so much absolutely that was fun to our conversation the Heart Energy podcast is hosted by Beyond and produced by Joseph Markman and Jennifer Martinez special thanks to our guest Dan Pickering also thanks to James Milbrant Kyle Mugg and Darren Barbie and of course extra special thanks to you for joining us for Heart Energy I'm Lisa Elamine see you next time
00:00:06.080 --> 00:00:09.519
What does the future hold for the oil and gas industry?
00:00:09.759 --> 00:00:11.599
Perhaps no one really knows.
00:00:11.839 --> 00:00:19.519
But if anyone does, it's probably Dan Pickering, founder and chief investment officer of Pickering Energy Partners.
00:00:19.760 --> 00:00:31.519
In this episode, Dan D'Arty, host of Core Conversations and editor-in-chief of Oil and Gas Investor Magazine, talks to Dan Pickering and gets his take on everything from deals.
00:00:31.839 --> 00:00:35.039
So our company is going to be spending a lot of money now.
00:00:35.359 --> 00:00:38.000
I think the industry would still love to grow.
00:00:38.479 --> 00:00:40.479
The challenge to that is twofold.
00:00:40.640 --> 00:00:42.719
One, the market doesn't need a bunch of U.S.
00:00:42.880 --> 00:00:44.079
production growth.
00:00:44.320 --> 00:00:50.320
And two, the asset base is less resilient than it was.
00:00:50.399 --> 00:00:52.560
I don't think we have the inventory that we did.
00:00:52.799 --> 00:01:06.799
To tech, why not just continue pushing the tech to get to you know 20%, 25% out of sale instead of um taking the risk, the exposure of going abroad?
00:01:07.200 --> 00:01:09.519
20, 20% recoveries?
00:01:09.920 --> 00:01:10.879
Maybe.
00:01:11.840 --> 00:01:15.519
But is it going to be 20% recoveries in the next five years?
00:01:15.680 --> 00:01:16.480
Probably not.
00:01:16.799 --> 00:01:18.799
The power for AI data centers.
00:01:19.760 --> 00:01:21.359
Maybe is this a bundle conup?
00:01:21.840 --> 00:01:22.640
Absolutely.
00:01:22.879 --> 00:01:31.840
Welcome to the Core Conversations Podcast, brought to you by Heart Energy, your source of actionable intelligence for the oil and gas industry.
00:01:32.079 --> 00:01:36.400
We invite you to sit back and listen or lean forward and take notes.
00:01:36.640 --> 00:01:39.439
Either way, we hope you enjoy the conversation.
00:01:39.680 --> 00:01:41.439
And now, here's Dion.
00:01:43.680 --> 00:01:45.040
So thank you for joining us.
00:01:45.200 --> 00:01:51.280
We are super excited to have you and your perspectives, as always, the inevitable Dan Pickering.
00:01:51.840 --> 00:01:58.400
Let's talk about spending money for this growth to meet this new demand that's emerging or has emerged.
00:01:59.840 --> 00:02:04.640
Yeah, Capital Is One has been the name of the game for the last 10 years or so.
00:02:05.200 --> 00:02:08.319
And I want to come back to that point and whether or not it's resonated.
00:02:08.400 --> 00:02:11.680
But so our companies going to be spending a lot of money now.
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Is A and D going to pick up?
00:02:14.319 --> 00:02:14.879
Yeah.
00:02:15.199 --> 00:02:23.520
So I'll I'll say on the capital discipline front that it really COVID sort of broke the back of the industry in terms of spending.
00:02:23.599 --> 00:02:27.840
And that was when I think capital discipline really got ingrained.
00:02:27.919 --> 00:02:30.319
But that's COVID's now five years ago.
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So I think the industry has proven that it now gets the concept of growth for the sake of growth doesn't work.
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It doesn't help the macro.
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It doesn't help stock prices or equity valuations or shareholders.
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And so I think we've moved away from that.
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So I think capital discipline is very ingrained.
00:02:55.759 --> 00:02:58.719
I think the industry would still love to grow.
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The challenge to that is twofold.
00:03:01.360 --> 00:03:03.439
One, the market doesn't need a bunch of U.S.
00:03:03.520 --> 00:03:04.800
production growth.
00:03:05.039 --> 00:03:10.960
And two, the asset base is less resilient than it was.
00:03:11.120 --> 00:03:16.800
I don't think we have the inventory that we did five years ago or 10 years ago.
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And so growth has to be very carefully balanced against, you know, how do we replace it in terms of inventory?
00:03:24.960 --> 00:03:31.120
So my expectation for capital spending is let's watch the 2027 oil strip.
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Um that price was in the mid-60s when the war broke out.
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It got as high as maybe 76 at the peak of the uncertainty around the conflict, and it's now sitting at about 74.
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That's a decent number, but it's not, it is not screaming, go accelerate your cap your year spending.
00:03:55.599 --> 00:04:02.800
Um, you know, you put that number in the 80s, and the math, you know, that's a market signal that I think folks pay attention to.
00:04:03.199 --> 00:04:22.240
But until absent that, absent some kind of compelling price signal, I think that we, you know, I think we see more of the same, which is, you know, somewhere between 50 and 75% of cash goes back to to free cash goes back to shareholders.
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You know, companies build build cash on the balance sheet.
00:04:26.800 --> 00:04:30.480
Um and I I think that makes sense.
00:04:30.639 --> 00:04:34.959
I think that's very prudent because notwithstanding I'm pretty bullish.
00:04:35.120 --> 00:04:42.480
My expectation is next year and the year after will be quite good years, but why be speculative about it?
00:04:42.639 --> 00:04:51.120
I I can investors, investors can be bullish, change their mind, and be gone really quickly.
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You know, you put in motion increasing your rig count or spending increases by 20 or 30 percent or something like that, and all of a sudden that's a six-month ramp up and a six-month ramp down.
00:05:04.639 --> 00:05:05.600
And what if you're wrong?
00:05:05.680 --> 00:05:10.079
You need a market signal, and I don't think the market signal is compelling enough yet.
00:05:10.639 --> 00:05:12.319
So, but what about concerns?
00:05:12.399 --> 00:05:20.639
Uh, you know, on the earnings calls uh for the EMPs, yeah, you could count on hearing two things capital discipline and inventory.
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Yep.
00:05:21.439 --> 00:05:30.000
So how do you reconcile this need for continued capital discipline, but the concern about running out of inventory?
00:05:30.720 --> 00:05:38.639
Yeah, so I think capital discipline keeps you from accelerating growth, which keeps you from accelerating your inventory burn.
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So that all sort of ties together.
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The how do you how do you build longer term?
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I think what it points to is you know the companies are adding inventory via consolidation.
00:05:52.319 --> 00:05:56.959
So you're saying, you know, the publics by the privates, you're seeing the publics by each other.
00:05:57.120 --> 00:06:01.199
Um that that is solving the problem for some.
00:06:01.680 --> 00:06:11.199
Uh for others, I mean, you now have, right, Devon is a is a more balanced oil and gas company after doing the Katara deal.
00:06:11.360 --> 00:06:24.319
You're seeing single basin companies turn into dual basin or triple basin companies because you know doing what you've been doing in a very concentrated area is getting a lot harder.
00:06:24.480 --> 00:06:36.319
I think that's just the you look at productivity per foot of new wells, if you look at just remaining tier one or tier two locations left, it just says we can't keep doing exactly what we're doing.
00:06:36.399 --> 00:06:40.079
So the playbook, I think, is changing gradually, but it's changing.
00:06:40.319 --> 00:06:43.759
And you're seeing more interest in folks going to Canada.
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Um, you know, deep water lease sale was well attended.
00:06:47.600 --> 00:06:51.519
Folks are investigating quietly things like Argentina.
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Um, you know, the North Sea's even got a little bit of a renaissance.
00:06:55.920 --> 00:07:09.120
So, you know, I've had a view for a couple of years that the next, you know, if if the last decade was the single basin shale company, the next decade is going to be re-diversification.
00:07:09.839 --> 00:07:17.839
And so I think we will see more of that, Dion, including, you know, maybe even exploration sneaking into the mix as well.
00:07:18.399 --> 00:07:25.680
And the companies have the money to do that, whether loudly or quietly, they've got money to spend on new things.
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And I think they're going to spend some money on new things.
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And that will help inventory over time.
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Not in 27, but 2030.
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And the big gaps come in the 2030s.
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So I think guys have the companies have you know a few years here to start really thinking hard about that diversification.
00:07:49.439 --> 00:07:50.639
And that's so interesting.
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It's I actually um just watching with uh, you know, before Katara and Devon got together, uh, you know, Kinridge was talking about the the single single single base and focus versus being um splintered.
00:08:04.079 --> 00:08:06.319
Um what you say just totally aligns.
00:08:06.480 --> 00:08:07.759
That makes a lot of sense to me.
00:08:08.000 --> 00:08:22.240
Um I want to know though how so I guess it was two years ago, uh, talking with Case Van Hoff and Midland at one of the conferences about going abroad, you know, looking for for inventory internationally.
00:08:22.720 --> 00:08:27.600
And um the sentiment was that, you know, it can scare your shareholders.
00:08:27.759 --> 00:08:28.079
Yep.
00:08:28.399 --> 00:08:30.720
So has that is that still the case?
00:08:30.879 --> 00:08:44.559
If companies, you know, EOG, Continental, Coneco are looking at investing abroad, uh, what does that say to their shareholders who are, you know, as you've noted many times, the the market is still kind of iffy toward energy.
00:08:45.039 --> 00:08:48.159
Yeah, so that's the that's the balance.
00:08:48.320 --> 00:08:57.039
Um the balance is shareholders, and and you can look, you know, the the companies with a more diversified asset base.
00:08:57.600 --> 00:09:03.759
Uh, you know, Murphy was a a good performer this year from the stock perspective.
00:09:03.840 --> 00:09:05.600
Apache's been a good performer.
00:09:05.919 --> 00:09:07.120
Oxy, Coneko.
00:09:07.759 --> 00:09:14.480
Um, I I think the answer is there's a uh a challenge, right?
00:09:14.639 --> 00:09:21.840
The perception is, well, if you have to go do those things, then what you're telling me you already own isn't as good as you've said, right?
00:09:21.919 --> 00:09:30.240
There's this there's this perception that um that it's a downtick in your existing asset base.
00:09:30.799 --> 00:09:42.639
And um, and so I think some companies are waiting for investors to get more comfortable with call it a globalization, if you will.
00:09:42.879 --> 00:09:49.519
Um, you know, EOG is doing this uh shale stuff in the Middle East.
00:09:49.919 --> 00:09:53.039
So, you know, that's laying groundwork, right?
00:09:53.120 --> 00:09:56.720
Uh okay, gosh, if EOG is doing it, then can I do it?
00:09:56.879 --> 00:10:01.840
Uh from uh it's it's helping educate the market about opportunity sets.
00:10:02.080 --> 00:10:22.639
You know, uh there was a recent contract signing in Iraq, right, with with uh Exxon and Conaco, I think I can't remember who exactly was, but you know, this whole there there are opportunities out there that are competitive with and additive to, you know, just growing in shale.
00:10:23.120 --> 00:10:32.240
So the more concentrated you are, the more you've talked up your existing asset base, the harder it is to change that.
00:10:32.720 --> 00:10:41.440
And and so I think some of those companies, and and you mentioned Diamondback, Diamondback's a bit of a an outlier in that their inventory is pretty deep.
00:10:41.600 --> 00:10:46.960
You know, you look at them and say, I don't know that they need to do anything else for a while.
00:10:47.120 --> 00:10:59.200
Uh, but I'll bet you a dollar right now that 15 years from now, Diamondback is not simply a Midland basin or a Permian Basin company.
00:10:59.519 --> 00:11:04.720
Because even as deep as that inventory is, you're gonna have to do something to offset it.
00:11:04.799 --> 00:11:13.440
And who knows, maybe maybe we'll have EOR and maybe we'll have more zones, and maybe you can just keep on going.
00:11:13.840 --> 00:11:20.159
Uh, but I would say in aggregate, that doesn't feel like it's the case, it's it's the situation.
00:11:20.559 --> 00:11:20.799
Okay.
00:11:21.440 --> 00:11:32.399
So when we're talking about, you know, and just with the technology and and doing more with what you have, you know, it wasn't that long ago that uh we weren't getting anything out of the out of the ground as far as Shell goes.
00:11:32.480 --> 00:11:34.000
And now uh we're leaving 90%.
00:11:34.480 --> 00:11:38.639
I'm I believe that's the the percentage you were taking economically.
00:11:39.039 --> 00:11:43.200
Um but you know, again, at one point, none of it was economic.
00:11:43.440 --> 00:11:58.240
So what why not just continue pushing the tech to get to you know 20, 25 out of shell instead of um taking the risk, the exposure of going abroad?
00:11:58.720 --> 00:12:01.919
Yeah, so I think timing's the element to that, right?
00:12:02.320 --> 00:12:11.360
So there is no doubt that people are pushing, you know, surfactants and um different kinds of frack techniques and whatnot.
00:12:11.519 --> 00:12:23.360
And so if you look at the productivity per foot or EURs per acre or however you wanted to look at it, um, we are absolutely getting more than we were.
00:12:23.519 --> 00:12:27.360
And that's the history of the oil business since Colonel Drake, you know.
00:12:27.519 --> 00:12:30.960
Um so I think we will continue to do that.
00:12:31.120 --> 00:12:35.200
Uh 20, 20% recoveries, maybe.
00:12:36.559 --> 00:12:40.159
But is it going to be 20% recoveries in the next five years?
00:12:40.399 --> 00:12:41.279
Probably not.
00:12:41.600 --> 00:12:54.799
And the issue is with decline curves, what they are, you know, uh a company that's counting on technology enhancements to offset the decline curves they've got.
00:12:55.840 --> 00:12:57.519
That seems pretty doubtful.
00:12:57.679 --> 00:12:58.960
So, you know, great.
00:12:59.120 --> 00:13:04.240
If 20% recoveries happen over the next 20 years, there's a lot of value left in the ground.
00:13:04.559 --> 00:13:10.159
And the companies attacking them could be half the size by the time that starts to happen.
00:13:10.480 --> 00:13:12.799
So, you know, you've got to balance.
00:13:12.879 --> 00:13:29.759
And that's why bigger companies, you know, if you look at the production out in the Permian now, you've got, you know, Exxon, Chevron, Congo, Diamondback, Devin, you've got big companies with some staying power that can afford to invest in technologies.
00:13:30.159 --> 00:13:44.240
You know, they've got enough inventory to do tests on new technology spacing, all that sort of stuff, test new zones, and not shrink a ton while they're doing it.
00:13:44.559 --> 00:13:57.600
So I I think that that if you own an acre in the Permian Basin and you're counting on getting more oil out of it over time, absolutely.
00:13:57.919 --> 00:14:03.440
Um, but there's timing effects that I think are very relevant the bigger you get.
00:14:03.679 --> 00:14:08.720
And um, and so I don't think you can just sit back and wait for higher retombics.
00:14:09.120 --> 00:14:09.759
Okay, okay.
00:14:09.919 --> 00:14:16.080
And you know, some of these technologies, uh I'm sure there's far more going on than I could ever dream up.
00:14:16.399 --> 00:14:19.600
But EOR, we've been talking about that for a long time.
00:14:20.000 --> 00:14:22.960
Um not quite there yet.
00:14:23.120 --> 00:14:25.440
Um, do you is it realistic, Dan?
00:14:26.639 --> 00:14:31.600
Uh so never count out the ingenuity of the oil patch.
00:14:31.759 --> 00:14:55.440
Uh, what I can tell you is today, you look at a a new drill project versus doing EOR, an existing project, and you know, the required pricing, you can do new projects at 50, tier one, and you know, you need 75 or 85 or something on a sustained basis to feel like EOR as it sits today with where the technology is today.
00:14:55.600 --> 00:14:57.759
And so the answer is you just don't do it, right?
00:14:57.840 --> 00:15:02.480
You spend the money on the neutral wealth because you can, and you keep trying to get the cost down.
00:15:02.639 --> 00:15:09.279
So I think it's a function of oil price and sustained oil price in the view of longer-term oil prices.
00:15:09.360 --> 00:15:26.159
And so, no doubt in my mind that at some point in time, you know, we'll be doing more EOR, and that EOR will be better, but we're probably not going to do it in a world where you think the mean price of crude 70 or 75.
00:15:26.320 --> 00:15:30.240
You're going to need a higher price expectation or some more time to get slump.
00:15:32.720 --> 00:15:36.879
When we return, Dan will offer his glimpse of the future.
00:15:37.279 --> 00:15:40.080
I think we'll see more consolidation.
00:15:48.240 --> 00:15:56.960
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00:15:57.200 --> 00:16:07.279
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00:16:08.000 --> 00:16:18.159
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00:16:19.120 --> 00:16:24.480
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00:16:25.440 --> 00:16:29.759
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00:16:47.120 --> 00:16:51.200
I want to kind of bounce back over to the idea of more consolidation.
00:16:54.320 --> 00:17:05.519
I think um if you look at today's publics, uh, I think all of them would tell you that they don't need to sell the business to be successful.
00:17:06.000 --> 00:17:12.559
And I think the best the best way to be attractive to a buyer is to do things that make your company better.
00:17:12.640 --> 00:17:22.799
And I think you know, you're seeing you're seeing the publics try to do that, whether it's with costs or with acreage or um the swaps they're doing or the types of wealth centrilling.
00:17:22.960 --> 00:17:25.200
So um why is consolidation happening?
00:17:25.359 --> 00:17:29.279
Consolidation's happening because I do think there are benefits to size.
00:17:29.759 --> 00:17:33.279
And that's in the field, costs, et cetera.
00:17:33.440 --> 00:17:35.519
There's there's probably also disbenefits to size.
00:17:35.599 --> 00:17:41.440
The bigger you get, the more meetings you have, and the more rules you have, and the slower things work, and all that.
00:17:41.680 --> 00:17:44.319
So there's some optimal in there.
00:17:44.559 --> 00:17:47.279
But um, so there's benefits to size.
00:17:47.359 --> 00:17:50.559
There's certainly benefits to size in the stock market if you look at it.
00:17:50.799 --> 00:18:02.559
In most instances, bigger companies trade at better valuations and these bigger companies have you know more staying power, more ability to weather a downturn or whatnot.
00:18:02.720 --> 00:18:13.200
Um and shareholders who have limited bandwidth to look at public energy companies these days with the sector at 3.5% of the SP.
00:18:13.680 --> 00:18:24.079
Um, you know, there are many, many, many big real investors who have no idea who Matador and PR are.
00:18:24.319 --> 00:18:24.720
Why?
00:18:25.039 --> 00:18:36.480
Because they they look at Tonico, EOG, Exxon, Diamondback, Oxy, Devin, Devin now, maybe not Devin before, but Devin now.
00:18:36.880 --> 00:18:39.279
And they don't they don't go much deeper than that.
00:18:39.599 --> 00:18:49.039
So um so size gets you some attention from investors, dedicated energy guys know all these names, but lots of diversified guys don't.
00:18:49.200 --> 00:18:53.359
Um, so there's some value to to that from a stock market perspective.
00:18:53.599 --> 00:19:03.759
Um, and then you know, the other piece of consolidation has been that you wanna, you know, you want to expand your inventory great, and you can do it.
00:19:04.000 --> 00:19:10.319
You know, folks are paying up big time to get organic assets at lease sales, for instance.
00:19:10.400 --> 00:19:22.480
You know, these are high quality leases, of course, but um but the point is you get access to more rock with this consolidation, and more rock has been something that some folks need.
00:19:23.119 --> 00:19:27.599
And consolidation's been cheaper than going to lease sales, I can tell you that, right?
00:19:27.759 --> 00:19:35.279
The average companies are trading at a discount to the sort of tier one acreage valuations that people are doing organically.
00:19:35.440 --> 00:19:53.279
So um as long as the market is trading at pretty compressed multiples for companies, and there are these benefits to being bigger, why wouldn't these companies continue to get bigger?
00:19:53.440 --> 00:19:54.160
I think they will.
00:19:54.319 --> 00:19:57.839
And and we had a pause with the war because there's a lot of volatility.
00:19:58.000 --> 00:20:00.640
And should I be buying something?
00:20:00.799 --> 00:20:05.759
Should I be buying assets assuming oil is going to be 90 or assuming oil is going to be 60?
00:20:06.000 --> 00:20:14.319
And I think we've now spent six months realizing that it probably isn't necessarily either one of those.
00:20:14.640 --> 00:20:19.440
And therefore, you're you're seeing you're now seeing folks get back to business.
00:20:19.759 --> 00:20:24.319
The lease sale activity, Magnolia buying the wildfire assets.
00:20:24.640 --> 00:20:36.400
Um, and so my expectation is with another 18 months left under the Trump DOJ, where they're probably going to be pretty friendly to companies combining.
00:20:37.200 --> 00:20:45.440
And we're now in a position where all of the really big guys have digested their deals.
00:20:45.839 --> 00:20:59.839
Exxon Pioneer, Chevron Hess, Kanico Marathon, Dimy Back Endeavor, Devin Kotera, still a little bit newer, but you know, all these folks are going to be ready to go again.
00:21:00.160 --> 00:21:05.599
And so, you know, are things going to be as cheap as they were?
00:21:05.680 --> 00:21:05.920
No.
00:21:06.079 --> 00:21:08.400
Stock prices are up, but they're still not expensive.
00:21:08.559 --> 00:21:13.359
So I think we'll see more consolidation for the reasons I've rambled about here for the last five minutes.
00:21:14.240 --> 00:21:14.799
Okay, great.
00:21:14.960 --> 00:21:16.319
Yeah, that's super perspective.
00:21:16.480 --> 00:21:19.039
I do want to jump over to power though.
00:21:19.200 --> 00:21:19.519
Yep.
00:21:19.599 --> 00:21:30.960
Um, and and the the very strongly emerging theme of of power in the perming, you've got major signing power projects and some mystery folks.
00:21:31.039 --> 00:21:33.599
The the oil health services guys are getting involved.
00:21:33.839 --> 00:21:37.920
What's going on and is it going to work?
00:21:38.480 --> 00:21:45.519
Um, we've heard about a lot of projects that I think are being underwritten by not the companies involved.
00:21:45.680 --> 00:21:48.240
So there doesn't seem like they've got the skin in the game.
00:21:48.400 --> 00:21:51.440
Um I think maybe is this a bubble coming up?
00:21:52.880 --> 00:21:53.759
Great question.
00:21:53.920 --> 00:21:59.759
So power um power is the way the energy patch is getting involved in the whole AI.
00:22:00.400 --> 00:22:05.039
theme and and the world is wild about AI and they should be.
00:22:05.279 --> 00:22:13.759
I mean spend spend any time using AI and you know that it's a game changer and it matters a lot.
00:22:17.839 --> 00:22:23.039
There are probably six projects being talked about for every project that's going to get done.
00:22:23.279 --> 00:22:26.400
And so there's a lot of double and triple counting.
00:22:27.119 --> 00:22:43.200
And we've we have seen we've seen this dynamic with the shale boom where people went aggressively as they could to buy assets and the market rewarded upstream companies for increasing their spending.
00:22:43.359 --> 00:22:45.839
That's what's happening in AI these days.
00:22:46.160 --> 00:23:09.279
But you know we're grounded in the fact that AI does need power, that there is cheap gas and land available in uh in the oil patch and and there's an expertise around developing big projects and delivering power um you know certainly fits in into that bucket.
00:23:09.440 --> 00:23:10.799
So this is real.
00:23:12.640 --> 00:23:26.079
It is it is a growth but it's but it's measured Exxon's not spending speculatively chevron's not spending speculative speculatively they're doing things with partners on projects.
00:23:26.319 --> 00:23:29.119
So I think as long as we see that it's good.
00:23:29.920 --> 00:23:31.440
Is there going to be a bubble?
00:23:31.759 --> 00:25:34.640
Absolutely the Texas just slowed things down in terms of their approving their power interconnections but I think the mass I'll get it wrong we got 150 gigawatts in Texas that's all the power coal you know nuke natural gas wind solar that's everything 150 it's not how much we run our peak day is like 95 but 95 gigawatts but available capacity 150 gigawatts the interconnection queue request was 475 incremental um and there's a a bunch of folks jumping in line to try and capture optionality not all those things are going to get done lots of money going to be spent trying to do powerly and that then but then doesn't get a project um you know we will have too much uh mobile power capacity at some point but not right now and so we've seen this movie we've hopefully learned from this movie energy ought to benefit we're going to use more gas lord knows we got enough of it in Texas for instance um so it is a it is a good demand source for us that's incremental and um so we shouldn't we shouldn't be too dismissive but we shouldn't expect that this tree grows to the sky either I think we have three to five years where we're up and to the right and projects keep getting announced um we may have seen peak valuations you know oftentimes you do these projects may get more realistic in terms of what someone's willing to pay for them but um but right now this build outs ongoing if the AI bubble develops and crashes the market maybe it's not three to five years it's two to three but there's still a lot of stuff in progress that has to be done our speed rail where we're just going to talk about fun stuff.
00:25:35.359 --> 00:25:52.079
So I would like to know and I'm sure all of our listeners would too what do you drive to work I drive a uh Toyota Land Cruiser 2019 okay older than mine on the 2021 best I will probably be driving that car for the next 10 years.
00:25:52.160 --> 00:25:53.920
I am not a new car every year guy.
00:25:54.160 --> 00:26:06.559
What do you listen to when you're driving to work in your in your car um some combination of CNBC and uh country music on Sirius XM.
00:26:06.960 --> 00:26:15.119
Okay so that answers a question I was kind of not sure about asking you which one is Pearl Jam, Johnny Cash, David Bowie or Metallica?
00:26:15.279 --> 00:26:16.240
What do you listen to?
00:26:16.319 --> 00:27:21.920
I'm guessing Johnny Cash no I'm I wouldn't know I would probably lean toward I would I would rank those Pearl Jam Johnny Cash what were the other two Metallica and David Bowie yeah Metallica and David Bowie in that audit um where do you do your best thinking if we're truth telling and willing to live with embarrassment um always the quietest time of the day is uh between brushing my teeth and getting out of the shower right because there's just not a lot going on my house and there's not a lot of distractions no TV no anything else so really good thinking there or on a plane where I am I'm the world's worst seat mate because I probably haven't said 50 sentences to my seatmates on planes in the last three years.
00:27:22.160 --> 00:27:25.440
I get on put on my headphones and do my own thing.
00:27:25.519 --> 00:27:26.960
So that's also a good spot.
00:27:27.200 --> 00:27:54.559
What's the best advice you've been given that you did not take yeah best best advice I I didn't take um was somebody told me probably should get out of energy stocks at at the kind of peak uncertainty back in in March uh around the Iran conflict that would have been pretty good advice for three or four months I don't know about two years but pretty good advice for three or four months.
00:27:54.640 --> 00:28:00.319
That's that would be some recent good advice uh that I didn't listen to you.
00:28:00.480 --> 00:28:41.680
And you know if I think longer term beyond um I I I'd go back and probably say we had some really good advice back in the um TPH days where we were thinking about finding a partner and um probably we should have been uh slower to do that than than we were so there was some good advice to say wait a second what's your hurry and um we thought we'd be a public company in 2017 and it took to 2021 so we probably didn't need to be in as much of a hurry as we were back in 2016.
00:28:41.839 --> 00:28:45.279
That'd be that'd be another piece of advice.
00:28:45.759 --> 00:30:49.039
You know are similar it's you know trying to hurry things up why do you think that is why are we in such a hurry um um the the simple answer is uh more faster is viewed as better and and a lot of times you think if you go faster it will translate to more uh sometimes you go faster and it doesn't so uh folks who ages and ages ago and I'm I'm breaking the rule of uh quick lightning round kind of thing but ages ago um I was working for Matt Simmons and he made a comment that's always stuck with me he said you know we were talking about being a research analyst or something and he goes you know doing this for five or six years that's when you that's just when you start to get good and you know you sort of think like wait a minute I've been doing this for six quarters I am good and the reality is sometimes you know sometimes things do get better do get better with with age and probably pattern recognition and experience experience has value we just how do we get experience faster is a lot of times the question all right dan thank you so much thank you for indulging us on the on the lightning round or speed round um really what what a good thoughtful things for for people to contemplate and always appreciate your perspective and your time thanks so much absolutely that was fun to our conversation the Heart Energy podcast is hosted by Beyond and produced by Joseph Markman and Jennifer Martinez special thanks to our guest Dan Pickering also thanks to James Milbrant Kyle Mugg and Darren Barbie and of course extra special thanks to you for joining us for Heart Energy I'm Lisa Elamine see you next time
