May 15, 2025 • 43 mins
The new administration has a "drill, baby, drill" mantra and a much more liberal attitude towards the oil and gas industry than the last one. But that hasn't translated into great profits for the oil industry itself. Crude prices have sunk and tariffs have raised the cost of components for companies trying to get energy out of the ground. So, what's the future for the industry? And who is actually making money right now? In this episode, we talk to longtime energy industry veteran Peter Tertzakian, the founder and president of Studio.energy, which consults with various industry players. We discuss the state of the overall North American energy industry, the prospects of peak onshore oil production in the United States, pipeline politics, and why liquified natural gas is expected to be the hydrocarbon of the future.
Read more:
Say Hello to ‘Nil, Baby, Nil’ in the Oil Patch
Trump’s Thirst for Cheap Oil Irks an Industry He Loves to Praise
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3 (00:22):
I'm Joe Wassenthal and I'm Tracy Alloway.
Speaker 2 (00:25):
Tracy, I think at least temporarily, some of the trade
related headlines are quieting down, and so it's sort of
time perhaps to understand. I don't want to say new normal.
I just don't. That's like jinxing it a little bit,
but like what the new environment looks like for some
of the industries that have been whipsawed and affected over
(00:47):
recent weeks and months.
Speaker 3 (00:48):
Yeah, ninety days, for investors, executives and podcasters to kind
of catch their breath and consider the new environment, That's
how I would describe it, and then it will probably
all change again.
Speaker 2 (00:59):
It'll chain We're never going to run out of fresh
material and fresh stories to talk about.
Speaker 4 (01:05):
You know.
Speaker 2 (01:05):
There's always this thing. People are always surprised that there
is this phenomenon which seems to occur in markets in
which Republican presidents tend to not be great environments for
the oil industry. Like people think, oh, yeah, here we're
gonna have this pro oil president come in, but pro oiled.
I don't know what that means.
Speaker 4 (01:24):
But if it means.
Speaker 2 (01:25):
More pro drilling, pro liberalization of energy regulations, then often
that means lower prices and less profits, and then you know,
you get an environment where you get a Democratic president
who wants to constrict expansion, focus more on alternatives, and
then profits go up. Anyway, the pattern seems to be
repeating now, and oil prices have done pretty badly since
(01:47):
the start of the year.
Speaker 3 (01:48):
Yeah, so this is something we've been watching. We've been
writing about it in the old Lots newsletter. There was
that great report out from the Dallas Fed their regular
energy survey, and it had a bunch of quotes from
anonymous oil officials that were really kind of extreme in
various ways, and I think one of them kind of
nailed the theme, which is that you can't really have
(02:12):
fifty dollars per barrel oil and US energy dominance. It's
like it's incompatible in various ways. So I think we
should talk about that tension.
Speaker 2 (02:22):
We should absolutely talk about the tension. In addition to
the supply, and we know that OPEC is pumping more,
they are all the input costs going up, particularly from
tariff affected companies in the US. What does it steal tubular.
Speaker 3 (02:37):
Tubular components, Christmas trees. Those are the little collections of
valves and spools.
Speaker 2 (02:43):
Yes, so we're going to get into all that. This
double whammy, so to speak. We have seen a bit
of a rebound as we're talking about this. On April thirteenth,
twenty twenty five, at ten oh seven am Eastern time,
the price of a generic barrel of West Texas Intermediate
sixty two dollars and ninety six cents. I don't know
how profitable it is at that level, but we have
(03:05):
the perfect guest, someone we spoke to a few years
ago when the industry was under very different conditions, but
someone who has a very sort of granular understanding of
the industry. We're going to be speaking with Peter Churtsak,
and he's currently the founder and president of Studio dot Energy.
Previously as a managing director at art Financial, which did
investing in the oil industry. So an expert in the space,
(03:28):
has written books about the energy industry, energy transition periods
and so forth. So, Peter, thank you so much for
coming back on odd lots. Well, I'm delighted to be back.
Speaker 4 (03:37):
Thank you.
Speaker 2 (03:38):
Sixty two dollars and ninety five cents. Now, can the
industry make money at these levels? Who's making money at
these levels?
Speaker 4 (03:46):
Well, the industry is composed of many, many players that
have many different geographic land holdings and therefore many different
extraction methodologies and different grades of oil. So, you know,
sixty two ninety six, if we think of it as
an average price, is sort of okay. It's marginally profitable
(04:08):
for a large part of the industry, but there's no
questions that higher cost producers start falling off the map.
And what you also see is things like stripper wells,
wells that are very low productivity start to get shut
in at these levels. And then there's the boardroom discussion about, well,
what is the longevity of these prices? You know, the
sixty two ninety six is and actually it was only
(04:30):
about a week or two ago. It was in the
high fifties. Yeah, you know, it's it's you sort of
look at that in the boardroom and you just say, okay,
is this going to last a quarter or is it
going to last a year? And you'd probably say, you
know what, I'm going to wait a quarter before I
start making any major decisions on my budgeting.
Speaker 3 (04:48):
What's the funding environment like right now, because I remember
if you look back at the shale oil boom in
the sort of twenty tens, this was the big driving force, right,
like everyone I wanted to invest in oil, and so
we had this big boom and then we had oversupply
and prices crashed. And now all the energy companies say
(05:09):
they want to be really disciplined when it comes to
capital spending. They want to return more money to shareholders.
I don't know our shareholders interested in that particular proposition.
And is funding still like a little bit difficult to get.
Speaker 4 (05:24):
Yeah, So let's talk about that because it's really important.
You know, the equity funding which was so much a
part of the shale revolution. You know, it started really
in the Bocking around two thousand and nine, moved into
the Permian around twenty eleven, and more broadly, and there
was a lot of equity financings. That sort of money
just came in at low cost. The capital things really
(05:45):
started to change, as you pointed out Tracy in twenty
fifteen sixteen, with the price wars, the drop and the
price per barrel as the Saudis tried it to take
their market share back, but there was another moment that
was really important. That was around circa twenty seventeen eighteen,
and that was when the whole end of oil narratives
started to occur, right, that was and if you wind
(06:07):
back to Elon Musk, the models was coming out and
starting toning traction, lots of buzz about electric vehicles, and
it was as if the end of oil was nigh
within ten years. And so investors sort of the combination
of hey, you guys aren't making money in the oil
and gas industry. The prices are low, and by the way,
(06:28):
it's a sunset industry. Therefore, just give us your cash
flow or a significant portion of cash flow. We'll put
the money elsewhere, right, And that was the sentiment. And
that sentiment, you know, recently started to come back post
invasion of Ukraine and the geopolitical elements sort of coming
back and the price of oil rising above seventy dollars.
(06:48):
It made it okay, well let's have another look. And
then the sort of the demise of the whole ESG
type narrative. But you know, this latest oil price d
office sort of taken the resurgence off what do you
call it? The sentiment has sort of turned a little
I'm gonna just watch this. I've seen this movie before.
Speaker 2 (07:08):
What does it take Like oil isn't going to go
away in ten years obviously, but there was a unique
set of conditions in the twenty tens. They're also the
technological gains. Do is the cheap capital like has that
gone forever? Or is the industry so cyclical and so
boom and bust that it's plausible that at some point
(07:28):
we see another crazy drilling war, Like it feels like
maybe I'm naive to think that that can't be recovered
because people in the oil industry they're a little bit crazy,
and you can never count out the possibility that they
all go gung ho for expansion again at some point
in the future.
Speaker 4 (07:48):
Well they it's a great point because of this that
it's sort of like, Okay, we've seen this movie before. Yeah,
if you recall, like it just only been in the
last couple of weeks. At Opek plus is basically which
is it released Saudi Arabia basically saying Okay, we're going
to open up the taps another four hundred and eleven
thousand barrels per day on top of the six hundred
or so so at a time when the economy is weak,
(08:08):
and you sort of question the motivations. Okay, are these
guys trying to take back the market share that they
feel that they're lost. We saw that movie back in
twenty fifteen. But to be able to go gung hosts say, Joe,
you need capital. You need to be able to replicate
the low cost of capital era of the twenty tens,
which was coupled with low inflation, low interest rates. We
(08:30):
don't have that. We don't have that circumstance right now.
So the planets are not aligned for a gun co drilling.
And I think that the oil and gas executives are
much more savvy today that they sit in the boardroom
table and say, Okay, I'm going to watch this. I've
seen this before. And by the way, in the world
of corporate governance, it's shareholders who really oversee the board,
(08:54):
and the board overseas the management. So ultimately the shareholders
are the ones that are deciding whether or not the
industry's going to go gung hole. And right now the
sentiment is now.
Speaker 3 (09:04):
You know, Joe made the point earlier in the intro
that one of the strange realities that we all live with.
Seems to be that the oil industry leans Republican. I
think that's fair to say. Meanwhile, the price of oil
tends to do better under democratic administrations, And in fact,
our Bloomberg colleagues had a really good piece out I
(09:25):
think just this week. It was called Trump's thirst for
Cheap Oil irks and industry he loves to praise, and
in it they quote a guy who owns a sort
of oil components store in Texas, and he has this
really funny quote where he says, we make our money
during democratic administrations. I killed it during Clinton, Obama and Biden.
(09:49):
I said that at the country club, and I thought
somebody was going to kill me with a butter knife,
which is hilarious. But like, what is the attraction? What
is the Republican pitch to the energy industry which seems
to resonate potentially in the face of reality.
Speaker 4 (10:03):
Yeah, it's great. I mean from a statistical perspective, if
you want to get into the details, in correlation does
not imply causality. In other words, I'm a little suspicious
that democratic administrations are the cause of greater prosperity for
the oil and gas industry because the overlay of the
technological revolution of horizontal drilling, fracking and all that stuff
(10:25):
has nothing to do with political administrations, nor does it
necessarily have to do with other major factors, but it
does speak crazy to the tensions you're talking about. I
read that article as well, and there's no question that
the Trump administration and then the lead up even to
the last election, the rhetoric was a drill, baby, drill.
The industry was very closely aligned with the Republican narratives,
(10:49):
and particularly with the narratives of reducing regulations and getting
rid of ESG and all that kind of stuff, But
there wasn't a lot of narrative about necessarily what they're
going to do with the price right on prices set globally,
and that's a whole other dynamic that comes into play.
Speaker 2 (11:07):
What's happening. So you're based in Calgary and obviously one
of Tracy mentioned that Dallas fed Energy survey, and part
of the concern for the US based players is that
their cost of goods very you know what is it
the stibil tuber tubular component. Sorry, I don't know why,
I can't remember. Prices are going up, et cetera. Can
(11:29):
you talk a little bit about input costs and what's
happening there on sort of both sides of the US
Canada border.
Speaker 4 (11:38):
Yes, this is a big issues, the trade wars, the tariffs,
and you know, you can get it into the details
and call it tubular goods and valves and so on,
but ultimately we're talking about steel. Yeah, and we're talking
about the raw inputs that are fundamental to building facilities,
to drilling, to product tubing and so on and so forth.
(12:02):
So when the Trump administration started the trade wars effectively
and the tariffs slopping tariffs on steel, well, yeah, the
input costs are ultimately going to go up until such
time as their desires in other words, the Trump administration's
desire to domesticate or repatriate the steel industry to the
point where it's competitive with the cheaper steals from the
(12:25):
rest of the world. So there's no question that you're
going to see inflation in the oil field, and there's
often a lag. I mean, the story is only a
couple months old, right, three months old, Like you will
see the permeation of higher steel and steal product prices
into places like the oil field over the course of
(12:47):
the year. So yeah, stay tuned for the costs. You know,
we've talked earlier about the sixty two dollars and whether
or not that's economic. Well, it becomes less economic when
the core inputs to the oil field start going up.
Speaker 3 (13:16):
Where are we in the sort of oil technology upgrade cycle,
because I remember a few years ago, I guess again
coinciding with the shale boom, there was this big drive
for standardized components and that was starting to bring down
some of the costs for producers. Yeah, are people still
doing that? Like, do we still have big upgrades taking place?
Speaker 4 (13:39):
Well? There are. Again, it depends upon the extraction methodology.
So there's two sides to this. One is the grilling
the exploration completion side of the business. So I think
there's still more surprises coming there. It's just amazing in
terms of the types of wells that are being grilled
a couple miles down, several miles across and then horseshoeing
(14:02):
back to be able to recover more and more oil
and natural gas by the way, and which means that
the capital cost per foot that you drill, the capital
cost per barrel that you liberate, goes down by virtue
of technology, only to be offset by we just talked
about the capital input cost of then developing the facilities
(14:25):
to be able to extract, process and distribute the oil
out of the ground. You know, getting back to your question,
there's the subsurface technologies which continue to surprise. I think
there's more to come in that. And above ground, what's
happening is the drive for greater efficiencies, to turn the
oil field more into a manufacturing operation and to drive
(14:46):
cost down through scale. Hence you've seen the consolidation of
the industry happening. Scale doesn't matter, and so you know
there's a lot going on from the perspective of process
and efficiency drive to bring costs down, only to be
offset by the as I said, the input costs going
up and then the pressures of price going down, which
(15:08):
is the number one dominant variable which then dictates whether
or not there's a margin squeeze, a profit margin squeeze
or not.
Speaker 2 (15:15):
Can you talk a little bit more about the discovery
process and you know, what tech looks like in May
twenty twenty five versus a twenty fifteen or two thousand
and five, and like what specifically, like what specific tech
is being employed so that these companies can gain greater
visibility into what's happening underneath the Earth's surface.
Speaker 4 (15:37):
Yeah, well, that's a good bracketing. Two thousand and five,
the industry was still dominated by vertical wells. You drill
a well in the ground, and it's like throwing darts
at a board, you know. The geophysics, in other words,
the ability to map the subsurface and understand where the
oil is or the gases, it was pretty good, but
(15:58):
it was still sort of a hit and miss type
of thing, and that was the way it was for
over a century. The advent of more precise horizontal drilling,
which was really nothing new in two thousand and five,
but it really started to take root with better instrumentation,
better mechanics, you know, mechanical instrumentation and so on, and
(16:19):
the ability to position the drill bit was a major advance.
And then by twenty and fifteen it was okay, you're
driving this drill bit down into the ground, you're bending
at ninety degrees and you're going out. And then from
twenty fifteen to today, ten years it's like, okay, let's
go down, and now the subsurface looks like a fork.
(16:42):
It doesn't look like a single well, and the importance
of this can't be understated because now you're exposing more
surface area of a well, you know, instead of one
vertical well with say, I don't know, twenty thirty feet
of exposure in a vertical cylinder. All of a sudden,
now you have miles of exposure of a well going
(17:04):
out horizontally and then forking and then now even making
U turns and horseshoeing back. I mean, it's just incredible
what we can do. You can think of a drill bit,
which is the solid steel pipe. It seemingly but it's
more like now a piece of spaghetti going down and
winding around to make sure that we optimize it. I
(17:25):
would say one more thing that's super important is that
the technology is now a game. That the extraction methodologies
become much more technical, and the ability to focus on
extracting the maximum amount out of a reservoir using these
new geologic penetration technologies is just amazing. So there's more
(17:46):
to come in my opinion, and I never want to
underestimate the ability of the technology to get better.
Speaker 3 (17:54):
So on the pros and cons of the current environment
for oil producer's point, I guess you have technological advances
that are still happening. You also have from the Trump
administration some regulatory changes, and I think there's something about
co mingling. I think they call it so a regulatory
change that would I guess allow oil producers to pull
(18:17):
crude out of multiple reservoirs. But are the regulatory changes
enough to offset some of the higher costs we've been discussing.
Speaker 4 (18:27):
Well, that's a good question and one to be seen.
I mean, generally speaking, the number one regulatory issue is
to be able to drill a well, complete it and
bring the oil and gas to market as quickly as
possible because of the time value of money. Time is money,
and so the removal of barriers to be able to drill,
(18:49):
produce and sell oil and gas is a big deal.
And so you know, we're sort of seeing some of that.
But you know's the big difference between what the Trump
administration can do it a federal level versus what companies
have to do at the state level. And it's the
same in Canada. Here there's really federal regulations are overlaying
(19:10):
on top of provincial regulations, so we call it the
pancaking of regulations is also problematic and so to the
extent that pancaking is reduced and regulatory drag in terms
of the time it takes to do things is reduced.
Oh and particularly it's not just the drilling and extraction process,
it's then building of the pipelines to get the commodities
(19:32):
to the market.
Speaker 2 (19:33):
What's the state of pipeline politics these days, because I
know that seems to go in and out of favor,
but maybe tell us about Canada, what is the state
of the appetite to expand pipeline networks.
Speaker 4 (19:47):
Yeah, that's a great question. So it was definitively out
of favor for Canada fifteen years, starting to come back
into favor within the Canadian public. And we now now
have a new prime minister, Prime Minister Mark Kearney, and
he has indicated that, okay, we're ready to think about
(20:08):
pipeline and export facility development and infrastructure development. It's I
would argue, more biased to the natural gas side, and
particularly LNG liquefied natural gas exports off our west coast.
But what was considered almost unthinkable, say five years ago,
is all of a sudden invoked and it's largely driven
(20:29):
frankly by the trade wars to desire for sovereignity here
in Canada over our oil and gas supplies, and the
need to diversify our markets away from the United States
because for seventy years or longer, the United States has
been our number one, in fact, our only market or
(20:50):
oil and gas.
Speaker 2 (20:52):
It's pretty striking tracy that Mark Kearney of all people.
I mean, it sort of does tell you a lot
about how the winds are changing. That Mark Kearney is
also you know, sort of on board or much more
comfortable with pipeline expansion.
Speaker 3 (21:06):
Yeah, it's it's a shift for sure. Peter. Since you
mentioned LLNG just now, can you sort of give us
the state of play there as well, because this is
something that's also been coming up, I guess, like the
differing fortunes of crude oil versus LNG in North America.
Speaker 4 (21:23):
Yeah, Well, to get the North American sense, you've got
to get the global sense. So which commodity is growing
faster and in demand, and it's natural gas. Natural gas
continues to grow quite handsomely. Oil is starting to level out.
I don't think it's peaked yet. I think we've got
a few years before oiled consumption peaks. But natural gas
(21:44):
continues to rise, and we also now see the expansion
of liquefied natural gas, certainly from the United States. In Canada,
our first big terminal opens up potentially in a couple months,
and more to follow. Globally, LNG, whether it's Australia, the
(22:04):
Middle East and other places is growing, and so it's
becoming competitive, but the competition is also matched by growing demand.
So LNG is definitely the hydrocarbon fuel of the future
in terms of growth, and I think you're going to
see more. And then you talked to earlier Tracy about regulation.
(22:25):
I think that the Trump administration is definitely on board
with reducing regulatory drag on building loquified natural gas terminals.
And I think the drill baby, drill narrative is much
more tuned to natural gas than it is to the
oil side of the equation.
Speaker 2 (22:42):
Does the expansion of LNG export terminals raise prices domestically
for domestic consumers of natural gas stay in the US.
Speaker 4 (22:53):
Yes, And the reason is because for the past several decades,
natural gas has been bottled up in North America, and
particularly the last I would say fifteen years with the
shale revolution and the liberation of prolific amounts of natural
gas here in North America. It's made our prices here.
(23:16):
I mean it's what is it, three dollars an mmbtu,
something of that order, three point fifty Maybe I don't
know what it is today, maybe you can pull it up,
but whatever it is, I mean, globally, the price is
much higher. It can be eight nine dollars, depending upon
the geopolitical state of the world. Yes there's liquefaction costs,
Yes there's transportation costs, but there's no question that there
(23:40):
was an imbalance in supplying demand in North America that
has kept the price low. The producers have adapted to
that and can make money off of it. But the
whole desire to export globally is to liberate North American
gas into the global market and raises the price. So
(24:00):
you're going to see the prices rise, and the forward
curves are indicating that already.
Speaker 3 (24:20):
So I have to confess I rewatched Armageddon last week.
Such a good movie. I can see why people think
it was like secretly sponsored by Exxon though. But just
on this note, Peter, the first time we ever spoke
to you on all thoughts, I think a big chunk
of our conversation was about talent in the energy space
(24:41):
and actually securing workers who want to get into the
oil industry and how difficult that was in the current environment.
So fast forward, let's see when was the last time
we spoke to you.
Speaker 2 (24:53):
I think we've twenty twenty one.
Speaker 3 (24:56):
Twenty twenty two. Okay, so fast forward three years. What's
the talent picture like right now?
Speaker 4 (25:03):
Yeah, So there's two components to the talent. One is
the downtown office workers, these geologists, geophysicist engineers, and that
talent pool. So that talent pool was definitely and there
was concern because of the retirement profile, the aging of
the expertise and the last decade where again we were
(25:27):
talking earlier about oil and gas being perceived as a
sunset industry, so why would any young person ever want
to go into this business? And so it was creating
a situation whereby there could be like a real talent shortage,
and you know, talent is still hard to come by. However,
one of the things that's happened again technology has never
(25:47):
sees surprise, is that the combination of new digital processing
technologies AI and so on, means that whereas it used
to take three geologists to do a job function now
you can do it with two or potentially even one.
So actually, what we've seen in the drive for efficiency
that we discussed earlier as well, it's not just confined
(26:09):
to the field, it's also in the office, so seeing
actually reductions in workforce. But we'll see what that does
to productivity. But generally speaking, there is this uncomfortable balance
in my opinion, between the supply and demand of labor
in the field blue collar workers. The issue is is
(26:31):
that if there's better jobs that are not away from
home so to speak, because there's you know, working on
a drilling rig going in and out as hard, particularly
if you have a family that has not been as
much of a problem, and there's sort of a stabilization.
For example, if you look at the US oil rig
count over the course of the last while, I mean,
it hasn't really grown that much. In fact, it's say,
(26:52):
if you'll go back to since the last time we talked,
the number of rigs that are active have fallen from
six seven hundred down to five hundred, less than five hundred.
I think it's the precarious balance at the moment. The
saving grace is It's still of a very high paying
industry relative to other industries, so that does tend to
attract people.
Speaker 3 (27:12):
The one other thing I was wondering while watching Armageddon
and all these drillers on an asteroid saving the world.
Is there a competition from geothermal nowadays for workers.
Speaker 4 (27:25):
Kennidley, I haven't followed the rig count in geothermal. I
don't think it's that big personally compared to the oil
and gas industry. Could there be competition going forward, potentially, yes,
but I don't see it as being that big, but
I could I could be wrong. Yeah.
Speaker 2 (27:40):
Also, speaking of careers, someone DMed me this yesterday on
Twitter and I confirmed it, which is that if you
go to the careers page for Chevron, there is a
literally two openings that are being advertised in the United States.
I think this is like office jobs, and then there
(28:01):
is a lot of openings in for software developers and
other things like that in both India and the Philippines,
also Sri Lanka, also Buenos Aires. How much of these
sort of like the office jobs in the industry, thanks
to technology of various flavors, is capable of just simply
(28:22):
being moved offshore.
Speaker 4 (28:23):
I think quite a bit. I mean, it's like the
digital revolution, which seems like an old, antiquated term continuous
and now it's ahi and I think we're going to
see more displacement of white collar workers in the office
as a consequence of this. I mean very much the
art of exploration and mapping the subsurface and engineering you
(28:46):
can now do with fewer people and more technology.
Speaker 3 (28:50):
So I'm very conscious that we're having this big discussion
about oil and I think we've only mentioned Opek a
couple times and we're recording this on May thirteenth. President
Donald Trump is currently in the Middle East. I think
he's in Saudi Arabia right now as we speak. What's
the state of Opek at the moment. I'm aware there
(29:11):
seems to be this market share war and there's been
discussions about boosting production yet again, but what's the overall
picture and what is it that Trump might want to
get out of Saudi at least when it comes to
the oil.
Speaker 4 (29:27):
Yeah, Well, it's the Opek situation is really complicated on
its own, let alone with what the President may or
may not stay behind closed doors and want. So backing
up to the question, what is the state of Opek?
The state of OPEK is that the cartel sets quotas
(29:48):
for production. So I mean in any country. In most
countries this would be illegal, certainly in western countries. But
there's a global cartel which has been around since the seventies,
and that is the open At Cartel, which has expanded
into Opek plus to include the Russians and a handful
of other countries over the last couple of years. Overproduction
(30:10):
amongst some of the members has always been a running theme. Recently,
Kazakhstan has been overproducing right, and that has made the
Saudis not very happy. The Saudis are the largest producer
in OPEK and really the leading country within the cartel,
so to teach them a lesson, basically they said, okay,
(30:31):
we're going to ramp up production and try and drive
the price down so that it brings into line all
the various members of OPEK. This is not a new story.
This happens periodically and so that's the state of play
within OPEK. And so that comes at a time when
global demand is weak as a consequence of the trade
(30:53):
war and the uncertainties therein. And so the combination of
tenuous demand combined with opening up the valves a bit
to teach some of the members of OPAKA. Lesson has
led to the fall in the oil price from seventy
bucks down to sixty or sixty two today. What President
(31:14):
Trump will say behind closed doors, I mean, as you said,
he his objective has a lot of tension, as you
pointed out at the beginning of the show, because on
one hand, he wants to keep gasoline prices low at
the pump, say around the low three dollars level per gallon.
At the same time, if you keep the price of
oil too low, the whole drill, baby drill narrative falls apart.
Speaker 2 (31:38):
So therein lies the tension, right And I don't know
how sure you're supposed to even take it anymore.
Speaker 4 (31:43):
I don't even know if people talk about it.
Speaker 2 (31:45):
But there was like part of Scott Besson's you know
three three three plan is the plan you know, expand
oil production by another three million barrels per day in
the US. That was one of the threes. And right
now I think it's pretty clear we're going the exact
opposite direction. Just going back to the trade war for
a second, from the just the North American perspective, what
(32:09):
are the impacts. You mentioned Canada wanting to diversify its
export partners and so building out more export capacity. But
when it comes to energy, what are sort of the
first order impacts of the tariffs in terms of the
flow of energy across the border.
Speaker 4 (32:27):
Yeah, that's a great question because it's multi dimensional. Okay,
So the US produces about twelve million barrels per day
of oils skewed toward the light barrels. Light light oils
like West Texas Intermedia. Canada exports to the United States
four million barrels per day for a total of sixteen
and then you make up the other four by importing
(32:49):
from various countries like Mexico and so on, so to
bring it up to your twenty million barrels per day
of consumption. So we are a very significant component of that.
Most of our barrels that we sent to the United
States are the heavy barrels which are refined in the
Midwest and in the Gulf Coast, and those refineries there
are very much tuned to refining, you know, in other words,
(33:13):
the recipes for heavier oils, not lighter oils. So you know,
initially when the tariff war broke out back post inauguration,
it was like, we're going to put ten percent tariff
on Canadian oils coming in. Well, that would have definitely
increased costs to the refiners, which would be passed on
(33:34):
to the consumers at the gas pump. In part. Now
some of it would have had to be borne by
the producer as well. It's all very complicated, but the
bottom line is it's inflationary because effectively, a tariff is
a tax and somebody's got to pay, and ultimately, if
it's passed on to the consumer, they're going to pay. Now,
we don't have that ten percent right now because the
(33:57):
trade wars have simmered somewhat of late, but that has
not prevented Canada from thinking, okay, wait a minute, we
can't be reliant on one customer. NBA one on one says,
don't be reliant on one customer. It's concentration risk, so
let's start looking for other Customers's that's where it's at with.
Speaker 2 (34:18):
The Trump administration coming in. One of the things that
we've seen is all these companies in all kinds of
different industries feel very comfortable dropping a lot of their
sort of I guess you'd call more liberal commitments, whether
we're talking about ESG or DEI, and we see banks
and never withdrawing from all these groups, and at least
(34:39):
the big oil companies you know, paid lip service or
had various greening or climate initiatives or decarbonizing their own
supply chains. In some sense, would you say, like broadly
like were any of those but they ever serious about
them and buy and large like does the industry sort
(35:01):
of feel liberated at this point to not have to
spend effort and time talking about these things.
Speaker 4 (35:09):
You know, it's a great question, and it doesn't have
a simple answer because the oil and gas industries in
both Canada and the United States, as I mentioned earlier on,
are quite diverse. There's hundreds of companies. Yeah, and there's
various attitudes towards things like climate change, decarbonization, ESG across
the board. So much as certainly we can point to
(35:33):
certain CEOs, whether it's in larger small companies that are
delighted by dropping all these things and thought they were
nonsense to begin with, there are certainly other CEOs that
take it seriously and have made conscious efforts to decarbonize things.
So there's no you know, I hate to fall into
sort of these binary answers to questions like that where
(35:54):
I say, yeah, the whole oil industry is relieved, because
that's not the case. I think that there's definitely a
full spectrum of attitudes, and I think that's true in
any industry, but particularly this one. By and large, there's
a certain set of policies regulations that the industry will
be relieved to get rid of, because if nothing else,
(36:15):
the reporting burdens became so onerous that you need an
entire department to report on these things, and that's costly.
So there's no quick and clear answer. But generally speaking, up,
I personally think the industry was overregulated from many dimensions,
but that's not to say that I don't feel that
some regulations are necessary.
Speaker 3 (36:35):
Joe, I'm going to ask a peak oil question.
Speaker 4 (36:37):
Okay, good, I'm going to do it.
Speaker 3 (36:39):
No, Okay, it's not really peak oil, although it does
have the word peak in it. But I was looking
through some comments from oil companies recently, and I saw
the CEO of Diamondback Energy say that as a result
of the activity cuts in the oil industry, it is
likely that US onshore oil production has peaked and will
(37:00):
begin to decline this quarter, and there's actually a decent
amount of discussion about US production actually peaking and now
coming down. Is that roughly correct? Peter, would you say
that US onshore oil production at.
Speaker 4 (37:14):
Least has peaked, Well, I would answer that by first
of all saying there's no shortage of oil in the
United States underground, like that there's massive amounts of oil.
Has oil production, in other words, extracting oil peaked at
twelve million barrels per day? My answer is at sixty
(37:35):
five dollars or so, yes, at current levels of capital
inflow from investors, yes, Does that mean that it can't grow?
The answer is now, we talked earlier about technological improvements.
It depends upon the geopolitics of the world. It depends
upon the price of oil. Therefore, the price goes back
(37:56):
up to seventy five dollars, and that investors see that
there's money to be made in the business, you'll start
to see more growth and potentially competitive the ability to
compete even more with other other producers and jurisdictions around
the world. So there's no short answer again to this
kind of question, say, has oil peaked? Oil production peaked
(38:18):
in the United states taken the answers, Yes, at sixty
five dollars, and under the current conditions, it's peaked in
my opinion.
Speaker 2 (38:25):
Peter tired second, thank you so much for coming back
on odd lots, and we'll catch up with you in
a few years under what will probably be a totally different,
unforseeable set of conditions. Well, thank you so much. I'd
love to come back, Tracy. I want to look at
(38:54):
some of all this technology, like the idea of what
we think of as a sort of simple steal pype
actually being more like spaghetti that can you turn underground.
I want to I want to learn more about how
that works.
Speaker 3 (39:07):
Yeah, that's amazing.
Speaker 2 (39:08):
I know it's incredible.
Speaker 3 (39:09):
It would have been useful when when they were trying
to destroy the asteroid. Yes say that, Okay, Well, I
thought one of the one of the important things out
of that conversation, and I still think it's underappreciated in
sort of oil market history, is just how much the
shale boom was really a capital market story as well
(39:30):
as a technology story and a cost cutting story and people,
you know, standardizing little individual valves and reducing costs that way.
But I think that's sort of the key at the moment,
like how do you entice capital back into an industry
which has been burned multiple times and which, as Peter said,
(39:51):
at the current level of oil prices, just doesn't necessarily work.
Speaker 2 (39:56):
And I guess the other question maybe that could bring
more capital to the n space is if more of
these LNG export terminals in both the US and Canada
were to open up and that gap and people have
been like, there's never been a global price of LNG
because of the infrastructure hasn't been there, and there's been
this glut in a way that's been very good for
(40:18):
US electricity consumers, this glut of LNG that hasn't been
able to make it outside of the borders. But with
pipeline politics changing, and it really is striking that someone
like Mark Karney is warming to pipeline expansion for various reasons.
With pipeline politics changing, with export terminal likely to be
(40:40):
more built, you could imagine at least on the LNG side,
a lot of money looking to exploit that persistent, that
persistent global price ARBs, so to speak.
Speaker 3 (40:51):
Well, this is a big theme, right and I think
I said it on the podcaster. It was in my
question but the differing fortunes between crude versus LNG right
now just feels so so striking.
Speaker 2 (41:02):
Totally, like maybe we're getting somewhere close to peak oil demand.
But as Peter said, LLNG is clearly or it looks
like it is going to be the hydrocarbon of the future.
So when we think drilling, et cetera, we still mostly
think oil, but maybe we have to reshift our mindset
towards natural gas.
Speaker 3 (41:23):
If LNG is going to be the hydrocarbon of the future.
I feel like we really need a benchmark to look at.
Speaker 4 (41:29):
Right.
Speaker 2 (41:29):
Well, we're gonna yeah, we need a global price, right
but that you know, by the time there's a global price,
then the art will be closed.
Speaker 3 (41:36):
If anyone's working on a global LNG price, get in touch,
I'd be interested. Yeah, all right, shall we leave it there.
Speaker 2 (41:43):
Let's leave it there.
Speaker 3 (41:44):
This has been another episode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy.
Speaker 2 (41:49):
Alloway and I'm Jill Wisenthal. You can follow me at
the Stalwart. Check out a Peter third second. Here's a
number of very interesting books on energy history. Go check
them out on a Amazon all good Reads. Follow our
producers Carmen Rodriguez at Carman Arman, Dashel Bennett at dashbot,
and Kale Brooks at Kalebrooks. For more Odd Lots content,
go to Bloomberg dot com slash odd Lots, where we
(42:12):
have a daily newsletter and all of our episodes, and
you can chat about these topics, including energy twenty four
to seven in our discord with fellow listeners Discord dot
gg slash od Loots.
Speaker 3 (42:23):
And if you enjoy odd Lots, if you like it
when we talk about tubular components in the oil industry,
then please leave us a positive review on your favorite
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All you need to do is find the Bloomberg channel
on Apple Podcasts and follow the instructions there. Thanks for listening,
(43:05):
Bead
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3 (00:22):
I'm Joe Wassenthal and I'm Tracy Alloway.
Speaker 2 (00:25):
Tracy, I think at least temporarily, some of the trade
related headlines are quieting down, and so it's sort of
time perhaps to understand. I don't want to say new normal.
I just don't. That's like jinxing it a little bit,
but like what the new environment looks like for some
of the industries that have been whipsawed and affected over
(00:47):
recent weeks and months.
Speaker 3 (00:48):
Yeah, ninety days, for investors, executives and podcasters to kind
of catch their breath and consider the new environment, That's
how I would describe it, and then it will probably
all change again.
Speaker 2 (00:59):
It'll chain We're never going to run out of fresh
material and fresh stories to talk about.
Speaker 4 (01:05):
You know.
Speaker 2 (01:05):
There's always this thing. People are always surprised that there
is this phenomenon which seems to occur in markets in
which Republican presidents tend to not be great environments for
the oil industry. Like people think, oh, yeah, here we're
gonna have this pro oil president come in, but pro oiled.
I don't know what that means.
Speaker 4 (01:24):
But if it means.
Speaker 2 (01:25):
More pro drilling, pro liberalization of energy regulations, then often
that means lower prices and less profits, and then you know,
you get an environment where you get a Democratic president
who wants to constrict expansion, focus more on alternatives, and
then profits go up. Anyway, the pattern seems to be
repeating now, and oil prices have done pretty badly since
(01:47):
the start of the year.
Speaker 3 (01:48):
Yeah, so this is something we've been watching. We've been
writing about it in the old Lots newsletter. There was
that great report out from the Dallas Fed their regular
energy survey, and it had a bunch of quotes from
anonymous oil officials that were really kind of extreme in
various ways, and I think one of them kind of
nailed the theme, which is that you can't really have
(02:12):
fifty dollars per barrel oil and US energy dominance. It's
like it's incompatible in various ways. So I think we
should talk about that tension.
Speaker 2 (02:22):
We should absolutely talk about the tension. In addition to
the supply, and we know that OPEC is pumping more,
they are all the input costs going up, particularly from
tariff affected companies in the US. What does it steal tubular.
Speaker 3 (02:37):
Tubular components, Christmas trees. Those are the little collections of
valves and spools.
Speaker 2 (02:43):
Yes, so we're going to get into all that. This
double whammy, so to speak. We have seen a bit
of a rebound as we're talking about this. On April thirteenth,
twenty twenty five, at ten oh seven am Eastern time,
the price of a generic barrel of West Texas Intermediate
sixty two dollars and ninety six cents. I don't know
how profitable it is at that level, but we have
(03:05):
the perfect guest, someone we spoke to a few years
ago when the industry was under very different conditions, but
someone who has a very sort of granular understanding of
the industry. We're going to be speaking with Peter Churtsak,
and he's currently the founder and president of Studio dot Energy.
Previously as a managing director at art Financial, which did
investing in the oil industry. So an expert in the space,
(03:28):
has written books about the energy industry, energy transition periods
and so forth. So, Peter, thank you so much for
coming back on odd lots. Well, I'm delighted to be back.
Speaker 4 (03:37):
Thank you.
Speaker 2 (03:38):
Sixty two dollars and ninety five cents. Now, can the
industry make money at these levels? Who's making money at
these levels?
Speaker 4 (03:46):
Well, the industry is composed of many, many players that
have many different geographic land holdings and therefore many different
extraction methodologies and different grades of oil. So, you know,
sixty two ninety six, if we think of it as
an average price, is sort of okay. It's marginally profitable
(04:08):
for a large part of the industry, but there's no
questions that higher cost producers start falling off the map.
And what you also see is things like stripper wells,
wells that are very low productivity start to get shut
in at these levels. And then there's the boardroom discussion about, well,
what is the longevity of these prices? You know, the
sixty two ninety six is and actually it was only
(04:30):
about a week or two ago. It was in the
high fifties. Yeah, you know, it's it's you sort of
look at that in the boardroom and you just say, okay,
is this going to last a quarter or is it
going to last a year? And you'd probably say, you
know what, I'm going to wait a quarter before I
start making any major decisions on my budgeting.
Speaker 3 (04:48):
What's the funding environment like right now, because I remember
if you look back at the shale oil boom in
the sort of twenty tens, this was the big driving force, right,
like everyone I wanted to invest in oil, and so
we had this big boom and then we had oversupply
and prices crashed. And now all the energy companies say
(05:09):
they want to be really disciplined when it comes to
capital spending. They want to return more money to shareholders.
I don't know our shareholders interested in that particular proposition.
And is funding still like a little bit difficult to get.
Speaker 4 (05:24):
Yeah, So let's talk about that because it's really important.
You know, the equity funding which was so much a
part of the shale revolution. You know, it started really
in the Bocking around two thousand and nine, moved into
the Permian around twenty eleven, and more broadly, and there
was a lot of equity financings. That sort of money
just came in at low cost. The capital things really
(05:45):
started to change, as you pointed out Tracy in twenty
fifteen sixteen, with the price wars, the drop and the
price per barrel as the Saudis tried it to take
their market share back, but there was another moment that
was really important. That was around circa twenty seventeen eighteen,
and that was when the whole end of oil narratives
started to occur, right, that was and if you wind
(06:07):
back to Elon Musk, the models was coming out and
starting toning traction, lots of buzz about electric vehicles, and
it was as if the end of oil was nigh
within ten years. And so investors sort of the combination
of hey, you guys aren't making money in the oil
and gas industry. The prices are low, and by the way,
(06:28):
it's a sunset industry. Therefore, just give us your cash
flow or a significant portion of cash flow. We'll put
the money elsewhere, right, And that was the sentiment. And
that sentiment, you know, recently started to come back post
invasion of Ukraine and the geopolitical elements sort of coming
back and the price of oil rising above seventy dollars.
(06:48):
It made it okay, well let's have another look. And
then the sort of the demise of the whole ESG
type narrative. But you know, this latest oil price d
office sort of taken the resurgence off what do you
call it? The sentiment has sort of turned a little
I'm gonna just watch this. I've seen this movie before.
Speaker 2 (07:08):
What does it take Like oil isn't going to go
away in ten years obviously, but there was a unique
set of conditions in the twenty tens. They're also the
technological gains. Do is the cheap capital like has that
gone forever? Or is the industry so cyclical and so
boom and bust that it's plausible that at some point
(07:28):
we see another crazy drilling war, Like it feels like
maybe I'm naive to think that that can't be recovered
because people in the oil industry they're a little bit crazy,
and you can never count out the possibility that they
all go gung ho for expansion again at some point
in the future.
Speaker 4 (07:48):
Well they it's a great point because of this that
it's sort of like, Okay, we've seen this movie before. Yeah,
if you recall, like it just only been in the
last couple of weeks. At Opek plus is basically which
is it released Saudi Arabia basically saying Okay, we're going
to open up the taps another four hundred and eleven
thousand barrels per day on top of the six hundred
or so so at a time when the economy is weak,
(08:08):
and you sort of question the motivations. Okay, are these
guys trying to take back the market share that they
feel that they're lost. We saw that movie back in
twenty fifteen. But to be able to go gung hosts say, Joe,
you need capital. You need to be able to replicate
the low cost of capital era of the twenty tens,
which was coupled with low inflation, low interest rates. We
(08:30):
don't have that. We don't have that circumstance right now.
So the planets are not aligned for a gun co drilling.
And I think that the oil and gas executives are
much more savvy today that they sit in the boardroom
table and say, Okay, I'm going to watch this. I've
seen this before. And by the way, in the world
of corporate governance, it's shareholders who really oversee the board,
(08:54):
and the board overseas the management. So ultimately the shareholders
are the ones that are deciding whether or not the
industry's going to go gung hole. And right now the
sentiment is now.
Speaker 3 (09:04):
You know, Joe made the point earlier in the intro
that one of the strange realities that we all live with.
Seems to be that the oil industry leans Republican. I
think that's fair to say. Meanwhile, the price of oil
tends to do better under democratic administrations, And in fact,
our Bloomberg colleagues had a really good piece out I
(09:25):
think just this week. It was called Trump's thirst for
Cheap Oil irks and industry he loves to praise, and
in it they quote a guy who owns a sort
of oil components store in Texas, and he has this
really funny quote where he says, we make our money
during democratic administrations. I killed it during Clinton, Obama and Biden.
(09:49):
I said that at the country club, and I thought
somebody was going to kill me with a butter knife,
which is hilarious. But like, what is the attraction? What
is the Republican pitch to the energy industry which seems
to resonate potentially in the face of reality.
Speaker 4 (10:03):
Yeah, it's great. I mean from a statistical perspective, if
you want to get into the details, in correlation does
not imply causality. In other words, I'm a little suspicious
that democratic administrations are the cause of greater prosperity for
the oil and gas industry because the overlay of the
technological revolution of horizontal drilling, fracking and all that stuff
(10:25):
has nothing to do with political administrations, nor does it
necessarily have to do with other major factors, but it
does speak crazy to the tensions you're talking about. I
read that article as well, and there's no question that
the Trump administration and then the lead up even to
the last election, the rhetoric was a drill, baby, drill.
The industry was very closely aligned with the Republican narratives,
(10:49):
and particularly with the narratives of reducing regulations and getting
rid of ESG and all that kind of stuff, But
there wasn't a lot of narrative about necessarily what they're
going to do with the price right on prices set globally,
and that's a whole other dynamic that comes into play.
Speaker 2 (11:07):
What's happening. So you're based in Calgary and obviously one
of Tracy mentioned that Dallas fed Energy survey, and part
of the concern for the US based players is that
their cost of goods very you know what is it
the stibil tuber tubular component. Sorry, I don't know why,
I can't remember. Prices are going up, et cetera. Can
(11:29):
you talk a little bit about input costs and what's
happening there on sort of both sides of the US
Canada border.
Speaker 4 (11:38):
Yes, this is a big issues, the trade wars, the tariffs,
and you know, you can get it into the details
and call it tubular goods and valves and so on,
but ultimately we're talking about steel. Yeah, and we're talking
about the raw inputs that are fundamental to building facilities,
to drilling, to product tubing and so on and so forth.
(12:02):
So when the Trump administration started the trade wars effectively
and the tariffs slopping tariffs on steel, well, yeah, the
input costs are ultimately going to go up until such
time as their desires in other words, the Trump administration's
desire to domesticate or repatriate the steel industry to the
point where it's competitive with the cheaper steals from the
(12:25):
rest of the world. So there's no question that you're
going to see inflation in the oil field, and there's
often a lag. I mean, the story is only a
couple months old, right, three months old, Like you will
see the permeation of higher steel and steal product prices
into places like the oil field over the course of
(12:47):
the year. So yeah, stay tuned for the costs. You know,
we've talked earlier about the sixty two dollars and whether
or not that's economic. Well, it becomes less economic when
the core inputs to the oil field start going up.
Speaker 3 (13:16):
Where are we in the sort of oil technology upgrade cycle,
because I remember a few years ago, I guess again
coinciding with the shale boom, there was this big drive
for standardized components and that was starting to bring down
some of the costs for producers. Yeah, are people still
doing that? Like, do we still have big upgrades taking place?
Speaker 4 (13:39):
Well? There are. Again, it depends upon the extraction methodology.
So there's two sides to this. One is the grilling
the exploration completion side of the business. So I think
there's still more surprises coming there. It's just amazing in
terms of the types of wells that are being grilled
a couple miles down, several miles across and then horseshoeing
(14:02):
back to be able to recover more and more oil
and natural gas by the way, and which means that
the capital cost per foot that you drill, the capital
cost per barrel that you liberate, goes down by virtue
of technology, only to be offset by we just talked
about the capital input cost of then developing the facilities
(14:25):
to be able to extract, process and distribute the oil
out of the ground. You know, getting back to your question,
there's the subsurface technologies which continue to surprise. I think
there's more to come in that. And above ground, what's
happening is the drive for greater efficiencies, to turn the
oil field more into a manufacturing operation and to drive
(14:46):
cost down through scale. Hence you've seen the consolidation of
the industry happening. Scale doesn't matter, and so you know
there's a lot going on from the perspective of process
and efficiency drive to bring costs down, only to be
offset by the as I said, the input costs going
up and then the pressures of price going down, which
(15:08):
is the number one dominant variable which then dictates whether
or not there's a margin squeeze, a profit margin squeeze
or not.
Speaker 2 (15:15):
Can you talk a little bit more about the discovery
process and you know, what tech looks like in May
twenty twenty five versus a twenty fifteen or two thousand
and five, and like what specifically, like what specific tech
is being employed so that these companies can gain greater
visibility into what's happening underneath the Earth's surface.
Speaker 4 (15:37):
Yeah, well, that's a good bracketing. Two thousand and five,
the industry was still dominated by vertical wells. You drill
a well in the ground, and it's like throwing darts
at a board, you know. The geophysics, in other words,
the ability to map the subsurface and understand where the
oil is or the gases, it was pretty good, but
(15:58):
it was still sort of a hit and miss type
of thing, and that was the way it was for
over a century. The advent of more precise horizontal drilling,
which was really nothing new in two thousand and five,
but it really started to take root with better instrumentation,
better mechanics, you know, mechanical instrumentation and so on, and
(16:19):
the ability to position the drill bit was a major advance.
And then by twenty and fifteen it was okay, you're
driving this drill bit down into the ground, you're bending
at ninety degrees and you're going out. And then from
twenty fifteen to today, ten years it's like, okay, let's
go down, and now the subsurface looks like a fork.
(16:42):
It doesn't look like a single well, and the importance
of this can't be understated because now you're exposing more
surface area of a well, you know, instead of one
vertical well with say, I don't know, twenty thirty feet
of exposure in a vertical cylinder. All of a sudden,
now you have miles of exposure of a well going
(17:04):
out horizontally and then forking and then now even making
U turns and horseshoeing back. I mean, it's just incredible
what we can do. You can think of a drill bit,
which is the solid steel pipe. It seemingly but it's
more like now a piece of spaghetti going down and
winding around to make sure that we optimize it. I
(17:25):
would say one more thing that's super important is that
the technology is now a game. That the extraction methodologies
become much more technical, and the ability to focus on
extracting the maximum amount out of a reservoir using these
new geologic penetration technologies is just amazing. So there's more
(17:46):
to come in my opinion, and I never want to
underestimate the ability of the technology to get better.
Speaker 3 (17:54):
So on the pros and cons of the current environment
for oil producer's point, I guess you have technological advances
that are still happening. You also have from the Trump
administration some regulatory changes, and I think there's something about
co mingling. I think they call it so a regulatory
change that would I guess allow oil producers to pull
(18:17):
crude out of multiple reservoirs. But are the regulatory changes
enough to offset some of the higher costs we've been discussing.
Speaker 4 (18:27):
Well, that's a good question and one to be seen.
I mean, generally speaking, the number one regulatory issue is
to be able to drill a well, complete it and
bring the oil and gas to market as quickly as
possible because of the time value of money. Time is money,
and so the removal of barriers to be able to drill,
(18:49):
produce and sell oil and gas is a big deal.
And so you know, we're sort of seeing some of that.
But you know's the big difference between what the Trump
administration can do it a federal level versus what companies
have to do at the state level. And it's the
same in Canada. Here there's really federal regulations are overlaying
(19:10):
on top of provincial regulations, so we call it the
pancaking of regulations is also problematic and so to the
extent that pancaking is reduced and regulatory drag in terms
of the time it takes to do things is reduced.
Oh and particularly it's not just the drilling and extraction process,
it's then building of the pipelines to get the commodities
(19:32):
to the market.
Speaker 2 (19:33):
What's the state of pipeline politics these days, because I
know that seems to go in and out of favor,
but maybe tell us about Canada, what is the state
of the appetite to expand pipeline networks.
Speaker 4 (19:47):
Yeah, that's a great question. So it was definitively out
of favor for Canada fifteen years, starting to come back
into favor within the Canadian public. And we now now
have a new prime minister, Prime Minister Mark Kearney, and
he has indicated that, okay, we're ready to think about
(20:08):
pipeline and export facility development and infrastructure development. It's I
would argue, more biased to the natural gas side, and
particularly LNG liquefied natural gas exports off our west coast.
But what was considered almost unthinkable, say five years ago,
is all of a sudden invoked and it's largely driven
(20:29):
frankly by the trade wars to desire for sovereignity here
in Canada over our oil and gas supplies, and the
need to diversify our markets away from the United States
because for seventy years or longer, the United States has
been our number one, in fact, our only market or
(20:50):
oil and gas.
Speaker 2 (20:52):
It's pretty striking tracy that Mark Kearney of all people.
I mean, it sort of does tell you a lot
about how the winds are changing. That Mark Kearney is
also you know, sort of on board or much more
comfortable with pipeline expansion.
Speaker 3 (21:06):
Yeah, it's it's a shift for sure. Peter. Since you
mentioned LLNG just now, can you sort of give us
the state of play there as well, because this is
something that's also been coming up, I guess, like the
differing fortunes of crude oil versus LNG in North America.
Speaker 4 (21:23):
Yeah, Well, to get the North American sense, you've got
to get the global sense. So which commodity is growing
faster and in demand, and it's natural gas. Natural gas
continues to grow quite handsomely. Oil is starting to level out.
I don't think it's peaked yet. I think we've got
a few years before oiled consumption peaks. But natural gas
(21:44):
continues to rise, and we also now see the expansion
of liquefied natural gas, certainly from the United States. In Canada,
our first big terminal opens up potentially in a couple months,
and more to follow. Globally, LNG, whether it's Australia, the
(22:04):
Middle East and other places is growing, and so it's
becoming competitive, but the competition is also matched by growing demand.
So LNG is definitely the hydrocarbon fuel of the future
in terms of growth, and I think you're going to
see more. And then you talked to earlier Tracy about regulation.
(22:25):
I think that the Trump administration is definitely on board
with reducing regulatory drag on building loquified natural gas terminals.
And I think the drill baby, drill narrative is much
more tuned to natural gas than it is to the
oil side of the equation.
Speaker 2 (22:42):
Does the expansion of LNG export terminals raise prices domestically
for domestic consumers of natural gas stay in the US.
Speaker 4 (22:53):
Yes, And the reason is because for the past several decades,
natural gas has been bottled up in North America, and
particularly the last I would say fifteen years with the
shale revolution and the liberation of prolific amounts of natural
gas here in North America. It's made our prices here.
(23:16):
I mean it's what is it, three dollars an mmbtu,
something of that order, three point fifty Maybe I don't
know what it is today, maybe you can pull it up,
but whatever it is, I mean, globally, the price is
much higher. It can be eight nine dollars, depending upon
the geopolitical state of the world. Yes there's liquefaction costs,
Yes there's transportation costs, but there's no question that there
(23:40):
was an imbalance in supplying demand in North America that
has kept the price low. The producers have adapted to
that and can make money off of it. But the
whole desire to export globally is to liberate North American
gas into the global market and raises the price. So
(24:00):
you're going to see the prices rise, and the forward
curves are indicating that already.
Speaker 3 (24:20):
So I have to confess I rewatched Armageddon last week.
Such a good movie. I can see why people think
it was like secretly sponsored by Exxon though. But just
on this note, Peter, the first time we ever spoke
to you on all thoughts, I think a big chunk
of our conversation was about talent in the energy space
(24:41):
and actually securing workers who want to get into the
oil industry and how difficult that was in the current environment.
So fast forward, let's see when was the last time
we spoke to you.
Speaker 2 (24:53):
I think we've twenty twenty one.
Speaker 3 (24:56):
Twenty twenty two. Okay, so fast forward three years. What's
the talent picture like right now?
Speaker 4 (25:03):
Yeah, So there's two components to the talent. One is
the downtown office workers, these geologists, geophysicist engineers, and that
talent pool. So that talent pool was definitely and there
was concern because of the retirement profile, the aging of
the expertise and the last decade where again we were
(25:27):
talking earlier about oil and gas being perceived as a
sunset industry, so why would any young person ever want
to go into this business? And so it was creating
a situation whereby there could be like a real talent shortage,
and you know, talent is still hard to come by. However,
one of the things that's happened again technology has never
(25:47):
sees surprise, is that the combination of new digital processing
technologies AI and so on, means that whereas it used
to take three geologists to do a job function now
you can do it with two or potentially even one.
So actually, what we've seen in the drive for efficiency
that we discussed earlier as well, it's not just confined
(26:09):
to the field, it's also in the office, so seeing
actually reductions in workforce. But we'll see what that does
to productivity. But generally speaking, there is this uncomfortable balance
in my opinion, between the supply and demand of labor
in the field blue collar workers. The issue is is
(26:31):
that if there's better jobs that are not away from
home so to speak, because there's you know, working on
a drilling rig going in and out as hard, particularly
if you have a family that has not been as
much of a problem, and there's sort of a stabilization.
For example, if you look at the US oil rig
count over the course of the last while, I mean,
it hasn't really grown that much. In fact, it's say,
(26:52):
if you'll go back to since the last time we talked,
the number of rigs that are active have fallen from
six seven hundred down to five hundred, less than five hundred.
I think it's the precarious balance at the moment. The
saving grace is It's still of a very high paying
industry relative to other industries, so that does tend to
attract people.
Speaker 3 (27:12):
The one other thing I was wondering while watching Armageddon
and all these drillers on an asteroid saving the world.
Is there a competition from geothermal nowadays for workers.
Speaker 4 (27:25):
Kennidley, I haven't followed the rig count in geothermal. I
don't think it's that big personally compared to the oil
and gas industry. Could there be competition going forward, potentially, yes,
but I don't see it as being that big, but
I could I could be wrong. Yeah.
Speaker 2 (27:40):
Also, speaking of careers, someone DMed me this yesterday on
Twitter and I confirmed it, which is that if you
go to the careers page for Chevron, there is a
literally two openings that are being advertised in the United States.
I think this is like office jobs, and then there
(28:01):
is a lot of openings in for software developers and
other things like that in both India and the Philippines,
also Sri Lanka, also Buenos Aires. How much of these
sort of like the office jobs in the industry, thanks
to technology of various flavors, is capable of just simply
(28:22):
being moved offshore.
Speaker 4 (28:23):
I think quite a bit. I mean, it's like the
digital revolution, which seems like an old, antiquated term continuous
and now it's ahi and I think we're going to
see more displacement of white collar workers in the office
as a consequence of this. I mean very much the
art of exploration and mapping the subsurface and engineering you
(28:46):
can now do with fewer people and more technology.
Speaker 3 (28:50):
So I'm very conscious that we're having this big discussion
about oil and I think we've only mentioned Opek a
couple times and we're recording this on May thirteenth. President
Donald Trump is currently in the Middle East. I think
he's in Saudi Arabia right now as we speak. What's
the state of Opek at the moment. I'm aware there
(29:11):
seems to be this market share war and there's been
discussions about boosting production yet again, but what's the overall
picture and what is it that Trump might want to
get out of Saudi at least when it comes to
the oil.
Speaker 4 (29:27):
Yeah, Well, it's the Opek situation is really complicated on
its own, let alone with what the President may or
may not stay behind closed doors and want. So backing
up to the question, what is the state of Opek?
The state of OPEK is that the cartel sets quotas
(29:48):
for production. So I mean in any country. In most
countries this would be illegal, certainly in western countries. But
there's a global cartel which has been around since the seventies,
and that is the open At Cartel, which has expanded
into Opek plus to include the Russians and a handful
of other countries over the last couple of years. Overproduction
(30:10):
amongst some of the members has always been a running theme. Recently,
Kazakhstan has been overproducing right, and that has made the
Saudis not very happy. The Saudis are the largest producer
in OPEK and really the leading country within the cartel,
so to teach them a lesson, basically they said, okay,
(30:31):
we're going to ramp up production and try and drive
the price down so that it brings into line all
the various members of OPEK. This is not a new story.
This happens periodically and so that's the state of play
within OPEK. And so that comes at a time when
global demand is weak as a consequence of the trade
(30:53):
war and the uncertainties therein. And so the combination of
tenuous demand combined with opening up the valves a bit
to teach some of the members of OPAKA. Lesson has
led to the fall in the oil price from seventy
bucks down to sixty or sixty two today. What President
(31:14):
Trump will say behind closed doors, I mean, as you said,
he his objective has a lot of tension, as you
pointed out at the beginning of the show, because on
one hand, he wants to keep gasoline prices low at
the pump, say around the low three dollars level per gallon.
At the same time, if you keep the price of
oil too low, the whole drill, baby drill narrative falls apart.
Speaker 2 (31:38):
So therein lies the tension, right And I don't know
how sure you're supposed to even take it anymore.
Speaker 4 (31:43):
I don't even know if people talk about it.
Speaker 2 (31:45):
But there was like part of Scott Besson's you know
three three three plan is the plan you know, expand
oil production by another three million barrels per day in
the US. That was one of the threes. And right
now I think it's pretty clear we're going the exact
opposite direction. Just going back to the trade war for
a second, from the just the North American perspective, what
(32:09):
are the impacts. You mentioned Canada wanting to diversify its
export partners and so building out more export capacity. But
when it comes to energy, what are sort of the
first order impacts of the tariffs in terms of the
flow of energy across the border.
Speaker 4 (32:27):
Yeah, that's a great question because it's multi dimensional. Okay,
So the US produces about twelve million barrels per day
of oils skewed toward the light barrels. Light light oils
like West Texas Intermedia. Canada exports to the United States
four million barrels per day for a total of sixteen
and then you make up the other four by importing
(32:49):
from various countries like Mexico and so on, so to
bring it up to your twenty million barrels per day
of consumption. So we are a very significant component of that.
Most of our barrels that we sent to the United
States are the heavy barrels which are refined in the
Midwest and in the Gulf Coast, and those refineries there
are very much tuned to refining, you know, in other words,
(33:13):
the recipes for heavier oils, not lighter oils. So you know,
initially when the tariff war broke out back post inauguration,
it was like, we're going to put ten percent tariff
on Canadian oils coming in. Well, that would have definitely
increased costs to the refiners, which would be passed on
(33:34):
to the consumers at the gas pump. In part. Now
some of it would have had to be borne by
the producer as well. It's all very complicated, but the
bottom line is it's inflationary because effectively, a tariff is
a tax and somebody's got to pay, and ultimately, if
it's passed on to the consumer, they're going to pay. Now,
we don't have that ten percent right now because the
(33:57):
trade wars have simmered somewhat of late, but that has
not prevented Canada from thinking, okay, wait a minute, we
can't be reliant on one customer. NBA one on one says,
don't be reliant on one customer. It's concentration risk, so
let's start looking for other Customers's that's where it's at with.
Speaker 2 (34:18):
The Trump administration coming in. One of the things that
we've seen is all these companies in all kinds of
different industries feel very comfortable dropping a lot of their
sort of I guess you'd call more liberal commitments, whether
we're talking about ESG or DEI, and we see banks
and never withdrawing from all these groups, and at least
(34:39):
the big oil companies you know, paid lip service or
had various greening or climate initiatives or decarbonizing their own
supply chains. In some sense, would you say, like broadly
like were any of those but they ever serious about
them and buy and large like does the industry sort
(35:01):
of feel liberated at this point to not have to
spend effort and time talking about these things.
Speaker 4 (35:09):
You know, it's a great question, and it doesn't have
a simple answer because the oil and gas industries in
both Canada and the United States, as I mentioned earlier on,
are quite diverse. There's hundreds of companies. Yeah, and there's
various attitudes towards things like climate change, decarbonization, ESG across
the board. So much as certainly we can point to
(35:33):
certain CEOs, whether it's in larger small companies that are
delighted by dropping all these things and thought they were
nonsense to begin with, there are certainly other CEOs that
take it seriously and have made conscious efforts to decarbonize things.
So there's no you know, I hate to fall into
sort of these binary answers to questions like that where
(35:54):
I say, yeah, the whole oil industry is relieved, because
that's not the case. I think that there's definitely a
full spectrum of attitudes, and I think that's true in
any industry, but particularly this one. By and large, there's
a certain set of policies regulations that the industry will
be relieved to get rid of, because if nothing else,
(36:15):
the reporting burdens became so onerous that you need an
entire department to report on these things, and that's costly.
So there's no quick and clear answer. But generally speaking, up,
I personally think the industry was overregulated from many dimensions,
but that's not to say that I don't feel that
some regulations are necessary.
Speaker 3 (36:35):
Joe, I'm going to ask a peak oil question.
Speaker 4 (36:37):
Okay, good, I'm going to do it.
Speaker 3 (36:39):
No, Okay, it's not really peak oil, although it does
have the word peak in it. But I was looking
through some comments from oil companies recently, and I saw
the CEO of Diamondback Energy say that as a result
of the activity cuts in the oil industry, it is
likely that US onshore oil production has peaked and will
(37:00):
begin to decline this quarter, and there's actually a decent
amount of discussion about US production actually peaking and now
coming down. Is that roughly correct? Peter, would you say
that US onshore oil production at.
Speaker 4 (37:14):
Least has peaked, Well, I would answer that by first
of all saying there's no shortage of oil in the
United States underground, like that there's massive amounts of oil.
Has oil production, in other words, extracting oil peaked at
twelve million barrels per day? My answer is at sixty
(37:35):
five dollars or so, yes, at current levels of capital
inflow from investors, yes, Does that mean that it can't grow?
The answer is now, we talked earlier about technological improvements.
It depends upon the geopolitics of the world. It depends
upon the price of oil. Therefore, the price goes back
(37:56):
up to seventy five dollars, and that investors see that
there's money to be made in the business, you'll start
to see more growth and potentially competitive the ability to
compete even more with other other producers and jurisdictions around
the world. So there's no short answer again to this
kind of question, say, has oil peaked? Oil production peaked
(38:18):
in the United states taken the answers, Yes, at sixty
five dollars, and under the current conditions, it's peaked in
my opinion.
Speaker 2 (38:25):
Peter tired second, thank you so much for coming back
on odd lots, and we'll catch up with you in
a few years under what will probably be a totally different,
unforseeable set of conditions. Well, thank you so much. I'd
love to come back, Tracy. I want to look at
(38:54):
some of all this technology, like the idea of what
we think of as a sort of simple steal pype
actually being more like spaghetti that can you turn underground.
I want to I want to learn more about how
that works.
Speaker 3 (39:07):
Yeah, that's amazing.
Speaker 2 (39:08):
I know it's incredible.
Speaker 3 (39:09):
It would have been useful when when they were trying
to destroy the asteroid. Yes say that, Okay, Well, I
thought one of the one of the important things out
of that conversation, and I still think it's underappreciated in
sort of oil market history, is just how much the
shale boom was really a capital market story as well
(39:30):
as a technology story and a cost cutting story and people,
you know, standardizing little individual valves and reducing costs that way.
But I think that's sort of the key at the moment,
like how do you entice capital back into an industry
which has been burned multiple times and which, as Peter said,
(39:51):
at the current level of oil prices, just doesn't necessarily work.
Speaker 2 (39:56):
And I guess the other question maybe that could bring
more capital to the n space is if more of
these LNG export terminals in both the US and Canada
were to open up and that gap and people have
been like, there's never been a global price of LNG
because of the infrastructure hasn't been there, and there's been
this glut in a way that's been very good for
(40:18):
US electricity consumers, this glut of LNG that hasn't been
able to make it outside of the borders. But with
pipeline politics changing, and it really is striking that someone
like Mark Karney is warming to pipeline expansion for various reasons.
With pipeline politics changing, with export terminal likely to be
(40:40):
more built, you could imagine at least on the LNG side,
a lot of money looking to exploit that persistent, that
persistent global price ARBs, so to speak.
Speaker 3 (40:51):
Well, this is a big theme, right and I think
I said it on the podcaster. It was in my
question but the differing fortunes between crude versus LNG right
now just feels so so striking.
Speaker 2 (41:02):
Totally, like maybe we're getting somewhere close to peak oil demand.
But as Peter said, LLNG is clearly or it looks
like it is going to be the hydrocarbon of the future.
So when we think drilling, et cetera, we still mostly
think oil, but maybe we have to reshift our mindset
towards natural gas.
Speaker 3 (41:23):
If LNG is going to be the hydrocarbon of the future.
I feel like we really need a benchmark to look at.
Speaker 4 (41:29):
Right.
Speaker 2 (41:29):
Well, we're gonna yeah, we need a global price, right
but that you know, by the time there's a global price,
then the art will be closed.
Speaker 3 (41:36):
If anyone's working on a global LNG price, get in touch,
I'd be interested. Yeah, all right, shall we leave it there.
Speaker 2 (41:43):
Let's leave it there.
Speaker 3 (41:44):
This has been another episode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy.
Speaker 2 (41:49):
Alloway and I'm Jill Wisenthal. You can follow me at
the Stalwart. Check out a Peter third second. Here's a
number of very interesting books on energy history. Go check
them out on a Amazon all good Reads. Follow our
producers Carmen Rodriguez at Carman Arman, Dashel Bennett at dashbot,
and Kale Brooks at Kalebrooks. For more Odd Lots content,
go to Bloomberg dot com slash odd Lots, where we
(42:12):
have a daily newsletter and all of our episodes, and
you can chat about these topics, including energy twenty four
to seven in our discord with fellow listeners Discord dot
gg slash od Loots.
Speaker 3 (42:23):
And if you enjoy odd Lots, if you like it
when we talk about tubular components in the oil industry,
then please leave us a positive review on your favorite
podcast platform. And remember, if you are a Bloomberg subscriber,
you can listen to all of our episodes absolutely ad free.
All you need to do is find the Bloomberg channel
on Apple Podcasts and follow the instructions there. Thanks for listening,
(43:05):
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Joe Weisenthal
Tracy Alloway
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