Oil Upcycle: Guest outlines a bullish multi-year setup for oil driven by persistent demand growth, capital discipline, and uncertain supply data.
Oilfield Services: Sees the best risk/reward in services, with equipment-heavy names trading at low cash flow multiples and big discounts to replacement cost.
Offshore Drilling: Views the Transocean–Valaris deal favorably, increasing pricing power and sector discipline, supportive for offshore dayrates and utilization.
Key Tickers: Positive on Transocean (RIG) and Valaris (VAL) due to consolidation-led pricing strength and improved industry structure.
Small-Cap Producers: Prefers double-digit FCF-yielding E&Ps in North America, avoiding Europe due to windfall taxes and policy risk.
Market Drivers: Shale productivity tailwinds are fading, non-OPEC supply additions look limited, while demand could exceed consensus 1% growth.
Risks: Highlights potential U.S.–Iran escalation as a major upside risk to oil prices; warns about unreliable oil market data and sentiment-driven volatility.
Transcript
And I guess just very specifically, the one thing that I think matters maybe more for oil markets than any other thing right now is if the US bombs Iran in terms of what the oil market will look like in a year. I know it sounds sort of dramatic. >> Travis Ricardo, we've got a somewhat different style of conversation. We're talking about energy today. >> Energy? Yes. I mean, we talked about energy in the past. We talked about coal. We talked about uranium mostly, but >> different forms. The world of energy is much bigger than the metals that uh we talk about in our mining world. In fact, the world of energy is much much bigger than that. Dominated by oil and um we're looking around for I suppose for value opportunities like what where like what what commodities haven't run yet? What can you what thesis can you come up with that something which is pretty beaten up could have you know it's its time to shine in in the near future, the medium term. And um you and I kind of are getting increasingly interested in the energy space. We're looking at the energy space thinking that you know oil and the services plays around there uh could could have their their time to shine in the in the future. >> That's exactly it. We've got some homework to do and the best way to do it is to get people to teach us. So we're going to chat with a few people and we're going to release some conversations about energy, the the whole broader world, the services space as well. I think it's particularly interesting and what the basic fundamentals are and a whole heap more. So, we hope you like the uh the conversation we've got with Josh Young coming up. Before we jump in, we need to talk about Exceed Capital, mate. The preeminent property group from Queensland. >> Exceed Capital. Exceed my expectations with this, mate. What have you got? >> We're talking about the SP property trust. So, I bet a bunch of money miners out there would have felt the stomach churning volatility in the resources portfolios over the past few months, over the past few years. It's always sort of been that way in the resources space. And a natural diversifier is property. So, we're talking about commercial property in Queensland, Gradea A tenants. You've got people like the Queensland government in there. They're paying monthly distributions and targeting an 8% peranom cash return over a 5-year period. What's not to like, mate? >> This is a specific property and there's a a specific trust set up to to enable participation in this specific investment. Um, it's interesting, mate. Yeah, I think diversification is very important. Lots of people like their property. Lots of people love property in Australia. We love mining stocks and property. Check out Exced Capital. >> And here we go with the interview. >> JD, we're uh we're joined today by Josh Young of Bison Interest. Josh, you have been intimately following the the you know, oil and gas energy complex for many many years. You've been a contrarian in your calls in in that sector for a long time. One thing that we know following mining stocks is it pays to be a contrarian. you know, it pays to be patient and um and as we're looking at the mining metals and mining complex right now, everything is kind of just going limit up in in a lot of um a lot of a lot of the metals. So, we're looking for we're looking for areas where there might be value, where where are the cyclical markets that might still be unloved and um and and yet to really really like really move. And we're looking to oil and gas despite being mining tragics ourselves. We're hoping that you can help us make sense of um make sense of the oil and gas world because I think it's similar. I think there's a lot of similarities and um yeah, just delighted to have your expertise to help us and our our audience kind of unpack what the what the landscape looks like and and what the opportunity might be. >> Yeah, thank you for having me. So, um first of all, I I uh hadn't heard of you guys and then I looked and saw that you've had a number of really great folks on here. So, I really appreciate coming on. And I was actually listening to one of the interviews you did a little bit earlier. So, uh, thank you. Thank you for having me on. And then also, no promises in terms of explaining oil and gas thoroughly. I'm still trying to figure it out. So, uh, I'll just maybe help you, uh, along the journey. >> Appreciate it, Josh. We're coming from a low base. I'm sure you'll help us out. But why not start like we uh, like we kind of do with all commodities with with the fundamentals, the the supply demand narrative. everywhere you go right now, you you hear about an oil glut. You you you see it on Bloomberg, on on every other mainstream media channel, and you see it in some of the data as well with ultra bearish positions from hedge funds in oil. So, I'm curious to to hear what you make of this and to sort of set the table for us in in terms of the the basics of where the oil market is in its cycle. Well, it's a funny time to be talking about this because we're we came into the year with everyone really really bearish on oil and positioned very sort of negatively, but then um there's been we're sort of in I think our fourth or fifth uh mini cyclical geopolitical risk escalations. And so um right now um as we're talking uh energy stocks are up a lot for the year and oil is actually up I think what 15 or 20% or something like that for the year. And so there's sort of this weird um extreme bearishness on fundamentals and then rising bullishness on geopolitical risk which people are all saying they're really looking forward to fading and shorting against and so on. So, it's a very sort of odd moment. And then one of the other things I'll highlight before we get into sort of the specific supply demand numbers are that there's actually this sort of weird um uh cone of uncertainty almost. I was trying to figure out what the right way to describe it is, but um for a market that's as big and as important as oil and gas, particularly the oil market and oil products and NGL's um the data is abysmal. And the accuracy on the data is astonishingly low. I've looked at all the different providers, looked at all the different folks, and I mean, you see what makes it into the investment bank research and into, you know, Bloomberg and various other spots, and it's just it's just wrong all the time. And so, I wanted to highlight that one, as you're trying to figure it out, this is a thing to watch out for. And then two, as we talk through stuff, my own numbers are going to be just as flawed as everyone else's. And what I try to do is just focus on a few of the key elements. Um, but I think it's important to highlight that like you said, as we journey into the oil market, um, knowing that we're in very muddy waters, I think is really helpful in figuring out what's actually going on. >> I'm glad glad you f framed it that way. But it is it's also surprising just given the like the very physical nature of what we're what we're talking about. It should it shouldn't be an impossibility to get the right numbers. But I I want to just kind of like zoom out and and talk about like the the cycle of capital starvation that that has um has been parallel with the sector like like where did that capital starvation begin and where are we now and also why why despite that capital starvation you know is there is the the narrative at the moment that there's this oil glut. Yeah, I think it's a good a good spot to start and I think it's helpful to come at it from I think a sort of generalist commodity perspective. I think that is sort of the easiest to understand both for you guys and and your general audience as well as anyone else that might be listening to this. So if you look back at the last commodity cycle, you had um a boom that no one believed in in the late 90s, early 2000s with demand coming from China, um demand growth coming from China and um sort of grade degradation, whether it was oil where the Saudi oil fields, their core oil fields were running out, um or whether it was with, you know, copper or whatever commodity you look at, there was sort of these problems from underinvestment for a long time. And so you had a huge commodity cycle, a huge capital cycle where um arguably way too much money was spent in that bull market for commodities. And it sort of peaked out around 2012 and you started to see commodity investment collapse. Frankly, you saw some of the precious metals start to fall in what was it 2011 2012. You saw oil hang in there sort of because of geopolitical risk and a couple other factors and then collapse in 2014. And so I think you always want to know I think for cyclicals what the last cycle was to understand sort of where where you are now and whether you might be in a next upcycle or whether you're just sort of in for more uh persistent bare market pain. So I think that'd be sort of how I'd start framing it and then I'm happy to sort of keep answering that or happy if you had sort of it looked like you might have a specific question around that. One one of the things I just find amazing here when you look at the oil price you look at you look at Brent or WTI and you see call it 60-ish bucks maybe a bit over that right now if you take inflation into account where where we kind of are and you compare that with 15 years ago 20 years ago and and further it's it's relatively extremely low and and you see that in the in the profitability terms with with a lot of the producers right >> prices are really low on an inflationadjusted basis And part of why I wanted to go back to the last cycle is that if you frame what's happened so far versus what happened in the late 90s and early 2000s and then how that cycle progressed, you had some of these other commodities lead to some extent. You had gold baffle everyone and start rising. Um and so here you are very very similarly where you have um oil prices quite low at prices that really are sort of um below I think full cycle break evens for most producers especially for the marginal producers and um you know you have these other commodities that have spiked and I think this one's a little different because you actually got to these extremes in some of these other commodities while still having oil quite low on an inflationadjusted basis and so I I think some of that's political, some of that's related to sort of futures positioning, and some of it's related to this particular downturn for oil, which was, I think, more severe, maybe some uh basic metals commodity folks might get mad about this, but I think more severe than most other commodity downturns that that were experienced in the last decade. I think the biggest thing was that there was this giant um investment boom despite the price signal to not do it in US shale development and Canadian shale development as well as actually sort of people don't like to talk about it but there was sort of this offshore persistence of investment where um you should have seen a bunch of projects canled and instead they just sort of went through with them anyway and so you've had this much longer sort of tale of production and investment from the last cycle that was sort of held over and huge losses because of this. I mean, astronomical losses by oil majors, by private equity, by public equity investors, by debt investors. I mean, just, you know, astonishing amounts of money that's that was lost. And so, we're we're at the tail end of that. And I think the real question, most I think oil market observers that don't believe in sort of this net zero fantasy that oil's going away and whatever, I think it's just a debate of, hey, is oil going to go up a lot this year or next year or the year after. And so that's I think where a lot of the sort of specifics of the barrel counting come in. And then it's a question of hey, how much do physical shortages weigh in versus how much do um you know sentiment and futures market positioning weigh in? >> In in the mining world, we um we're well acquainted with the phenomenon of of of grade decline. You mind the highest grade part first and then um as time goes on, uh yeah, you've got to spend more and more capex to expand the mill as the grade goes lower to kind of maintain the production that you you're doing before. What kind of parallels to to Greg decline are there in into the oil and gas world and and how are those like decline rates different by the types of projects? >> Yeah. So from what I've seen on mining equipment and mining technologies, there's been nothing close to what's happened in the oil and gas space in terms of the innovations in shale uh drilling and completions and some of the other sort of aspects of getting oil to market. And so um the first thing that comes to mind is that it used to be let's say if you go back to 2014 that a long lateral so the amount of uh wellbor that was exposed to the zone that was being produced from a long lateral would be one mile through the formation horizontally. And these days a long lateral is four miles and there are some wells on the gas side that are five or six miles. And so if you just think about the gains just purely from not having to drill let's say five wells or six wells to reach that zone just to drill one well. The efficiency gains purely from longer laterals are astronomical in oil and gas for shale development. And they've way overwhelmed for much longer than you would have expected the grade degradation sort of core depletion as they call it in in shale development. um way more than you would have thought. I think from sort of a mining perspective, the global decline rate for oil is somewhere between five and 8% a year. So, um shale, it's sort of hard to properly I think consider it in the context of other commodities because you have to grow a lot just to sort of stay flat and you have to drill a lot just to sustain existing production levels. And so there's this huge amount of activity that's persistent even at very very low price levels just to keep US oil production let's say around 13 million barrels a day of crude oil or around let's say 21 or 22 million barrels a day of crude oil plus natural gas liquids. So there's this huge amount of sort of persistent production growth just to stay flat in shale and shale has only very recently started to roll over. I actually made this mistake a few years ago where it looked like it was starting to roll over and then there was this next hit from improved well productivity from much longer laterals and then much more intense uh well completions. And so um it's only been a problem to have to replace shale in let's say 2026. And so we're just hitting that wall now. And so, you know, the the common, I think, bearish critique on the oil bull thesis would be, hey, well, there's Gana where you've had oil go from zero to a million barrels a day. And there's Brazil where you've had oil production growing recently after, you know, a decade of promises. Eventually, Brazil delivered in one year. Um, and then you have a few other spots where there have been big discoveries and there was uh some growth last year in offshore Kazakhstan. And so, um, I think it's an open question in terms of where's the oil production going to come from next. But I think it's important to understand where we're at, which is there was all of this production that was promised to grow that actually showed up for the most part. But it's not so clear how you get from the million barrels a day in Gana to, let's say, three million barrels a day. You probably don't. And it's not so clear how you get from the close to four million barrels a day in Brazil that you're at right now to anything more than that. And you probably don't at least anywhere close to current activity levels and taking into account current discoveries. And so it's a real open question. And I think that's part of what has me so bullish on oil is just really I don't know in when you when I look at sort of global development plans and global models by all these banks and consultants and so on, it's just not clear. It it's known sort of where there's going to be incremental oil in certain countries, but it's not clear where there's going to be incremental oil that offsets global declines. And that's really I think the the big question. And then the one other question I'm sure we'll get to this in more detail is just getting demand levels right and demand growth levels right and even OPEC I think was shocked in the last year by how much demand there's been for oil at these ultra- low prices that we've been experiencing on an inflationadjusted basis. I mean there were months where we had I think the highest JOD number I saw which is one of these different groups that collects oil they're sort of more OPEC affiliated rather than more sort of IEA type affiliated. So more oil producer country versus more oil consumer country affiliated. Um and they showed a number I'm going off memory. It was either 2.1 million barrels a day of growth for a year or 2.4 million barrels a day of growth for a year. And I've been called a crackpot for saying I think that oil demand is going to grow by a million barrels a day a year for a while around 1% you know plus or minus a little. Um, and here we have demand, measured demand growth at twice that in the last year. And, you know, it looks like even some of the preliminary numbers for January look like they're well over a million barrels a day. Whether they're a million and a half or two, I think we'll we'll get final numbers in six months. Uh, at a point where it's less relevant, but it's somewhere in that in that range and it's pretty pretty remarkable. >> So, so the part of supply there that I'd love to understand more is the US. You said 13 or 14 million barrels a day. I think oil is roughly 100 million barrel a day market. What is the consensus for that to be in say 5 years time? And and how do you kind of differ with the consensus outlook? >> Yeah. So, so crude oil I think is like 88 or 89 million barrels a day and then oil plus natural gas liquids is um closer to I think we're at something like 106 million barrels a day. And so um and US production again crude oil is around let's say 13 million barrels a day plus or minus a little bit and then NGL's um are another let's say 9 million barrels a day right now. Um, so I think it's important to mention that because I think a lot of the uncertainty has to do with double counting NGL's where natural gas liquids which come frequently but not always with oil, particularly with oil that you're producing from shale and sometimes from gas you're producing from shale. Um, they can be produced directly from the formation, but they can also come from the refining process. They're outputs from refining crude oil, but they're also outputs from producing shale oil or shale natural gas or some combo wells, which are sort of a mix of oil and shells and natural gas. And so, um, that that sort of makes the whole thing a mess in terms of counting. There's a number the EIA, the US Energy um administration, uh put out recently where they claimed that there were 24 million barrels a day of liquids being produced in the US. And there's just no way to come to that figure. That's just wrong unless you include the uplift from refining oil, which is very clearly, I would argue, double counting because how can you count the inputs and the outputs towards your production number? just seems, you know, um, like you you count your iron ore and your steel, like pick one. Um, and so, so I think that's been sort of one of the big problems. And so I I would say the biggest difference right now is that is actually on the demand side where I think that demand is going to continue to grow by a little over let's say 1% a year under normal economic conditions and there are zero forecasts in this sort of set of numbers that OPEC assembled recently along with the IEA and whatever from a bunch of different agencies and banks and so on. There are zero forecasts through to 2050 showing 1% annual demand growth, which is astonishing to me considering one that recent demand was actually well in excess of that uh demand growth was in excess of that and two that the 40-year trend of oil demand growth is in excess of 1% a year. So everyone in the world is assuming that we just stop growing our oil production when all the evidence that I can tell at least in the current market and the current environment is to the contrary. And so I think that's probably the biggest single driver of my variant view is just I just think that things aren't different this time and they're not changing until there's evidence that they've actually changed. And I haven't seen I yeah there's electric vehicles but they have plastic as inputs and yeah there's XYZ thing but there's some offset to that and then there's just the reality which is how much oil is actually being consumed right now versus what the forecasts were for how much oil is going to be consumed and then those same folks that were wrong on that are forecasting that out to 2050 and claiming some high degree of um accuracy. >> And and how does China fit into your your FO forecast? They've obviously invested a tremendous amount to to build out energy capacity, be it coal or or new energy and and these sorts. And obviously they've got a real drive on on energy independence that is top of the list for for China and where they want to be in the future so that they're not reliant on on anyone else. But what sort of hit does that do to to the demand numbers in your mind? >> Yeah, I mean China is fascinating. Um the the number of people I've heard who are bullish copper I I can't actually remember hearing or reading anyone who's been bearish copper in the last let's say three years other than people who are really worried about a global economic collapse. I haven't seen anyone bearish copper and I'm looking 15 years. >> Sure. Sure. But I'm looking at these charts of China exporting copper and importing oil as on a net basis and it's like okay well this is interesting right? like what what is going on that um you know this consumer that everyone's sort of very concerned about uh running out of demand on the oil side um exporting copper and um importing more oil. So uh I don't have exact numbers for you on China and I think anyone that has exact numbers uh for you on China for oil consumption is exactly wrong. Um, and I just don't know which direction uh that'll be. And I think the the most interesting thing to me on China in terms of oil demand and oil numbers that people show with a very high degree of sort of bizarre to me conviction is that China economic statistics are not believed by anyone in any category except for their oil consumption. And so um it's a very weird thing where just the the rule is that you just don't believe any economic numbers about China but everyone believes their oil consumption numbers whether it's from them or from the sort of third parties and the the degree of um humility I think on those numbers is astonishing just how poor the numbers are on China generally and how confident people are on their numbers on Chinese oil consumption and oil storage. I mean, you just don't see any room in the reporting and the there's just no room for error or for uncertainty. And the reason I point that out is that um when I've chatted with like oil physical oil traders who deal with Chinese uh buyers and various other folks and run this by them and say, "Hey, is it possible that they're actually using more oil than they're saying and just messing with the satellite data providers who they hate because they call them liars every day in their lives and they anyone domestically that does that, they get sent to re-education camps or worse. And so, um, the, uh, the physical traders all are like, "Hey, yeah, they're probably lying to us. They do this all the time on our physical trades with them." And so, of course, they would if if this would be advantageous to them, they would lie. And so, again, like, are they definitely making up their storage numbers? I'm not sure, but it looks most likely to me that they're probably using a little more oil than people are thinking. Uh, because it doesn't make a lot of sense that they would want to store I think the numbers are like 1.6 billion barrels of oil. like what are they doing with it and why would they do that? Uh but if they have people think that they're doing that then they can potentially buy their oil for let's say $10 a barrel less because there's sort of this perceived extra storage and um embarrass these satellite data providers eventually when uh when this does sort of become better understood. It's like the American Express salad oil scandal, right? No one could imagine that they would mess with these tanks and stuff and then they mess with it and there's this huge huge economic benefit. And I think the benefit would acrue in terms of tens of billions of dollars a year if they were doing this. And so anyway, that's probably the craziest theory that I have. Uh, but also like I tried to chase it down by talking to the folks that actually are engaged in this physical market and trying to they all think it's hilarious and they're like, "Yeah, this is basically like how they negotiate with us on buying individual cargos and stuff where they'll like pretend like they're not interested and then show back up last minute to buy stuff or various other sorts of practices that you don't normally do with regular trade partners." I'm curious to understand the um the the cost curves uh just just from a general perspective in um in mining. There's there's there's so many undeveloped copper projects, but the the the party line forever was you need $5 copper for for these things to actually get to FID and um now at $5 copper, but but I'm waiting for the FIDs to come. I think it's it's now $6 copper that we need or something like that. But if I just to like understand as as the oil price goes higher like what are the what are the new sources of supply that kind of come online or or or even just like if I if I think of the lowest cost kind of category of oil versus higher cost by the different buckets of production. How should I conceptualize that? So everyone thinks they're the lowcost producer and so um it becomes a little complicated because the lowest cost producers on an operating cost basis are probably US shale producers just on an operating cost basis. But the problem is they have to go reinvest a lot. >> Yeah. Capex issues, royalties, various other issues that they have. But the just pure production cost once you have a shale well on it costs astonishingly little money to actually produce it. Especially if you're let's say in the Eagleford like near the Gulf Coast. I mean really it costs very very little money. Um and some of the highest cost oil um is I'm going to get so much flack for this in Saudi Arabia and certain other countries where people say oh it's like so cheap. But you look at their actual numbers and their fiscal break evens and so on on an operating cost basis is astonishingly high. And so um the incremental barrel to bring on would be probably Canadian oil sands, you know, heavy oil. Um and there it's a little complicated because there's a little oil they can bring back on um or add that's very very cheap and then there's a lot of oil that would require much higher prices for a long time. probably similar to the copper thing where you need to be able to lock in, let's say, $100 plus oil and then have five years to be able to bring on some of these bigger projects. >> These oil sands look, they just look awesome. It's like the intersection of mining and and oil all at once. It's so cool. >> Yeah, I think these days people aren't building new oil sand mines anymore. They're doing uh steam assisted gravity drainage, which is basically I think people do this similar sorts of stuff with like lithium and certain other um certain other uh minerals where they'll they'll they'll brine extract essentially deposits rather than try to um and this is this is sort of steam brine extracting uh oil. Um, but yeah, it's it's fascinating and I actually I don't have a lot of exposure to that, but I have some exposure and it's a it's a very interesting it's sort of its own world, but Canada has their own issues which are are hard to express in terms of dollars per barrel of let's say OPEX or you know various other costs because um they won't build new pipelines and it's sort of this country that I mean the US is a little like this where we're trying to pretend like we're this big oil consumer but we're a net exporter of oil. So, we have our president running around trying to keep the oil price down when we're basically like not that different from some other oil net exporters who really need a higher oil price to have a thriving um to have a thriving economy. And Canada's like that, too, where they're they're sort of in denial. They basically steal all the the uh royalty money from Alberta and Saskatchewan and redirect it towards social welfare programs and various other uh government priorities uh in Eastern Canada. And they at the same time as they're sort of redirecting those revenues, they're also blocking pipeline projects and then nationalizing them and of course making them three times more expensive because when you get the government involved in trying to help, um that obviously leads to predictable consequences. And so, um, it sort of the oil in Canada right now after it grows by another, let's say, few hundred thousand barrels a day is going to be landlocked or at least you they're going to need to rail it out rather than pipe it out, which dramatically increases the transportation cost. So, Canada has some real non uh not purely cost related issues with uh getting its oil production higher. So if we look to the market now, I think um I think a lot of people would be fascinated to to kind of hear that a lot of the the super majors, the Exxons of the world are trading at or near all-time highs, which is pretty remarkable. And I think to your point, it's it's reflective of the previous capex cycle and the consequences of that getting getting sharp, you know, starting to focus on on um capital returns to shareholders and all these sorts of things. But I'm really curious, Josh, if we if we go through the kind of baskets from the the big producers to the smaller producers to the offshore services names and um the the royalty names, how you kind of think about relative value and and value against other parts of the market through through those and if anything's kind of screaming out at you right now. >> Yeah. Um, so the oil majors are really expensive and it looks like it's sort of this combination of um just the passive market sort of moving um those stocks higher along with sort of this broad um general stock market bull market that we've had. Um and then I think part of it's also that chemicals margins have been terrible and refining margins really fell off a lot from where they were a few years ago. And so you have sort of this lagging sort of historical high earnings, but the earnings have been falling for these oil super majors as their stock prices have been rising. So um I think the optimist would look at them and say, "Hey, they're pricing in much higher oil prices." And the pessimist would say, "Hey, these things are massively overvalued. The market's wrong. It's broken and these things need to collapse." And so, um, I'm probably more of an optimist than a pessimist, but I think that's sort of the the way to frame it. Um, there's weird claims that have been coming out from these companies that aren't new, by the way, that they every year or two or whatever, Exxon or Chevron or Shell, whatever, they'll say, "Ah, we have this big innovation and it's going to lead to way higher production and way lower costs and it's magic." And um, for most of my career, people just didn't believe this stuff. But in the last year or so, I think as the stocks of these companies have risen, they've started to take them way more seriously. And so, um, I'll pitch my newsletter for a second. I launched this newsletter sort of as this like fun side project. And one of the benefits is I can go through and say what I think about stuff without getting completely, you know, attacked and, you know, called all kinds of names or whatever on social media. And so one of my projects is to sort of go through and and um mythbust on some of this stuff and show hey okay you know you say you've developed as a producer this massive advantage on something that services companies do um and services companies are providing you and really it's actually a disadvantage and you're doing it to get rid of some waste product that you couldn't dispose of for example or whatever. So anyway there's very weird stuff that happens when stock prices go up a lot. I mean, I would point to the um silver miners and silver recently where you had this, you know, I had a I had a view on silver, which is like very rare to have a view on, you know, stuff outside of oil and gas. And I thought that silver would go up a lot. When, you know, once it got over 50, I thought it would go to 100. Once it got to 100, it was like, okay, this is it got a little crazy in terms of the supply demand balances and break evens on new supply and so on. Um, but what I thought was so interesting there was that there were these narratives that showed up that were radically different from what I've been hearing about silver and silver miners and so on for a very long time. And I think there's sort of a parallel here on some of these oil super majors where there's these narratives from the investor community that are showing up that are just very hard to reconcile with reality and then with like my relationships with the service providers and other producers and friends that own interests and their wells and you know the pipeline companies. I mean, there's just there's a way that I've stayed in business over the last decade investing in this terrible oil bare market that we've had for, you know, eight out of the last 10 years, and it's through being able to diligence this stuff. So, anyway, so, uh, I guess you can put me in the category of very much not finding value in the oil super majors here, um, and hoping that they're just pricing in higher oil prices. Yeah, that's that's the like is part of their their relative outperformance their like the rotation into hard commodities that you know rotation out of out of out of high PE stuff into lower PE stuff that's finding its way into into harder commodities be it metals be it the the energy complex but also are they are the equities already pricing in higher higher oil prices which sometimes the equities do do lead first but they're they're sometimes right in doing that as well Like I remember the the lithium equities like running before like the the spot price ran and it was right, you know. So sometimes there's some informationational advantage that gets expressed in the equities before the commodity. >> Yeah, I think so. I mean, I'm like I said, I'm more in the optimist camp on this, but I I would note that there's some of these weird narratives around some of these oil majors that are just very detached, I think, from reality. So if we keep going through the chain services providers is one I'm really keen to get your take on. We saw the transaction with Trans Ocean and um and Polaris just just yesterday and that's one of a number of um consolidation type M&A deals we've seen in in the space. What was your take on it? >> Yeah. Um, so I have exposure there and I love the deal and I think it's good for both companies and it's good for the sector and um, uh, ironically it's sort of bad for these oil super majors because um, there is going to be price pressure from this. I think it's appropriate. Hopefully it doesn't have too much pressure from antitrust folks or whatever. But, you know, I think Valeris was um a little too much of a price taker and Trans Ocean has been more of a price setter. And so, it's great to see that team going and um you know, getting control of this. And I think generally oil field services has consolidated a lot as has uh oil and gas production, but the oil field services companies have been way better about consolidating and there's way fewer of these companies at scale um doing these critical services. And so I think we've seen this phenomenal move in some of these oil field services stocks. Some of them I own and it's been wonderful and some of them I don't own. And it's always funny how it's rational for the ones you own and irrational for the ones you don't own. But um you know some of these services subsectors have gone parabolic. Like if you didn't know the have the stock ticker you'd think it was a gold miner or a silver miner or something or silver junior um and not a you know chemicals company or something like that. So there's been real moves in some of them and I think there's big moves coming in some of them. I think I think the bulk of the move maybe has happened maybe not in some of the largest services names that are sort of in the you know S&P 500 or whatever some of the biggest indexes. Um and then some of the specialty providers I think maybe have outrun themselves a little bit. Um, but you know, some of the drilling rig stocks, some of the completion companies, some of the offshore drillers, I think there's a lot of upside potential there. And I'm I'm really excited about it. And I think the the specifics around that are generally in services for equipment heavy companies, you either get to buy them at a big discount to replacement cost or at a low earnings and cash flow yield type multiple. And so right now you can buy them actually at reasonably cheap cash flow multiples and at very big discounts to replacement cost. And when I saw that and did enough work on it that I now uh maybe know more about some of these onore drilling rig companies and some of the other ones than people that have like focused on it for a while just like go down the the rabbit hole to the nth degree get to meet a lot of the consumers of these services and understand what's going on. Um, I think they're wildly compelling and even though my primary focus is on upstream oil and gas, I actually think some of these services names, some of the smaller ones that haven't run as much are just phenomenally compelling. And I think you're seeing that in the the ETFs where, you know, the OIH ETF or whatever is starting to move. And I think I think some of these subsectors and some of these specific companies are just astonishingly cheap. There's reasons why they're cheap. And I think that those reasons are moving into the rearview mirror. And um yeah, I think that's probably if I had to pick a sector, um services sector is probably my favorite here. >> Trav, we're talking about value, good value. We're talking about services companies. My mind just jumps to Sanvic ground support. >> Sanvic ground support is great value because it's best-in-class ground support and they are a service provider to the resource industry. In our case though, mining companies, what we're talking about with Josh, oil companies, but Sanvic at the forefront of the innovation when it comes to ground support. >> Couldn't agree more. Our beloved industry, mate, I'm going to tell you about two of their latest innovations. Some of these are tried and tested and just brought to the forefront. Some of these are very modern. So, the convergence monitoring system, mate, chuck these in every underground mine and you can go from manual testing to automated testing. That is 2026 in an underground mine. You learned about this on Derek Herd's LinkedIn profile, didn't you? >> I did. I highly recommend giving Derek Herd a follow on LinkedIn. >> What else did you find out there? >> Plates. Plates are the unsung hero ground support. >> Much more advanced than a dinner plate. We're talking about galvanized steel plates that you need underground at your mind. We talk a lot about the cables, the bolts, these sorts of things. They they grab all the fanfare, mate, but it's the plates you need. You want them to be strong and you want them to endure forever there so that you have a reliable and safe underground operation. So get in your orders, download the app or give Derek Herd a call today. >> Go Sanvic ground sport. Go Sanvic >> the offshore like it's not it's not hard to comprehend how a lot of these a lot of these service providers they they benefit from a capital cycle of investment and it's it's so easy to to conceptualize how how their earnings can explode as a capital investment cycle you know returns with a with a with a with a more constructive oil price. Um >> yeah the the mining services names here in in Australia have just gone gang busters and maybe we're going to see the same with with these kind of services names. um that that you look at Josh if if we um there's two other kind of dynamics on the um on the valuation front I'm curious to know about. One is um the royalty companies. I think for a lot of people who are new to the space that's a that's a kind of go-to one given the um the dynamics you have being protected against costs and these sorts of things. How do you see value there at the moment? So, I'm pretty biased on that in the sense that um I get to see a lot of private oil and gas deals sitting here in Houston and I get to see friends go and assemble these royalty and minerals and non-op portfolios and then vendor them to public companies at 3x or 5x or whatever the total cost of assembling these portfolios and then those public companies trade at twice the value that they're paying for these assets. So, it's like accretion all the way up, but um it sort of looks more like uh trading sardines than eating sardines. And I think the devil's in the details on a lot of these specific companies in terms of what I would avoid. And I don't know that I want to go into sort of the extreme negatives about some of them. But I think just the broad observation would be if I wanted to go start let's say Trans Ocean, which again I have a beneficial exposure to and I'm not recommending or uh one of these onshore landri rig companies or some of these specialty services companies. It would be almost impossible even if I had a lot of access to capital to go and create a viable competitor to some of these companies. Um it is extraordinary. It's not easy anymore to assemble a replacement for some of these publicly traded mineral companies, but for my purposes, if I really wanted minerals exposure that was broad, I could just go buy it. Um, and I could underwrite it and I could probably buy it for a third of the cost of what most of these publicly traded minerals and royalty companies trade at. And so I don't know that that's true on the mining royalties side. And I think people just don't really pay too much attention to it. I will say that they're a lot cheaper now than they were three years ago. there was sort of this like weird almost bubble in minerals and royalties and that sort of popped a little and now I'd say there's more of that on the oil super majors. Um but it's still just not you know if it's not at a big discount to replacement cost I don't know why I do it in the commodity space. I wonder if one of the big differences between the mining royalty codes and the the oil royalty codes. The the mining royalty codes have have been tremendous outperformers. Um and what one of the reasons for that is because the they capture mispriced optionality. A lot of the large the large prospective you know mines their reserves life might only say that that it's um it's X but in reality the deposit is it continues. they find more stuff really approximate to it and none of that's kind of captured in the in the um you know in the reserves case that you that the the royalty guild is struck on. But that optionality can can be enormous in the most prospective deposits. There can be three, four, five, 10, 12, 20 times more reserves that were um that were ever reported. So and the royalty companies are a wonderful mechanism at capturing that and not getting the cost. So they've outperformed. But I wonder if in the in the oil world there's there's a much more kind of concrete understanding of what the the geological reserves are and then that depletes over time and it's not like there's this new approximate discovery that's that's huge. So So I don't want to miscommunicate. I love royalties. I think they're fantastic. And I actually think there may there's maybe a case even more to own oil royalties or oil and gas shale royalties than owning mining royalties because the technology improvements and improved recovery factors and then um zones going becoming more economic as prices rise over time or you know technology improves um may actually be better in some areas. I mean, the the first thing that came into mind was a friend who bought land for, let's say, I think it was like $1,000 an acre. And it wasn't even I think it wasn't even a royalty. I think it was just non-op, you know, just picked up a few acres as a part of a deal and resold them for something like a hundred times that recently despite the oil price being I think it was at like 55 or something where he sold there. uh and just a few acres and you know not you know um earthshattering but hey you know it doesn't take very many acres to sell at that price uh to pay for a lot of mistakes and to you know um have a lot of money in your pocket. Uh so I don't know I think I think uh it's not it's not an observation that these things aren't good. It's more of an observation of, hey, if I want to be in oil and gas for, let's say, inflation protection and for cash flow and distributions, does it really make sense to own something at a 3% cash flow yield or 2% cash flow yield? Especially if I can go buy minerals at, let's say, an 8% yield or 10% yield. And yeah, it's smaller, but in many ways that's actually better because I could actually know it more and I can choose to buy those minerals in a place where there's let's say 10 potentially economic zones versus a place where there's let's say one or two potentially economic zones. So I think there's a lot of um specific uh diligence and sort of specific variation and potential value which I think is actually quite similar on the mining royalties and stream side where you know it really matters which mine you're in or so on on those. So I I I I didn't want to come off at all as a negative. I mean, similar to the oil super majors, I think it's fantastic to be integrated. I think it really if you do it well, um you can really benefit from that integration. I just don't like paying a lot for it. And I don't like it when they're actively destroying value, uh, bidding up assets that are non-core to their business model and having to pay, you know, again, in a sort of like three or 4% free cash flow yield type uh, price in order to buy them. >> You want that that cheap or free optionality that that totally stacks up and and makes sense. Your your perspective as well on 3, four, 5% free cash flow yields versus higher actually brings me to to the last question I had on on valuation as well. when we've kind of screened and looked around the world at some of these energy names, a lot of the ones that are presenting kind of 10% free cash flow yields and and even higher and and in some cases even on a dividend yield basis, it's not in the US, it's on weirder and more eclectic exchanges like in in Norway or in on the LSE and these sorts of parts of the world. How do you see the value um divergence across different markets and across different parts of the world? >> So the last category we didn't talk about were the small cap oil and gas producers um and large cap. And so the large caps I think a little more expensive. The smaller caps are quite cheap and I really like them. They're probably my second favorite category here uh second to some of the smaller uh service companies. And um I mean we own I've written about from a newsletter I own for my fund um a number of producers at double digit free cash flow yields here in the US in Canada um and various other jurisdictions. Um I I'm pretty worried about um the risk of having exposure to various European countries where a number of them have imposed drastic taxes and other sorts of regulations and um you know exposure even in countries in Europe that have been less extreme um the political leanings in many of these countries are such that it would not be it might be a surprise to the let's say investors and industry participants ants in XYZ oil rich country in Europe that they would impose a large additional tax or tariff or whatever on their you know uh whether it's a CO2 emissions or you know uh whether it's a additional production tax or so on um it might be a shock to those folks that that would happen but I would think that should be a baseline right that these people that don't like the thing um say they don't like the thing but make money from the thing would want to make more money from the thing from a government perspective for their social programs and have these evil oil producers that they're making all their money from uh keep a little less of their money. So, I see a lot of risk in some of those jurisdictions that others don't share. And I hope I'm wrong, but um I just I I have trouble getting comfortable with investing in places where they hate the thing. I mean, frankly, like Canada is hard enough for me, but um they just have some structural issues in terms of punishing these oil companies too much where some of these European countries don't have those those issues with uh with doing that. So um you know I I actually see a lot of benefit to investing here in the US to investing in Canada to investing in certain let's say South American or West African or various other um countries that from a um jurisdiction perspective you know they might be a little dangerous to let's say go visit on vacation at least parts of them but um from a jurisdiction risk perspective they seem very very unlikely um to dramatically change the fiscal deal essentially on the production. So, um that's what I'm looking for. >> Looking ahead, Josh, the what what do you think your um your your reflections will be 12 months from now? How do you expect the the next 12 months to look in oil? So, I've been very bad at short-term stuff. Uh I used to I actually I bought this little crystal ball and I like to like show it. My short-term crystal ball is broken. Um and uh you know when I look back we launched uh my investment firm about 10 and a half years ago and um I think we're up something like 100% net versus the small cap oil producer index is down 65% or so net you know via like PSE this uh small cap ETF. Even the large cap ETF for energy I think is up like 30 or 40% from where we launched. So, we've done really well over a decade plus, but there have been many individual, let's say, six month to 18month periods where we've materially underperformed. And so, um, I would not rely too heavily on any of my short-term observations. I try to come up with them. I try to think through things as carefully as I can and have as accurate forecast as I can. And I think there's just so much uncertainty in the oil and gas markets that they just sort of embarrass everyone over time. And so, um, when I think about what I'll be looking back on, I'm sure I'll be like, "Hey, how could I have gotten X, Y, or Z, you know, price prediction wrong or missed this local price differential blowout or tightening or this big discovery or, you know, this discovery that people were excited about, you know, turning out to be not there." And my goal is to just try to catch as much of that as possible. But those are the sorts of categories where I'd expect which is basically everything um to expect to be wrong on and therefore starting with the you know the Charlie Munger style inverting just start with like hey okay here's what I think here's let me go find the 10 reasons why it might be wrong and then try to kill as many of those as possible and if I can then maybe I'll talk about it and express it financially. Um, and if not, then uh then not. And I guess just very specifically, the one thing that I think matters maybe more for oil markets than any other thing right now um beyond sort of just the basic demand question of, hey, does demand grow by a million barrels a day or not is if the US bombs Iran. And I know it sounds sort of dramatic, but the US president did promise repeatedly to intervene in these protests in Iran and people went out and died. And the US has been building up uh equipment, military equipment in the area. And so, you know, I think it's not too much of a leap to say that that might happen. And if it does happen, I think it could spiral and lead to a very different if we were talking at this time next year. I'd say that's probably the biggest single difference in terms of what the oil market will look like in a year is if the US gets proactively physically involved more than just what we did in June of last year where we bombed one thing or a couple things, declared victory and and went away. And so I think that's really that's why the geopolitical risk is sort of getting priced in a little despite um what people are worried about from a short-term fundamental perspective. And I think that's probably the big question. And I think I think the US does it. Um I wasn't you know I I would definitely not say for sure but you know I'd say let's say 60% chance that we do it. And uh I think the world might look very different especially from an oil market perspective a year from now on the back of that. That's a that's a fascinating perspective and and something for for everyone to kind of think through. Josh, um appreciate you you making your time available for us and sharing your perspectives. I think you've you've helped us get up to speed on on energy on on oil and what the landscape looks like and and we're grateful for that. So, thank you. >> Yeah, thanks uh thanks for having me on. Uh you've had a a great set of folks on here, so I appreciate getting included in that. A massive thank you to our fantastic partners, Sanvic Ground Support, Intrlinks, Exceed Capital at the top of the show, and Focus, the platform by Market Tech. Check them out. >> Go Australia. >> Now remember, I'm an idiot. JD is an idiot. If you thought any of this was anything other than entertainment, you're an idiot and you need to read our disclaimer.
Is Oil the Next Commodity to Rip? (Josh Young)
Summary
Transcript
And I guess just very specifically, the one thing that I think matters maybe more for oil markets than any other thing right now is if the US bombs Iran in terms of what the oil market will look like in a year. I know it sounds sort of dramatic. >> Travis Ricardo, we've got a somewhat different style of conversation. We're talking about energy today. >> Energy? Yes. I mean, we talked about energy in the past. We talked about coal. We talked about uranium mostly, but >> different forms. The world of energy is much bigger than the metals that uh we talk about in our mining world. In fact, the world of energy is much much bigger than that. Dominated by oil and um we're looking around for I suppose for value opportunities like what where like what what commodities haven't run yet? What can you what thesis can you come up with that something which is pretty beaten up could have you know it's its time to shine in in the near future, the medium term. And um you and I kind of are getting increasingly interested in the energy space. We're looking at the energy space thinking that you know oil and the services plays around there uh could could have their their time to shine in the in the future. >> That's exactly it. We've got some homework to do and the best way to do it is to get people to teach us. So we're going to chat with a few people and we're going to release some conversations about energy, the the whole broader world, the services space as well. I think it's particularly interesting and what the basic fundamentals are and a whole heap more. So, we hope you like the uh the conversation we've got with Josh Young coming up. Before we jump in, we need to talk about Exceed Capital, mate. The preeminent property group from Queensland. >> Exceed Capital. Exceed my expectations with this, mate. What have you got? >> We're talking about the SP property trust. So, I bet a bunch of money miners out there would have felt the stomach churning volatility in the resources portfolios over the past few months, over the past few years. It's always sort of been that way in the resources space. And a natural diversifier is property. So, we're talking about commercial property in Queensland, Gradea A tenants. You've got people like the Queensland government in there. They're paying monthly distributions and targeting an 8% peranom cash return over a 5-year period. What's not to like, mate? >> This is a specific property and there's a a specific trust set up to to enable participation in this specific investment. Um, it's interesting, mate. Yeah, I think diversification is very important. Lots of people like their property. Lots of people love property in Australia. We love mining stocks and property. Check out Exced Capital. >> And here we go with the interview. >> JD, we're uh we're joined today by Josh Young of Bison Interest. Josh, you have been intimately following the the you know, oil and gas energy complex for many many years. You've been a contrarian in your calls in in that sector for a long time. One thing that we know following mining stocks is it pays to be a contrarian. you know, it pays to be patient and um and as we're looking at the mining metals and mining complex right now, everything is kind of just going limit up in in a lot of um a lot of a lot of the metals. So, we're looking for we're looking for areas where there might be value, where where are the cyclical markets that might still be unloved and um and and yet to really really like really move. And we're looking to oil and gas despite being mining tragics ourselves. We're hoping that you can help us make sense of um make sense of the oil and gas world because I think it's similar. I think there's a lot of similarities and um yeah, just delighted to have your expertise to help us and our our audience kind of unpack what the what the landscape looks like and and what the opportunity might be. >> Yeah, thank you for having me. So, um first of all, I I uh hadn't heard of you guys and then I looked and saw that you've had a number of really great folks on here. So, I really appreciate coming on. And I was actually listening to one of the interviews you did a little bit earlier. So, uh, thank you. Thank you for having me on. And then also, no promises in terms of explaining oil and gas thoroughly. I'm still trying to figure it out. So, uh, I'll just maybe help you, uh, along the journey. >> Appreciate it, Josh. We're coming from a low base. I'm sure you'll help us out. But why not start like we uh, like we kind of do with all commodities with with the fundamentals, the the supply demand narrative. everywhere you go right now, you you hear about an oil glut. You you you see it on Bloomberg, on on every other mainstream media channel, and you see it in some of the data as well with ultra bearish positions from hedge funds in oil. So, I'm curious to to hear what you make of this and to sort of set the table for us in in terms of the the basics of where the oil market is in its cycle. Well, it's a funny time to be talking about this because we're we came into the year with everyone really really bearish on oil and positioned very sort of negatively, but then um there's been we're sort of in I think our fourth or fifth uh mini cyclical geopolitical risk escalations. And so um right now um as we're talking uh energy stocks are up a lot for the year and oil is actually up I think what 15 or 20% or something like that for the year. And so there's sort of this weird um extreme bearishness on fundamentals and then rising bullishness on geopolitical risk which people are all saying they're really looking forward to fading and shorting against and so on. So, it's a very sort of odd moment. And then one of the other things I'll highlight before we get into sort of the specific supply demand numbers are that there's actually this sort of weird um uh cone of uncertainty almost. I was trying to figure out what the right way to describe it is, but um for a market that's as big and as important as oil and gas, particularly the oil market and oil products and NGL's um the data is abysmal. And the accuracy on the data is astonishingly low. I've looked at all the different providers, looked at all the different folks, and I mean, you see what makes it into the investment bank research and into, you know, Bloomberg and various other spots, and it's just it's just wrong all the time. And so, I wanted to highlight that one, as you're trying to figure it out, this is a thing to watch out for. And then two, as we talk through stuff, my own numbers are going to be just as flawed as everyone else's. And what I try to do is just focus on a few of the key elements. Um, but I think it's important to highlight that like you said, as we journey into the oil market, um, knowing that we're in very muddy waters, I think is really helpful in figuring out what's actually going on. >> I'm glad glad you f framed it that way. But it is it's also surprising just given the like the very physical nature of what we're what we're talking about. It should it shouldn't be an impossibility to get the right numbers. But I I want to just kind of like zoom out and and talk about like the the cycle of capital starvation that that has um has been parallel with the sector like like where did that capital starvation begin and where are we now and also why why despite that capital starvation you know is there is the the narrative at the moment that there's this oil glut. Yeah, I think it's a good a good spot to start and I think it's helpful to come at it from I think a sort of generalist commodity perspective. I think that is sort of the easiest to understand both for you guys and and your general audience as well as anyone else that might be listening to this. So if you look back at the last commodity cycle, you had um a boom that no one believed in in the late 90s, early 2000s with demand coming from China, um demand growth coming from China and um sort of grade degradation, whether it was oil where the Saudi oil fields, their core oil fields were running out, um or whether it was with, you know, copper or whatever commodity you look at, there was sort of these problems from underinvestment for a long time. And so you had a huge commodity cycle, a huge capital cycle where um arguably way too much money was spent in that bull market for commodities. And it sort of peaked out around 2012 and you started to see commodity investment collapse. Frankly, you saw some of the precious metals start to fall in what was it 2011 2012. You saw oil hang in there sort of because of geopolitical risk and a couple other factors and then collapse in 2014. And so I think you always want to know I think for cyclicals what the last cycle was to understand sort of where where you are now and whether you might be in a next upcycle or whether you're just sort of in for more uh persistent bare market pain. So I think that'd be sort of how I'd start framing it and then I'm happy to sort of keep answering that or happy if you had sort of it looked like you might have a specific question around that. One one of the things I just find amazing here when you look at the oil price you look at you look at Brent or WTI and you see call it 60-ish bucks maybe a bit over that right now if you take inflation into account where where we kind of are and you compare that with 15 years ago 20 years ago and and further it's it's relatively extremely low and and you see that in the in the profitability terms with with a lot of the producers right >> prices are really low on an inflationadjusted basis And part of why I wanted to go back to the last cycle is that if you frame what's happened so far versus what happened in the late 90s and early 2000s and then how that cycle progressed, you had some of these other commodities lead to some extent. You had gold baffle everyone and start rising. Um and so here you are very very similarly where you have um oil prices quite low at prices that really are sort of um below I think full cycle break evens for most producers especially for the marginal producers and um you know you have these other commodities that have spiked and I think this one's a little different because you actually got to these extremes in some of these other commodities while still having oil quite low on an inflationadjusted basis and so I I think some of that's political, some of that's related to sort of futures positioning, and some of it's related to this particular downturn for oil, which was, I think, more severe, maybe some uh basic metals commodity folks might get mad about this, but I think more severe than most other commodity downturns that that were experienced in the last decade. I think the biggest thing was that there was this giant um investment boom despite the price signal to not do it in US shale development and Canadian shale development as well as actually sort of people don't like to talk about it but there was sort of this offshore persistence of investment where um you should have seen a bunch of projects canled and instead they just sort of went through with them anyway and so you've had this much longer sort of tale of production and investment from the last cycle that was sort of held over and huge losses because of this. I mean, astronomical losses by oil majors, by private equity, by public equity investors, by debt investors. I mean, just, you know, astonishing amounts of money that's that was lost. And so, we're we're at the tail end of that. And I think the real question, most I think oil market observers that don't believe in sort of this net zero fantasy that oil's going away and whatever, I think it's just a debate of, hey, is oil going to go up a lot this year or next year or the year after. And so that's I think where a lot of the sort of specifics of the barrel counting come in. And then it's a question of hey, how much do physical shortages weigh in versus how much do um you know sentiment and futures market positioning weigh in? >> In in the mining world, we um we're well acquainted with the phenomenon of of of grade decline. You mind the highest grade part first and then um as time goes on, uh yeah, you've got to spend more and more capex to expand the mill as the grade goes lower to kind of maintain the production that you you're doing before. What kind of parallels to to Greg decline are there in into the oil and gas world and and how are those like decline rates different by the types of projects? >> Yeah. So from what I've seen on mining equipment and mining technologies, there's been nothing close to what's happened in the oil and gas space in terms of the innovations in shale uh drilling and completions and some of the other sort of aspects of getting oil to market. And so um the first thing that comes to mind is that it used to be let's say if you go back to 2014 that a long lateral so the amount of uh wellbor that was exposed to the zone that was being produced from a long lateral would be one mile through the formation horizontally. And these days a long lateral is four miles and there are some wells on the gas side that are five or six miles. And so if you just think about the gains just purely from not having to drill let's say five wells or six wells to reach that zone just to drill one well. The efficiency gains purely from longer laterals are astronomical in oil and gas for shale development. And they've way overwhelmed for much longer than you would have expected the grade degradation sort of core depletion as they call it in in shale development. um way more than you would have thought. I think from sort of a mining perspective, the global decline rate for oil is somewhere between five and 8% a year. So, um shale, it's sort of hard to properly I think consider it in the context of other commodities because you have to grow a lot just to sort of stay flat and you have to drill a lot just to sustain existing production levels. And so there's this huge amount of activity that's persistent even at very very low price levels just to keep US oil production let's say around 13 million barrels a day of crude oil or around let's say 21 or 22 million barrels a day of crude oil plus natural gas liquids. So there's this huge amount of sort of persistent production growth just to stay flat in shale and shale has only very recently started to roll over. I actually made this mistake a few years ago where it looked like it was starting to roll over and then there was this next hit from improved well productivity from much longer laterals and then much more intense uh well completions. And so um it's only been a problem to have to replace shale in let's say 2026. And so we're just hitting that wall now. And so, you know, the the common, I think, bearish critique on the oil bull thesis would be, hey, well, there's Gana where you've had oil go from zero to a million barrels a day. And there's Brazil where you've had oil production growing recently after, you know, a decade of promises. Eventually, Brazil delivered in one year. Um, and then you have a few other spots where there have been big discoveries and there was uh some growth last year in offshore Kazakhstan. And so, um, I think it's an open question in terms of where's the oil production going to come from next. But I think it's important to understand where we're at, which is there was all of this production that was promised to grow that actually showed up for the most part. But it's not so clear how you get from the million barrels a day in Gana to, let's say, three million barrels a day. You probably don't. And it's not so clear how you get from the close to four million barrels a day in Brazil that you're at right now to anything more than that. And you probably don't at least anywhere close to current activity levels and taking into account current discoveries. And so it's a real open question. And I think that's part of what has me so bullish on oil is just really I don't know in when you when I look at sort of global development plans and global models by all these banks and consultants and so on, it's just not clear. It it's known sort of where there's going to be incremental oil in certain countries, but it's not clear where there's going to be incremental oil that offsets global declines. And that's really I think the the big question. And then the one other question I'm sure we'll get to this in more detail is just getting demand levels right and demand growth levels right and even OPEC I think was shocked in the last year by how much demand there's been for oil at these ultra- low prices that we've been experiencing on an inflationadjusted basis. I mean there were months where we had I think the highest JOD number I saw which is one of these different groups that collects oil they're sort of more OPEC affiliated rather than more sort of IEA type affiliated. So more oil producer country versus more oil consumer country affiliated. Um and they showed a number I'm going off memory. It was either 2.1 million barrels a day of growth for a year or 2.4 million barrels a day of growth for a year. And I've been called a crackpot for saying I think that oil demand is going to grow by a million barrels a day a year for a while around 1% you know plus or minus a little. Um, and here we have demand, measured demand growth at twice that in the last year. And, you know, it looks like even some of the preliminary numbers for January look like they're well over a million barrels a day. Whether they're a million and a half or two, I think we'll we'll get final numbers in six months. Uh, at a point where it's less relevant, but it's somewhere in that in that range and it's pretty pretty remarkable. >> So, so the part of supply there that I'd love to understand more is the US. You said 13 or 14 million barrels a day. I think oil is roughly 100 million barrel a day market. What is the consensus for that to be in say 5 years time? And and how do you kind of differ with the consensus outlook? >> Yeah. So, so crude oil I think is like 88 or 89 million barrels a day and then oil plus natural gas liquids is um closer to I think we're at something like 106 million barrels a day. And so um and US production again crude oil is around let's say 13 million barrels a day plus or minus a little bit and then NGL's um are another let's say 9 million barrels a day right now. Um, so I think it's important to mention that because I think a lot of the uncertainty has to do with double counting NGL's where natural gas liquids which come frequently but not always with oil, particularly with oil that you're producing from shale and sometimes from gas you're producing from shale. Um, they can be produced directly from the formation, but they can also come from the refining process. They're outputs from refining crude oil, but they're also outputs from producing shale oil or shale natural gas or some combo wells, which are sort of a mix of oil and shells and natural gas. And so, um, that that sort of makes the whole thing a mess in terms of counting. There's a number the EIA, the US Energy um administration, uh put out recently where they claimed that there were 24 million barrels a day of liquids being produced in the US. And there's just no way to come to that figure. That's just wrong unless you include the uplift from refining oil, which is very clearly, I would argue, double counting because how can you count the inputs and the outputs towards your production number? just seems, you know, um, like you you count your iron ore and your steel, like pick one. Um, and so, so I think that's been sort of one of the big problems. And so I I would say the biggest difference right now is that is actually on the demand side where I think that demand is going to continue to grow by a little over let's say 1% a year under normal economic conditions and there are zero forecasts in this sort of set of numbers that OPEC assembled recently along with the IEA and whatever from a bunch of different agencies and banks and so on. There are zero forecasts through to 2050 showing 1% annual demand growth, which is astonishing to me considering one that recent demand was actually well in excess of that uh demand growth was in excess of that and two that the 40-year trend of oil demand growth is in excess of 1% a year. So everyone in the world is assuming that we just stop growing our oil production when all the evidence that I can tell at least in the current market and the current environment is to the contrary. And so I think that's probably the biggest single driver of my variant view is just I just think that things aren't different this time and they're not changing until there's evidence that they've actually changed. And I haven't seen I yeah there's electric vehicles but they have plastic as inputs and yeah there's XYZ thing but there's some offset to that and then there's just the reality which is how much oil is actually being consumed right now versus what the forecasts were for how much oil is going to be consumed and then those same folks that were wrong on that are forecasting that out to 2050 and claiming some high degree of um accuracy. >> And and how does China fit into your your FO forecast? They've obviously invested a tremendous amount to to build out energy capacity, be it coal or or new energy and and these sorts. And obviously they've got a real drive on on energy independence that is top of the list for for China and where they want to be in the future so that they're not reliant on on anyone else. But what sort of hit does that do to to the demand numbers in your mind? >> Yeah, I mean China is fascinating. Um the the number of people I've heard who are bullish copper I I can't actually remember hearing or reading anyone who's been bearish copper in the last let's say three years other than people who are really worried about a global economic collapse. I haven't seen anyone bearish copper and I'm looking 15 years. >> Sure. Sure. But I'm looking at these charts of China exporting copper and importing oil as on a net basis and it's like okay well this is interesting right? like what what is going on that um you know this consumer that everyone's sort of very concerned about uh running out of demand on the oil side um exporting copper and um importing more oil. So uh I don't have exact numbers for you on China and I think anyone that has exact numbers uh for you on China for oil consumption is exactly wrong. Um, and I just don't know which direction uh that'll be. And I think the the most interesting thing to me on China in terms of oil demand and oil numbers that people show with a very high degree of sort of bizarre to me conviction is that China economic statistics are not believed by anyone in any category except for their oil consumption. And so um it's a very weird thing where just the the rule is that you just don't believe any economic numbers about China but everyone believes their oil consumption numbers whether it's from them or from the sort of third parties and the the degree of um humility I think on those numbers is astonishing just how poor the numbers are on China generally and how confident people are on their numbers on Chinese oil consumption and oil storage. I mean, you just don't see any room in the reporting and the there's just no room for error or for uncertainty. And the reason I point that out is that um when I've chatted with like oil physical oil traders who deal with Chinese uh buyers and various other folks and run this by them and say, "Hey, is it possible that they're actually using more oil than they're saying and just messing with the satellite data providers who they hate because they call them liars every day in their lives and they anyone domestically that does that, they get sent to re-education camps or worse. And so, um, the, uh, the physical traders all are like, "Hey, yeah, they're probably lying to us. They do this all the time on our physical trades with them." And so, of course, they would if if this would be advantageous to them, they would lie. And so, again, like, are they definitely making up their storage numbers? I'm not sure, but it looks most likely to me that they're probably using a little more oil than people are thinking. Uh, because it doesn't make a lot of sense that they would want to store I think the numbers are like 1.6 billion barrels of oil. like what are they doing with it and why would they do that? Uh but if they have people think that they're doing that then they can potentially buy their oil for let's say $10 a barrel less because there's sort of this perceived extra storage and um embarrass these satellite data providers eventually when uh when this does sort of become better understood. It's like the American Express salad oil scandal, right? No one could imagine that they would mess with these tanks and stuff and then they mess with it and there's this huge huge economic benefit. And I think the benefit would acrue in terms of tens of billions of dollars a year if they were doing this. And so anyway, that's probably the craziest theory that I have. Uh, but also like I tried to chase it down by talking to the folks that actually are engaged in this physical market and trying to they all think it's hilarious and they're like, "Yeah, this is basically like how they negotiate with us on buying individual cargos and stuff where they'll like pretend like they're not interested and then show back up last minute to buy stuff or various other sorts of practices that you don't normally do with regular trade partners." I'm curious to understand the um the the cost curves uh just just from a general perspective in um in mining. There's there's there's so many undeveloped copper projects, but the the the party line forever was you need $5 copper for for these things to actually get to FID and um now at $5 copper, but but I'm waiting for the FIDs to come. I think it's it's now $6 copper that we need or something like that. But if I just to like understand as as the oil price goes higher like what are the what are the new sources of supply that kind of come online or or or even just like if I if I think of the lowest cost kind of category of oil versus higher cost by the different buckets of production. How should I conceptualize that? So everyone thinks they're the lowcost producer and so um it becomes a little complicated because the lowest cost producers on an operating cost basis are probably US shale producers just on an operating cost basis. But the problem is they have to go reinvest a lot. >> Yeah. Capex issues, royalties, various other issues that they have. But the just pure production cost once you have a shale well on it costs astonishingly little money to actually produce it. Especially if you're let's say in the Eagleford like near the Gulf Coast. I mean really it costs very very little money. Um and some of the highest cost oil um is I'm going to get so much flack for this in Saudi Arabia and certain other countries where people say oh it's like so cheap. But you look at their actual numbers and their fiscal break evens and so on on an operating cost basis is astonishingly high. And so um the incremental barrel to bring on would be probably Canadian oil sands, you know, heavy oil. Um and there it's a little complicated because there's a little oil they can bring back on um or add that's very very cheap and then there's a lot of oil that would require much higher prices for a long time. probably similar to the copper thing where you need to be able to lock in, let's say, $100 plus oil and then have five years to be able to bring on some of these bigger projects. >> These oil sands look, they just look awesome. It's like the intersection of mining and and oil all at once. It's so cool. >> Yeah, I think these days people aren't building new oil sand mines anymore. They're doing uh steam assisted gravity drainage, which is basically I think people do this similar sorts of stuff with like lithium and certain other um certain other uh minerals where they'll they'll they'll brine extract essentially deposits rather than try to um and this is this is sort of steam brine extracting uh oil. Um, but yeah, it's it's fascinating and I actually I don't have a lot of exposure to that, but I have some exposure and it's a it's a very interesting it's sort of its own world, but Canada has their own issues which are are hard to express in terms of dollars per barrel of let's say OPEX or you know various other costs because um they won't build new pipelines and it's sort of this country that I mean the US is a little like this where we're trying to pretend like we're this big oil consumer but we're a net exporter of oil. So, we have our president running around trying to keep the oil price down when we're basically like not that different from some other oil net exporters who really need a higher oil price to have a thriving um to have a thriving economy. And Canada's like that, too, where they're they're sort of in denial. They basically steal all the the uh royalty money from Alberta and Saskatchewan and redirect it towards social welfare programs and various other uh government priorities uh in Eastern Canada. And they at the same time as they're sort of redirecting those revenues, they're also blocking pipeline projects and then nationalizing them and of course making them three times more expensive because when you get the government involved in trying to help, um that obviously leads to predictable consequences. And so, um, it sort of the oil in Canada right now after it grows by another, let's say, few hundred thousand barrels a day is going to be landlocked or at least you they're going to need to rail it out rather than pipe it out, which dramatically increases the transportation cost. So, Canada has some real non uh not purely cost related issues with uh getting its oil production higher. So if we look to the market now, I think um I think a lot of people would be fascinated to to kind of hear that a lot of the the super majors, the Exxons of the world are trading at or near all-time highs, which is pretty remarkable. And I think to your point, it's it's reflective of the previous capex cycle and the consequences of that getting getting sharp, you know, starting to focus on on um capital returns to shareholders and all these sorts of things. But I'm really curious, Josh, if we if we go through the kind of baskets from the the big producers to the smaller producers to the offshore services names and um the the royalty names, how you kind of think about relative value and and value against other parts of the market through through those and if anything's kind of screaming out at you right now. >> Yeah. Um, so the oil majors are really expensive and it looks like it's sort of this combination of um just the passive market sort of moving um those stocks higher along with sort of this broad um general stock market bull market that we've had. Um and then I think part of it's also that chemicals margins have been terrible and refining margins really fell off a lot from where they were a few years ago. And so you have sort of this lagging sort of historical high earnings, but the earnings have been falling for these oil super majors as their stock prices have been rising. So um I think the optimist would look at them and say, "Hey, they're pricing in much higher oil prices." And the pessimist would say, "Hey, these things are massively overvalued. The market's wrong. It's broken and these things need to collapse." And so, um, I'm probably more of an optimist than a pessimist, but I think that's sort of the the way to frame it. Um, there's weird claims that have been coming out from these companies that aren't new, by the way, that they every year or two or whatever, Exxon or Chevron or Shell, whatever, they'll say, "Ah, we have this big innovation and it's going to lead to way higher production and way lower costs and it's magic." And um, for most of my career, people just didn't believe this stuff. But in the last year or so, I think as the stocks of these companies have risen, they've started to take them way more seriously. And so, um, I'll pitch my newsletter for a second. I launched this newsletter sort of as this like fun side project. And one of the benefits is I can go through and say what I think about stuff without getting completely, you know, attacked and, you know, called all kinds of names or whatever on social media. And so one of my projects is to sort of go through and and um mythbust on some of this stuff and show hey okay you know you say you've developed as a producer this massive advantage on something that services companies do um and services companies are providing you and really it's actually a disadvantage and you're doing it to get rid of some waste product that you couldn't dispose of for example or whatever. So anyway there's very weird stuff that happens when stock prices go up a lot. I mean, I would point to the um silver miners and silver recently where you had this, you know, I had a I had a view on silver, which is like very rare to have a view on, you know, stuff outside of oil and gas. And I thought that silver would go up a lot. When, you know, once it got over 50, I thought it would go to 100. Once it got to 100, it was like, okay, this is it got a little crazy in terms of the supply demand balances and break evens on new supply and so on. Um, but what I thought was so interesting there was that there were these narratives that showed up that were radically different from what I've been hearing about silver and silver miners and so on for a very long time. And I think there's sort of a parallel here on some of these oil super majors where there's these narratives from the investor community that are showing up that are just very hard to reconcile with reality and then with like my relationships with the service providers and other producers and friends that own interests and their wells and you know the pipeline companies. I mean, there's just there's a way that I've stayed in business over the last decade investing in this terrible oil bare market that we've had for, you know, eight out of the last 10 years, and it's through being able to diligence this stuff. So, anyway, so, uh, I guess you can put me in the category of very much not finding value in the oil super majors here, um, and hoping that they're just pricing in higher oil prices. Yeah, that's that's the like is part of their their relative outperformance their like the rotation into hard commodities that you know rotation out of out of out of high PE stuff into lower PE stuff that's finding its way into into harder commodities be it metals be it the the energy complex but also are they are the equities already pricing in higher higher oil prices which sometimes the equities do do lead first but they're they're sometimes right in doing that as well Like I remember the the lithium equities like running before like the the spot price ran and it was right, you know. So sometimes there's some informationational advantage that gets expressed in the equities before the commodity. >> Yeah, I think so. I mean, I'm like I said, I'm more in the optimist camp on this, but I I would note that there's some of these weird narratives around some of these oil majors that are just very detached, I think, from reality. So if we keep going through the chain services providers is one I'm really keen to get your take on. We saw the transaction with Trans Ocean and um and Polaris just just yesterday and that's one of a number of um consolidation type M&A deals we've seen in in the space. What was your take on it? >> Yeah. Um, so I have exposure there and I love the deal and I think it's good for both companies and it's good for the sector and um, uh, ironically it's sort of bad for these oil super majors because um, there is going to be price pressure from this. I think it's appropriate. Hopefully it doesn't have too much pressure from antitrust folks or whatever. But, you know, I think Valeris was um a little too much of a price taker and Trans Ocean has been more of a price setter. And so, it's great to see that team going and um you know, getting control of this. And I think generally oil field services has consolidated a lot as has uh oil and gas production, but the oil field services companies have been way better about consolidating and there's way fewer of these companies at scale um doing these critical services. And so I think we've seen this phenomenal move in some of these oil field services stocks. Some of them I own and it's been wonderful and some of them I don't own. And it's always funny how it's rational for the ones you own and irrational for the ones you don't own. But um you know some of these services subsectors have gone parabolic. Like if you didn't know the have the stock ticker you'd think it was a gold miner or a silver miner or something or silver junior um and not a you know chemicals company or something like that. So there's been real moves in some of them and I think there's big moves coming in some of them. I think I think the bulk of the move maybe has happened maybe not in some of the largest services names that are sort of in the you know S&P 500 or whatever some of the biggest indexes. Um and then some of the specialty providers I think maybe have outrun themselves a little bit. Um, but you know, some of the drilling rig stocks, some of the completion companies, some of the offshore drillers, I think there's a lot of upside potential there. And I'm I'm really excited about it. And I think the the specifics around that are generally in services for equipment heavy companies, you either get to buy them at a big discount to replacement cost or at a low earnings and cash flow yield type multiple. And so right now you can buy them actually at reasonably cheap cash flow multiples and at very big discounts to replacement cost. And when I saw that and did enough work on it that I now uh maybe know more about some of these onore drilling rig companies and some of the other ones than people that have like focused on it for a while just like go down the the rabbit hole to the nth degree get to meet a lot of the consumers of these services and understand what's going on. Um, I think they're wildly compelling and even though my primary focus is on upstream oil and gas, I actually think some of these services names, some of the smaller ones that haven't run as much are just phenomenally compelling. And I think you're seeing that in the the ETFs where, you know, the OIH ETF or whatever is starting to move. And I think I think some of these subsectors and some of these specific companies are just astonishingly cheap. There's reasons why they're cheap. And I think that those reasons are moving into the rearview mirror. And um yeah, I think that's probably if I had to pick a sector, um services sector is probably my favorite here. >> Trav, we're talking about value, good value. We're talking about services companies. My mind just jumps to Sanvic ground support. >> Sanvic ground support is great value because it's best-in-class ground support and they are a service provider to the resource industry. In our case though, mining companies, what we're talking about with Josh, oil companies, but Sanvic at the forefront of the innovation when it comes to ground support. >> Couldn't agree more. Our beloved industry, mate, I'm going to tell you about two of their latest innovations. Some of these are tried and tested and just brought to the forefront. Some of these are very modern. So, the convergence monitoring system, mate, chuck these in every underground mine and you can go from manual testing to automated testing. That is 2026 in an underground mine. 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Go Sanvic >> the offshore like it's not it's not hard to comprehend how a lot of these a lot of these service providers they they benefit from a capital cycle of investment and it's it's so easy to to conceptualize how how their earnings can explode as a capital investment cycle you know returns with a with a with a with a more constructive oil price. Um >> yeah the the mining services names here in in Australia have just gone gang busters and maybe we're going to see the same with with these kind of services names. um that that you look at Josh if if we um there's two other kind of dynamics on the um on the valuation front I'm curious to know about. One is um the royalty companies. I think for a lot of people who are new to the space that's a that's a kind of go-to one given the um the dynamics you have being protected against costs and these sorts of things. How do you see value there at the moment? So, I'm pretty biased on that in the sense that um I get to see a lot of private oil and gas deals sitting here in Houston and I get to see friends go and assemble these royalty and minerals and non-op portfolios and then vendor them to public companies at 3x or 5x or whatever the total cost of assembling these portfolios and then those public companies trade at twice the value that they're paying for these assets. So, it's like accretion all the way up, but um it sort of looks more like uh trading sardines than eating sardines. And I think the devil's in the details on a lot of these specific companies in terms of what I would avoid. And I don't know that I want to go into sort of the extreme negatives about some of them. But I think just the broad observation would be if I wanted to go start let's say Trans Ocean, which again I have a beneficial exposure to and I'm not recommending or uh one of these onshore landri rig companies or some of these specialty services companies. It would be almost impossible even if I had a lot of access to capital to go and create a viable competitor to some of these companies. Um it is extraordinary. It's not easy anymore to assemble a replacement for some of these publicly traded mineral companies, but for my purposes, if I really wanted minerals exposure that was broad, I could just go buy it. Um, and I could underwrite it and I could probably buy it for a third of the cost of what most of these publicly traded minerals and royalty companies trade at. And so I don't know that that's true on the mining royalties side. And I think people just don't really pay too much attention to it. I will say that they're a lot cheaper now than they were three years ago. there was sort of this like weird almost bubble in minerals and royalties and that sort of popped a little and now I'd say there's more of that on the oil super majors. Um but it's still just not you know if it's not at a big discount to replacement cost I don't know why I do it in the commodity space. I wonder if one of the big differences between the mining royalty codes and the the oil royalty codes. The the mining royalty codes have have been tremendous outperformers. Um and what one of the reasons for that is because the they capture mispriced optionality. A lot of the large the large prospective you know mines their reserves life might only say that that it's um it's X but in reality the deposit is it continues. they find more stuff really approximate to it and none of that's kind of captured in the in the um you know in the reserves case that you that the the royalty guild is struck on. But that optionality can can be enormous in the most prospective deposits. There can be three, four, five, 10, 12, 20 times more reserves that were um that were ever reported. So and the royalty companies are a wonderful mechanism at capturing that and not getting the cost. So they've outperformed. But I wonder if in the in the oil world there's there's a much more kind of concrete understanding of what the the geological reserves are and then that depletes over time and it's not like there's this new approximate discovery that's that's huge. So So I don't want to miscommunicate. I love royalties. I think they're fantastic. And I actually think there may there's maybe a case even more to own oil royalties or oil and gas shale royalties than owning mining royalties because the technology improvements and improved recovery factors and then um zones going becoming more economic as prices rise over time or you know technology improves um may actually be better in some areas. I mean, the the first thing that came into mind was a friend who bought land for, let's say, I think it was like $1,000 an acre. And it wasn't even I think it wasn't even a royalty. I think it was just non-op, you know, just picked up a few acres as a part of a deal and resold them for something like a hundred times that recently despite the oil price being I think it was at like 55 or something where he sold there. uh and just a few acres and you know not you know um earthshattering but hey you know it doesn't take very many acres to sell at that price uh to pay for a lot of mistakes and to you know um have a lot of money in your pocket. Uh so I don't know I think I think uh it's not it's not an observation that these things aren't good. It's more of an observation of, hey, if I want to be in oil and gas for, let's say, inflation protection and for cash flow and distributions, does it really make sense to own something at a 3% cash flow yield or 2% cash flow yield? Especially if I can go buy minerals at, let's say, an 8% yield or 10% yield. And yeah, it's smaller, but in many ways that's actually better because I could actually know it more and I can choose to buy those minerals in a place where there's let's say 10 potentially economic zones versus a place where there's let's say one or two potentially economic zones. So I think there's a lot of um specific uh diligence and sort of specific variation and potential value which I think is actually quite similar on the mining royalties and stream side where you know it really matters which mine you're in or so on on those. So I I I I didn't want to come off at all as a negative. I mean, similar to the oil super majors, I think it's fantastic to be integrated. I think it really if you do it well, um you can really benefit from that integration. I just don't like paying a lot for it. And I don't like it when they're actively destroying value, uh, bidding up assets that are non-core to their business model and having to pay, you know, again, in a sort of like three or 4% free cash flow yield type uh, price in order to buy them. >> You want that that cheap or free optionality that that totally stacks up and and makes sense. Your your perspective as well on 3, four, 5% free cash flow yields versus higher actually brings me to to the last question I had on on valuation as well. when we've kind of screened and looked around the world at some of these energy names, a lot of the ones that are presenting kind of 10% free cash flow yields and and even higher and and in some cases even on a dividend yield basis, it's not in the US, it's on weirder and more eclectic exchanges like in in Norway or in on the LSE and these sorts of parts of the world. How do you see the value um divergence across different markets and across different parts of the world? >> So the last category we didn't talk about were the small cap oil and gas producers um and large cap. And so the large caps I think a little more expensive. The smaller caps are quite cheap and I really like them. They're probably my second favorite category here uh second to some of the smaller uh service companies. And um I mean we own I've written about from a newsletter I own for my fund um a number of producers at double digit free cash flow yields here in the US in Canada um and various other jurisdictions. Um I I'm pretty worried about um the risk of having exposure to various European countries where a number of them have imposed drastic taxes and other sorts of regulations and um you know exposure even in countries in Europe that have been less extreme um the political leanings in many of these countries are such that it would not be it might be a surprise to the let's say investors and industry participants ants in XYZ oil rich country in Europe that they would impose a large additional tax or tariff or whatever on their you know uh whether it's a CO2 emissions or you know uh whether it's a additional production tax or so on um it might be a shock to those folks that that would happen but I would think that should be a baseline right that these people that don't like the thing um say they don't like the thing but make money from the thing would want to make more money from the thing from a government perspective for their social programs and have these evil oil producers that they're making all their money from uh keep a little less of their money. So, I see a lot of risk in some of those jurisdictions that others don't share. And I hope I'm wrong, but um I just I I have trouble getting comfortable with investing in places where they hate the thing. I mean, frankly, like Canada is hard enough for me, but um they just have some structural issues in terms of punishing these oil companies too much where some of these European countries don't have those those issues with uh with doing that. So um you know I I actually see a lot of benefit to investing here in the US to investing in Canada to investing in certain let's say South American or West African or various other um countries that from a um jurisdiction perspective you know they might be a little dangerous to let's say go visit on vacation at least parts of them but um from a jurisdiction risk perspective they seem very very unlikely um to dramatically change the fiscal deal essentially on the production. So, um that's what I'm looking for. >> Looking ahead, Josh, the what what do you think your um your your reflections will be 12 months from now? How do you expect the the next 12 months to look in oil? So, I've been very bad at short-term stuff. Uh I used to I actually I bought this little crystal ball and I like to like show it. My short-term crystal ball is broken. Um and uh you know when I look back we launched uh my investment firm about 10 and a half years ago and um I think we're up something like 100% net versus the small cap oil producer index is down 65% or so net you know via like PSE this uh small cap ETF. Even the large cap ETF for energy I think is up like 30 or 40% from where we launched. So, we've done really well over a decade plus, but there have been many individual, let's say, six month to 18month periods where we've materially underperformed. And so, um, I would not rely too heavily on any of my short-term observations. I try to come up with them. I try to think through things as carefully as I can and have as accurate forecast as I can. And I think there's just so much uncertainty in the oil and gas markets that they just sort of embarrass everyone over time. And so, um, when I think about what I'll be looking back on, I'm sure I'll be like, "Hey, how could I have gotten X, Y, or Z, you know, price prediction wrong or missed this local price differential blowout or tightening or this big discovery or, you know, this discovery that people were excited about, you know, turning out to be not there." And my goal is to just try to catch as much of that as possible. But those are the sorts of categories where I'd expect which is basically everything um to expect to be wrong on and therefore starting with the you know the Charlie Munger style inverting just start with like hey okay here's what I think here's let me go find the 10 reasons why it might be wrong and then try to kill as many of those as possible and if I can then maybe I'll talk about it and express it financially. Um, and if not, then uh then not. And I guess just very specifically, the one thing that I think matters maybe more for oil markets than any other thing right now um beyond sort of just the basic demand question of, hey, does demand grow by a million barrels a day or not is if the US bombs Iran. And I know it sounds sort of dramatic, but the US president did promise repeatedly to intervene in these protests in Iran and people went out and died. And the US has been building up uh equipment, military equipment in the area. And so, you know, I think it's not too much of a leap to say that that might happen. And if it does happen, I think it could spiral and lead to a very different if we were talking at this time next year. I'd say that's probably the biggest single difference in terms of what the oil market will look like in a year is if the US gets proactively physically involved more than just what we did in June of last year where we bombed one thing or a couple things, declared victory and and went away. And so I think that's really that's why the geopolitical risk is sort of getting priced in a little despite um what people are worried about from a short-term fundamental perspective. And I think that's probably the big question. And I think I think the US does it. Um I wasn't you know I I would definitely not say for sure but you know I'd say let's say 60% chance that we do it. And uh I think the world might look very different especially from an oil market perspective a year from now on the back of that. That's a that's a fascinating perspective and and something for for everyone to kind of think through. Josh, um appreciate you you making your time available for us and sharing your perspectives. I think you've you've helped us get up to speed on on energy on on oil and what the landscape looks like and and we're grateful for that. So, thank you. >> Yeah, thanks uh thanks for having me on. Uh you've had a a great set of folks on here, so I appreciate getting included in that. A massive thank you to our fantastic partners, Sanvic Ground Support, Intrlinks, Exceed Capital at the top of the show, and Focus, the platform by Market Tech. Check them out. >> Go Australia. >> Now remember, I'm an idiot. JD is an idiot. If you thought any of this was anything other than entertainment, you're an idiot and you need to read our disclaimer.