Elliott Gue: Large Capex Cuts Means Future Oil Supply Issues? Oil Now Top Contrarian Value Play?

Summary

Market Outlook: Elliott Gue discusses the bearish sentiment in the oil market, highlighting that oil is one of the most hated commodities, similar to key bottoms in 2016 and 2020.Investment Opportunities: Despite the negative sentiment, Gue sees potential in oil as a contrarian value play, with low valuations and signs of tight market conditions, such as low inventories and strong demand.Supply and Demand Dynamics: The podcast highlights concerns about future oil supply due to large capex cuts and high decline rates in conventional oil fields, suggesting potential supply issues if investment doesn't increase.Company Strategies: Major oil companies like Exxon Mobil and Chevron continue to invest in oil and gas projects, while European majors are cautiously returning to oil investments after focusing on renewables.Energy Transition: Gue argues there is no significant global energy transition away from fossil fuels, as coal, oil, and natural gas still dominate global energy consumption, despite growth in renewables.Regional Energy Policies: The podcast contrasts energy strategies, noting that states like Florida balance solar with natural gas, while California faces high energy costs due to aggressive renewable policies and reduced fossil fuel infrastructure.Natural Gas and Data Centers: There's a growing trend of colocating data centers near natural gas fields to ensure reliable power supply, highlighting the increasing demand for natural gas in powering data centers.Investment Strategy: Gue advises focusing on high-quality, low-cost producers with strong free cash flow and conservative management, suggesting that these companies are well-positioned to weather current market conditions and benefit from future oil price increases.

Transcript

Hi everyone, this is Jason Ber of Wall Street from Main Street. Welcome back for another Wall Street from Main Street podcast interview. We're talking about oil today. Rick Ro who was on in the last couple weeks. Also Dan Stefins there. They were outlining the valuations for oil and natural gas companies. Some of the absolute cheapest valuations there for profitable companies, companies generating free cash flow. They have not cut their dividends. We're at West Texas Intermediate crude oil prices. They're on the lower end of a trading range. A little bit of a rally this week. still barely above $60 at $61.88. I think uh at one point a couple days ago, I think we we bottomed out maybe around $58. The natural gas prices started to have a rally. I think like the the demand side for natural gas is a lot clearer, especially with all these data centers that are under construction. Today's special guest is a returning guest. He runs for over 20 years now a paid oil and natural gas newsletter. Folks, this is all he does and he is very, very good at. He covers all the large caps and medium caps in the oil and natural gas sector and the pipeline companies. Elliot Gu, thank you for joining me again. >> Oh, thanks for having me on the show. >> And Elliot uh worked at other newsletter companies in the past. He runs the energy income adviser with um my former boss and also his uh co-founder there, Roger Conrad. So Elliot, I want to get your thoughts on oil supply and demand because um you know the sentiment right now I think a couple months ago the sentiment for the oil market I think it was the lowest amount of oil bulls on the oil futures contracts I think in history I think I saw in one place and now whenever um I interview oil experts like you or Dan Stefins or Rick Ro says nice things about oil natural gas I just get super long nasty like troll comments on social media saying the oil edge is over why won't you interview electric vehicle experts experts or solar, wind, bofuels, battery experts like is like that. Do you think that that's a good sign that the bottom is close? >> I I do. I think oil is one of the most hated commodities I've ever seen in my career. C certainly as hated as as it has been been at some of the key bottoms in history like 2016 and 2020. Um you know, you mentioned the futures market positioning. Um obviously I look closely at the commitment of traders report that comes out of CFTC uh where they actually tell you you know what the speculators or non-commercial traders what their positioning is in futures and typically it's a contrarian indicator right when everybody's excited about oil and long oil in the futures market that's usually a sign that you might be looking for a top or at least a correction or pullback. You know, the opposite is true when those commitments are very low, when they're quite bearish, when speculators are quite bearish oil. CFTC hasn't released the data since the end of September because of the government closure, right? But at the end of September, you know, we were at 15 plus year lows for net commitments on the non-commercial side. So, the le lowest levels we've seen since the summer of uh 2010, right? So, very bearish on oil. You know, I also look on the stock side. You know, I like to look at the Meil Lynch uh Bank of America Meil Lynch um you know, monthly global fund manager survey, which is actually a survey they do of, you know, a couple hundred fund managers, active fund managers all over the world. Uh and they ask them, you know, a variety of questions about their positioning, you know, what sectors they're hot on, what the key issues they see for the global economy are. And you know, we see that they are 1.7 standard deviations underweight energy, right, relative to the long-term average, which for them goes back to about 2001, I believe they started this survey. Um, so one of the lowest weightings we've ever seen, the most underweight energy stocks we've seen in the past, you know, almost 25 years, you know, 24 years. The only other times in history where we've seen, you know, energy market or the global fund manager survey this bearish on energy and oil in particular were 2016, right, when oil prices bottomed under uh you know, under $30 a barrel and then 2020 when we had the commodity price collapse. You know, everybody hates um oil in the markets. And then on the fundamental side, you know, there's just been a steady drum beat of, you know, really bad news that's caught a lot of uh media attention. You know, we have, you know, OPEC increasing production, uh bringing back their production cuts that they, you know, announced over the last couple of years, much faster than anyone expected. um they've now pretty much reversed all the production cuts or they have a line of sight to reverse all the production you know cuts the quota cuts that they put in place over the last few years. Um you have IEA the International Energy Agency which is pretty much openly hostile to oil and has been for years. um you know forecasting in Q1 and Q2 of next year that there's going to be 4.5 million barrels a day of oil market over supply right meaning that you know global inventories would build by 4 a.5 million barrels a day mainly because of sort of weakish flattish demand growth and all this new oil coming out of OPEC additional oil production they're forecasting from the United States um 4.5 million barrels a day would be bigger over supply, a bigger glut if you will, than we saw in early 2020, right, when you know global COVID lockdowns were causing and travel restrictions were causing you know a record setting decline in you know in oil demand and yet right there are also all these actual positive signs out there which everybody pretty much ignores. um you know the most visible oil market in the world also happens to be both the largest user of oil and the largest producer of oil right also the largest exporter of gasoline right and one of the largest exporters of diesel would be the good old United States right and unlike the CFTC you know the EIA has continued to to the US energy information administration part of the department of energy has continued producing their weekly oil inventory stats. And what we can see here in the United States is that, you know, oil inventories are well below about 6 or 7% below the 5-year seasonal average for this time of year. We have um gasoline inventories below average for this time of year. We have distillate inventories which includes diesel fuel, right? And heating oil uh also about 6 or 7% below uh the 5-year seasonal average. We also have very strong demand. All summer long, US refineries were operating at five to sevenyear seasonal highs in terms of utilization of refineries. Um demand from drive summer driving season was record setting this summer. Um you saw uh if you look at the numbers from you know the transportation security administration TSA for the number of passengers moving through US airports you know July of uh 2025 which is the peak of travel demand was stronger than 2024 2023 2022 go back through their entire data set um so you know demand has been very strong uh US exports of gasoline diesel fuel have been very strong um and you have um you know global oil inventories which are not you know announced or reported as frequently as the US. We see OECD basically developed world uh oil inventories relatively low. Um you hear talk of well maybe it's because you know China is building up their own strategic petroleum reserve and they they certainly are. While they don't report it like we do here in the United States, you know, we have satellite tracking data. We can see the uh new storage facilities being built. You know, at one point this summer, uh April, May, up and through August, I believe, you saw Chinese building their strategic petroleum reserve, which is their basically governmentowned stockpile um at as much as a 1.1 million barrel a day rate. But, you know, ask yourself, you know, why is China buying all this oil and storing it? Well, you know, in my mind, you know, the answer is probably not, you know, they're completely stupid, right? The answer is they probably think that, you know, better to buy oil to fill the strategic petroleum reserve, adding all this new inventory capacity, you know, when prices are where they are today. Um, you know, as you mentioned, uh, earlier this week, you know, West Texas Intermediate down around 57 bucks a barrel, uh, which is basically where it was back in April. Uh, Brent has been trading in the low60s. The the recent lows have been around $61 a barrel. Uh, and so obviously, you know, the Chinese are taking advantage of these low global oil prices to fill the strategic petroleum reserves probably because they think oil prices are going to be higher in future. Um, so in my mind, you know, you have this incredible disconnect out there between this really bearish sentiment towards oil, towards energy stocks, right? Coupled with all these signs, you know, that the market is still, you know, pretty tight. Uh, low inventories around the world, very strong demand, uh, over the last several months. you know, the Chinese buying oil um where uh you know, when prices are low to take advantage to fill their SPR. Um you also have the fact that you know these OPEC numbers are never you know what's written on the tin, right? You know, they say we're going to increase oil production that we're going to increase the quotas by a million barrels a day. That's not real, right? A lot of these countries, Nigeria, Libya, a lot of countries in OPEC don't have the capacity to produce oil to their quota because, you know, they physically don't have, you know, the oil infrastructure in place to produce at that rate. They might have a few years ago when those quotas were set, but due to lack of investment, in the case of a lot of these countries, you know, they're just not capable of meeting their quotas. Um, you know, the only countries that really matter in OPEC are Saudi Arabia really and maybe the uh, you know, the United Arab Emirates. They're the only ones who actually adjust their supply uh, as they say they will. And you know, Saudi Arabia has increased its oil production, but um, you know, it's only a fraction of the, you know, the big headline numbers of millions of barrels a day, you know, that you see, you know, touted in the mainstream media. So, you know, to me right now, you know, oil as a commodity, oil levered energy stocks, right, are hated. They're very out of favor. They're very cheap, right? And uh that's kind of what I like to look for when something's out of favor and you know, and but the fundamentals are kind of mixed as they are for oil right now. You know, I think that's that's likely to be an opportunity if things are really as bearish as the IAA says they are. Right? How come oil hasn't been able to break below, you know, 57 dollars a barrel here all year in the United States? How come, you know, Brent hasn't dropped below 61. You know, how come all these calls for I've seen calls for $40 a barrel oil, right, which if oil prices actually dropped to $40 a barrel, do you know how fast global production would decline, especially outside, you know, OPEC? Uh and so you know I I think there are uh I you know I can't tell you that you know oil prices are going to bottom tomorrow or that we can't go down to you know $55 a barrel. U but you know I have a high degree of confidence that with sentiment so bearish this is not when you see the start of an oil bare market. You know think back to 2014. You know when you know sentiment was very bullish on oil. Oil prices were over $100 a barrel. That's when you see, you know, a big decline in oil and energy stocks, not, you know, 2025 with sentiment in the in just, you know, in in the trash can and these stocks very cheap and everybody talking about $40 a barrel oil. >> Well, I also think um you mentioned sentiment, some of the some of the other parts of supply demand. I also think from a supply side on the marginal cost of production I think now we're in like kind of a danger zone a trading range area where every5 or $10 a barrel oil goes down a lot of marginal production is going to come offline we saw hints of this what there was a huge energy conference in London I think in the last like 10 days 2 weeks 10 to 14 days and you had the CEOs there from like Exon Mobile Chevron and Kico Phillips some of the others and they were basically saying to just to maintain the production And I think at the in the Peran basin for the oil production they have to spend like what 15% approximately of their total cap of their total free cash flow has to be reinvested into capital expenditure and they said there at the current oil prices there's not really much of incentive to do so. So we're going to start to see a production fall off probably in the not too distant future. >> No exactly and that's a key issue. Um and in in US shale, you know, shale or unconventional oil production, it's really kind of a manufacturing business, right? Um the oil is widely distributed. Uh you have all these acre, this prime acreage for drilling. Uh you have a pretty much established well design. Increasing production is a matter of going out and drilling more wells, but it's not quite as simple as it sounds because you're basically running on a treadmill. Um, right. So, your existing wells have a very high decline rate. So, you put a well online, it produces at a very high rate to start with, but then within a year, you know, production's down 30% more in some cases. And so, you have to drill enough wells to offset uh that decline, that natural decline from your existing wells, as well as to actually produce growth over and above that. So, you're right. um you know companies have to reinvest a lot of their free cash flow just to hold production constant. Um they can they can use a little bit less cash flow or a little bit less capex rather right to guard their free cash flow which is what they do when energy prices are low or oil prices are declining. But um you know that the result of that will be a decline in production that will accelerate over time because the longer investment remain remains low the more that decline rate catches up to you right but I think something that a lot of people are ignoring is it's not just a US situation and it's not just a shale situation you know all oil fields around the world decline um there's a natural rate of decline with a conventional field you know you drill a bunch of wells in a big field say right and production ramps up very quickly reaches a plateau which hopefully if you manage it correctly you can sustain for a long period of time you know maybe a couple decades but ultimately the under the underground geologic pressures that drive oil production you know you're not sucking it out of a ground with a pump um it's actually a natural flow of hydrocarbons into your well right over time those natural pressures decline and and other drivers u of of oil production decline and the oil the actual rate of production in terms of barrels a day coming out of the ground begins to come off. But the problem we have worldwide there there are two major problems I see right one is that um and you know actually I I just spent some a few minutes there trashing the IEA the international energy agency because they're so bearish on oil but you know while they put out these ridiculous reports about you know net zerocarbon emissions and solar and and all this other stuff we can talk about on the other hand they also published these very scary reports about the uh the very the acceleration in global conventional oil field decline rates and you know some years back I think it was 2010 was the last time they they did this you know they saw a natural decline rate meaning that if you don't spend any money on a conventional oil field in the world you just sort of keep producing let it produce naturally um production from your average you know well in the world conventional oil well in the world would decline something like uh it was about four or 5% a year. They now think it's 8.6% a year. So >> I think that's more accurate. >> Yes, that's more accurate because it's accelerated over the last 15 years. Right. >> I've spoken to other petroleum engineers like Christine Guerrero and others and they said that normally like they tend to be more conservative about the decline rates and they expect about a 10% decline rate and the company has to spend the capbacks to offset the 10% decline rate. So it sounds like in the past Elliot that they were underestimating the decline rate. I'm sure that's true and I'm and they may be underestimating it still today, but I mean even even just using their numbers, let's assume, you know, their numbers are correct. They're saying that, you know, the natural decline rate is 8.6% a year, but the observed decline rate, right, which is the actual decline rate we've seen historically, right, is about 5.6% per year. So that 3 percentage point difference is because oil companies aren't, you know, not investing in their fields, right? they are going out, they're doing basic maintenance on their equipment, you know, they're doing well workovers, they're doing infill drilling. In some cases, they're doing things like, you know, carbon dioxide or water flooding to aid production. But they estimate that it takes over $500 billion a year, right? Just to lower from that natural decline rate of 8.6% a year down to 5.6% 6% a year. Not to actually go out and find new oil fields and develop new fields, not to increase production, but just to keep that, you know, natural decline rate minimized takes around the world. These companies have to invest over $500 billion a year. >> Is that on regular conventional fields, deep water? >> These are regular conventional fields. And that's the other key point which I think is not getting enough attention, right? And and and this is where you start getting into scary town, right? I told you the you know the observed decline rate around the world which includes that 500 plus billion dollars of investment is 5.6% worldwide. But it differs greatly between different regions of the world and between different types of conventional oil field. Right? If I look at the Middle East is the lowest in the world. It's only a 1% a 1.8% 8% um observed decline rate and I think it was just a little under 5% natural decline rate if there were no investment but other places around the world you know South America it's almost 8% right North America it's more than 8% and that doesn't even include shale that's conventional oil fields in North America you know like in the Gulf of Mexico or places some places in Canada >> well I I mean deep water almost 10% >> so deep water is conventional however your upfront costs are enormous compared to some of the others. So like I've had you on and you were way ahead of the curve there in Guyana, right, with Exxon Mobile and Chevron fighting over that. I mean, but they have to pay all of their capital expenditure costs up front, right? It's billions of dollars upfront before they can get that 50,000 uh barrel per day production or more per the well. Now the decline rate might be lower because these are amazing wells but their capital costs up front what to build out the infrastructure leasing the oil rigs it's uh deep water offshore oil rigs very very expensive compared to uh onshore conventional oil wells right >> oh absolutely and in fact the decline rates are are higher um than convent for conventional onshore oil fields um you know you're looking for a deep water oil field the uh the uh the decline rate is more than 10% annualized you know, as I said, compared to um uh 4.4% 4.2 or 4.3%, I can't remember the exact number for your average onshore field. And add to that the fact that about 70% just over 70% actually, of all oil, new oil uh discoveries, reserve discoveries worldwide this decade, so since 2020, right, have been deep have been deep water offshore fields. So both of what you said makes a big difference, right? There's all this upfront capital commitment needed to develop these deep water offshore fields, right? So the fact that all the new discoveries are deep water offshore fields means that you know there's has to be a lot of money put up to develop these new fields. At the same time, it also means that on average, one would expect the global decline rate to continue to accelerate, right? Because if you're developing more and more of these high decline rate deep water fields, you know, that doesn't mean they're not prolific. By the way, that doesn't mean that you can't sustain production by, for example, as you mentioned in Guyana, you know, Exxon is not developing just one field. They're developing multiple discoveries in phases over time. So, they're ramping up, I think they have something like 27 discoveries they've made there, right? 26 or 27. And they're developing them up over a period of many, many years. Um but um you know so they will ramp up production from Guyana. It's a bright spot for the world, but there aren't very many Guyanas out there, right? Um, and you have a lot of these older offshore fields that are showing, you know, very rapid rates of decline in production and there's not enough new fields there to offset that. And, you know, the IEA number, you know, kind of gives you an idea of the scope of the problem. They say if you current they say that con current conventional oil production worldwide right is right around 99 million barrels a day of oil right according to their numbers they say by 2035 even if you invest in existing fields that's that 500 billion uh a year I mentioned you have unconventional shale growth right you have um uh all the fields that have been discovered and are approved for development like Guyana, they ramp up, right? And you have um any fields that have been discovered but not yet uh approved for investment, those are de ultimately developed. You still will see global oil production fall by almost 17 million barrels a day, right? By 2035. That's 10 years from now, right? Solely because of these decline rates we're talking about. Um, and I mean, just think about that. To me, that's scary. There's no way. I mean, no matter what anybody tells you about, um, electric vehicles or um, you know, solar and wind or any of this, nothing's going to offset 17 million barrels a day of global oil demand, >> especially for transportation fuels. Yeah. Yeah. >> Right. Exactly. You know, I mean, people talk about EVs like it's some sort of a magic bullet, but did you know that, you know, light passenger cars? So, you know, your car, truck, or SUV that you have for your personal use, that's only 25% of global oil demand. >> The rest of it is is airplanes. We we also see this the proven um I think the other thing that a lot of the electric vehicle people miss is the electric vehicles in a lot of developed countries like European Union, United Kingdom, Norway, it's very saturated those markets where um a lot due to mandates a lot of people already bought their electric vehicle and maybe they'll um you know swap out when one of them breaks down they'll buy a new one. But in emerging markets, I think the average person doesn't understand, Elliot, that the when a consumer has money to go and buy a vehicle, they're not buying an electric vehicle. They'll probably go buy like an electric scooter, a motorcycle first, maybe a small passenger vehicle. Um, they're going to buy those things first. Those are gas guzzlers um relative to electric vehicles. Now, they're not, you know, SUVs like here in the United States. But when they start, you know, modernizing and um adapting their economies instead of just public transportation or China from decades ago when they only had bicycles and China wasn't using that many fossil fuels, they uh there's just tons and tons. People can go watch videos of this what in Vietnam or Latin America, just tons of motorcycles and scooters. >> No, that's exactly right. And you know, the big one, of course, uh which I don't think gets enough attention is India. uh you know we talked a little bit about this offline but um you know India is another country that's you know similar size in terms of population to China um very rapid rate of economic growth and development in recent years and you know in my mind India is basic today is basically China in 20 in 2001 you know 20 24 25 years ago and the reason I say that is because every country in history, right? Whether you want to look at the United States, you know, the United Kingdom, you want to look at Japan, South Korea, as a country moves from, you know, emerging market to developing market to finally a developed market, right? Per capita, not just overall energy consumption, but per capita energy consumption goes up a lot. You know, people for the first time in their lives get, you know, home appliances, right? that require energy. In that case, often electricity uh or natural gas for cooking, right? Um people start buying cars for transportation. They start traveling on airplanes which burn jet fuel. Um they start buying stuff, right, that has to be transported to a retailer near them or online to their doorstep, right? That uses mainly diesel fuel, right? It's very difficult to replace uh you know a diesel engine in a commercial vehicle with electric uh because they just aren't capable of uh creating enough range uh or enough power to haul a large load. So um you know as time goes on and as a country develops and you have a if you will a rising middle class right of people who of consumers they're going to start wanting the same thing that people in the developed world want. And as you said, there are stages, right? China went through that as well. People first bought, you know, uh, gas-powered, you know, motorcycles or small cars, but eventually as time goes on, uh, it it get it snowballs and the more people you have that are entering that middle class where they're capable of buying these things for the first time, you the more likely they are to do so. uh you know which is why you have so much attention which is ultimately why you have so much attention right now for example on you know India you know buying oil from Russia you know they need the oil because their demand is growing so quickly their energy demand per capita is growing so quickly because the country is developing um you saw what happened to oil when China went through this stage right back in 2001 2002 2003 you Chinese demand just galloping they went from you know a backwater in terms of the global oil market to the world's second largest consumer in the matter of less than 20 years. You're going to see the same thing out of India. You're already seeing it to a degree and it's just going to continue to snowball. And so, yeah, you might have some reduction in demand from the United States. You already have um because you know when the price of a commodity goes up, you know, people try to use less. I mean, it's just natural. It's economics 101, right? But >> well, I mean they were saying that electricity demand was supposed to be flat to zero and now look what's happened with the data centers now here in the United States and the modernization there. So that kind of came out of nowhere the last three or four years. So um I I definitely agree in terms of electricity demand, energy usage. I mean China has modernized a lot of their tier one and tier 2 cities. They're using a lot of electricity now. >> Yeah. And and and they will continue to do so. And most of their electricity comes from coal, right? I mean that's that's the truth of the matter. >> And nuclear power. They're building a lot of nuclear power plants very very quickly. >> They are building a lot of nuclear power plants. They are building a lot of um of um of natural gas fired power plants. They are building a lot of solar. But if you look at the actual numbers um in terms of uh in other words when you when you look at the news or you see what the media puts out there they show a picture of you know Chinese solar capacity going kind of parabolic and outpacing growth in in US solar capacity and that's true but you also have to remember that China there is no global energy transition you've heard this term energy transition the idea that the world is moving away from the big three fossil fuels which are coal, oil and natural gas, right to renewables. Um there is no global energy transition because and I say that because in 1990 right so 35 years ago you know um those three fuels I mentioned coal, oil and natural gas accounted for over 90% of global primary energy use right last year 2024 that was 86.2%. So, we've lo we've lo we've moved away from those big three fuels by four percentage points over 35 years. And you're trying to tell me that some of these projections for, you know, global energy uh uh primary energy supply from those three fuels is going to drop to like 30% by 2040. It's ridiculous. It's it's insane. It has no basis in reality. Um and at the same time you know we talk about energy transition in you know your developed western countries the United States European Union everybody's talking about energy transition China doesn't talk about an energy trans uh transition you know their their energy policy their official energy policy is called build now break later right I won't try to pronounce it in Chinese for you but that's that's the translation and the meaning of that is that >> they're building out their existing infrastructure. So think proven technologies and they're building out solar, wind, any other renewables that they want to want to experiment with battery storage technologies, but they're not going to start disassembling or reducing growth in coal for example uh when you know renewables are just ramping up. It's like an energy. I think they I think they upgraded their coal fired power plants to the clean coal so they have the scrubbers in. So they didn't shut to at your point s they didn't shut down their coal fired power plants they just upgraded them to the clean coal scrubbers >> and in fact they're building actually adding to the actual total capacity. You're you're totally right and you know if you look at for India has done the same thing. They're actually producing and installing and building some of the most advanced coal fired plants in the world right now. uh some of their a lot of their new plants are actually cleaner than the plants here in the United States that still burn coal. We still get a lot of power from coal by the way. Um because you know those were built in the 80s or the 70s, right? So they're they're older technology. Now they've added scrubbers and all that to comply with environmental regulations. I certainly have no problem with that. But you know just the the largecale advanced nature of these clean coal plants in places like China and India is actually superior to many of the plants here in the United States which are much much older. But on top of all that you know China is actually growing uh their their coal fire capacity. Um you know one of the one of the things you know I like to I I like to look at you know is um over the last five years right um you know Chinese energy demand has grown quite a bit right now where has that not where their total energy comes from but where what have they built to meet that growth in demand you know and and coal oil and natural gas still account for almost 70% of just the growth in demand over the last 5 Is China still building uh one new natural gas uh one new excuse me, one new uh coal fired power plant a week? >> I don't know if I don't know if that if they've kept up that pace, but it's by far their largest source of electric power in China by uh by many fold. And it's also um you know it it's also one of the biggest sources of not just of total power supply but also growth meaning growth in demand for power. In other words, you know, Chinese demand goes up by say 19 exigles I think over the last 5 years alone and you know a big chunk of that um coal and uh coal uh oil natural gas have been most of that growth have met most of that growth. Solar is ranks down the list and all the other renewables are essentially rounding error. um you know if you add in you know nuclear which you mentioned which they definitely are pursuing um you know that's also important but you know you it's very difficult to get away from the big three right and I mean all right let me let me let me back up and talk about the United States here right >> through the first seven months of 2025 the fastest growth the fastest growing source of net electricity generation in the United States was coal Wow. I wouldn't have guessed I would have guessed natural gas because the price was cheaper. The >> Well, earlier this year, if you remember, um the EIA releases this data with something of a lag. So, we only have data through July. But if you look ear, you know, earlier this year, natural gas prices kind of perked up uh and they were actually pretty high heading into June, right? And early July. And so what happened is there's a lot of there are quite a few energy generators in the United States that have the flexibility to fuel switch. So they can they can switch gas for coal or coal for gas. Now over the long term they've obviously been switching more and more capacity over to natural gas because you know it's widely available. It's much cleaner. These coal plants are old. They're not building new ones. But this year with the price of natural gas a little elevated uh heading into the summer months for example and over the winter months you know companies that had the flexibility to do so um you know burned more coal and burned less gas. So gas actually saw a big shrink in net power generation through the first seven months of this year and coal actually saw a big step up um you know far more uh so than than solar. Um, so, uh, you know, even for the United States, and I'm, look, I'm not saying that coal is going to become, you know, a growth fuel in the United States. It's not. Over time, gas will gradually take over market share from from coal in the United States. That's been the big story uh, for the last 15 plus years. You know, gas is the number one source of electricity generation in the United States. I think that'll stay that way for a long time. uh because you know it's not intermittent like solar and wind but at the same and it's also cheaper right uh and fast to build but um you know even the US right with this vast US natural gas supply domestic gas supply cheap domestic gas supply can't totally get away from coal that is easily I mean to me that's that's pretty amazing and telling >> well uh to your points there. I mean, um I I think in China, you mentioned like their strategy is called something else, but Trump's energy secretary who worked in the oil industry. I I like what he's saying. I because I've been saying similar for years. I'm sure you have too. We need to invest across the board. You add in now this new source of electricity uh usage demand growth now with the data centers and AI. And we really really need to invest across the board. We needed to do that beforehand. Now it's going to get worse. We're just underinvested. I think China has an acrosstheboard approach. They're more practical about a lot of their energy investments. Whereas the US, it just seems every time there's a new regime in the White House or whatever majorities controlling Congress, they have their pet projects for where to redirect the energy investments and the quote unquote infrastructure, but then that kind of it penalizes whichever energy uh energy sector is not in favor at the time. >> No, that's exactly right. Um, and I would add to that that, you know, it actually does make a big difference where in the United States you're talking about because different states have pursued vastly different energy policies. Um, you know, I'll give you a a a classic example. Two states with some of the largest solar installations in the United States are California and Florida, right? My home state here in Florida. And I mean, it makes some sense, right? Because both California and Florida have a lot of sun. You know, it's a good place to generate solar power. Both states have seen tremendous growth in in solar energy generation. Florida has followed more of the China model, if you will, right? Um because not only have we built solar capacity, but we've continued to build mainly natural gas fired capacity. Uh we've, you know, uh extended the lives of some of our nuclear power plants here in Florida, repermitted them to extend their lives, right? There's talk of maybe even restarting a nuclear power plant that was um uh retired here in Florida. And so, uh you know, so power prices in Florida, both for commercial industrial customers and for residential customers, is pretty much in line with the US national average, right? California, they've built solar, but they've also closed down natural gas fire capacity. They've closed they've eliminated coal from the grid entirely, which we haven't here. >> And oil refineries, they shut down refineries too, right? >> Refineries, uh, nuclear power plants, they've shuttered, right? All this capacity. Their power prices are among the highest in the United States. More than double what we pay in Florida. That and and >> they shut down a solar they shut down a solar farm, too, that was built under Obama, I think, like in 2010 or 11. So, I mean, they can't even do the solar part, right? Um, basically like the state of California is a mess with all their energy policies and their infrastructure. >> Well, you know as well as I do that, um, you know, if if you subsidize something, you're going to get more of it, right? But you're also going to get bad investment. You're going to get marginal projects, right? Because >> California is even worse than that. I mean, they straight up like those government contracts for those projects, I mean, a lot of those funds are stolen. I mean, there's like chair like rampid chair. There's people at the highest levels of California government. Like I I know people in California that are like Newsome, Gavin Newsome and his wife are doing charity fraud, but let's not that's too far off topic. >> No. Well, no. I mean, no, but it it speaks to the point and you know, and people and you look at a state like, you know, like Massachusetts, for example, right, which could get its gas from the Marcela Shale, but New York won't let them build a pipeline across New York State. So, they have to import their natural gas in the winter. get, as you know, it gets cold up there from Trinidad, okay, at very elevated prices, at international prices, uh, much higher than what we pay here in the United States. So, and and some, you know, my colleague Roger Conrad, who I think you've had on the show before, but you know, he understands the way the utility business works a lot better than I do, but one of the things is, you know, how what's the relationship between the individual regulators at at the state level and the major utility? You know, in some states like California, it can best be described as very hostile. So, it's very difficult for, you know, a company in California, a utility company in California to say, "Hey, you know what? We're going to invest the hundreds of millions of dollars it it requires to upgrade the infrastructure to build all this new generating capacity if you're going to be constantly suing us, denying our rate increases, all this other stuff." you know, in a state like Florida, you know, there's a much cozier relationship between the regulators and the utility. The utility files a plan, the regulators approve the plan. Um, it's just a lot easier to get things done in a state in in some states than others. So yeah, the national policy makes a big difference. But um you know, I'd point out even here in the United States. Um you have vastly different energy policies between states in the United States. And as a result, you have vastly different energy prices, electricity prices between different states in the United States. And it's a major competitiveness thing. Right. >> You said the Marcelus field, right? That's the natural gas in West Virginia and Pennsylvania, right? So that's right around where the coal fields used to be. And logically, if things were rational, right, they just put pipelines up there to some of the northeastern states, right? To Massachusetts, New York, New Jersey. Nob brainer, right? Just put the pipelines there. Absolutely. But but you have the state and local politicians in the municipal level, at the state level, they're block and the EPA, the regulators are all blocking this stuff. So instead of putting like a smaller pipeline there, one state over, two states over, it's blocked. So that natural gas is probably going to end up here in Virginia, Northern Virginia at a lot of the data centers. >> That's right. I mean, that's exactly what's happening. You know, EQT, which is a big big natural gas producer in the Marcelus. It's the largest natural gas producer in the Marcelus shale, the second largest in the United States. You know, they uh purchased their Midstream unit, which was called Ed Equatrons last year. So they brought they merged with it. They brought it in house. And one of the reasons they did that was because Equatrons owns the majority stake or the large stake in the Mountain Valley pipeline. Mountain Valley pipeline goes south through Virginia and interconnects with uh pipelines that can take that natural gas north directly to, you know, the data center corridor outside Washington and in Northern Virginia, right? So uh and it can also by the way send it south for us down here in Florida or down the southeastern seabboard which is you know a faster growing more reg more uh energyfriendly states right um so that's what's happening and then the other side of the equation is you know that con I think it was called the constitution pipeline I believe that was going to go up to which was denied to New England um to supply gas from the Marcella shale just across New pork and into Massachusetts and New England, right? Um, that was denied. So, what else is EQT doing with its gas, right? Well, they actually have some old coal fired power plants in Pennsylvania. The Homer City is the largest in P was the largest coal plant in Pennsylvania. Very old. It was shuttered, right? It was retired. And what they're doing is they're converting that old plant to burn natural gas, which EQT is going to supply under a long-term contract, not for use by Pennsylvania, right? Not for use by individual residential consumers, but to power a colllocated data center they're going to put right there on the site. And they're doing this with two big projects in Pennsylvania. So you're actually literally going to have, you know, a data center right next to a former coal plant, now a gas fired plant that can supply power to that data data center reliably at a more constant consistent price. >> I'm actually seeing that across the board. So to add to your points there, almost anywhere where there's like kind of cheap natural gas, you're seeing a lot of the tech companies or the utility companies talk about setting up either their own separate source of power or a natural gas fired power plant there to move the natural gas from the cheaper production area to a data center that they're that they're going to build. And they're talking about this in Canada, talking about this in other bas Yeah. >> Well, not well outside the United States, too. So they already what they already have the Stargate AI facility um which is in Abalene, Texas that's not that far from the Peran basin but they're talking about adding these data centers now next to natural gas fields in Russia, United Arab Emirates. I mean there's a Middle East too. >> I mean it makes sense um because you know the grid as it stands today can't handle the growth and load we're going to see over time and you know uh these data centers they need you know reliable always on power, right? So, um, they need reliable source of power. That's they care about that more than price, right? Really. >> So, um, yeah, I mean, so that's what I think you're going to see more and more of that, you know, and that's more of a bullish story for natural gas. You know, we've kind of moved from oil to natural gas, but I, you know, I think it's all relevant. Um you know and the point in my mind is um there is no energy transition at least nothing that's going to happen in the next 10 20 years where we're going to see a major move away from you know those three big power those three big uh fossil fuels if you will you know coal oil and natural gas. Um and so um the idea that which some people have said right that the world that if oil production is really going to drop by 17 million barrels a day by 2035 because of a lack of investment in new fields, right? Um that that's somehow going to be okay because global oil demand is going to drop by 17 million barrels a day. I would be surprised if oil demand in 2035 globally weren't higher than it is today. because of things we've talked about like India like um uh um you know just the that the developing world growing faster and faster and even here in the United States I mean we we we refineries are working flat out and still you know gasoline and and distill inventories are below average >> and those uh Gulf Coast refineries uh they want to blend what the lightweight crude from the Peran basin oil production they want to blend end it with uh heavy sour crude. >> Yeah, that's right. And you know that that's actually one of the reasons I really like the refiners here um because you know your GF coast refiners uh have a lot of flexibility, right? So they can both on the import side and on the export side. So they can take oil from the Peran basin and and process that. um they can also blend it with you know waterbornne crude oils from places like Venezuela, like West Africa, like the Middle East. And one of the things you do see when Saudi Arabia increases their oil production, which they are doing right now, as I said, the overall OPEC numbers are not correct, right? They're not being they're not what's being reported, right? But, you know, for Saudi Arabia, when they say we're going to increase production, they do follow through on it. When they increase production though, what they basically do is they go to a couple of their offshore heavy oil fields and they increase production of their heavier grades of crude oil. Not every refiner in the world can process heavy crude oil. The higher supply of heavy crude oil, the more of a discount that it trades at. So, what you're saying is actually very important. your GF coast refiners are going to suddenly have a access to a lot of that cheaper um heavy oil feed stock as Saudi Arabia ramps up production. That actually aids their margins tremendously. And then the other side of the equation which I think is going to get a lot more attention in coming years is that you know Europe has closed down a lot of their refining capacity. Um, you know, some states in the United States, California, have closed down a lot their refining capacity. You know, the world is increasingly reliant on the US GF coast, right? Uh, Gulf of America now, right? Coast I'm talking about for the the supply of refined products around the world. Otherwise, it's just going to be the Middle East uh selling to Europe because they can't do it themselves anymore because they closed down so many refineries. um you know, California has to import oil or has to import refined products because um you know, they don't have enough domestic refining capacity to meet demand. And you know what really made me laugh uh was Bolero has a refinery in California and they're clo they've decided to close it. I think it's supposed to close sometime next year. I can't remember the exact month, but um the ca the California legislature on one hand they say, "Oh, you know, our oil demand is going to fall. We don't need this oil. We don't need these refineries." On the other hand, they're trying to sneak this huge subsidy into a bill in California to try to bribe basically Valero to cover some of their maintenance costs to try to keep this refinery open because they realize if that refinery closes, you know, prices are going to go up even more in California and they're going to have an even bigger shortage of key refined products. You know, I'm talking about, you know, little things like jet fuel for LA and San Francisco airports, right? I mean, so, uh, yeah, it it's it's it's an incredible story on many levels, >> just bad policy. This is anti-free market, all these, uh, policies from the politicians and the bureaucrats cuz the free market could fix all these problems. Um, but, you know, the politicians whenever they get into office, they subsidize or they penalize, they try to ban the there was a lot of anti- fossil fuel rhetoric. Uh, now we're we're an investing podcast, Elliot. So, I want to get your thoughts here on which companies I know you cover the largest ones like Exon Mobile and Chevron, uh, Royal D. Shell. >> Are they being aggressive here with acquisitions? Are they looking to go and buy assets on the cheap like oil assets? Um, now and then waiting, you know, uh, 12, 18, 24 months for things to turn around. Then they're, uh, the deals that they did are going to pay off. Like I think EOG did some a deal like that over the last uh 10 months. So I think they made an acquisition and the market did not like that they bought oil assets and they're like well we're going to make money on the natural gas and then the oil assets like we got them at a huge discount and two years from now we're going to make a lot of money on it if the oil price rebounds. I think that was their what the management team said in the uh investors presentation. Do are we going to see more of that? >> We have seen a lot of of M&A in the energy business here in the last few years. I mean some years back you know there were thousands and thousands of very small operators in a place like the Perian. Um now there's only a handful a tiny handful of private operators left. Most of them have been snapped up. Um most of the companies in the Perian are pretty big producers. So you have obviously you have names like Exxon right which is a super major but has a huge position in the Peran basin. thanks to their acquisition of Pioneer Natural Resources last early last year they closed that deal. Um you also have uh very very large you know independents right like you have um um the symbol is fang um but there's there's a there's a handful >> you hear there were rumors that um so that's Diamondback energy there's rumors now that um Exon Mobile's even considering buying Diamond back too that's how cheap Diamondback is that Exxon's even considering buying them too >> I wouldn't be surprised to see something like that happen um one of the reasons I've liked Exxon for so long is that um they you know the management team there is focused on a strategy and I love it right it's a strategy of we have a lot of money we have a bulletproof balance sheet right I'm talking to Exxon here um and they say you know when oil prices are low we can afford to continue to invest when everybody else is having to pull back right can't invest and that's exactly what they did with that Guyana play right everybody else around the world BP um you know total energies Now, uh, Shell even, they were all pulling back on the oil business, pulling back on exploration development spending, pulling back on anything related to fossil fuels, right? And, you know, Exxon was one of the only names to really uh, push the accelerator and continue spending on things like Guyana. Now, they have a worldclass global or reserve. So, you know, I I think the organic side is something very important to keep in mind as well. Um, I think we're going to need to see a new wave of exploration. Um, you know, as I said, there's a wedge, right? There's 17 almost 17 million barrels of oil a day that needs to be come from somewhere by 2035 over the next 10 years. Um, exploration spending, overall oil field spending is barely enough to keep pace with the existing decline rate in global oil production. And I you're going to need to see a step up in that spending, you know, if we're going to continue to uh maintain, let alone grow um you know, global oil production to meet rising demand. And you know, >> is Exxon cutting? So I know there was a recent speech at that conference in London and he was talking about like basically um that a large chunk of the free cash flow needs to be spent on capex. Are Exon Mobile and Chevron are they actually spending on capex budgets or they have they started to cut back too recently? >> They have massive capex budgets. Um sometimes their capex will um vary from you know quarter to quarter. Um but you know generally speaking for many reasons, one of them simply being that you know the cost of oil field services, the cost of oil field equipment tends to go down uh when energy prices go down. And so you know a company like Exxon takes advantage of that. they can go out and, you know, contract for these services, contract for drilling rigs at a favorable price. That's why it's so good to invest in the downturn, right? Um, but, um, you're definitely seeing, um, the Exxon and Chevrons of the world continue to invest. And I think one thing that you are beginning to see is, you know, your European majors that were kind of planning to abandon oil entirely. I'm talking about names like BP and Shell. They're starting to also invest in the oil business again. Um, you know, BP is talking up um they have a couple projects in the Gulf, the Gulf of America now that um that you know, deep water projects that are look promising. Um they also have some some stuff off Brazil. So, you know, you're going to see investment from that side as well, but you got to remember it takes a long time for investment to necessarily show up in the form of greater production, right? So some of these fields won't that they're talking about now, you know, they probably won't actually be producing commercial quantities of oil, you know, for a few years in the future. >> Well, that's what happened with Petra Bros, right? So Petro bras found what in 2007 and 8, they found that mass amount of subc uh subsalts with the deep water offshore oil. It took them years to bring it online. I think now it's producing around 40 $45 a barrel. It's fairly cheap oil, but it took them a lot longer than people expected to bring the production online. No, it it does. And you know, a lot of this oil, as I said, 70% of the fines around the world um since 2020 have been, you know, offshored mainly deep water, right? So, um that's where the oil is, right? A lot of the big onshore fields that um you know, been in production for decades, um something like 80% of the world's oil comes from fields that are past their peak of production today. So, um, you know, and a lot of the new fields are deep water, which have, as I said, an over 10% annualized decline rate. So, you're going to see a lot of spending in deep water as time goes on. Now, again, you know, as we're talking about the there's an investment lag. So, you spend this money on exploration, it doesn't actually show up in the oil supply for years down the road, right? Um, and these international deep water projects are among the worst in terms of timing. It takes many years to bring these projects on stream even if you have deep pockets like Exxon does, right? They announced their first discovery in Guyana in 2015, right? So, um and they I think they announced their final investment decision the same time. So, it takes years, but um you know um I you're already seeing some inklings of this development going on, right? uh for example you know I listen to a lot of these uh you know companies involved in the deep water contract drilling business and you know I I started to hear a term which I haven't heard in years now right uh mentioned a lot which is the golden triangle um so the golden triangle is um you know remember from I don't know history class I guess or whatever geology there was used to be just one big continent right and they've all kind of drifted apart over over the years >> you mean pangia >> pangia there you That's the ter that's the term I was looking for. But if you look at pangia, if you look at a picture of what they think pangia looked like, you know, like um Africa, right, West Africa kind of fit with South America and the Gulf of Mexico, right? And as they continents drifted apart that what they found is that a lot of the oil was found in those three areas, right? So you have the Gulf of Mexico uh or Gulf of America now also off the north coast of South America off the coast of Brazil and off the coast of West Africa. So a lot of these contract drillers are talking about both exploration and development work going on in those three areas which we call the golden triangle. Again they were all areas that are geologically very similar because they used to be the same place right they were adjacent. Um so um yeah I you're gonna see it um and I think that it's going to be a big story uh in a few years time maybe just a few maybe just two or three years time um that there's going to be a wave of investment in finding also developing existing fields more completely um doing infill drilling or drilling satellite fields in all these deep water areas because you know sooner or later um you know it's going to catch up to global producers that they're going to need to have new sources of oil, new oil and gas projects to offset decline rates from existing fields. And you know, the subtext of that is that, you know, it ain't going to happen at, you know, $61 Brent crude oil, right? You're going to need prices to be a lot higher to incentiv, you know, incentivize the level of investment required to um offset production declines and grow production. You know, as you were saying, you know, every few bar every few dollars oil goes down, it makes certain fields around the world, you know, less and less profitable to produce or even unprofitable to produce in some way. >> Well, especially the perian, I mean, like cuz they have to spend a lot of capex to maintain the oil production. So, if the oil prices drop in $3, $5 a barrel every couple weeks, I mean, there's just no incentive to keep reinvesting to grow production then. >> No, that's right. And you know, you know, a lot of people say, "Oh, well, you know, so and so producers said that, you know, they can generate flat free cash flow or cash flow break even in the 40s $40ome dollars a barrel of oil." And that may very well be true, but you know, it's not like a company's going to say, you know what, we're going to keep drilling aggressively until we start losing money, >> right? Well, why burn through your tier one ac why burn through your tier one acreage at like these prices? Wh why would you burn through it and run it at losses? It it makes sense to cut back then and wait. >> Exactly. And that's exactly what they do. And and the producers say, "Okay, we could continue drilling and we could make a tiny amount of free cash flow off this or break even. Um we could continue to we, you know, a most of these big producers, the independents as well as the majors don't have a lot of debt. they have the financial capacity to do so. But why, right? Why why sell oil at 61 or $57 a barrel when you think that, you know, two or three years down the line it may be more like 80 or $90 a barrel and then you're really raking in the free cash flow. So >> yeah, it only makes sense to to use debt maybe to go buy assets. So if you think you got a really good deal on some cheap assets that two or three years from now you're going to make a lot of money on and you're right about it because Exxon Mobile has done stuff like this what during the pandemic they made huge bets with the debt >> on the Guyana fields and some of their other investments they paid off the the debt very very quickly. Yeah, they paid off the debt very very quickly. And you a lot of the smaller producers um that have made acquisitions, they've used debt capital and they're paying down that debt, you know, fast. They have plans to pay down the debt. You know, EQT on the gas side, which I mentioned, bought Equatrons. You know, a lot of people said, "Oh, that was really expensive." But the reality is, you know, they had to take on some debt. They mainly because they had to assume debt that that equatrons already had, you know, but they're paying it off very rapidly. um and because they have the free cash flow to do so. So, um you know, but to me, what you're going to see the longer oil prices stay where they are, the less growth you're going to see in or probably the the faster rate of decline you're going to see around the world. Um because you're going to have, you know, shale producers in the United States are going to cut capex because they're rewarded on the stock market by producing more cash flow and they're not going to want to produce they're not going to want to spend money if they're not going to generate cash flow with that money. Right. >> Exactly. And the European oil companies are learning this the hard way. BP, Royal Dutch Shell, um the French one, Total, the the uh Italian one, any they wasted billions and billions of dollars on unprofitable wind, solar, bofuels projects, no return on investment. No return on investment. And their shareholders, their pension, their pension funds, and the other institutional investors, they all expected no dividend cuts to maintain profitability. But if you're reinvesting capital at, you know, 0% returns or negative returns, you can't maintain profitability. So, so they've got into this bind now. And I think that's why uh Elliot clearly um Chevron and Exon Mobile have way outperformed a lot of those other European ones because they realized early on that they had to slash the budgets for a lot of these alternative energies. They couldn't spend nearly as much. And I think you're gonna start to see what um uh I think it's Chevron. They just announced what they're building um natural gas turbines I think around the data centers there in uh >> yeah so I think they're they're and then what they're all focusing on liqufied natural gas exports. So they're starting to diversify. So if there's less um profits now for oil, I think they'll start to move more of their investments what into natural gas pipelines, natural gas turbine power stations around data centers and LG exports. >> Those would be those would be obvious areas. Um, you know, all the big names will probably spend more money on, you know, exploration development projects like, you know, Exxon still has years of investment to keep rolling through Guyana. Now, Chevron, you know, because they purchased TES is now a partner of Exxons on that on that field. Um, so they're also involved. Um, you know, I think you're going to see uh the smaller producers out there um are going like Diamondback uh we mentioned. Um, there's another name I really like now, Perian Resources. It's a little smaller. It's quite a bit smaller. Symbol is PR. Um, you know, it's a 12 or $13 stock now, but um, you know, they are a high quality producer, uh, with low debt, um, strong free cash flow. They haven't been making big deals obviously like you know like um um Diamondback and and and Exxon buying Pioneer but they have made some bolt-on purchases within their areas of operations. Um, and you know, one of the things I realiz since they're a lowcost producer, you know, I think there's a couple of ways it could go, right? Uh, one, they could get acquired because they are smaller. They do have prime acreage in the Delaware portion of the Perian, which is the sort of western part of the play also. Um, so that could be one way that that could resolve. Uh, the other way that could resolve is, you know, that they stay independent. Um, they offer a very nice base dividend in the 4 and a.5% range. uh which is among the highest of any of the producers the EMPs the shale EMPs out there um and you know they can when oil prices go up which I believe they will over time I think you're going to see 80 plus dollar oil within you know a year or so um you know they're going to be able to buy back stock um they're going to be able to pay out a special dividend that dividend I told you the four and a half% that's their base dividend um they believe they can sustain that even with prices down in the 40s. Um so um yeah, >> they sound like a takeover candidate then if they're a lowc cost producer with free cash flow that a larger company maybe an EOG or one of those would would look to potentially buy them. >> Yeah. Or a Devon or a name which a lot of operations in that um in the the western Perian which we call the Delaware basin. Um, yeah, I think it could be a takeover target and I think they could do well on their own um if um, you know, both you're getting paid basically something. 4 and a.5% is not bad. Um, while you wait for either a takeover, you know, or just a recovery in oil prices. when the price of oil goes up, they're going to add to that base dividend, I would imagine, either by just increasing it or issuing supplemental dividends or quite possibly buying back stock. Um, you know, depending upon whether their stocks getting credit for, you know, for higher oil prices or not. Um, so there are few names out there like that left. Um, but, um, you know, again, that there's been a lot of consolidation already, especially in the Perian. Um, so there aren't very many small players. Um, and the few private players left are um, you know, I either got taken out at pretty decent valuations or um, uh, you know, maybe they're asking too much for current oil prices, but there just aren't many left. Uh, >> are we seeing um, natural gas and data center and natural gas pipeline specific strategies announced by some of these Peran basin producers because they still have a lot of natural gas. It's byproduct. They either need to get the natural gas to a power station via pipeline or they need to get it down to a liquid natural gas export facility. I think the state of Texas recently said that the data centers cuz it would overwhelm their power grid that they do not want these massive data centers and the Stargate um AI one, the phase one just came online. They said they do not want them connected to the main grid. So basically, if you're a tech company, you're a utility. Well, well, you have to build. So if you're a tech company that's building the data centers or you're a utility company, you have to build a separate power station there that's not connected to the main grid so you don't overload the main grid for regular people, >> right? I mean the ones I've seen on that side have been more in the Marcelis, right? So you have EQT doing that uh two-part deal uh two different projects in Pennsylvania converting old coal plants to gas fired plants to power co- lake colllocated data centers and the reason they were able to do that in my opinion was because you know because they bought equatrons they have they have everything right they're a one-stop shop they have lowcost production so they have the gas they also have the midstream infrastructure to help move that gas to to these power plants, you know, to be used. Um, in the Perian, um, there are a few things going on. U, we have a number of new pipelines that are going to come into service over the next few years. There's the Blackcomb pipeline. Um, there's one I I think it's called the Tequila Pipeline um that is going down to, um, Mexico to an LG facility on the on the west coast of Mexico. So, um, >> and the M home one just came online in the >> Matter Home one came online a year ago and immediately filled up and prices collapsed again because there's still an over supply there. Um, you also have um, for example, Diamondback, which we've talked about, the symbol there is fang. Um, you know, a lot of these developments in the Perian, they're they're using electric powered um, you know, drilling rigs, right, and equipment. And so the load required, the electrical load required to manage their operations that their vast operations in the Perian is tremendous. So um they're actually building power plants to use the gas that they produce in the Perian to you know to power all their facilities and you know where all these people live and all their equipment, right? Um so that's another story. Um, you know, a lot of it's going to be used because, you know, a lot of electricity use isn't about, you know, you and me with lights and air conditioning. It's also about the heavy industry, right? Refiners, um, you have, um, chemical producers, you have all that infrastructure, heavy manufacturing infrastructure also requires a lot of energy, either natural gas itself or electricity. So, you know, a lot of it's going to get used by that kind of thing as well. Um, you know, my again my colleague Roger Conrad was talking about um, Energy, which is the utility that's down in um, at the Orlando Money Show we're at, uh, there's a Energy, which is a utility down, I think they're based in, uh, New Orleans, uh, Louisiana, so right there on the Gulf Coast. And they're talking about um the load. So the demand for electricity and their base of area base area of operations, their industrial all these heavy industries that require all this electrical load, it's going to double over the next 5 years. >> Wow. >> So that's a lot of gas. >> But they have the Hannesville shale right in Louisiana. So they do have a local natural gas uh supply that's not too far away. >> Yeah. The Hannesville, you know, which is another name I like. I think I've probably mentioned on here before, but Expand Energy, the old Chesapeake, um, you know, they have a vast operation there in the Hanesville. Um, you know, and that's going to be a big winner, but I I I actually think there's enough gas to go around. You have all these new facilities being built on the Louisiana GF Coast to export liqufied natural gas. You have this growth in demand on the Gulf Coast for electricity. um you know there's going to be more than enough demand to support the Hannesville and I think um additional supply from the Perian and as I said on top of that you know you have um that pipeline going down to Mexico from the Perian that's not just that's not to supply you know Mexican demand for electricity it's actually to supply a liqufied natural gas export terminal being built in Mexico >> probably to Asia yeah the gas is probably going wherever you can sell it at a higher price to Europe or Asia or Latin America. I mean, it should be going to California. Let's be honest here. It should be going to California, but with the way the policies are, I mean, California is not going to get the the cheap energy it needs. >> No, no, no, it's not. No, it's not. And and you also have, by the way, in Canada's another story in West Canada, there's a a a big LG plant opening up. Uh it's in the process of opening up right now. LG Canada, or something creative like that, I believe it's called. Um and it's on the west coast of Canada. Um and um one operator we like up there, Oventive. Um symbol is OV. Um they have a gas field up there that's going to supply that. So you also have Canada exporting gas. >> There's been a lot of mergers and acquisitions too by the Canadian companies, right? So the small and medium-sized ones. There's been a huge merger and acquisition boom the last 12 months in Canada, I think. >> Yeah. Yeah. I mean, and and oventive used to be Enana. Do you remember Enana? um which was a Canadian company back in the day which is why they have those assets up there. >> I get Enana and Enbridge m mixed up. Enbridge is the Canadian pipeline company I think. That's correct. Yeah. And and um Enana became Oventive. So they moved to the They reheadquartered to the United States. They had a lot of assets in the US and um I I think it was a tax and regulatory issue as well obviously but they and then they changed their name from Encana. Um, I'm not I guess because it sounded too much like Canada and they changed their name to Ontintive, which I'm not sure what that even means, but um they're still a great producer. >> There's so there are so many mergers and acquisitions of the Canadian ones. It's tough. It's tough to keep track of them all. I think there was quite a few ones just in the last like six months. There was a lot of them. >> Right. Right. Yeah. I mean, and you've seen the the the industry consolidation thing is something that's been it's been going on for years, but it really accelerated a couple years ago now. A lot of these private operators were just um basically waiting to get acquired and they did get acquired. Um some of them for very high prices, but I think prices will ultimately pay out. Um but you know uh again now I think um it's much more there will be some more acquisitions um you know some of these smaller players like Perian Resources I mean if they make a small bolt-on acquisition it's meaningful for their growth right a company like Diamondback I mean if they and they doing it all the time right trading acreage or buying small parcels of land right in their core areas it's not going to really move the needle for them it's just sort of a normal course of business um But yeah, I you know, I think a lot of the growth globally is going to be more on the organic side in coming years where you're going to start to hear more and more about um you know, increased interest in particularly I think deep water around the world and you know right now a lot I don't see growth otherwise. Yeah. you and I haven't looked at them in I had not looked at them very obviously I look at them but I hadn't looked at them very closely in a number of years but you know you've got names like you know Aaris which is a um offshore contract driller uh we haven't started recommending it yet but it's a name I have on my radar um they do a lot of these deep water contract drilling rigs and of course you have names like SLB formerly Slumber um they're a big player in deep water services not rigs but services Um >> well you have Trans Ocean but you used to have like uh Seedrol and Diamond Offshore. I mean like they were so I think Seedrol went bankrupt two or three times. The investment bankers in charge of restructuring them screwed that up. They screwed the b uh >> they are back though. They are back. Um and you know it's an okay company. Um actually it was my top pick from uh 2010. Uh I recommend it in the newsletter I was running at the time and we recommended selling it in 2014 and I remember getting hate mail about that. had a nice dividend. Um, people loved it, had made a lot of money. >> The dividend was too large, right? So, like they were borrowing to pay the dividend. So, that's why I was where I was like thinking like I looked at that I when you were getting the hate mail, I was looking at their financials and I was like, their dividend is too large. It's way above the normal dividend coverage ratio. I was like, they're borrowing to pay the dividend. I was like, they're going to be in trouble soon. And then we had what the huge increase in the oil production with the Peran Bas and the Shell boom and the Boston there was a huge amount of bankruptcies and deep water got thrown into the mix there with a lot of bankruptcies too. >> Well, yeah. I mean, basically Sea Drill um which worked for a long time, right there there was a growth in demand for these rigs because all these deep water developments that were going on at the time. I'm talking about really 2010 uh which is when BP had that disaster in the Gulf. That's when we recommended it. um and all the way up through 2014. But you know, they were talking about $650,000. And this was in 2014. So this is 11 years ago dollars, which is worth more than today's dollars, right? Oh, >> yeah. >> $650,000 a day to lease one of these rigs, right? These advanced deep water rigs. And there weren't that many of them that could handle the really difficult work. Um so there was an under supply. So Cedra was minting money. But um they needed oil what ultimately what they needed was oil prices to sustain um at a level which was around $100 a barrel on average from 2010 till um 2014 to support um the kind of day rates they needed on these rigs to pay out that dividend and all that. And what we began to see was oil prices coming down. We felt oil prices were going to go a lot lower which they ultimately did. >> Well, you had the over supply from the shell boom. Yeah, the the growth for growth sake there with the shell boom and the perian and the bacan, right? People were growing oil production was done very inefficiently with tons of shareholder wasted shareholder funds from pension funds and private equity. They weren't growing efficiently. They weren't focused, you know, on high profit margins and free cash flow. They weren't lowcost producers. So, they were growing oil and natural gas production. They were flaring off the gas. They were growing without profits for for >> No, no, that's exactly right. And you know, and that's one of the key things that I think about when I think about oil right now, okay? A true top in the oil market, a true top in energy stocks. You're going to see stuff like that going on. You're going to see people spending untold amounts of money to lease rigs, trying to contract rigs uh years ahead of time. You're going to see investors, right, getting excited about stuff like fracturing sand companies. You know, I remember a conference here in Jackson near here in Jacksonville, Florida in 2014. Everybody was so excited about these, you know, fracturing sand companies that made the propent uh needed to produce these shale fields and the valuations were incredible and people were just jumping all over these stocks. >> Oh, yeah. The refiners too. I remember the refiners cuz the oil kept uh coming down in price the inputs and the people the some of the refiners the tiny little refiners some people are making like five 600% returns on the tiny little refining companies. >> Yeah. Yeah. And and and people were very super bullish on on oil and on these energy stocks. That's what it looks like at the top. You know, not a time like now where oil prices are near the lows of a multi-year range. Um, you've got talk of an overupp instead of talk of a shortage, which you had back in 2014. You've got um, you know, declining demand for services. These stocks are all have all been hit lately. Yeah. I I mean, it just um, to me that's the that's the key. And a bull bull markets feel real bull markets where you're near top and everybody's excited feel very different than the environment we're in right now. And in this environment, Elliot, I think as an investor, someone who's wrote in a newsletter for so long, you want to focus on companies that are run efficiently, that are run conservatively, that focus on not overloading the balance sheet with debt unless they're doing buying an acquisition like Exon Mobile, or they're focused on profit margins and free cash flow. They're not um, you know, trying to grow here out of it uh, inefficiently. So, they're focused on lowcost production. They're like, well, we don't know when when the exact bottom in oil is. We need to focus on lowering our costs, running our operation more efficiently. I think that's the key here. >> No, you're exactly right. In fact, um, you know, one of the things I tell people is though I feel that, you know, we're near bottom for oil, I mean, we could still scrape along for months before we see, you know, a meaningful surge in it. It could be a year before we get a big move up. >> I mean, I think a year from now could be different, but uh, yeah. >> Well, I mean, look what's going on. We were talking about before I started recording. I mean, like, the worst case scenario for oil that keeps the oil price in a range is all of those naval assets in the Caribbean. And Trump just decides, President Trump and the Pentagon just decide, you know what? We're sending in ground troops. We're sending in the bombers into Venezuela and we're just going to take the whole country. They're going to take all the oil assets. You know, they're they're going to tell people publicly. We're going in there for the narot trafficking. But, you know, one of the other major reasons is they're going in there after the mining assets and the oil and natural gas assets. >> Yeah. I mean there there are all sorts of things that there there are all sorts of things that could happen and you know it could take longer to turn than I think it will. Um and I think it could take months but that's why you want to focus on those higher quality names. You want to focus on names. You don't want to get too aggressive at this stage of the cycle. Um we're we're trying to find the trough this cycle and um you don't really want to focus on high cost expensive stocks or um really shaky stocks particularly on the oil side. Gas is a different story. But >> so, so you mean for high quality names for our listeners, for example, you mentioned a few of them, but some of the really high quality names, you mean like dollar cost averaging, not trying to pick the exact bottom, adding to positions here on weakness, maybe if there's another $5 drop or $10 drop in the oil price, go and buy some shares of Exon Mobile or Chevron or EOG or um Diamondback or some of the other ones that you mentioned in. >> Yeah, exactly. And on the refining side, for example, I would look at a name like Valero, which is the largest independent refiner. You know, they've been through all these different cycles. They have great assets. Um, a name like that, um, you know, on the midstream side, too. Um, you know, I would stick with some of the bigger names that have, um, pipelines in all the right areas that have a long operating history, a history of not cutting their distributions, uh, when things turn south. names like that, even a name like Perian Resources I mentioned that has a nice yield, low cost of production, low debt, these are names that can they'll be fine if prices kind of scrape along a bottom for 6 or 12 months and then ultimately benefit on the other side. Um, and you know, when the cycle gets going, you know, it'll be time to start looking down the cap scale at some of the sort of more exciting growth areas, some of the more niche markets. Um, so yeah, I'm on the oil side. I would stay conservative for now. Um, but I, you know, I do think in we're going to be talking about a very different world, uh, in the next couple of years where, you know, once this expiration and and development cycle gets kicked off, you know, they're going to be a lot more areas to look at. Um and you know before it's before this is done before this cycle is done much like you know the period from the late 90s up until 2014 which was the last big cycle you know u investors going to be very excited about all of this you know the S&P 500 energy index won't be you know 3% of the S&P 500 as it is now it'll be more than 10% I would imagine before this is done um which was the previous high you know Um but yeah, we're at that stage of the cycle where you have to play it a little conservative because the timing is a little difficult. The gas side, I think you can get a little bit more aggressive in some stuff. Um but um I I think that the the growth story on gas, uh the catalyst for gas prices to rise from AI power demand and also LG exports, those are the two big ones anyway. They're more obvious, they're more visible, right? Um but um yeah, I I mean I think oil is definitely the bargain. Um it's out, you know, as I said in the beginning, you know, um I like to look for stuff that's out of favor. Um and maybe that everybody's already bearish on. There are not a lot of sellers left out there. Everybody's already pricing in the worst for a lot of for oil and for a lot of these companies. Um and there's a lot of room for upside surprises. And I think that's what you're going to see in oil um over the next year or so. Yeah, in Canada, let me add to your point, Sarah, as we wrap up here. The Canadian oil company, the mid-tier one white cap Resources, they did a $15 billion merger with Vin earlier this year, and they already announced after the acquisition went through because oil prices are lower, they announced a substantial decrease in their capital expenditure budget. I think they were planning on spending about 2.5 2.6 billion and they already slashed it by $500 million capital expenditure down to 2.05 billion. and they said that um their capital expenditure budget will be adjusted further down if oil prices are weak. So that's despite all the pipelines, the new TransCanada pipeline what that's going from the Calgary Alberta fields, Edmonton Alberta fields to the west coast there and the LG export uh pipeline that uh terminal that you said is coming online, the natural gas pipeline. So even though there are the pipelines there, the prices are low, these companies are adjusting their capital expenditure budgets accordingly. >> Yeah. It's not it's not 2013 where u you know companies were growing to for the sake of growth because production growth caused their stock price to go up, right? This is a very different world. Investors are only interested in free cash flow. Um and the ability to, you know, pay dividends or buy back stock and things of that nature. Um so >> agree. >> If you if you go to an energy conference, what do you hear about? You know, you hear people sitting there saying, well, you know, modeling, how much free cash flow can such and such company generate at, you know, X dollar oil, X dollar natural gas? And um it's just a very different place. And that's very healthy for oil prices. What you just said, these companies reducing their capex means less production, lower supply. And I think that's probably a major reason why, you know, these EIA expectations for, you know, 4.5 million barrels a day of excess supply early next year are just not going to come true. >> Yeah, I agree. And also to add to your point Sarah as we wrap up here, if the CEO, the senior executives of these oil and natural gas companies, if they start to spend lavishly on capital expenditure or other projects, I I think buying assets with cash flow is fine. But if they spend too much on capital expenditure and there are dividend cuts, if their profit margins aren't good, if they're not focused on running the operations more efficiently, maybe cutting costs, there will be management replacements. So, and in this environment, the CEOs running these companies, they would rather slash the capital budgets, the capital expenditure and run things more conservatively even after they did an acquisition than risk being replaced. >> No, absolutely. I mean, you've listened to any energy conference call and that of a company that makes any kind of an acquisition and just watch the CEO and the CFO usually get like, you know, just peppered with questions from the analyst community. Did you overpay for it? All this. Did you overpay for it? You know, what's the idea? You know, all this people are very skeptical. >> Well, that's what happens in a bare market, right? Your question, every little details question. Can you survive? Are you going to go bankrupt? >> You know, all all that. And then two or three years later when the market turns and the company's minting money with the new assets of free cash flow, and then people just pretend like they that they never made mistakes there. >> I got to say, why didn't you buy more? Right. So, >> yeah. Yeah. This is unfortunately this is part of human nature now and a lot of these Wall Street analysts at banks yeah everything's what have you done for me lately pretending that they didn't make any mistakes themselves >> that's for sure >> well uh Elliot I always enjoy my energy conversations I I want to thank you so much it's it we're see I'm just seeing a lot of classic signs that this is a contrarian value investment here the valuations are cheap I I think we're going to see some of these companies um I I the rumors going around we were talking about this a couple months ago BP was going to get bought thought they didn't get bought. But the rumors now going around are that Exom Mobile's even looking at Diamondback. >> Yeah, I I would not be surprised to see a deal like that happen. I would not be surprised um because, you know, you have an administration also which is less likely to oppose um M&A like that. You know, the prior administration, you know, it took some time for them to close their deal to buy Pioneer. This time around, I don't think that would be an issue. Um, and so you could see M&A like that for sure and certainly some of these smaller players like we talked about. >> As we're up up here, please tell the listeners where they can find your research. >> Well, absolutely. Um, my main uh service is Energy and Income Advisor, energyincomeadvisor.com. I also have uh Substack where I publish a lot of free content on energy and we also just launched um a new service on Substack totally focused on energy. I'm doing it with my friend Roger Conrad. Um, it's called the Energy Bulletin. Uh, and you can find all of that at free market speculator.substack.com. Um, and I also love to reply to comments. So, if you have a question or a comment um, about anything we talked about today, you know, feel free to go to freemarketspeculator.substack.com, substack.com.