Subscribe
Share
Share
Embed
Welcome to Big Digital Energy with Chuck Yates, Mark Meyer and Kirk Coburn. Weekly news in energy covering oil and gas and cleantech.
0:00 All right. Well, after, after many fits and starts with technology, welcome to BDE and I guess I'll borrow Chuck's little ditty. I don't know all the words to it. Guess who's back, back again.
0:14 Dave Purcell's stepping in as guest co-host today and wanted to kick it off with maybe revisiting what we talked about in our special edition last week. So you were on regular BDE. We're going to
0:27 cover a bunch of other stuff. But Jacob, our producer, technology guy extraordinaire, and by the way, all the technology difficulties this morning was my fault. So here we are Friday afternoon
0:42 recording. But
0:45 Jacob was quite intrigued by the Chavez Archie Dunham story that you told after we finished. We were both witnesses to that. Maybe you can set that up for us and give us a little run through. Yeah,
0:58 so so again, thanks for having me. Guys, there's a lot of fun. Yeah, so the the Chavez story was in shortly after he was elected in Venezuela, so six years ago He came to Houston and spoke to a
1:12 really large group I don't know there were five mark you were there there were 500 people or more in a massive ballroom It was kind of a non-oil group. It was more of a I don't know just a broader
1:24 interest in Venezuela group and the two the two CEOs who introduced President Chavez were Archie Dunham and Jim Mulvah, you know heads of Conoco and Phillips who subsequently joined but at the time
1:38 were separate companies both with big investments in Venezuela and we're talking about what a what a great place it is to invest in Venezuela and I'll tell you as if someone in the audience you could
1:50 tell their heart wasn't in it and as as Archie Dunham was talking he talked about all the opportunities in Venezuela and he said there's even. There's even natural gas in the Gulf of Paria.
2:03 And President Chavez stopped him in the middle of his speech and he stood up and he says, Señor, done. Well, this big stage kind of dais, right? Yeah, massive stage. And Chavez is in the front
2:13 row and he stands up with no microphones, stops him and says, Señor, done. There's, how do you, it is not, how did you say Gulf of Paria? Say it with me, it is Gulfo de Paria. Say it with me,
2:28 Señor, done him Now, if you put a gun to Archie Dunham's head, he couldn't roll an R, okay? And it was like, he probably had five more pages of his speech to do, and he quickly got to the end
2:42 and sat down, and it was one of those moments. And then President Chavez got up to speak. So everyone had, you know, headphones on, it was a simultaneous translation sort of a thing And if you
2:57 could imagine a Hugo. or a Fido Castro-esque kind of long-winded diatribe. I mean, this thing was - How was that? He was wearing like a plumb or a maroon suit. He was wearing red. Yes, it was
3:12 kind of a whole different thing in every aspect. And
3:21 he spoke for a couple hours. No notes, no prepared remarks. It was just off the cuff And in the middle of it, so we've got the simultaneous translation, and it's like, oh my gosh, you can't
3:32 take your eyes off this thing. And then he started singing. He started singing the song, and the translator said, okay, I will not sing along with President Chavez. However, what he's singing
3:46 is a revolutionary song that Harben's back to the Boulevard in Revolution, and she talked about the meaning of the song and I've never in my life seen a speaker. just start singing in the middle of
4:01 a talk, let alone a two hour long kind of Castro like diatribe. And Jeff Dieter, our colleague at Simmons was covering Conoco and Phillips at the time. And we walked back to the office. And I
4:16 think Mark and I both walked in his office and said, dude, those assets are gone. It's just a matter of time before theirs. And they were gone eventually It's just, you know, and that's
4:29 ultimately what happened. And then Maduro and we are where we are on Venezuela now. Yeah. And I went back last night and was thinking about what the timeline was from that experience to seeing Hugo
4:46 Chavez at the UN General Assembly where he called, ranted and raved and called George W. Bush, El Diablo. And so I went and found something that I couldn't find for a while, and I call him the -
4:60 of OG shit poster. This was 2006. The UN General Assembly when Chavez was on fire and calling Bush the bevel. And I don't know if you remember the kid from brooklyncom.
5:14 He's this old man sitting in his basement in New Jersey or in Brooklyn in a wife beater t-shirt. And he would go off on all kinds of, in his, in his post, his video postings on
5:27 different cultural and political things. But he took this, this Chavez speech and the El Diablo thing to task. If you can find it, it's funny. It's typically profane, but I got a good chuckle
5:39 out of that last night. You know, he's given him the sign, you know, you Chavez. Anyway, so fast forward to last Friday, and we've got, you know, a big public unveiling or the press
5:56 conference that Trump held. Now watch the entire 90 minutes. And so you had, you know, the vice chairman of Chevron in the room,
6:05 name escapes, I think it's Mark Johnson, but don't hold me to that. You had obviously Darren Woods, and then you had Ryan Lance, where I think the three most prominent US large oil co CEOs, and
6:19 then you had, you know, the relevant cabinet was there, Harold Ham was there, et cetera
6:26 And you could tell right from the outset, it was we're, you know, we're ready to, once we finished this press conference, we're ready to sign100 billion worth of deals. And then it got to the
6:40 prepared comments or opening comments from Woods, Chevron and Conoco Phillips. And I think one of the things that you and I talked about in the piece we did last week is there's a ton of just
6:55 assessment that Any one of these companies, that's not already there. I mean, Chevron's got the, you know, the, I don't know if it's an advantage, but they've got the presence there.
7:11 I joked with, I think I joked with Arjun over the weekend. I said, never has Mike Worf been more happy to have had knee replacement surgery that prevented him from traveling to Washington So, I
7:25 think Wood's quip on, I don't know if there's a quip, he means it, but Venezuela as it currently stands is uninvestable. Yeah,
7:36 we can get an assessment team in there in a couple of weeks, but
7:43 don't misinterpret this to mean that we're ready to execute deals. And then immediately after that, there's a flurry of social media posts by Chris Wright and then ultimately President Trump, Chris
7:55 Wright said, I think he called Exxon's view an outlier, and then Trump is
8:03 basically putting out there that maybe we won't invite Exxon to participate, so. Yeah, and I don't think it's an outlier. I mean, I think Exxon is not investable today is the rational conclusion
8:19 of 20 years of technical exit, right? The technical IQ of the country used to be really high. It's much of that's left. There's been lack of investment
8:36 and the country took over assets. So what is the technical challenge, but more importantly, what's the fiscal framework? Right. And ultimately, if you're looking almost any country with a
8:49 production sharing contract, That's approved by the government, by the. by the parliaments, or this isn't something that two guys sit in a room and hash out. It's much more complicated than a
9:05 traditional tax and royalty scheme like you have in the US. And so what's the fiscal framework? And what kind of investments are we gonna make? And when do we expect to get a production response
9:17 from that? Those are all kind of logical and rational business decisions that any one of those companies is, or the other 25 companies are apparently in waiting to go in,
9:35 they're gonna make. It's, and they're all gonna make the same decisions. It, or use the same decision process. Some are better at heavy oil than others. They haven't enough. Well, Ryan, you
9:49 know, Ryan Lance was, showed they're kind of wait a minute. We've got some, we've got some.
9:57 clear and present issues we need to deal with, namely for Conoco Phillips. I believe they're the largest creditor to Venezuela, to the tune of somewhere between6 and12 billion. And basically,
10:09 there was almost immediate pushback, well, we're not going to
10:16 really address that, but you're going to make a lot of money going forward
10:21 I
10:23 think that Exxon's been full twice as Wood's alluded to back in November of last year, and then Conoco had its, Conoco Phillips had its turn in the woodshed. And so, I can't really, I don't
10:43 really think it matters just given what they're trying to pull off politically. And you don't have, you don't have a short time frame to get the
10:57 political situation sort it out because you've got, you know, you've got a Maduro Vice President as interim president. What's changed in terms of their political view toward adjusting anything,
11:10 whether it's PED of ASA, whether it's, you know, the commercial terms, contractual terms, concession agreements and all that. Never mind the fact that we've got a tremendous amount of midstream
11:25 and downstream capital to find his upgrading
11:30 rehab overhaul to put in place. And that certainly doesn't happen. I think
11:38 in the extreme, I was joking about it a little bit. I was after the uninvestable and, you know, Chris Wright calling an outlier in Trump saying, Exxon may not be invited. I put a little
11:49 tongue-in-cheek internal bed out. I said, what's the over-under in days before? Trump refers to Darren Woods as a quote unquote low IQ person, which tends to be one of his favorite insults. So,
12:04 you know, I saw something as two or three days ago, then crude is, I don't know if there's a real kind of import benchmark we can point to, but for a lot of reasons, 9 under WCS, which is, you
12:21 know, they're not immediately interchangeable.
12:28 You know, all the send crude coming down from Canada is not something that is, you know,
12:36 replaceable in terms of all the capital mods that the refiners did over time when there were more and more barrels coming from Canada, completely different animal You know, you're talking properly
12:40 upgraded Canadian crude, a 20 API for one. Dilio went spiked, then crude in the.
12:55 high single digits to low teens API, never mind all the other stuff that, you know, is in the quality attributes that are different. So reality is, you know, I think at least been introduced by
13:11 the comments, you can kind of read between the lines and dig into more of the detail as to what what the reality is of the companies and their leaders and ultimately the boards and making decisions
13:25 of what, you know, of how this is going to work if it is going to work. Yeah, I think the just the magnitude of the potential capital and the narrows the playing field to just a handful of
13:42 companies that have the balance sheets and have the expertise and have a portfolio that allow them to actually move and be a
13:53 be a first mover back into Venezuela.
13:58 I don't think there's all that much competition, actually, for
14:02 the opportunities. It's going to be fun to watch continuing and unfold. Jacob, I saw, I guess, a repost from Shiger, L. Tracey Shukert, and she pointed out a lot of
14:17 the technical realities of Ben crude versus Canadian crude, and we'll post the link to that. There's going to be more to come from Venezuela, but let's talk about, let's shift gears to, I know,
14:31 a subject that is very near and dear to you, which is the EIA, and they publish their January short-term energy outlook, which, you know, if you look forward into the early to middle part of 2026,
14:49 is not all that different from what they were showing. in the December update, but there is a pronounced rollover in US. production that is already underway. And I think the last 914 was still at
15:07 that 138 million barrels a day that we talked briefly about last week in the kind of in the dogs breakfast of things of global crude macro. What are your thoughts on the I a we can get into data
15:21 quality, etc. We had we had quite a running string of questions and I think comments about you know almost building to the level of some kind of conspiracy in the in the
15:35 EIA data not really being representative of what's happening on the ground particularly in the Permian. Yeah I think generally if you if you look my experience has been the EIA are exceptional data
15:47 gathers and statisticians to tell you what what what production has been or what refinery output has been or whatever the number we're looking at. They're pretty good at the most recent month of data
16:05 they have and backwards. Not perfect. They're subject to revision. But they're statistically very, very sophisticated. Sometimes they don't forecast all that well and, you know, that's the
16:21 nature of the beast I think when I just look at what they're saying, so again, US. oil production is 138 million barrels a day, global, again, on a global basis of 100 million barrels a day,
16:36 roughly.
16:39 And it's been a growing piece of, you know, it's where a lot of the global growth has has been outside of OPEC in the last little bit.
16:50 They're showing 1 decline in 2016 and 2 decline in 2027 in US oil production. That actually makes sense to me, right? If you just say, Well, what,
17:01 and again, that's not, that's that top line 138, the Permian is half of that. So if you say, Well, even the Permian could even grow a little bit in that forecast if the rest of the US is falling,
17:16 which it probably is, and, you know, the big pieces of the rest of the US are obviously Gulf of America or Mexico, depending on your choice.
17:31 You know, you've got a number of other places where production is clearly not growing fast.
17:39 And you look at Redcat and the Permian, you look at what happens with55 or60 oil look at cash flows in a world where companies are showing they are disciplined. around cash flow and they'll
17:53 absolutely quit growing in order to show cash and continue to have higher returns to shareholders. So I think the top line it makes sense to me that US production should plateau and start to decline.
18:09 So
18:12 particularly in this oil price environment, companies are reacting that way You see red counts slowly declining and it will continue, I think, as long as oil prices stay.
18:25 Well, Chuck and I talked about in regular BD in our year in review, we talked about what happened to, you know, I think there was a surprising recollection that, hey, crude started here at 70
18:39 last year and we lost 20 percent, red count did what it did I showed the. the contemporaneous trend in
18:50 forex spreads. But what I did have on that graph, and we'll post it, there's
18:57 an ex post from Jorge Arjona, and
19:01 it has an overlay of completions over that same time frame, and the completions line is much flatter certainly in the second half of 25 than the frack spread count, which continue to drop fairly
19:18 precipitously. I mean, we're at over 200 or so, and then completions have held pretty steady between
19:29 900 and 1, 000 per month through the back half of the year. So there's something there fundamentally if those data are correct, and I don't have any reason to believe that they're not. I guess
19:42 I'll pose the question this way just given the kind of the step up from the 13, 5, 13, 6, 2, 13, 8 against the backdrop of declining rigs, declining forex breads, do you think the likelihood
19:60 of downward adjustments to kind of latter half 2025, 914 data is elevated? Or is it about the same? Do you I guess what I'm asking you to do? Would you be surprised if we saw some pretty
20:15 meaningful adjustments? No, I wouldn't. And remember the 914 that the statistical challenge there is they're taking,
20:23 they're surveying the largest companies, okay? And they are not surveying the smallest companies. And so the assumption is behavior between the large companies and the small companies is the same.
20:39 And statistically that creates a lot of challenges and amps oversimplifying it. but you could easily see some downside revisions as the actual data starts, you know, starts maturing.
20:54 And the other reality is, you know, I think they forecast some low oil price in 2027 as well. No chance. If production is down 1, if they're right on production, they're wrong on price. That I
21:11 am sure of
21:13 If US. production is falling this year and falls even further in 2027,
21:21 there's no way 2027 price is low. So buying demand catch up and prices are much higher in 27. I don't know how much, but they're much higher than they are today. I saw a Brent forward curve. Mm
21:41 Three days ago, Roy Johnston. those of us who no longer have Bloomberg professional have, you know, we're a little bit handcuffed, most ingenious addiction ever invented, but pretty steep
21:56 backwardation and to throughout 26, but it goes sharply, Contango into 27,
22:06 you know, for whatever that's worth.
22:09 Well, and so what does backwardation mean, right? I mean, I think it's worth an interruption in a pause, so backwardation means that for the next 12 months, futures prices are lower than they
22:22 are today.
22:24 Okay, well, that is an
22:29 abnormal sort of curve. The curve should be in slight Contango. In other words, the future's curves over the next 12 months should be slightly higher than today.
22:42 the level of Contango in a balanced market should be the cost of storage. So I should be indifferent. Do I produce a barrel today and sell it to Mark? Or do I sell it to Chuck six months later?
22:55 And he, and again, whatever, if it's2 to store, or a dollar to store over six months, that should be the Contango. Backwardation is telling you the market's tight,
23:09 and the market's saying, look, I don't care what the price, I don't care about six months from now, I need those barrels today, and it's not, not only is it not creating
23:19 an incentive to store, it's creating a disincentive to store, it's creating an incentive to liquidate, and that's why, that's why Cushing, you had 80 million barrels in Cushing of storage where
23:31 the NIMEX physically trades, it's sitting there in the low 20s, sitting just barely over minimum operating levels. So, Mike, then we talked about - And I think if I recall the - last week's
23:43 inventory report you had, or maybe this week's, last week's, you had like an 800, 000 build, and that may be API that comes out on Tuesday evening. And so your point is, is that from a
23:59 structural standpoint or kind of end point levels, given the, I mean, we talked about it a little bit last week, but just given the kind of the perceived glut and the narrative that's out there,
24:13 Cushing would have responded over this timeframe much more than it has in terms of - Yeah, you would see the barrels in Cushing. You'd see them on the US. Gulf Coast because you have the ability to
24:26 are the fiscal and financial in those areas. And historically, when the market's oversupplied, that's where you see the barrels show up. And what you'll hear people say, and we talked about this
24:36 last week, well, it's China. Well, China's convenient
24:42 you tell me they're being held in China, I can't prove you're wrong. You can't prove they're either. But what we do know is
24:51 the shape of the forward curve is telling you the market isn't wildly oversupplied. It's probably tight. And if it's tight today with OPEC barrels have come on the market over the last 12 months,
25:06 what it says two things. Demand is either better than consensus believes andor
25:13 OPEC isn't putting as much oil on the market as they say they've put on. And you know some of the OPEC countries have struggled with capacity at times. Those are both logical. And if either or both
25:30 of those are true,
25:32 2027 is teed up to be a really good year. If US production starts to fall with good demand and OPEC with little. less excess capacity than people believe, this is gonna be a really good oil market.
25:48 Yeah, and the thing, and the thing we have the best data quality on, we can argue whether there's some kind of narrative led.
25:59 I don't wanna say massaging, but always cross-reference production with the best inventory data defined as OECD and US
26:10 And think about what you're seeing in terms of builds or draws. And absolutely, absolute levels. I mean, we've had, I think we've had a relatively robust gasoline build over the last few periods,
26:22 but structurally it looks like we oughta be
26:28 setting up for evidence of a kind of a tighter circumstance. And I think that's what you described. As you described what's going on with forward curve, Steve Backwardation now heading into
26:40 Contango.
26:42 or reversing into Contango. So another element of this that's been in the news, let's shift gears, one of your, I think one of your favorite international topics is Iran.
26:57 So give us a little backdrop on Iran, just from a foundational or fundamental perspective. Yeah, so Iran's 4 million barrels a day. They matter a lot. It matters way more than Venezuela Venezuela
27:10 is a million barrels a day that might be grown to a million and a half in five years. So it's, you know, we're all probably spending too much time on Venezuela, but it's because people care about
27:24 it. But Iran matters. It's 4 million barrels a day. And how does what happens domestically in Iran is really important to oil markets, right? It could, if there's revolve and unrest in you. you
27:43 put a, even just a million barrel a day, kind of speed bump in front of Iran production, that's gonna make a big deal to the, that's a good, that will be a big deal to the law markets. And so
27:56 how this place, yeah. And since the Trump administration was in anticipated, you know, 96
28:04 plus percent of the shadow fleet exports are going to China Yeah, yeah, I mean, there's the whole kind of Chinese, you know, second route of effects of what's happening in Iran. We know China's
28:20 been investing, both in the upstream and the downstream in
28:25 Iran. And so, you know, again, the location matters. You look at a map and it's, I mean, it's right there by Iraq and Kuwait and across the water from Saudi. And, you know, you've got issues
28:40 of sea traffic, you know, tanker traffic coming through the straits. And, you know, that's been an issue for 40 years and off and on. And there's just a lot of variables when you start to think
28:55 about unrest in Iran. Yeah, I think, you know,
29:02 we're, we're kind of, we're kind of showing our
29:07 our intent or willingness. I think the USS Abraham Lincoln strike group got underway from Asia Pacific to move into the Persian Gulf region. That's going to take about a week. I think that started
29:22 yesterday or the day before. And, you know, you hear updates on the news about, well, you know, Trump's keeping it on the table, but there's a shuttle diplomacy going on or the shuttle
29:35 communications. Look, I don't know what their sources are. They've they've stopped the killings. They halted, I think they were scheduled to have 800 executions yesterday.
29:48 So who knows? Brent took a hit when
29:54 that exchange was made and we seemed to back off to a slightly less kind of hawkish stance. One of the things I wanna get into is,
30:06 and I read it in some posts, but
30:11 of that four million barrels a day, you've got eight or 900, 000 barrels a day that's condensate, and I think you know, as well as anyone or maybe better than anyone that South Pars is a big giant
30:26 gas condensate field.
30:29 And the interesting thing there is that
30:33 domestic electricity in Iran is 80 to 90 gas fired. and about 34 of that comes from south parts. So you gotta produce the con and say. Yes. I don't know what the split is in terms of what's being
30:51 driven around offshore in floating storage. You got tankers anchored, but you have some kind of doing these two knot circles apparently that some of the ship watchers, like Kepler and others
31:07 have data on are, you know, are loaded with condensate. So what kind of particular issues where you're not able to, you know, you have to keep it on the tanker for maybe months, not weeks. Yeah,
31:26 I always, I think about condensate as being best blended with crew. If you put it on a tanker for any length of time or you end up with a bunch of evaporation. And so it's a question of what's the
31:37 API gravity that condensate, you know, how light is it,
31:42 yeah. And there's an inherent degradation because of that VOC
31:49 evaporation for lack of a better term. Yeah, it's something to consider. Kind of the workability or the refinability of the condensate. Yeah, and then who wants to take a pure condensate
32:02 into their refineries or do they blend it? I mean, there's always those issues and
32:09 it is good to point that out, Mark, that they do produce a lot of gas and there's a lot of condensate in that kind of four million barrels a day. They can't stop producing condensate because they
32:18 can't shut the
32:21 gas off, which would create a lot of power problems at a very precarious time. Yes, yeah, you have to keep the power on or it just leads to further. unrest. So no question.
32:40 You know, I think there's some parallels here. If we do ultimately get kind of organic regime change through citizen uprising, you know, it's not a straight line path to kind of a democratic,
32:58 more capitalist friendly situation in either Iran's case or Venezuela. And so kind of who's mining the store as this plays out over the next several weeks and months. And then the notion that
33:13 Western capital is going to, you know, be right there alongside whatever the new leadership looks like, whatever the new national oil company structure looks like, it is not something that, you
33:25 know,
33:28 that just flipped the switch and, you know, we're back to. We're back to the old Iran kind of pre-revolution, and we're back to the old Venezuela pre-Shavos. Yeah, I always think back to a
33:43 comment. We were talking to, this was a number of years ago, a European major CEO. There was questions about this is when I was at, we're at TPH, and we're talking about investing in Iran. And
34:00 I said, well, look, you guys have the advantage there Because you're at least politically able to invest in Iran, where Exxon, Chevron, et cetera, US domicile companies are not. And he said,
34:12 well, that's true, but he said, you do know or we do. We're very aware that when we invest in Iran, the people who benefit are the Republican guard.
34:29 And that's really hard for us to do. whether we're allowed to do it or not,
34:35 we, it's kind of the moral case for not investing. Now the flip side of that is, if you get regime change in a more democratic group in Iran, are these European majors gonna be a bit more willing
34:52 to step into that? Again, you've got the same issues in Venezuela, you need stability, you have to understand the contract structure, et cetera, but those European majors may be a bit more
35:08 advantaged as far as the first mover. I had an opportunity a few months ago to take a look at perhaps an advisory
35:21 role and it involved
35:25 the Kurdish region of Syria And so there's a lot of heart of carbon. wealth potentially concentrated in this region
35:37 and it's very regional and then you've got the Syrian national element and so we're doing all these things at the federal level and there was clearly going to be a lot of kind of faction friction
35:56 between kind of the provincial area that has the assets and the US. is certainly backing a more kind of nationwide unity and a federal approach to recovery in Syria and then you've you've seen what's
36:14 happened from a kind of outburst of violence and stuff I just know
36:22 my wife said you're not going over there anytime soon nor nor did I I want to and I look at that That is kind of an extreme. example, but there's a lot of useful kind of analogous attributes to that
36:37 in terms of what's going to happen if, you know, this type of progression and transition takes place from extreme kind of dictatorship, certainly one that is a
36:51 theology based or one that that has the the hallmarks of what Venezuela has been suffering under for 25 years, because you don't know kind of the secondary intersury players that have been without
37:04 for so long. And now they, you know, rush into these pockets of a vacuum kind of figuring out and is there this immediate kind of this goodwill of unity across the country? And I think there's
37:21 history and reality would show you that there's going to be there's going to be some skirmishes, whether those are political or actual kind that are going to sort themselves out, but again, it's
37:34 not
37:37 a set table for the industry to flip the switch and let's go get things back to
37:46 best-in-class state with Western capital, Western technology, Western know-how. And so it just seems like that that uncertainty and that instability, that intermediate instability ought to be
38:00 priced in a little bit more when we joke about it because, you know, we used to have, you know, a tropical wave
38:11 and off of Africa and gas prices would spike, but the whole kind of weather and geopolitical risk premiums that we used to know and love are nowhere to be found Well, you know, you're right, Mark.
38:25 If you go back to look at history, right, there was, I don't have eight years ago, the the Iranians allegedly fired a missile into the kind of ab-cake kind of gathering system in Saudi. Now, an
38:42 oil market's yawned. Well, okay, for people who don't know, that's a square mile offense line where a significant portion of the Saudi crewed from Guwahr and ab-cake run through this. I mean,
38:56 that's the most important square mile on the planet as far as oil markets are concerned. And there were missiles fired in there in the oil market yawned.
39:09 We, the US recently dropped a bunker buster in the nuclear, to sideline Iran's nuclear arms program. Oil market for the most part yawned. And so what has, I think the oil market saying, Okay,
39:29 I'll watch it, but I need to see a sustainable production impact before you see it really show up in the price. And again, you're right, we used the EC crude spike on all sorts of news rumors and
39:48 now it's, no show me, you gotta show me a production impact, either positive or negative before the market's gonna react meaningfully. And 25 years after the start of hostilities in Iraq, we
40:03 haven't seen a smooth up into the right there either. No, no, absolutely. So, a lot of lessons there, a lot of lessons to kind of bring forward and frame how you think about things.
40:17 Trying to understand the disconnect between fundamentals and more momentum or headline-based factors, just an interesting, Um. stew of kind of exogenous things here in the in the oil markets. All
40:31 right, let's, let's move on. Gosh, this has been one of our long running BDE favorites, which is the BP follies, right? I don't know if you saw the other day, they pre announced a four to five
40:47 billion dollar impairment strictly related to their transition or renewables portfolio. Their last three years impairment trend overall, not all renewables, so keep that four to five billion in
41:01 mind. In 23, they had total impairments of five point seven billion last year, or 24 was, I think, five point two. And then this year, meaning 2025,
41:17 that four to five billion is on a total impairment of six point nine billion.
41:23 And so,
41:27 I
41:28 just saw a video post on LinkedIn that Javier Bloss, the Bloomberg energy report, a long time energy reporter who's great. He loves to talk about BP and Shell, obviously, 'cause he's based in
41:41 London, he's from Spain, but he was just thinking in the graphic it was, did you know that BP 20 years ago was a250 billion company? Today it's less than 100.
41:57 And so what
41:59 the very different kind of stakeholder push that has played out for the Euro majors in BP has been more than a willing participant in actually taking action to move in the direction that the activists
42:13 and the broader ESG and EU community have been
42:21 dominant in terms of the rhetoric rhetoric and the policymaking.
42:27 but you've got a company that went from, at the beginning of Bernard Looney's short tenure as CEO, saying we're actually gonna contract our oil production by 40 by 2030, reducing that to 25 and
42:45 then reversing course, kind of in concert with the IAC. The problem with that is you spent a ton of capital on a lot of things that you're now make up that multi-billion dollar impairment.
43:04 And that's, a lot of that is kind of marked market based on kind of rational and realistic valuation today for those types of assets versus, I think the number on actual offshore wind leases in one
43:19 case for BP was back in the day, was something to the tune of600 billion.
43:25 or excuse me, 600 million. But you spend a few, 600 million chunks over time and then you mark that up in the market, then you've got
43:37 elevating impairment risk. So kind of here we are. So it's actually really interesting. I'm sure there'll be some Harvard Business School case studies on this, 'cause it's a
43:50 case study rich sort of environment. It's what are we good at?
43:55 And so there's a couple, I think about this a couple ways. Well, what are we good at? Well, let's keep doing that. Are we good at this other thing? Well, maybe we shouldn't do that. Let
44:05 somebody else do that and let us do what we're good at. And whether BP was good at extracting oil and gas or not, I think even that's questionable given the rash of things like Makando. Alaskan
44:25 pipeline leaks, the problems and challenges at ThunderHorse, BP, Texas City. I think you have to ask, are
44:37 we even good at that? Well, if we're not, then
44:42 maybe we shouldn't go chasing wind mills. It was a quixotic question. Yes, it was. And so one, or what are we good at? I mean, oil and gas companies don't own their own rigs anymore. They
45:03 don't own their own fractalates anymore. They don't even do their own services because they're not good at it. Service companies are better at fracking wells than oil companies are. Service
45:14 drilling companies are better than drilling. What makes an oil company think they're going to be able to go do wind and solar and geothermal? Bye! Well, you remember back in the day, a good,
45:26 good point about the, you know, the forward and backward integration. We saw a lot of it in ENP, some notable examples. You know, Chesapeake had a drilling company, I think Pioneer had a
45:38 pressure pumping company. They may have had a rig company too, I don't specifically recall, but, you know, oil and gas valuations today in public markets are nothing to write home about, but we
45:51 saw evidence of that type of
45:56 portfolio diversification outside of the core, you know, closely related to the core, resulting almost every case, multiple compression relative to kind of the pure comp average. And what I want
46:13 to, I think it was in 2024 at the, at uh, collides in power conference,
46:23 And we're talking about, you know, at the time there was a lot of criticism because there wasn't more aggressive spending. It was the UN's Guteros. It was a barrel at the IEA and just the other
46:38 kind of very loud voices
46:42 saying that, you know, oil and gas companies aren't doing enough in terms of capital commitment right now. And he said, look, I think it was the top seven of the majors that would include, you
46:59 know, the US, the big US. to BP. and Shell, to Tall, conical Phillips, et cetera. But their combined total capital was like122 billion. And if you remember at that time, the IEA is out
47:17 saying and everybody else is is that saying we got we got to be spending. we need to be going from 1 trillion a year to 3 trillion. And Bobby's point was just pointing out the absurdity of the
47:29 proportions of that122 billion.
47:33 If the go forward is somewhere between 1 and 3 trillion, if they put 100 of their capital into transition investments, it really didn't matter
47:46 It's, you know, it gets detached from financial and execution reality to begin with. But for an industry that had been, you know, since 2014 has suffered from, I think, kind of a structural
48:04 re-pricing or re-evaluation and not in a good way,
48:09 doing this type of stuff at speed and at scale is, you know, as we see in retrospect. And I think
48:20 really understood that this was what was coming because physics always wins over platitudes. And so here we are. Well, the other thing that
48:31 was interesting is you can see it. There was a lot of capital chasing, not that many very, not that many quality projects. And that's a space you don't wanna lean into, right? You say, well,
48:44 okay, they're, but they had a strategy that a goal,
48:50 and, you know, and they got rewarded for that, at least in the press. So they got a lot of attaboys. The challenge with the market or some change in strategy is it's easy for investors to switch
49:07 out of your stock. It's really hard and you're seeing it. It's really hard to turn strategy We shifted strategy to this. And it's not working, the market sees it, and they go off and chase the
49:21 next thing. And now you're stuck with a ship that's headed in the wrong direction and a debris field of write-downs.
49:35 So you gotta be really careful about the flavor of the day and make sure, again, are we good at that? Is it something we should be doing? And I think it was, I think, again, for us, you're
49:50 right. It was clear this wasn't gonna end well, and well, it hasn't. Yeah I, recall back in, I think it was in September 21, Chevron rolled out its new energy's business. And
50:07 they clearly had in their stack of opportunities.
50:12 Wind and solar were absent And I remember them getting taken, Mike Worth getting taken to task. And he basically said, Look,
50:21 we can't generate competitive returns in those two areas, and that's just the blunt reality, and sticking with that discipline, and really understanding the Exxon and Chevron model on a nose shell
50:38 and BP and the rest of the more progressives that went much farther down the path, including committing to Scope 3,
50:50 and we're looking across ponds saying,
50:54 That's really the rational path, but we have been forced by the environment we live in or the house we live in to find as Europe to actually do some things which in the end have been proven to be
51:08 fairly shareholder value destructive Yeah, so maybe the right answer is keep producing oil and gas and keep trying to do it cleaner. So follow this is a, I believe it's a Dutch
51:21 activist and they've been a gadfly since 2016, you know, just bombarding
51:29 proxy
51:32 proxies with resolutions that were very one-dimensional in terms of, you know, things like forcing BP to do what it did in projecting that they were gonna contract their oil production It was all
51:44 emissions and climate focused. And now they've kind of, you know, that they've lost the IEA as an ally, for example. And these resolutions have seen pretty declining proportions of support over
51:59 the last few years. Follow this came out with something now they're demanding that the European major, shell and BP, set forth a 10-year outlook on what their investments in oil and gas.
52:18 will do from a returns profile. Now all of a sudden they're
52:24 investors like everybody else.
52:29 Now returns matter. Yeah, returns matter. But this notion that all of a sudden we're going to take the high road here and we're really going to put you to task for the investment community and
52:40 saying, Okay, we know you guys have pulled back from this transition pace. You're not going to let your core oil and gas production decline. If you're going to grow it out to 2050, we need a
52:59 10-year look of what that investment landscape looks like, which is.
53:06 I found that cynically amusing
53:11 Anyway, it's going to be going to be fun.
53:15 watch all this play out. And I guess the last question on
53:20 BP, what's your guess? Is BP still a standalone company by the end of this year? Yeah, I think so. I think so. I'll take the other side of that without knowing. But having had some experience
53:32 with Elliot,
53:34 I don't think they're going to turn that loose. And I think Meg O'Neill's being brought in
53:41 to do that. Yeah, I think that's right. The question is, what is it? Yeah.
53:49 I was just thinking about who wants it and how you break it up. That's another discussion. Speaking of renewables, last item,
53:60 I was fascinated because it had never hit my radar that Tesla is building and has built and is now operating a lithium refinery in Good Old Robstown, Texas, which is about. a sandwich from where I
54:15 grew up in Corpus.
54:18 And this thing does not use
54:24 traditional sulfuric acid leaching.
54:28 It is a
54:31 kiln and
54:33 alkaline process, a rotary kiln and alkaline process that uses as kind of ore feedstock, which is high in lithium oxide concentration. A
54:51 rotary kiln and then an alkaline process for leaching and you're left with battery grade lithium oxide, enough to produce somewhere between half a million or batteries for half a million to a million
55:09 EVs per year. And do you know what? Do you know what the timeline was from ground break to operations? No, I'm sure it was faster than anybody else could have done it. 19 months. That's, that's
55:25 amazing at that scale. And so the quote unquote waste products are, you know, things like sand and lime, which are components in concrete or constituents of concrete So
55:37 this is very analogous to what X AI and Elon have pulled off in Memphis with the Colossus one and Colossus two super computers. One of my favorite things to talk about is we've spent a lot of time
55:52 talking about kind of the AI arms race and data center build out and energy and power related to that But Colossus one
56:03 right there in Memphis proper on the river went from groundbreaking concept to first power in 134 days.
56:13 And it started with 200,
56:17 000 GPUs. And they added another 100, 000 a few months after they started it. Well, kind of the speed element there was that they took a little bit of a different approach. They took an abandoned
56:33 industrial building on the Mississippi River, decided to ask for forgiveness rather than permission by moving in a 35-mobile turbine fleet of gas generation. And then they secured another spot down
56:50 in Whitehaven, which is a slightly southwestern suburb of Memphis. Got that online in about 150 days. I know, by the way, we're going to move across the border and buy an old
57:04 gas-fired power generation asset.
57:10 we're going to rebuild there to the tune of, I think, 12 gigawatts. So moving back to the lithium refinery model, they are uniquely proving to do things at scale, at timelines that are
57:25 breathtakingly short. Yeah, it goes against what we talked about BP, state, stick to what you're good at. And apparently they're pretty good at a lot of things But I do think the difference is
57:44 you've got a company that trades at incredibly high multiple. And they're securing the things that keep that multiple high. I need lithium for batteries, so I'll make sure I've got some of my own
58:01 supply I need power to generate to feed the data centers, the AI, the things that power feeds in my business. So I'm going to secure that. And I'm going to do it quickly. I'm not going to sit
58:16 around and, you know, he kind of flips a script instead of saying, Well, how does everybody else do it? It's more, well, how can we get it done the quickest? And it's, I mean, it's similar
58:30 to Microsoft's in some way saying we're going to go secure power from through my island. Now, now you're going to do that as quickly, but we need the power so we're going to secure it. And you
58:44 look at these, again, these companies are traded to high multiple. They're trying to lock in the things that continue to keep those multiple times. The ability is to
58:57 create batteries and cell cars, the ability to generate power and do AI and data centers. So it's really, it is interesting It's just another kind of feather for Texas, too, because. You got
59:09 SpaceX down there in
59:12 deep South Texas, in the Brownsville area, South Padre. You've got what's going on around EFW with I think second largest concentration of
59:26 data centers. But to be able to do something like
59:32 lithium refining is
59:37 somewhat akin to building. People would think about it in a traditional way of whether there's a bunch of really hazardous stuff that is used in interdisciplinary findings or any kind of of leaching
59:47 process. They found a way to do it differently, but also do it quickly. And they had a very kind of willing partner in the state that they're continuing to build these new examples of
1:00:06 next generation technology. And so I think it's, I just think it's an interesting example and one that caught my eye. You know, we at Collide, at least our leadership, loves
1:00:23 their Teslas.
1:00:26 But it's just an important, you know, it's an important statement and step in terms of de-risking the inherent supply chain issues related in the, oh, and by the way, you get to say a big piece
1:00:43 of your EV is actually manufactured from the ground up in the US. Right, the most expensive part of that EV. All right, well,
1:00:55 I don't know about you. Feels like a pretty broad spectrum of interesting stuff and I'm really glad you're able to join us to get back into Venezuela, Iran,
1:01:09 are one of our long-running favorite subjects which is petroleum data. It's
1:01:16 got a fair bit of controversy around it and I think having your expertise and perspective is very helpful. Yeah, I think the market is going to be fun to watch over the next 18 months, for sure.
1:01:32 All right, man. Well, good to see you Yeah, good to see you. Thanks for having me.
1:01:38 It was always fun. I'll be in Houston here a week after next and
1:01:40 look forward to doing some more studio in studio shows so we don't have to deal with
1:01:47 our collective
1:01:51 and my incompetence. Well, no, combined old guys in technology are tricky sometimes and part of it was my fault. Collide, if you like the show, please share it. Give us a like and tell your
1:02:04 friends to sign up and register for Collide and get that. get the best, most interesting kind of expertise and commentary right at your fingertips. So we look forward to the next one. Dave, have
1:02:15 a great weekend and we'll talk soon. Thanks again.