Big Digital Energy

0:00 So, fun weekend. Welcome back, Dave.

0:07 I can't, can't recall the last, I think you're on BDE with us, but this is kind of a wheelhouse

0:17 intersection of geopolitics and I think technical understanding. Yeah. So for those who haven't had the pleasure of seeing Dave on platform, Dave is currently an adjunct professor of petroleum

0:32 engineering. Spent about 20 years on Energy Wall Street with Dave, we're former classmates from Texas AM long ago before there was - Way back. Let's just say it was pretty unconventional. And so

0:46 wanted to talk really after seeing a bunch of what I call instantaneous technical experts popping out of the social media. would work over the weekend talking technically about Venezuela and the

1:07 potential and what that means. I've used the term on BDE when Trump went on his arm twisting tour shortly after inauguration with OPEC. It was ostensibly an investment junket, but

1:22 we saw the acceleration of cuts We've got a president who we've long said is a low oil price president and there's been a lot of consternation over the last year about he's not been a friend of the

1:38 industry and what he cares about and even on a compounding basis is what oil prices do and ultimately retail prices do. Certainly heading into November in a midterm where when it looked like a slam

1:53 dunk a year ago, We've got a lot of political risk there, but. just giving your background in Venezuela and maybe

2:04 talk a little bit about that before we kick off the discussion. Yeah, sure. So one, thanks for having me. It's always fun.

2:13 If my experience in Venezuela goes back to my days at Hold it to Associates. So I was there from '91 to '98 or '99. And at the time, Venezuela, you know, they'd nationalized in the '70s. They

2:29 were in the

2:31 midst of what they called La Apatura or the opening. So bringing back in foreign investment to partner up with the pet of basic companies, Maravan, Lagavian, and Corpervin. Hold it had a rep,

2:43 Marcelo LaPraya, who I actually co-taught with last semester. PhD, he's Venezuelan, he was living in Venezuela at the time, had some consulting businesses. And he was basically opened the Hold

2:56 it's office in Caracas, or in Caracas. portal accrues, actually. We were fairly active in Venezuela with field studies and doing things during

3:11 the Apatura. It's a resource-rich country, for sure, but it's mature resource. And problematic. And problematic going forward. Is it, I was looking at my Venezuelan connection. I'm married to

3:27 someone who was born in Expat there. Father was down there in 50s and 60s doing petroleum engineering work all over the country. But

3:39 the vantage point that I've had over the last 25 years, primarily as a result of global macro and what we went through in the early part of the 2000s in terms of really retrofitting the

3:57 refining complex, when we all thought that's where the growth barrels were going to come from, pre-shale, right? So I think of, you know, just level setting for our audience here, I think of

4:11 kind of two major 30, 000 foot level producing provinces. One is Maricaybo, which was discovered, I believe, in the '40s. And they are in Okobelt, which is where the vast majority of the Akalim

4:26 Shavaz proved reserves of the 303 billion barrels that's being tossed around. That's the really kind of complex, unconventional part. Now, not to say that Maricaybo, which is more conventional,

4:40 doesn't have pressure depletion problems, etc, Logeo are.

4:46 What we're focused on here is, at least as we look forward, helping people understand and both the above ground and the subsurface complexities. in the capital associated with that? Yeah, I think

5:00 when you think about Venezuela, so in the '90s, we were working in Mexico with Pemex, we were working with Petronos in Indonesia, we were working with Petavesa.

5:16 In my opinion, no question, Petavesa was top tier national oil company because when they hadn't been nationalized

5:23 that long ago

5:26 in the '70s, and they nationalized around the structure of Merriven, corporate, and log events, so they kept the IOC

5:34 framework in place. And that was really important from a technical and operations perspective. They were very, very good. And what they needed with La Patura was a little bit more technology, but

5:47 really capital. And a lot of capital. A lot of capital. When Chavez took power, he, for a number of reasons, gutted Petavesa.

5:57 and merged the, those operating entities together and there was intellectual flight out of Venezuela to other parts of the region and the globe. And Venezuela had very, very good technical people.

6:15 So the challenge going forward is you've had 20 years or more of a country that's run their oil field operations with insufficient capital and insufficient technical resources. Kind of the worst case

6:35 example of NOCs, I've dealt with some NOCs from Petronos to OGDC and Pakistan to ONGC

6:45 and India. And they are the more traditional at least in OGDC and as you would describe Pemax as a comparative is more of the traditional. A lot of bodies, not really kind of cutting edge technical

7:01 sophistication and capability. We could do a whole other show on Cantorell and that whole history, but anyway. So we've had essentially since Chavez took power. We've had more of a typical

7:20 dysfunctional NOC type leadership, both organizationally and operationally. Yeah, no questions. So you've got lack of investment in two really key places, both upstream, conventional and heavy

7:41 oil. The conventional is a problem because it's hard to restart water floods that have been mismanaged, pressure maintenance that's been under pressure supported. you can go in and spend capital

7:56 there, but you don't get an instantaneous production response. So - And you're talking about mainly the Merik Iibo. Merik Iibo, I think of it. So it's a little bit, it's in the water, it's not

8:08 deep water, but it's in a lake, and so that makes it a little bit more challenging. So if you and I were gonna go in to Venezuela and say, We've got this concession in Merik Iibo, there's a lot

8:20 of field study work that has to be done to understand what's the capital, right? This isn't, what's the capital? What projects need to be worked on? How do you prioritize it? And then you figure

8:33 out what the production forecast is gonna be. And I think people are miss, they're thinking about this in terms of, oh, it's just easy going there and drilling some wells and, you know, open the

8:45 spigot and - You got a pressure depletion purple. And the heavy oils, same issues. And then the other facet is the, downstream. They've got a million barrel a day refining and petrochemical

8:57 complex that's been massively under invested in by all reports. And so there's a lot of capital that has to flow both into the upstream and into the downstream sectors. And again, it takes time.

9:11 You've got to come in and assess what needs to be done here. And I think you talked about the however many billions of barrels of reserves. I mean, be cautious of a political pundit throwing out

9:21 reserve numbers. It's, let's call it a resource number. And you don't know if it's a reserve until you get in there and actually spend capital on it and figure out is this, can we actually produce?

9:24 So let's, let's use the

9:42 mainstream view of 303 billion barrels. You've got of the 303, 275 million barrels is or no co. Right. It's heavy. And the conventional is a sliver. And so we're talking about potential in

10:03 euphoria based on a very problematic, not only crude essay, but also if you think about the reservoir itself, just the characteristics of the reservoir. Yeah. I refreshed my perspective in that,

10:22 we're dealing from anywhere to 1, 000 to 10, 000 sudden poise of viscosity. You've got a real skewed to horizontal permeability, which relative to vertical creates, sweep issues, sweep

10:37 efficiency. 12 trillion barrels in place in Orinoco and claiming that 20

10:46 is achievable is technically and economically recoverable. I mean, that's the definition of proved reserves, right? Right. You've got technically recoverable resources, but is it economically

10:58 feasible, is the issue? Yeah, that's why I call it resource and not reserves. And by the way, just as an aside, you talked about the centipoies for those who are not technical - TI

11:12 is what? This is one, water is one, TI in the ground is less than one. Yeah. 'Cause it got gas in and it's at temperature So to be 06 or 07. So when you're talking about thousand centipoies or

11:27 more, that is thick, gooey stuff. And there's also water there in situ that has preferential mobility because of its viscosity profile. Yes, it's a very challenging, very specialized, group of

11:45 reservoir and production engineers. It'd be nice if all the world's reservoirs were a thousand plus millidarcy permeability, right? Which they've got. It's just a question of how do I improve the

11:57 relative mobility of this really heavy oil? And we're talking about nine to 12 API compared to TI, which is in the 40s, low 40s. Absolutely. And you know, if you look around the world, the

12:11 place where you've got probably the most heavy oil production is north of us in Canada. And so if you want to understand what's the capital requirement, what's the technical requirement, you can go

12:23 look at what they're doing. And it's challenging. Let's talk about the other crappy stuff that's in the oil, vanadium, nickel, sulfur. When you hear of high sulfur oil, you think van, you

12:37 think other

12:40 things that are

12:45 challenging from processing and refining standpoint, you've got to have enough complexity in the refining system and the US. Gulf Coast has got the highest complexity network in the world by a

12:58 pretty wide margin. I mean, we designed for that in the retrofit in the late '90s and early 2000s for a lot of reasons related to regulatory compliance, et cetera. And that was billions of dollars

13:10 of capital And so what we've seen is not surprisingly a growth in over the last 10 or 15 years in imports from Canada taking the place of diminishing imports from Venezuela. Right. Not just

13:28 Venezuela, but it was well over a million barrels a day. And then since Maduro, kind of mid 2010s, that we've got a graph in there to show the split of domestic consumption. imports to other

13:42 countries and imports the US. from the EIA, and it paints a pretty stark picture of how that is that has happened. And so, I mean, what are the primary mechanisms for orinoco relative to what we

14:01 see in Canada, which is a lot of thermal?

14:05 Didn't do a lot of work in orinoco, but it's certainly going to have to be steam with those kind of viscosities. And so, it's a high capital cost, and it's a high operating cost environment. And

14:20 steam means gas. Yeah, it means a lot of gas. So, I was doing some

14:28 research, and it looks like we're talking about

14:34 cold, heavy, which which is Dilly-Winton polymers, nap, though, or condensate.

14:41 you're spiking a barrel with a quarter of a barrel to a third of a barrel of value product, and that's the vast majority of the upgrading historically has been. But when you talk about thermal and

14:60 really putting in thermal operations, you've got gas, which is, I think, four BCF a day for a million barrels a day, not trivial, Venezuela produces today, something on the order of six BCF a

15:14 day.

15:16 And then you've got certainly the cost on the cold side of using surfactants, polymers, diluent, which is, which is further compounded by the fact that you've got sweet problems in the reservoir,

15:33 both from esteem and any kind of chemical assist in terms of VOR or secondary. Yeah, it's.

15:42 It's incredibly complex. It's the opposite of unconventional, right? So there's

15:49 a niche technical group that'll do that. And a lot of them live in Canada right now. So hopefully they're brushing up on their Spanish. And this isn't a case of, you can't grow production of

16:03 Venezuela. You absolutely can grow production of Venezuela. But be really careful about magnitude in timing because it takes time to assess, put capital in the ground, and see the results. I mean,

16:18 this is clearly not a one-year program. I don't know if it's three years or five years, but assuming companies, fill me one shame on you, fill me twice, shame on me, companies have to have some

16:35 confidence that the fiscal and the political regime

16:41 come in and sink a bunch of capital,

16:44 people talk about low prices as an impediment. And it is, no question, but a production sharing contract has more downside price protection than a traditional tax and royalty regime like you see in

16:58 the US. So there is some comfort because you get your costs back quicker with those production sharing contracts. But what are those contracts? Have they been rewritten? What do they look like?

17:14 And so there's a lot of non-technical

17:19 financial and political issues that need to be understood and resolved before you're going to put your technical folks and figure out, okay, what are we going to do here? Well, the sanctity of

17:30 those contracts over the last 50 years has been violated a couple of times That's right. And so if you're Exxon, and I think Darren Woods. as recently as November was commenting on the

17:46 scenarios in which, you know, a reentry to Venezuela would be at least considered. And then you have this unique animal that

17:59 US. majors are privately held They're not in any way, shape or form,

18:07 incentivized or motivated by the state now. I have no unique insight into what the commercial landscape assisted by the US. administration is going to look like and what type of incentives, but I

18:21 have to believe with the type of above ground risk right now that we have everything's opaque. You know, Trump said we're going to be running the country for the mean, meanwhile, what What does

18:33 that mean if you're looking at sinking? billions in capital, which is, you know, we start talking in units of billions given all the, you know, I think I read somewhere. It's not a question of,

18:47 you know, you're spending tens of billions just to restore. And a lot of that's obviously infrastructure, both upstream and downstream, before you can think about kind of growing from that

19:03 baseline Mm hmm. You know, you looked slumber Jay and Halliburton benefited in the stock market, kind of the first day after this was in it. I think slumber Jay was up eight or nine percent on the

19:15 open. Yeah. And so that tells you there's going to be, you don't know which companies are going to go in. They're going to spend a lot of money, but you'll have slumber Jay and Halliburton and

19:24 the service sector will benefit the beauty of the service sector as much of their equipment's on wheels or you put it on a barge and you can get it in the country quickly and get it out quickly. So

19:34 if things, you know, go sideways. You can make it, again, the guys at Summer Jain Halbert and probably disagree a little bit, but you can make an investment in Venezuela with less

19:47 downside risk than if you're gonna spend an upstream company who's gonna spend a billion dollars in country. 'Cause the only way you get that out is through oil production. Yeah, and over the last

20:03 five to 10 years, a much more investor-prioritized way of behaving for all US - based oil and gas companies. There's not a bunch of unallocated capital sitting around today

20:19 that would inherently, even for the largest of the super majors, would inherently command a big part of the five-year look on capital budging. If all of a sudden you decided, we're gonna make a

20:32 big pivot and go after restoration and growth opportunities in Venezuela. Right, that's where low oil prices has an impact, is where's my cash flow, right? I'm, companies have been very, been

20:47 much more disciplined in the last five to 10 years than the rest of my lifetime in returns back to investors and shareholders. At 50 bucks or55, where's the

21:03 cash flow? Where's the, if you're gonna continue to return to shareholders, what are you not going to do if you're gonna pivot into then as well? And discounted from there, relative to my

21:18 well-head realizations just because of crude quality discounts for, to start of15 to20 a barrel. Right, and how does, what happens to you? Let me just look at WCS relative to TI. Right, and

21:31 then what happens is you grow production, what happens to those differentials over time. And there's a lot that goes into this.

21:41 Again, I think the message for oil markets needs to be in grow production of Venezuela, but it's gonna take a while.

21:52 And you'll see it coming when you see companies engage in new production sharing contracts, and when they actually spend capital, it doesn't matter what they put in an investor presentation, it's

22:06 when do they start to spend capital? And what are those projects? Then you'll be able to assess, okay, what's the production growth gonna look like? And you and I both know that institutions have

22:18 had a pretty strong aversion to long cycle versus short cycle as we've been through the last 15 years. And so these are definitively long cycle investment conversations. Yeah, and

22:33 the one, so if you look and you say, Okay, why would you want to go into Venezuela? Well, if my other alternatives for resource capture or exploration,

22:46 there are very few people who know how to do exploration well globally. So we have this resource. You know the oil's there, we can argue about how much, we can argue about whether you can get out

22:59 economically, but much like the unconventional, you know it's there. Right. And so then you can go in and assess, can we make it economic? So the resource capture calculus is a little different

23:13 than, and that may be attractive to some companies, but I think people are gonna be very cautious on how they can dip their toe into the investment. I think Trump looks at this as another drill

23:29 baby drill by proxy. I said it was by proxy via OPEC. You and I both know that what's going on out in the Permian is not a story of acceleration as it relates to capital and new permitting and

23:47 drilling, you know, continuing to be on warm idle here I think it just goes to show the incentives and the drivers are firmly in the hands of their institutional holders. And so no one's going to

24:04 unless the rules change or unless there's some kind of emergency

24:10 wartime footing program, no one's going to compel

24:15 these investor driven entities to willy-nilly just start sending ships and barges and helicopters and everything else you need to. to get after it. Right. I think that's spot on.

24:35 Again, I don't know how you go to your board of directors and say, Hey, let's go spend a couple billion in Venezuela. The shareholders aren't gonna like it. I think Carilla hate it. I think a

24:50 couple of analogies here or first derivative effects to think about one's an analogy, one's a second order effect is Venezuela for the last several years has been adopting a more aggressive posture

25:08 as it relates to Isquibon, Guyana. There's tension out there on the water right next door in Guyana where Exxon who's clearly blowing and going, developing projects, bringing FPSOs on the

25:21 line This, all things equal, I think, helps the. the security situation for certainly Guyana operations.

25:34 The other analogy is take a look at what has happened or has not happened since Miele came into power in a couple of years ago. Yeah,

25:47 Vakamwerta is

25:50 a hell of a,

25:53 it's a hell of a potential story and they are growing production. But have we seen re-entry in Argentina, because you have a much more politically aligned

26:05 administration in power, but have we seen kind of a big return to Argentina by the supermators? I haven't seen anything. I don't think so. I think the Vakamwerta has had a bit more attention to it

26:19 over the last five years It's slow, but there's been technical. progression. There's been, I mean, Bill Vongotten does a lot of work down there. They've done some things to move the ball forward.

26:33 And I don't think that's happened at all in Venezuela. So I think the Argentine analogy is

26:41 good, but I think there's already, there was already acceleration or forward progress there when the new administration took over I'm just using that as a kind of political transition, the

26:54 political landscape post Miele. Oh, did. Yeah, you haven't seen. Much more receptive and you haven't seen it. Venezuela is a haunted house of that stuff at this point. And so the risk calculus

27:08 that is applied here by an Exxon, you know, Chevron's

27:20 there and

27:24 they're the ones that remained. But reentry for a kind of cofilops or an Exxon, here's a really different if Argentina is relatively easy from that dimension. Venezuela's orders of magnitude more

27:28 difficult, at least at this point, and there's a lot we're not seeing. I'm confident that we're probably not going to see for a while. Again, I go back to Trump blurting out in the press

27:39 conference, we're going to be running the country for a while. What does that mean? Well, you thought Machado was going to get installed because he's viewed by most as the legitimate winner of the

27:48 last election. Well, he's got Delcey, who's Maduro's VP. You don't know what kind of back-channel deals were made, and where does that all settle out? So in the near-to-intermediate term, I

28:03 think the above-ground risk has a lot more influence on the pace and enthusiasm with which there's a response And cynically, I believe that,

28:18 you know, because there's a lot of jaw boning that's going on that has really affected the market's ability to to recover here and I'm talking about oil and gas equities and the crude macro in

28:31 general. I don't think any of that matters beyond the first order of businesses, which is making sure we do everything we can

28:42 to keep the house and the Senate in the midterms this

28:45 year. That's a 2 plus 2 equals 20 late, but. No, I think that's. If you look at what OPEC did, and this is a broader conversation, but putting out a production increase schedule

29:03 for, what was it, 16 months or whatever in early 2025? I mean, that's unprecedented. And

29:14 it was clear, there's a. I think the administration wants to keep old prices down to the mid-term. And I'm wildly bullish on oil prices. beyond the midterms, because if you keep low oil prices,

29:30 demands growing globally,

29:34 my question is where's all this excess oil showing up? Where is it? It's not

29:42 showing up in a big way in US inventories, and that's typically where it does show up. So if global demand is starting to accelerate into the teeth of all this extra OPEC oil, then

29:57 once you get past the midterms and OPEC says, Yeah, we're not going to increase anymore, I think demand catches up pretty quickly, and now you've got a problem because how much spare capacity do

30:07 you really have outside of Saudi? How much do you have in Saudi? And how much is there outside? And I think the answer is going to be very little. Permian's not there. Yeah, Permian's not there.

30:17 Permian's slowing down. You're consolidating. Rig counts on a slow, steady decline. um, and growth was going to be hard there anyway. So I think, I think you can run oil prices up really high,

30:35 uh, in 27 and 28. And, you know, that's, I think that's the, the, the physical reality of global supply and demand. Yeah. And probably, you know, we'll, we'll get enough mileage out of the

30:51 euphoria around Venezuela being a quick solution to keep a lid on any kind of upside price action. But I'm, I'm as, I'm as perplexed by the fundamentals disconnected from, you know, what we're

31:06 seeing in terms of the price action and crude, where is this massive surplus that we've been talking about starting with the IEA, you know, four or four million barrels a day, demand is strong.

31:22 And so I'm gonna hop on my soapbox for just a minute on that because the answer is always, well, China. Okay, so the oils where you, the one place you can't ever see it, that's a convenient

31:36 argument. So let's look at Cushing. So the last numbers and the numbers have to be higher now, but the last numbers being Cushing, if you're going, so this is a - Why not Cushing is. So Cushing

31:49 is the biggest small town in Oklahoma It's where all the pipelines cross, and there's 80 million barrels of crude storage and Cushing, and that's where WTI contract is. Physical delivery point.

32:03 Physical delivery point for the WTI contract.

32:07 So it's a brownfield expansion. So if you were to do a brownfield expansion at Cushing, where you already have infrastructure, you already have pipelines, a million barrels of storage costs20

32:17 million. So20 a barrel.

32:23 if we're over a two-year period of billion barrels oversupply.

32:30 Where does

32:35 that show up? If it doesn't show up in the US, tell me which third world country, almost said third world shuttle, which third world country has spent billions of dollars creating storage for that

32:49 time period when OPEC decides to produce too much. Now, there is a strategic storage element to China, but you got to be really tempered on those volumes 'cause it's always, anytime there's an

33:04 oversupply, that's always to go to. That's a relief valve. Yeah, it's always going to Chinese strategic storage. At some point, the numbers become laughable And if you look at oversupplied

33:20 periods in time. And you look at OECD stocks. So we look at crude and refined products. The US is roughly, again, these are stale numbers, but 45 of US inventory is 40 to 45 of all OECD

33:38 inventories. Typically the US in an oversupplied market, you'll see 80 of that oversupply in the OECD show up in the US So, again, which third world country has more available storage than

33:56 developed Western Europe or developed Asia? And

34:01 where we have the best visibility on measuring those inventories being and certainly in the US, in the OECD. Yeah, and so why do they, but it's important. Why do they show up in the US? I show

34:15 up in the US because we have 80 million barrels Cushing it's where it's it's where the the physical contracts are closed, right? It's where you trade the physical. And so the US, you've got

34:30 Cushing, you've got a lot of storage in the refining complex on the US Gulf Coast. And it's the absolute overlay of physical and financial. So when the markets in Contango, in other words,

34:44 forward prices are much higher than today, storage owners, no, nobody's speculating on crude in the future. The Contango says, All right, well, I'll buy crude today and I'll forward sell it a

34:57 year from now and I'll store it and make money. It's just an R. So we ought to see physical inventories rising much faster in proportion to the chatter that's out there about how much oversupply

35:10 there is. Absolutely. I agree. Are you saying inventories matter? Yeah, I think, yeah,

35:16 Mark, yeah, yeah, yeah, it's, so.

35:23 That tells me if, again, I'm happy to

35:26 be wrong on this, but

35:31 I do believe the market's loose, but it's tighter than the headlines would suggest, which means you can work through this surplus very quickly

35:43 as soon as OPEC puts putting oil on the market. Yeah, I mean, if Orinoco was shale, you had a bunch of drill ready locations, that's a much more immediately responsive situation assuming you've

35:58 got commercial and geopolitical

36:03 stability. Right. And you can see a little bit out on the horizon, your risk premium goes down, I'm going to shift a bunch of capital there and kind of pivot type of timeframe That's just not

36:20 going to happen.

36:22 I think that this was an absolutely perfectly timed. Aha, we've got our hands on 303 billion barrels to have that jaw boning or headline pressure to keep things in line and kind of keep the boot on

36:44 the neck of oil prices relative to what we think is more accurate from a physical supply-to-man balance reality standpoint. And if we do get evidence of draws and inventories that are implying, you

37:01 know, surging demand, the world doesn't have the kind of the toggle to go to in the form of what's happened, you know, the role that the Permian, for example, has played in the last 15 years.

37:15 Yeah, and I think, so what do you watch over the next 18 months, right? So on a global macro perspective, you look at the shape of the forward curve, Contango or backwardation, that's telling

37:25 you something. You watch inventories, particularly in the US. where you've got visibility, and then event as well, I think you have to watch,

37:36 don't listen to what pundits say. Watch what they do. Watch what companies do Do the PSCs get rewritten? Do companies sign up for said production sharing contracts? And do they start spending

37:51 capital?

37:54 And where are they doing it? Those are the easier, and you'll see it. Because they're gonna be public companies, and it'll be, it'll be. I did have an Alexander Hague flashback, like I'm in

38:07 control. Yeah, I'm in charge here But working out all the. commercial framework and the legal and contractual stuff is, you know, that that is absolutely critical to the way any rational player

38:22 would look at, again, shifting portfolio and capital allocation for a meaningful period of time. I mean, that in some cases, it turns your five-year outlook on its head. And CEOs and boards just

38:38 don't move that fast No, and I think if you could say, well, the terms would have to be really favorable to get companies to come in. And I think the pushback on that I would have is those terms

38:53 are the more favorable they are now, the more likely they are to get rewritten five years down the road. And so there's, I don't, just because you have a favorable set of terms, I think companies

39:05 are going to continue to be, again, very cautious. You've you've got to see stability and stability takes time.

39:15 Like you said, the Trump administration say they're running the country, the vice president, the new president. What does this look like three months from now? I don't think anybody knows. Well,

39:29 if you don't know that, how are you going to sign up to invest billions? It's going to be an interesting state of the union coming up here in a few weeks, for sure. I

39:42 think there's a lot of noise out there and naturally so, just because of the social media 247, 365, 360 degree. I just think that

39:58 having at least some foundation into what is the physical and technical reality on the ground, never mind all this other stuff that no one has a really good handle on it. We're left with a lot of

40:12 questions about how running the country on a short to intermediate term basis is going to look, what are the opposition threats

40:24 that are prevalent in the country? Then you have the whole Chinese, Russian, Iran, undertones, if you will. One of the things that we've been talking about is, look, we've been paying way too

40:39 much attention geopolitically, have been talking, bringing it up occasionally over the last couple of years on BDE is,

40:47 and I've always drawn the parallel between what Russia tried to do in the early '60s with Cuba and the Cuban Missile Crisis. It's a little bit more

41:04 clandestine, it feels like But you know. our adversaries have been looking at Venezuela for a long period of time, particularly since Maduro took over, this is a vacuum they're rushing to fill.

41:17 And so what is the stability threat that comes from those things that are on the ground, not to mention the cartels in the Narco and the Narco terrorists? And they're already there, China and

41:29 Russia are already there to help fill that vacuum. Right. And growing their presence Yeah, so it, you know, I think one of the things to, I was, something you said, Jog, my, my, aged memory.

41:44 But in 1998, when oil prices were gonna be low forever, Drowning in oil. Drowning in oil, there was this whole notion of an OPEC, OPEC war around market share and Iran was gonna go from, I don't

42:06 know. or to six million barrels a day or whatever the number was. And yet all this, these oil ministers negotiating against themselves in public. It was kind of madness and the Venezuelans

42:19 couldn't stop. I don't know if you remember, but they're gonna grow to four and then to six million barrels a day.

42:27 And why do I bring that up? Because that was when they had technical prowess, right? The Merriman, logarithm, and corporate men were real companies. Lappeter had happened, they had foreign

42:39 investment.

42:42 Nobody believed they could get to those numbers then. Then? With that kind of structure. So, again, they'll grow production. If they get investment, they get their act in mind, but this isn't

42:56 a massive wave of oil that's gonna come out of Venezuela, it's gonna take time And again, a big important element of. how this all works going forward. You're going to have a meaningful, if not

43:11 dominant, NOC presence in the form of pedovase or whatever the next generation of pedovase it looks like, but it takes time to rebuild that capability as an organization for things to run somewhat

43:24 smoothly, which they haven't been under

43:30 the Chavez version of pedovase that has become Right, well, you have to have all the things we've talked about and then you actually have to have service infrastructure, there's a lot that has to

43:44 happen to get to a point where you can implement real projects.

43:52 And given a ready playing field, I think the industry has proven time and again, it's hard to bet against it from technical prowess and an execution standpoint like Aubrey said back in. 2012,

44:07 brought this up recently. When he said in front of the IPAA, you know, we did our jobs too well in gas, we're going to do the same thing in oil. And I had a bit of a hesitation of some skepticism

44:24 here, and we damn sure did it. So we can do it. It's just that the table's got to be set

44:32 much more than we're currently dealing with in a lot of dimensions, not the least of which are above ground. I mean,

44:42 multinationals aren't at least Western multinationals, or, and I'm speaking of China on the opposite end of that spectrum, are not going to immediately expose their personnel to a very

44:59 unpredictable and opaque security situation. That's not going to happen.

45:06 I mean, using what's happening in the Congo with the golden lane of cobalt, we haven't had a US. mining interest in

45:18 the

45:20 DRC since 2005-2006 and 15 of the 16 foreign mining interests that are operating there, that are dominant or Chinese-based.

45:35 And so we go at this much more deliberately for a lot of reasons, politically, security, etc. So that has to get sorted out before there's any meaningful scale of, you've got to have a lot of

45:51 boots on the ground there to make this very, very complex and capital-intensive infrastructure repair and rebuild happen And then we can talk about, you know, kind of refining and. upgrading the

46:04 sophistication of all the stuff that needs to go on and to make the reservoir produce better, starting with

46:16 a pretty problematic hand that you've been dealt just because the nature of the reservoir and the crude itself. So again, this is not, this is not turn on the spigots No, it's not. I do think,

46:32 and again, one of the things people won't see but will happen, right? The Venezuelans have been watching, the folks who have left the country. They've been watching the third of the country, 8

46:46 million people. They've been watching this pretty closely. Those technical people will, when things get better, they're probably the first ones to go back because they're proud they love their

46:59 country. You'll see those, you'll see those, those folks return as soon as things get, that's the first order of stability. And there won't be a press release about that, but there'll be some

47:13 anecdotal evidence around folks going backwards safe enough. They feel like they're safe, it's safe, safe, and there's enough opportunity they'll go back and try to help rebuild. Yeah, they're

47:27 in the kind of the upper quartile of the economic strata And so most of the voluntary departures over time under Chavez and Maduro have been because they could leave, right? So one of the

47:44 things, and I'll ask for it, if you've got any fun anecdotes from your time dealing with Venezuela, but one of the things that I think, you know, just continues to exacerbate the problem and I

47:57 was watching the coverage over the weekend

48:02 we've got this breathless commentary and it was actually on Fox of, here's Venezuela's 303

48:10 billion barrels. And the comparative that they use for the US was our 375 million barrels in the SPR. It was almost as bad as back in the day when Canadian gas was all the rage. Late '90s, early

48:26 2000s, Bill O'Reilly was talking about Canadian gas reserves. But you could tell because he was calling them gasoline reserves. Right. Oh, I remember that. That was like the remedial level of

48:45 understanding in the people who matter, which is the electorate, is still breathtaking. And the media continues to compound the ignorance by you know, just these fallacious and fantastical.

49:02 benchmarks or comparisons. People just don't understand how this industry works, and I think it's very important as we kind of marched through the rest of this year. I can see it where, well,

49:18 when we're not showing meaningful Venezuelan production growth before the midterms, the companies themselves that essentially Trump has called out, the exons and the Chevron's and the Conoco

49:32 Phillips of the world, their kind of responsive reality is not going to match with, Oh, let's go get after it right away. We're going to go drill a bunch of wells. Well, as you pointed out, it

49:45 isn't about drilling a bunch of wells. It's a bunch of

49:50 really kind of reconstruction and maintenance type of stuff that is just not inherently quick to turn around. Yeah, I do, I've got this anecdote, but it's not necessarily Venezuela, but it's

50:08 around global reserves. And you've just got to be really careful. Again, you've got pundits who are talking about an industry they know nothing about, and they're taking numbers that are on a page

50:21 somewhere. And so this is how long ago it was, Secretary of Energy, Richardson, Bill Richardson, Governor of New Mexico. He was, I guess, Clinton's Secretary of Energy. Anyway, he called up

50:38 a conference in Madrid for petroleum data quality. And I was asked to go speak. And so there were five of us who got up there and they're, I don't know, maybe 60 or 70 people here at this little

50:51 junta to talk about how we need to improve data quality And all of us had some level of.

51:01 a list of things. But the commonality was we need better data at OPEC. And sadly, we need better reserve numbers and you better production numbers, et cetera. And there was a guy who was sitting

51:12 next to me. And I can't remember his name, but he had this really expensive suit, a very polished guy. His business card said advisor to oil minister, Naimi, Ali al Naimi, I was like, that's a

51:25 cool business card, by the way. And he got up after we, five of us spoke and he very politely said, I'll paraphrase, you're wasting oxygen. The kingdom of Saudi Arabia is not going to provide

51:39 you that information. He said, well,

51:45 let me restate that. If the US government provides the kingdom of Saudi Arabia with the locations of your missile silos in Kansas, we will then provide that information to you. And I was

51:58 fascinating. The room laughed. And I thought that is a very profound statement, which is our production capacity and our reserves

52:10 are a strategic advantage for Saudi Arabia. And as long as the world, my view, as long as the world thinks they can increase production, they are strategically important. When there's a problem

52:25 called Saudi, they'll increase production and keep oil from going to 150 or 200. As soon as the world believes they're out of excess capacity, they're just a big oil producer. They lose their

52:38 strategic relevance. And I thought that was really important. So the numbers you're gonna get out of Saudi are wrong. They're not gonna provide those numbers. Are they too high or too low? I

52:50 don't know, but they're not right. And so it's hard. to compare the Venezuelan numbers, which are a resource number, with a reserve number, with a strategic petroleum reserve, production

53:06 capacity, it's absolutely ridiculous. If you go back and it's hard to know. So in the US. on the gas side in 1998, the US. government, the EIA published reports on their natural gas annual that

53:25 said there was 15 billion cubic feet a day of excess capacity in US. natural gas supply

53:35 at a time when we only produced like 60. So we had 25 excess capacity

53:44 in a year and a half gas prices were 10 bucks

53:50 guess what, there was no excess capacity. People were producing it at full range. pre-shale and so

53:59 the data is a quagmire and you just got to be really careful about how you, about chrome plating stuff that's not worth chrome plating. And I think the conclusion or the verdict is still split on

54:14 when and where and how much on the Permian and so is there an overconfidence that is prevalent in the market that the Permian is going to be able to respond as it has to fill, you know, fill the gap,

54:27 fill the wedge. Yeah, Permian will grow, but it's not going to grow at the million or what's what's the growth rate been 12 million barrels a day per year.

54:38 No chance. I just don't believe it. And that million million too is not going to come in the near future from Venezuela is the point. It absolutely not. You're right. Right

54:50 I thought the anecdote was gonna be the resource triangle anecdote. Yeah We'll save that for another one. Yeah, I actually use

55:02 that when I teach because I think it's a really important concept on why are we focused on

55:11 these low end resources? It's because the high end stuff is, there's resource depletion going on at the high end of the conventional high quality stuff and Venezuela is a classic example of

55:28 going to the lower quality stuff. So,

55:33 I guess you're back teaching. Now this is your third semester back teaching,

55:39 pretty wide spectrum.

55:43 You started off with the capstone chorus where you think last spring, where you kind of think about that as this,

55:52 more sophisticated kind of field study type of exercise for students that are literally about to walk out the door into their first jobs, hopefully. Yeah. And then last semester you taught well

56:05 testing. Well testing. Yeah. And now you're back to Capstone. Back to Capstone. And it's interesting 'cause the Capstone is a, we didn't have the Capstone. So the semester you graduate, you

56:16 take this projects course. And it's really, for the students, it's the first time they've actually had to exercise engineering judgment.

56:27 Because that's not the way the undergraduate engineering curriculums are designed. It's, you do a task, here's the answer. You do a task, here's the answer. The fact that they don't have

56:39 enough data, well, you have all the data, but it's not enough. It's like, no, you have all the data.

56:47 And then two weeks later, they're like, well, this data conflicts. It's like, wait a minute, you just told me you didn't have enough data. Now you're telling me you have too much figured out.

56:54 And so it's a fun class to teach because you get to answer questions with a question. What do you think?

57:05 And they're not used to that. Because that's, again,

57:10 that's not the playbook. That's not the playbook of an undergraduate engineering curriculum So that's fun, no, well testing was really fun 'cause

57:19 it expanded from when we took it because you have to start to talk about rate transient and unconventional. And we spent about three or four weeks on that. And that was really fun. It reminded me

57:32 how much calculus I'd forgotten over the years. But it was not as much as I forgot, I can assure you. It was good to get back in the saddle And that was really fun. I think that's the, again,

57:47 that's the core of Resident Engineering class. If you understand well-testing, you'll be a really good Resident engineer. And so that was fun. I'm looking forward to the capstone here. Well, I

57:58 think that's a great capper and we'll reserve the rights and pose on you throughout what promises to

58:06 be a macro and geopolitical and even technically rich year ahead for a lot of our content. I appreciate you doing this. That was fun Thanks. Welcome back anytime. So thanks everybody on collide.

58:18 If you like the piece, please share it with your friends. We'll have it out in companion with or shortly after we cut our live BDE tomorrow. I'm sure we'll be covering some of this topic but the

58:36 last 12 months has been interesting to say the least. See you guys next time again. Thanks Dave and we'll cut it off there.