Big Digital Energy

00;00;00;02 - 00;00;24;02
Unknown
Welcome back to BDD everybody. I'm Kirk Coburn and this is my co-host Mark Meyer. Chuck Yates is somewhere in Rosenberg, Texas, probably at a coffee bar or a coffee shop talking someone's ear off. Maybe an afternoon session of Old Man coffee. I don't know if you saw his latest post. It's pretty good. It was great. Absolutely. We should spring boarding.

00;00;24;02 - 00;00;48;09
Unknown
From his eye on speaking. Yeah, let's put it in the meeting notes so people can go check it out. Yeah, it's a short one. So, but. And no one knows. Chuck Yates is short winded, so. Mark, how are you? I saw the pictures. Tell us the great news. One of my babies had her first grandchild last week.

00;00;48;12 - 00;01;29;11
Unknown
So glad to be here in Florida for the big moment. And he's just like his mom was, which is very chill and sleeps a lot. Eats a lot, and he's great. I've. I've been, plotting to, get him a big oil onesie. With a, Clyde nightcap. So. No, it's great. It's he's fantastic. That's awesome. Man. Running errands and, taking over some time at 5 a.m. to help out, but, good to know my skills are intact.

00;01;29;14 - 00;02;07;14
Unknown
It's it's, it's a real blessing. So, bro, let's, we'll celebrate that win. So congratulations. Soon. Very soon. Hey, so before we launch into, kind of a couple of topics, two Iran related and one not, what's your take on what's happened over the last few days and the week? And I call this past week, the weekend of Jawboning, as you know, certainty and clarity about resolution here have diminished for sure.

00;02;07;16 - 00;02;38;14
Unknown
And it's notable, you know, after those last few days, that tie settled above 100 for the first time since hostilities got underway 31 days ago. Well, I mean, are you talking about logistically or are you talking about politically? Where do you want to take this? You're interested in your political take? I mean, I don't really know. I mean this to me again, I, I'm very, you know, I'm more of a market guy.

00;02;38;16 - 00;03;04;01
Unknown
And as a, as a libertarian as my wife will allow me to say. But, no, I'm kidding. She allows me to say anything. She just challenges me on whether I'm truly a libertarian. But, I think there's a there's a lot of negotiating behind the scenes that we're not seeing, but I'm just thinking from a market perspective, logistically, we're in a cluster here.

00;03;04;03 - 00;03;30;01
Unknown
And the lag effect is so dismal in my mind as I'm watching this that I don't know what's happening in Washington, D.C. and maybe there's negotiations out that clearly we're not hearing about because I think there's a there's a train wreck coming, and it's big. I mean, first of all, I think most people are thinking, well, prices haven't gone to 150.

00;03;30;01 - 00;03;53;12
Unknown
I mean, they're 100, but they haven't gone to 150. So we're good, right? I mean, the gas station down the street is still open. Your Amazon package probably just showed up. I mean, so that's the lag talking, but but lag is a liar, as we know. Like you never make decisions on on on lagging indicators. And it's kind of like being punched in the liver.

00;03;53;19 - 00;04;20;04
Unknown
I mean, the pain hasn't arrived yet, but it's coming. And if you look at Rory Johnson's map, it shows the shockwave rippling outward like a stone dropped in a pond. I mean, East Africa is already getting hammered. Asia is in this week and Europe is next. We're missing by getting by, getting hammered. It's literally when deliveries kind of trickle to a complete stop.

00;04;20;06 - 00;05;09;20
Unknown
That's correct. Because those boats that got out headed that way are the last to arrive for a while, for a while. And defining how long that while is is the issue. But we're talking about physical disruption, to the degree that we have not seen. And, you know, one thing about Rory in commodity context is he's been, you know, on a bit of the oversupply, but he's he's really been consistent here saying, look, this is a bigger deal than we've seen and the kind of resolution and unwind and work out of all this has got some real timeline implications.

00;05;09;23 - 00;05;38;08
Unknown
He just posted something before we got on to showing graphically the, Qatari exports about 1.5 million barrels a day of liquids. Only about a third of that is crude. And that line literally has dropped to zero, of course. Right. And, you know, a big part of that is condensate. That you get out of, producing the South Pars gas field.

00;05;38;09 - 00;06;04;11
Unknown
And we've talked about that in the context of Iran. And so those actual physical production shut ins, whether damaged or not, we're drawing stocks that I think Pickering had a good thread that we've attached here to. We're kind of jumping around a little bit. But yeah, you're drawing down global inventories, but to the tune of 70 to 100 million barrels a week.

00;06;04;14 - 00;06;44;19
Unknown
And let's put that in context. I mean, what does that really mean? OECD is what, 1.2 billion mix of mostly crude oil storage in the US and and Europe. It's mostly refined product or a big chunk of that is refined product. And it's just, you know, the the the destinations are very specific in East Asia is going to be the, you know, and as we've seen, East Asian, delivery Middle Eastern crude gray and save outpaced the Brant and WTI benchmark.

00;06;44;19 - 00;07;27;20
Unknown
I think we had was it Omani that was trading last weekend weekend for last at something unprecedented. Close to $200 a barrel. And one thing we didn't, and I sent this to you last week was the partial and full shutdowns of fertilizer plants in India. Yes, because they don't they can't get the fuel right. Fuel. And so just to put that in context, 70 million barrels a week is if you look at the Strategic Petroleum Reserve, the Max drawdown is 4.4 million barrels a day, but it takes 13 days for that oil to reach U.S. markets.

00;07;27;23 - 00;08;00;18
Unknown
After the president signs the order. And this is oil that's already been refined. I mean, you've all right or hasn't, Mark. No. You take you take crude oil out of the SPR. It's 6040, sour, sweet. And then logistically working through, the wholesale to the refining, to the, you know, refined product and distribute it out from there.

00;08;00;21 - 00;08;39;00
Unknown
You know, that's not instantaneous. And we've authorized what among the IEA for 400 million barrels, I think I saw somewhere and anybody that has better information. This is a little bit dated as of the time of the announcement, where the I had, member countries had agreed to a 400 million barrel release. We're talking probably half of that is from the US, and the US is sitting.

00;08;39;03 - 00;09;17;29
Unknown
417 million barrels before any of this started, with a lot of of rhetoric about refilling it. And so the difference here is it's not stocks, it's flow, but it's also stock. Because the longer this goes on so you start drawing down, you know, primary stocks and strategic reserves among the IEA. We're we're talking about a long kind of path to to recovery.

00;09;18;02 - 00;09;44;00
Unknown
And there was a, you know, there's a lot of talk about leading up to this where we went to the dalliance with 50 to I, not too long ago that. Yeah. All you relics from the 90s pay attention. Inventories, inventories don't matter. Well, they don't matter until they matter. And I think what you're seeing in the market is responding state backwardation.

00;09;44;02 - 00;10;20;23
Unknown
You're at on you're at 73 and 27 and 70. And in 28 on average. And so that brings up kind of the next thing which is we're part of it was a function of ceraweek being last week. But different voices are chirping more. And usually it's from outside of the, the industry realists and those that practically know how to or know how the industry works practically.

00;10;20;25 - 00;10;45;16
Unknown
Well, you know, what about the US producer group? How come the industry hasn't stepped up and and responded to the to the challenge, the seize the moment. Right. And I've responded to a few of those over the past week or so where in fact one of them was Secretary Wright imploring, you know, us producers to increase production.

00;10;45;18 - 00;11;17;19
Unknown
What about the 9 million barrels a day that was added between the trough of 2006? We're at 5 million barrels a day. US production to almost 14, due to the miracle of the shale revolution. Kind of. You're welcome. Right. So you're basically saying we're already at capacity. Well, it's it's the disconnect or the ignorance. And I don't mean that pejoratively.

00;11;17;19 - 00;11;42;16
Unknown
People haven't cared before because it's not been worth spending time on or caring about as consumer. But when we first started talking about drill, baby drill in the campaign of 24, calling out in a and a few of our comments, but also and some things we posted on collide.

00;11;42;18 - 00;12;18;27
Unknown
The that's not how the U.S. industry works or is incentivized. Plus, coming off more than a decade now, just having the dogshit beat out of it from an investor and market standpoint. So companies are doing exactly what their owners and boards are demanding, that they do. This is so I mean, I'm been laughing so hard about this because the rig count three rigs and three rigs.

00;12;18;27 - 00;12;54;17
Unknown
And two weeks after the biggest supply disruption since 1973. And and people are furious about it. But, Mark, you and I have lived through this because for a decade, for a decade, the equity market has beat these companies like rented mules for spending too much on growth, return, capital, discipline. I think I've heard CEOs, I think on the on the driving range, I was listening to two oil barons talk about this, and now the same crowd is saying, why are you drilling more?

00;12;54;19 - 00;13;32;08
Unknown
And it's the same blue suits I've been telling them for capital allocation discipline. So I mean, oh, who's getting the last laugh here? Mark, I've said this before and referencing where energy was kind of in the salad days in the early stages. The oil side of the shale revolution, energy was 13% of the S&P in terms of weighting for the last ten years, it's been mid to low single digits with a low point below 3%.

00;13;32;08 - 00;14;13;26
Unknown
We may be back above four now, certainly not five. And we'll see how the you know, performance of the non energy equities particularly tech as a as a constituent of the S&P 500. So it's all kind of relative proportions here. But the notion that energy has been if you're a CIO post the 2014 OPEC Thanksgiving surprise and kind of now you don't want to hear from from your energy analyst and you're not and you're not incentivized in a multi-sector fund to take risk.

00;14;13;26 - 00;14;54;04
Unknown
And so if it's 3% weighting or overweighting energy for the most of and making aggressive bads, you know, if you get them wrong, you probably lose your job. But it hasn't really mattered from a portfolio managers, a journalist portfolio manager standpoint. And the industry has clearly gotten the message because for the decade of shale from like 2012, 2010 to 2020, returns on capital were close to zero and reinvestment rates were 120%.

00;14;54;06 - 00;14;58;14
Unknown
Now they're 50%.

00;14;58;16 - 00;15;26;12
Unknown
And so growth is physical growth has been a distant secondary or tertiary priority and not even mentioned by many, and much to the detriment of some names that I won't mention here recently who have had the audacity to talk about adding rigs and increasing production. We've seen how they're, they're they're equity has responded on on the days of those earnings calls.

00;15;26;12 - 00;15;51;11
Unknown
So yeah, thank you for the 9 million barrels that were added. The industry is running and it has been running flat out on the oil side for 15 years. They wrecked the gas side by the very same thing, the profligate capital stream. What have we been saying here on B the E you can't do long cycle capital investment on a four year election cycle.

00;15;51;12 - 00;16;22;20
Unknown
This is a president that wants low oil prices and the the math doesn't work. So the industry was buckling down. They're trying to make long term investments. It reminds me of the financial crisis, by the way, when there was a bank on every corner trying to get deposits because they had this unstable market behind them. But but the Quinn said market stay irrational longer than you can stay solvent.

00;16;22;20 - 00;17;01;10
Unknown
And I I'm a big believer of that. And so there's no one to blame. Definitely not the oil and gas industry. Can't blame them. Well, industry told you in The Swan when, you know, we had the IEA, running around talking about the super glut and the 4 million barrels a day of oversupply that we were surely facing and coming into 26, industry leaders were saying, look, 65 is kind of a more middle 70, maybe is an inflection point, but a very restrained one.

00;17;01;10 - 00;17;34;01
Unknown
There's a governor on there. And if I look out and see 70 in 2028, that's a hard thing. Just given the prevailing risk framework, all the exaggerates things and dealing with risk premium crude that is ephemeral, we don't know for how long. The physical nature of this, I think, makes us quite a bit different. It's unprecedented in so many ways.

00;17;34;03 - 00;18;13;28
Unknown
But are you going to break from that that discipline? You know, do you have do you have the, operational wherewithal to maintain that capital efficiency and ramp up, which, whereas we know a lot of these companies in the last five years have been through multiple successive rounds of layoffs and big time pressure. And, and so, plus the lag time, you know, adding incremental rigs here, getting wells drilled and completed and turn in line, that's, you know, that's not a two week process.

00;18;14;00 - 00;18;39;18
Unknown
And, and so it, it takes a while to make the elephant dance, if you will. I'm talking about industry wide. There's some very nimble players in there. But for the most part what the public companies are telling you is that we're going to, you know, continue to follow the playbook that has restored some valuation. Now it's it's been a great year or so far.

00;18;39;18 - 00;19;25;25
Unknown
If you're holding pretty much any upstream oriented, publicly traded company. But these, the these guys have not all of a sudden gotten out of the discipline of whereas, you know, it used to be comparing the biggest and baddest tight curve quarter to quarter. We're not there anymore. And the notion that you're going to be all of a sudden taking cash that's being returned in the form and various forms to shareholders, which has been working and improving returns, that that's all ultimately going to be thrown out the window.

00;19;25;27 - 00;19;46;18
Unknown
It it's kind of here we go again. We can't trust you as a sector that's investable. Of course. I mean, I was just thinking about the bailouts and has an oil and gas company ever been bailed out? No, the answer is no. They're not going to get bailed out. So they have to make decisions on their own, which is how the market is supposed to work in the first place.

00;19;46;18 - 00;20;17;29
Unknown
But no one should blame them. But here's a prediction, Mark, and I hope Clyde will pull this up in September. But let's forget $100 oil for a second. Urea is up 50%. You're talking about India and shutting down all the fertilizer plants. So now it's like almost up to four $680 a metric ton. Up from 475. So we're starting to get into prime planting season in the Midwest.

00;20;17;29 - 00;20;42;27
Unknown
And you know what happens when farmers can't get fertilizer at rational prices in April? So come September, you know what's going to happen. So your steak, your eggs, your corn on the cob at that July 4th cookout is just getting repriced. So we're going to see ripple effects long into this year that no one's talking about. But we did on BD.

00;20;42;28 - 00;21;12;04
Unknown
We're going to be talking about it in September. And I hope we pull this clip back. And you've seen the farmers have responded very quickly. There's a been picking up anecdotes of a lot of immediate switching from corn to soybeans. I mean, corn is this may be an old benchmark, but something like 70%, the nitrogen fertilizer market used in agriculture, it goes to corn.

00;21;12;07 - 00;21;34;00
Unknown
Yeah. And I thought about it yesterday. You know, corn is a big nitrogen fertilizer. Consume consumer. I thought about it yesterday. I was actually shopping for my, state meal last night at the grocery store here in Florida thinking I'm in Florida. Any produce is available. I wanted some kind of fresh roasting corn that I could throw in the air fryer outside.

00;21;34;00 - 00;22;03;25
Unknown
No, no, not an ear anywhere. Now, it's early in the, you know, in the planting season, but it's kind of always a way to do people eat corn anymore. I thought it was made mainly for fuel. Oh, man, that's funny. Or boutique moonshine? Oh yeah, that's right. It should be used for that. But soy, I mean, cows can eat soy, so you can't fatten them up with corn anymore.

00;22;03;25 - 00;22;38;29
Unknown
So what's going to happen? That steak just went up in price and it's going to taste worse. So before we leave the subject, the thing that I don't like the word trigger, but I'm always amused and bemused when I see the, I guess the voices that were driving the policy rhetoric for a good ten years since Paris, I saw, multi point thread by Amy Myers.

00;22;38;29 - 00;23;18;03
Unknown
Jaffe. If you don't know who she is, she was a longtime Baker Institute. Policy analyst, researcher, advisor with heavy emphasis on the Middle East. I think she left there and she was there for almost two decades and 2010, progressively migrated to what I call the coastal academic more climate and sustainability, oriented,

00;23;18;05 - 00;23;45;29
Unknown
Point of view, working as a, you know, a professor in various places like UC Berkeley. I think there was, a stint in Southern California. I know she's been at Tufts and she's currently at NYU, and, had her speak at a couple of events back in the day, a board meeting and some other things that we did when I was an I banking.

00;23;46;01 - 00;24;18;22
Unknown
But she wrote an op ed piece this past week in the in that bastion of, deep intellectual, intellectually based journalism, the Houston Chronicle, and basically called out the industry based on observations from Ceraweek that they're missing the moment I thought I read dithering, which is the other thing was, was it was another. And comparing it to the aftermath of the 1973 oil shock, where, look.

00;24;18;24 - 00;24;46;26
Unknown
Crude is going get crude oil is going to get displaced by innovation and other things. What we've seen, I would argue, is an addition. You know, I don't recall what global oil demand was back in 1973. I do recall what it was back in 1986 when things collapsed. I think it was 67 million barrels a day. OPEC had 14 million barrels a day of spare capacity then.

00;24;46;28 - 00;25;19;25
Unknown
Now what is it, 2 to 3. And the world's consuming over 100 million barrels a day. Nine kind of special circumstance related. I Covid or or a global recession. And so the absolute amounts of oil consumed 1973 versus now have certainly gone up. And hydrocarbons and fossil fuels more broadly have maintained a pretty consistent share of primary energy.

00;25;19;28 - 00;25;58;03
Unknown
And so after a headwind of ten years of poor policy advisory, and again, since Chuck's not here, I'll bring in the IEA. I was somewhat, I don't know, irritated is the right word because it's to be expected. There was some comments up by the IEA is director last week or a week before that said, well, governments and politicians are underestimating the kind of the nature of what's going on here within global crude markets.

00;25;58;06 - 00;26;21;00
Unknown
Well, where were we on the analysis of you? Remember, there were a lot of people talking about a lot of armchair quarterbacks talking about what was going to happen to the straight back in, Midnight Hammer. I would think the IEA might, in the aftermath of that event, might want to study that and talk about vulnerabilities and risk.

00;26;21;02 - 00;26;49;00
Unknown
There's not a report out there or even a note out there since them by the IEA that talks about any of that. Well, here we are. What Amy didn't also mention and I mean, unfortunately, a lot of people, you know, put their shepherd's hook on the wrong on the wrong strategy, which was going climate because what they didn't realize is people aren't buying Teslas because it's saving the environment.

00;26;49;03 - 00;27;16;21
Unknown
They're buying Teslas because they can auto summon it when they're wasted and have it drive at home for you. So it's the it's the benefits. But, but but in 1973 Tiger needs FSD. Tiger needs FCC. I mean, he doesn't he said he came out and said he's too private and for security reasons, he didn't want drivers. But Tesla didn't say a word, does it?

00;27;16;24 - 00;27;47;24
Unknown
But it might have to. Maybe he's tried it. And they keep Tesla keeps locking them out. I mean they but anyway the industry but the industry in 1973 in 1973 the government gave it a stable long term regulatory framework. Now, I'm not proposing one because I don't want government involvement and the government does doesn't do anything well, by the way, but there's no regulatory framework in this case.

00;27;47;26 - 00;28;06;26
Unknown
So if you're an independent oil and gas company that's been hammered by Wall Street and it's hard to raise capital, you're doing what's in your best interest and rightfully so. So Amy didn't then seem to add that. And by the way, she probably flies on jets like the rest of us, so. Well, the rest of the rest of y'all.

00;28;06;29 - 00;28;46;20
Unknown
That's right. The rest of y'all. But it's been a while for me. I have long said, though, that the solution to most of the most most of life's problems is found in two words, and that's private aviation. Amen. Redouble our efforts to get Chuck his jet back. That's right. Because we all need it. But. But I think it's important in the midst of this to to think about something that Dave Purcell and I used to long talk about over our years of working together and, yeah, having a,

00;28;46;22 - 00;29;19;03
Unknown
A vested interest in understanding what was going on, not only in the US, but also internationally as the world got more complex and we got a little think as as an industry or as a global community got a little complacent about all these seemingly significant geopolitical adverse events being met with a shoulder shrug. You know, commodities trading down, not up, as they used to do historically.

00;29;19;03 - 00;29;52;20
Unknown
Hurricanes don't matter. Wars don't matter. Had had that crisis in 22, but that was mostly a thing of what you're up to itself, you know, since Paris and even before. And now here we are with, the EU and the UK consuming, I think, the numbers, their total energy consumption, consumption. This is the doom number. He's written about it a couple of times.

00;29;52;23 - 00;30;33;10
Unknown
You know that that EU and the UK consume latest data 37 exa joules of all energy in a year. You know how much they produce five. That is a big vulnerability. Wow. And that's you know that's about to, save a miracle resolution here. As you saw on the map with that we've attached that we alluded to earlier, Europe is headed for the cessation of meaningful deliveries from the from the straight and paired routes, sometime next week in the US.

00;30;33;10 - 00;31;02;02
Unknown
The week after that, although fortunately, our, you know, our slight is a little bit less vulnerable to that. But it's all going to manifest in pricing wherever you are as a global consumer of crude, refined products. I just saw a note by GasBuddy, just for we got on and happened to resonate because that's where I currently sit in Florida.

00;31;02;02 - 00;31;41;15
Unknown
Florida average retail prices are now $4.29. And there's, a suggestion by him that US national average could bus $4 in a couple of hours. And so a lot of our argument about where is the equivalent, you know, where does demand destruction start? Oh, it's, you know, it's different than it was back in 2008. We saw crude go 247 precipitated really massive demand disruption that pretty much bottomed off of, of the great, financial crisis.

00;31;41;17 - 00;32;14;04
Unknown
Prof. But, you know, is it $5 gasoline? Is it nationally? Is it $125 crude oil? We can make all the inflation adjusted arguments that we want. And I have been making those because until last week, we were significantly below 2006. Retail gasoline prices, adjusted for inflation. So the industry has done a lot for not only American consumers but global consumers as well.

00;32;14;04 - 00;32;51;16
Unknown
It's been one of the, most inflation, inflation resistant or resilient commodities that now everybody cares about. It's it's it's the center of everything. It's the beginning of everything. So, you know, I don't like where we are from a. From, just a landscape standpoint. Certainly from an investing standpoint. Question is what's the magnitude of demand destruction that we're most certainly going to have to see if this thing continues?

00;32;51;16 - 00;33;19;02
Unknown
I don't know, but I mean, you physically can't if you if you physically can't get it in certain regions it goes asymptotic. Yeah. You're an in by definition, particularly in in poorer countries in the global South they they go without go back to wood burning stoves or fires in the yard. You know, I saw one cartoon that had a, shell station in Europe that was overgrown with weeds and, you know, it was in shambles and the people were leaving there.

00;33;19;02 - 00;33;43;15
Unknown
I think the the car was stranded at the gas pump and they were all leaving in an ox drawn cart. No, they're going to drive electric cars, Mark. And you can charge at the shell station through shell Recharge. What are you talking about? So to kind of wrap this part of it, you know, the notion that and I think part of the implied message from voices like Amy's responding to this.

00;33;43;17 - 00;34;18;01
Unknown
Well, what is the industry going to do about it? This is your moment. Those are the same voices that were imploring oil and gas companies to go on these windmill chase. Very destructive from a value standpoint, portfolio diversification and into things that really had no long term substantiated commercial scale case to make. And I think, again, our favorite subject, corporately is, is BP.

00;34;18;03 - 00;34;43;26
Unknown
Right. What if what if Chevron what if Exxon would have shell? What if they'd all gone as far down that path as BP has gone based on some virtue, instinct, and not invested in the things? You know what if what if BP had achieved its 40% oil production contraction, or was well down the path of doing that by now on the margin that matters?

00;34;44;03 - 00;35;16;06
Unknown
Well, I mean, as what happens is boards sack the management team when they're making bad capital allocation decisions. That's what happens. So it this is as old as, as as time. And it doesn't matter how people feel if you're not allocating capital like your peers are and think, goodness, there's an Exxon out there because they keep their heads down run by engineers and they just like, we're going to print money.

00;35;16;06 - 00;35;44;17
Unknown
That's what we do. They don't get, you know, the management teams will get fired. That's what happens, period. End of story. And even though institutional investors are pushing them, those institutional investors are fickle and they're not held accountable except to their investors and their investors, you know, and BlackRock's of the world, they're too big for people to hold them accountable.

00;35;44;17 - 00;36;07;06
Unknown
And Larry Fink is has I if will flip flopped and whipsawed like the best of them. But the thing is is no one hold him accountable. So why is while running shell now? Because he is a voice of reason. He's like, I'm going to I'm hanging, I'm standing up and I'm an allocate capital like a like a sane person.

00;36;07;08 - 00;36;37;02
Unknown
I don't care if wind looks pretty. It doesn't return the dividends that I've promised to return. That's that's as old as time, Tom. That's. You can't name ever a time in the history of of of of the stock market where companies don't get sacked or management teams don't get fired for for allocating capital poorly because they always do.

00;36;37;02 - 00;37;01;15
Unknown
They always get fired. And that's the thing. That's the voice of reason. That's what my dad kept telling me before that, before the 2000 crash in 1999, 2000, he's like, if the economics don't make sense, there's a problem. So remember when Dot bomb was happening and companies were spending money like crazy? And it's like they people kept saying it's just about growth.

00;37;01;19 - 00;37;31;07
Unknown
It's like growth. If it's unprofitable growth eventually it's still unprofitable. So it doesn't matter. So I think ultimately people are smart. And the good news is our independent oil and gas industry in the United States is going to continue to do well, even though maybe it's hard to get capital, they're still doing well. And speaking of, I'm glad you brought this story in because I am super stoked to talk about this continental Mercury.

00;37;31;10 - 00;37;55;21
Unknown
Pecos Power project. So set it up. This is so we're talking about doom and gloom. Set up this this story because this is actually I mean, I am like, man, I can't believe I didn't think about this. What's happening? Mark? Well, this is how you do it. This is how you do it. You know, Continental's got a it's one of the largest.

00;37;55;21 - 00;38;38;18
Unknown
I think its largest private operator in the Permian. By volumes, acreage, whatever the metric is. And this project actually broke ground in late 2025, but they announced it on the 26th of March. So, you know, kind of mid late last week and it's 452MW of power generated by these 18 and change megawatt, 24 of them Wartsila units which are monsters.

00;38;38;20 - 00;39;14;25
Unknown
And what I took away from that, although you didn't you know you don't you don't have any granular any granular insight on the actual terms. But one thing Harold Hamm said was, oh, we can you know, we're we found a new way to put our natural gas to work. The other interesting thing is that there is no high performance computing or data center off taker, underpinned by a long duration power purchase agreement.

00;39;14;27 - 00;39;54;18
Unknown
You know, we all we've talked a lot about the the molecule, the electron arbitrage. Chuck was kind of on the table several years ago on the show that producers need to talk Silicon Valley, and that's where it seems like all the attention and anticipation are, you know, why hasn't there been more of this? But this is a an Ercot grid resilience and balancing, facility or dedicated project in an area where there's a sea of renewables that, you know, caused the attendant.

00;39;54;20 - 00;40;31;23
Unknown
So I, I, I'm, I'm, I'm guessing, I'm probably off on this. I just, I don't know how you make peaker economics work and what kind of cost of supply of your fuel to run. You know, those recip engine generators are. But I think what Harold is telling is like, we're we're finding ways in a severely structurally impaired, basin like and, and region like waha.

00;40;31;25 - 00;41;06;21
Unknown
We're finding ways to dedicate our associated gas to a long term purpose that has, you know, well, I'm sure solid terms in terms of pricing. I mean, we've seen what what, how many days it's it's created negative, but it's gone. It's blown out. People pay you to take my gas. I know Harold Ham listens to our show, so thank you, Harold, but I'm pretty sure we broke.

00;41;06;23 - 00;41;36;06
Unknown
But I know that I have said this over and over that there are merchant opportunities in Ercot because of the grid instability. And if you look at the macro trends of Californians and everyone else from come from states with wacko governments taxing them to death, Texas is growing more people equals more demand, cheap energy. What does that mean?

00;41;36;06 - 00;42;02;01
Unknown
You've got a grid that has been saying for a while that we need solutions. And what is what do all the, you know, the, the meek and feeble and climate people that have been raised to think climate, they're like, oh, you know, like, let's put some Tesla batteries on the grid. These guys, someone and they're curious. And these great trading shop is like, wait a minute, let's run the math here.

00;42;02;01 - 00;42;28;28
Unknown
Like, hey, I think another peaker plant would make a lot of money. And by the way, we don't need any high performance computing. We're not going after these long term people. We're just making money because we see the opportunity. And by the way, and they're doing it at risk. So there is no guarantee here. But clearly someone I mean herald him and and and Mercury have the balance sheets to back this deal.

00;42;29;00 - 00;42;56;29
Unknown
I think this is a great example for us to follow because these guys, while everyone's, you know, talking about the sky's falling, these guys just just peered up and said, hey, we've run the numbers, we're going to make money. Watch this. Well, I would bet the terms on the 80 million a day, associated gas supply are we'll prove to be over the long haul.

00;42;57;01 - 00;43;17;02
Unknown
You know, there's a lot of hope and optimism. About four and a half BCF a day of new pipe coming on as takeaway here in the next, you know, 9 to 12 months. But as we've seen, jobs continue to rise in the Permian, right.

00;43;17;04 - 00;43;49;18
Unknown
And the last example was Matterhorn. I think that price release and maybe slightly facetious about that, but the the relief was about two weeks on, two and a half BCF a day. And one sidebar, I, I had the opportunity to look at some, you know, the kind of the new, new old thing in the, in the Permian is taking a look at the deeper Woodford Barnett, maybe dual laterals work.

00;43;49;21 - 00;44;17;29
Unknown
I saw some data points from the handful of wells that have been drilled in kind of the modern, whatever the modern way, as these dual laterals. We're talking about, in some cases, because you're in here in kind of transition hydrocarbon, one does everything from gas to what gas? The volatile oil to condensate to black oil. Handful of data points.

00;44;17;29 - 00;45;08;16
Unknown
Some of these wells come on at about a 9000 a year, which is more than two weeks. The basin average Joe or so if, as companies like Diamondback, for example, spoke constructively about this potential in their last call, if, you know, if we're backfilling depleted volumes and growing on the basis of directionally much higher geo war type of opportunities, that's going to continue to create, a gas evacuation problem from the basin and taking advantage of keeping it in in basin capturing value from that associated gas, I think, is.

00;45;08;19 - 00;45;35;04
Unknown
Something that I would have expected to see even even along the dimension of hey, we got land, we got a bunch of associated gas, let's, you know, let's build a data center here. We know how to operate stuff that spans good partnership, long term surety underpinned by, you know, kind of a, credit worthy counterparty on on your power purchase agreement.

00;45;35;06 - 00;46;12;12
Unknown
Seems like a no brainer. That's that's that's in essence, what Chuck was imploring chuckles, imploring the industry to do to go talk directly to Silicon Valley and talk about electrons, not molecules. We need some some, Chuck Yates fanboys or those finance pros wearing the vests. I'm sure one of you listening did this, ran the math, and thought that there is a strong business case for a peaker plant in Ercot, but you were either too afraid to pitch your executive team or they shut you down.

00;46;12;12 - 00;46;38;29
Unknown
Not because the numbers did make sense, but because they were too scared to call the obvious. So I'm sure one of you guys listening has done this. I'm sure you've done this math some. If you didn't do the math and you're man, you guys are wasting your time on data centers and all the bright, shiny objects. But we need to hear the stories, because this is this is kind of like.

00;46;39;01 - 00;47;02;11
Unknown
Yeah, of course someone did this, like, we've been talking about this for two years, Mark. I mean, this is the most obvious thing that we should have seen, and some of them are actually doing it. And it happens to come from Rockefeller himself, the Herald him playbook which own the value chain. Keep the margin. Don't let anyone else flip your ticket.

00;47;02;13 - 00;47;31;25
Unknown
Unbelievable was a great story. This is a I feel like when Harold hands just became hero status again. Yeah, I'm Harold's guy. That's. You know, he's awakened every day. Just passionate about finding oil. That's what he does. This is just another, you know. Just another molecule to megawatt pipeline right there. That is awesome. All right man this is this is great.

00;47;31;25 - 00;47;37;05
Unknown
I'm glad we were able to hop on today. I,

00;47;37;08 - 00;48;06;26
Unknown
Look forward to the, completely changed. You know what? What part of the whips are we under the whip or this? All right, now on this Iran stuff, but I'm sure we'll have something new and different to deal with. Next week. Hopefully Chuck can come on as well. I'm telling our audience, don't worry about the website. As C.S. Lewis said, children are not a distraction from more important work.

00;48;06;28 - 00;48;29;16
Unknown
They are the most important work, and you have a grandchild. And that's more important than worrying about any of that. Brant crude futures. So let's leave it at that. And, and, and celebrate the birth of your grandchild. And, that's what we're going to celebrate and think about for the next week. Yeah. It's, it's been an awesome week.

00;48;29;19 - 00;48;32;19
Unknown
So thank you, man. And, thanks, Clive.