Speaker 1: Hi, everyone. What seems like forever ago, when I was
Speaker 1: an energy analyst just starting out, I used to hear
Speaker 1: the term energy security all the time. Maybe it was
Speaker 1: because I was based in Washington, d C. But if
Speaker 1: your policy makers use it constantly to push for an
Speaker 1: all of the above energy approach, so the U S
Speaker 1: would be less relied on other nations for its energy,
Speaker 1: particularly oil. But around two thousand nine that term really
Speaker 1: peaked when shale oil and hydraulic fracturing came into play.
Speaker 1: It changed the game, taking the U S from importer
Speaker 1: to net exporter of oil and gas, and the impacts
Speaker 1: of shale oil reach across all sectors and across the globe.
Speaker 1: Today on the show, we've got Tai Lieu and Anidialinus
Speaker 1: U S oil analysts for ben F. They're going to
Speaker 1: tell us about the state of US shale oil, how
Speaker 1: oil demand rising to pre pandemic levels is impacting prices,
Speaker 1: and how oil producers are dealing with all of it.
Speaker 1: Our discussion is based on report titled U S Sail
Speaker 1: Oil Quarterly Outlook three Q twenty twenty one being if
Speaker 1: users can get this report on beef, go on the
Speaker 1: Bloomberg terminal beanef dot com and Bloomberg Mobile. As a reminder,
Speaker 1: beaneif does not provide investment or strategy advice, and you
Speaker 1: can hear the full disclaimer at the end of the show.
Speaker 1: I'm Mark Taylor and you're listening to switch on to
Speaker 1: be an f podcast. Ti Anna, Thanks for joining. So
Speaker 1: we've brought you in to talk about US shale oil today. Ana,
Speaker 1: can you start us off and tell us a bit
Speaker 1: why we're talking about US shale. So, US shale oil
Speaker 1: is a really interesting part of the global supply picture
Speaker 1: for oil, and if you think about it, it's quite
Speaker 1: different from a lot of the rest of the oil
Speaker 1: production that we have in the market. Especially for people
Speaker 1: who don't usually think about oil too much. You usually
Speaker 1: probably picture things like the Beverly Hillbillies when you're envisioning
Speaker 1: oil production. I think my generation we tend to think
Speaker 1: about armageddon, you know, when they're on the offshore rig
Speaker 1: and Harry Stamper hits the uh, the gusher and all
Speaker 1: the oil comes out the top. Yeah. Yeah, well, the
Speaker 1: same same idea, right. You kind of have this hole
Speaker 1: that you've drilled, all the oil flows out just very easily.
Speaker 1: That's oil production. Shale is quite different. Shale oil is
Speaker 1: a fairly newer technology that has come onto the market.
Speaker 1: It was developed actually, you know, sort of by the
Speaker 1: US government and stuff funded by them for decades, but
Speaker 1: it really came onto the scene around early two thousand's
Speaker 1: and in this you extract oil from solid rock, from
Speaker 1: shale rock, it's a tight oil supply. In order to
Speaker 1: do this, you have to use technologies like hydraulic fracturing
Speaker 1: and injection of fluids to help open some of these
Speaker 1: pores that hold oil molecules and allow it to flow
Speaker 1: to the surface. So it has a very different production
Speaker 1: profile than a conventional well. But the benefit is it
Speaker 1: actually takes much less time to get the well to production,
Speaker 1: and the wells don't last nearly as long as conventional wells,
Speaker 1: which actually makes them quite responsive. Anyways, shale is something
Speaker 1: that was developed, as I mentioned, in the early two
Speaker 1: thousands in the US and really started booming because there's
Speaker 1: actually a lot of opportunity for shale in across the US,
Speaker 1: and so starting around two thousand eight or so, we
Speaker 1: saw production coming online and then we just over the
Speaker 1: past few decades have seen phenomenal growth in this sector.
Speaker 1: I mean, especially you look back just a few years ago,
Speaker 1: US production was growing about twenty six percent from US
Speaker 1: shale basins on an annual basis. Production grew to the
Speaker 1: point where US was the largest producer of oil due
Speaker 1: to this shale production that was coming out. So it's
Speaker 1: been a really important feature of the U. S supply story. However,
Speaker 1: the problem is that as the US was just flooding
Speaker 1: the market with all of the shale oil, there was
Speaker 1: also competition with OPEC for who can sort of supply
Speaker 1: into this market where demand is pretty stagnant, and as
Speaker 1: a result, prices were tanking. We've had very low oil
Speaker 1: prices of the past few years, and this meant that
Speaker 1: actually the profitability for a lot of these companies was
Speaker 1: looking worse and worse. They were putting borrowing a lot
Speaker 1: of money to invest in new production, and yet they
Speaker 1: were receiving low prices for that production, and therefore they
Speaker 1: were hiteing negative cash flow, not good returns for shareholders.
Speaker 1: So all of this was kind of happening in the
Speaker 1: background of the U S shale industry, and this was
Speaker 1: all going on, this discussion of do they need to
Speaker 1: be profitable, do you grow production, how do you balance
Speaker 1: those two, and then COVID hit, which completely destroyed all demand.
Speaker 1: Oh man, what a roller coaster. I mean kind of
Speaker 1: halfway through what we're saying there is thinking like when
Speaker 1: I started in the energy industry, I guess, like in renewables,
Speaker 1: really we kept hearing, you know, we have to do
Speaker 1: all this for energy security, you know, US energy security
Speaker 1: and all that. But with shale it kind of seemed
Speaker 1: to kind of end. I didn't I don't heard much
Speaker 1: about that in years, but I guess then it became
Speaker 1: a different problem, right of profitability and keeping the flow
Speaker 1: going or keeping the oil coming. Yeah, so shill was
Speaker 1: great for security in the sense of the US became
Speaker 1: sort of a goal an exporter of oil where the
Speaker 1: we were the largest producer. But you know, the quite
Speaker 1: was what's the cost of all of that and is
Speaker 1: it sustainable? Right? So, ty, can you tell us about
Speaker 1: what did happen during COVID. I think the first thing
Speaker 1: was that it's interesting that right before COVID, Russia and
Speaker 1: OPEC was actually having a price war the head for
Speaker 1: about a week or two, and then COVID hit, So
Speaker 1: it was like a double ramby for the for the
Speaker 1: all markets. You know, first you have the price war
Speaker 1: right with Russia and OPAC, and they drove prices down,
Speaker 1: and then like two weeks after one or two weeks
Speaker 1: after that, COVID hit and prices just crumbled. I mean
Speaker 1: right after COVID struck world. I guess OPAC and Russia
Speaker 1: went into a truce immediately. But the mass took a
Speaker 1: big hit, and so did all crisis. I think all
Speaker 1: prices that w t I at one point, at some
Speaker 1: point it was like straaighting at negative prices, but that
Speaker 1: was because they were running our storage. They have basically
Speaker 1: no nowhere to put the oil in Oklahoma, so the
Speaker 1: demands took a huge hit. And all these producers because
Speaker 1: it's kind of like for surprised to catch up demand,
Speaker 1: there's usually a lag on the way up or on
Speaker 1: the way down, and you really need like all parsons
Speaker 1: to go down to web to wally low level before
Speaker 1: these producers are willing to start shutting off the weals.
Speaker 1: But that was what we saw, you know, and and
Speaker 1: producers had to like we're forced shooting out after production
Speaker 1: during the trap, during the bottom of the pandemic, when
Speaker 1: when the when demand failed out the bottom, and now
Speaker 1: they're starting to turn it back on. Well, I should
Speaker 1: say about the third quarter a fourth quarter of last year,
Speaker 1: they started turning on the worst down to all worlds
Speaker 1: back on when demand slowly recovered. And so that was
Speaker 1: what happened in the physical markets. On the financial side,
Speaker 1: for like on the police companies from the westing side,
Speaker 1: what really changed in the past years that the industry
Speaker 1: has really changed from like a growth industry as and
Speaker 1: I just mentioned, so really are for industry that's focused
Speaker 1: on returns and cash bro physically meant I know w
Speaker 1: T I is West Texas Intermediate and an oil price
Speaker 1: bantomork Okay, so tie. So it's changed for the financial markets.
Speaker 1: So what do you mean by well, I guess I'm
Speaker 1: end set. Before the US shell production was growing at
Speaker 1: a very fast group in the past, but that's a
Speaker 1: pretty much funded by that our companies to going out
Speaker 1: off that to fund this production growth. Nowadays, a lot
Speaker 1: of investors um they want these companies to de leverage
Speaker 1: because that's seen too much financial risk and they want
Speaker 1: these companies to start paying back the show that's fastest
Speaker 1: other in the ways of like higher dividend payout or
Speaker 1: insuring purchases. So the industry has really transformed in the
Speaker 1: past year. So it sounds like they went from kind
Speaker 1: of a bonanza of production, you know, where everything was
Speaker 1: just going great too a much much tighter market with
Speaker 1: much more scrutiny over returns. And how has this change
Speaker 1: in the all US oil industry, I guess the shale
Speaker 1: industry at large, but also the recent changes, how has
Speaker 1: that impacted the global oil market? Yes, so on the US,
Speaker 1: the first thing is such the U S laws about
Speaker 1: two mullion bills the day of production. During the pandemic,
Speaker 1: we were producing about thoting million barrels per day of oil.
Speaker 1: Now we're only doing eleven million barrels. So that's the
Speaker 1: first thing. The second thing is the world all demand
Speaker 1: growth was you pretty much met by us all surprised
Speaker 1: or production growth. Now we a, we pretty much lost
Speaker 1: that engine. And so when and when all demand returns US,
Speaker 1: our production is not going to be there to meet demand. Wow. Okay,
Speaker 1: so demand tanked during COVID, right, and that's what caused
Speaker 1: all that that those challenges last year with over supply,
Speaker 1: they turned off the wells. But now demand is starting
Speaker 1: to pick back up. Is that right? And then you're
Speaker 1: saying that the supply won't be there when the demand
Speaker 1: comes back, There's going to be some difficulties of securing supprise.
Speaker 1: If we assume the growth rate that we had before,
Speaker 1: I think it's still we still have like speckup spac
Speaker 1: capacity from OPAC to meet demand growth. But when we
Speaker 1: turn demand we covers. But when it starts growing again,
Speaker 1: we're gonna have to figure out where those are. How
Speaker 1: how are you going to and mark? Maybe One interesting
Speaker 1: thing to note about shale is that, as I mentioned,
Speaker 1: shale wells are different than most other conventional wells in
Speaker 1: that the production because it's you're pulling it out of
Speaker 1: this tight rock. You get a lot of production in
Speaker 1: the first few months, but then it actually declines quite
Speaker 1: significantly over the next year or two. So you lose
Speaker 1: about sev your well's output in the first few years.
Speaker 1: So that's why in the US shale patch, producers need
Speaker 1: to constantly be injecting capital into their operations in order
Speaker 1: to do drill new wells to offset the declines of
Speaker 1: old wells. So in order to keep production flat, you
Speaker 1: need to constantly be drilling new wells. Anyway, in order
Speaker 1: to grow production, you need to drill even more wells,
Speaker 1: So you just got to keep going. Yeah, exactly. So
Speaker 1: that's where because there was so little investment in new
Speaker 1: production during COVID, a lot of those wells saw massive declines.
Speaker 1: That's why a lot of the output from the region
Speaker 1: has fallen off. And now as time ENTI and US
Speaker 1: producers are just very reluctant to invest significant amounts of
Speaker 1: capital such that that output will grow and sort of
Speaker 1: replace the lost barrels. On the U S side, do
Speaker 1: you think they'll come back? Do you think they will
Speaker 1: meet the demand in time? And do you think that
Speaker 1: oil will have to come from somewhere else? I mean,
Speaker 1: you say the i A is already expecting oil demand
Speaker 1: will return to levels but sometimes in two right, so
Speaker 1: next year, yeah, I think it's going to have to
Speaker 1: come from like several places, not just from U S.
Speaker 1: Show who probably actually draw down their spank capacity compared
Speaker 1: to what they did for some of the national oil
Speaker 1: companies were probably have to pick up the slack um
Speaker 1: some of those private companies which are not so much
Speaker 1: under the financial microscope, they're not so much under the
Speaker 1: scrutiny of the investing community, they probably have a lot
Speaker 1: more leeway to grow production compared to properity companies, and
Speaker 1: we might even need some of those Urani umbrelros mak wow. Okay,
Speaker 1: so they might turn coming back from from everywhere. Will
Speaker 1: be the impact of this possible demand on price, so
Speaker 1: the price definitely go up. There is this there a
Speaker 1: scenario where we might see a price tip. I think
Speaker 1: chances are we will probably see like the market continue
Speaker 1: to tighten, especially if you continue to draw down OPEC
Speaker 1: spec capacity. Historically there's some correlation between christ and opex
Speaker 1: aspect capacity, well negative correlation, and so I think there's
Speaker 1: definitely more upside risk to prices than dan Cy risk.
Speaker 1: In terms of dancy risk. I mean, you really have
Speaker 1: to have the vaccine proout programs to hit a big
Speaker 1: bump and and you know, maybe some of these countries
Speaker 1: starts going back in terms of infection rates and then
Speaker 1: you have to shut down passes the economy again. I
Speaker 1: think that's probably the biggest risk as far as I
Speaker 1: can see. Okay, so if vaccine progress kind of stalls
Speaker 1: and then demand goes back down, then you'll see the
Speaker 1: price follow right. Yeah. The only other one would probably
Speaker 1: be if OPEC just didn't time their production correctly, right,
Speaker 1: like as time mentioned, they have a lot of spirit
Speaker 1: capacity that they're slowly bringing online as they see demand
Speaker 1: ramping up. But if they missed time that they could
Speaker 1: end up over supplying the market when demand is still
Speaker 1: instilled flux. Is there a history of that is that
Speaker 1: does that happen? I'm as an outsider, I have just
Speaker 1: no idea. Yeah for sure. I mean I think before
Speaker 1: this pandemic, OPAC member has like a history of like
Speaker 1: cheating their quotas um so they always had produced like
Speaker 1: a little bit more than what they said they would.
Speaker 1: But this time around, surprisingly that Pakistano has been surprisingly
Speaker 1: disciplined about the production. And I think special Saudi Arabia,
Speaker 1: I mean they you know that really took like bills
Speaker 1: of their own production offline. Who did this year just
Speaker 1: to keep the marketing balance. So this time around they
Speaker 1: are where we disciplined. But as we as surprises guests
Speaker 1: higher and higher, you know, the temptations to cheat higher.
Speaker 1: So yeah, cheeze okay, so needs to stay. We're in
Speaker 1: for for an exciting year in oil global oil regardless.
Speaker 1: One more question about about price, So I want to
Speaker 1: quote you, so in your report you say the following
Speaker 1: You say, although this price range is well above what
Speaker 1: the vast majority of US oil players need to achieve
Speaker 1: for profitability. We're doubtful US oil companies will turn on
Speaker 1: the production spigits yet. So my question is, even if
Speaker 1: the well has become profitable at a certain price, you're
Speaker 1: saying that oil companies will not yet turn on production.
Speaker 1: So why is that? I don't quite get it. So
Speaker 1: I think, Um, if you look at bricky even point
Speaker 1: of you, the vast majority of US show praise in
Speaker 1: the money at these while prices, but they are really
Speaker 1: resisting putting more capital into the ground to put more
Speaker 1: surprise onlines because that will be busipin done debt. All
Speaker 1: these uh mentioned they are are. They took on a
Speaker 1: lot of that during the news to feel the growth.
Speaker 1: So now, um, like all bubbles, when it bursts, you
Speaker 1: know that you just have to work off the excess
Speaker 1: on leverage. That's the first thing. The second thing is
Speaker 1: a lot of investing community, allow of investors are demanding
Speaker 1: faster payback for the investments in our companies. So even
Speaker 1: after these companies woke of the dead, there would be
Speaker 1: under pressure to increase like different and share buybacks. Okay,
Speaker 1: So effectively they're kind of on a diet in a way.
Speaker 1: So broadly speaking, what can we expect from the industry
Speaker 1: going forward for the rest of the year and actually
Speaker 1: poste anything different than we already mentioned already. So I
Speaker 1: think going forward, because the US is no longer a
Speaker 1: big growth engine of production, all prices realities will be
Speaker 1: a lot more sustainable going forward because if you look
Speaker 1: in the past, in the past like ten years or so,
Speaker 1: there were more than several occasions when the growth of
Speaker 1: US our production has like derailed price raieties and the
Speaker 1: end up that OPEC had to like cut back the
Speaker 1: production to make room for for US oil growth. But
Speaker 1: without that, all prices are probably all price rarities are
Speaker 1: probably much more sustainable than in the past. Yeah, and
Speaker 1: the other thing on the US supply side, just as
Speaker 1: time mentioned, producers really are even with the prices where
Speaker 1: they are at the moment, producers are sticking to the
Speaker 1: story of capital discipline, maintaining flat production, putting any increased
Speaker 1: revenue towards debt reduction and shareholder payout. When they think
Speaker 1: past into two, some of them are starting to talk
Speaker 1: about slow production growth, so growth of maybe three percent
Speaker 1: or five percent nowhere near the double digit growth rates
Speaker 1: that we saw before. At the moment, it seems like
Speaker 1: the investor community seems okay with that. We didn't see
Speaker 1: any major stock price movements when they made those announcements
Speaker 1: on their earnings calls. So it looks like if demand
Speaker 1: does recover and things are going well into next year,
Speaker 1: we might see a bit of growth out of the
Speaker 1: U S. Shail patch, but nothing like it was before.
Speaker 1: And they do seem to be watching what the opex
Speaker 1: doing and sort of deferring to being more reactive to
Speaker 1: OPEC rather than as time mentioned before, when they were
Speaker 1: sort of ready to compete for a market share. Okay, okay,
Speaker 1: so a little bit less ambition, more what do you
Speaker 1: call it, fiscal discipline, much better term than I used
Speaker 1: a diet. Yeah, but moderate growth coming yeah. Okay. So
Speaker 1: we're gonna take a quick break and when we come back,
Speaker 1: we're going to talk a bit more about what the
Speaker 1: players are doing, who they are, and the next areas
Speaker 1: of research for the U. S. Oil team. Stay with us.
Speaker 1: So in the report, I noticed something that that we
Speaker 1: were talking about before we hit record, was that a
Speaker 1: lot of the players that you mentioned in this report,
Speaker 1: I've never heard of so shale production comes mostly from
Speaker 1: a handful of areas in the US are basins, and
Speaker 1: the players are mostly independents, is that right? Or they
Speaker 1: listed or they just you know, companies we were just
Speaker 1: not familiar with. Can you describe it a bit in
Speaker 1: the U S all page. A lot of these show
Speaker 1: players on what we called US independent companies, So they're
Speaker 1: not like the examble or show VP majors, the all
Speaker 1: majors that most people are familiar with. They have like
Speaker 1: one names like yog Resources, Devon Energy, Diamondback Energy, just
Speaker 1: companies that people will only be familiar with. Your few
Speaker 1: in the industry. I think it's like some history to
Speaker 1: that because shore He's okay, that's not been big enough
Speaker 1: of an impact for the all majors. So a lot
Speaker 1: of these all majors dident invest in show until like
Speaker 1: the later years. So that's why we have a lot
Speaker 1: of like the smaller independent companies took over in the
Speaker 1: early days, and some of them actually produce sizeable quantities
Speaker 1: of oil. Actually at these points in times like EO
Speaker 1: G and Occidental, they're they're pretty big, publicly traded companies
Speaker 1: for what they produce. But yeah, there's a ton of
Speaker 1: those medium sized guys and a ton of consolidation in
Speaker 1: the industry actually, so you'll constantly hear of mergers and
Speaker 1: acquisitions in this space. Are they particularly active like I
Speaker 1: think they're in your report? You mentioned their five main
Speaker 1: shale basins. Do they like have home home turf for you?
Speaker 1: Know that this is that they are more active in
Speaker 1: one versus another. How does that work? There's like two models.
Speaker 1: One is that's definitely more focused in one region so
Speaker 1: they can larage all the expertise and know how and
Speaker 1: supply change in the one basin. And then they're like
Speaker 1: a couple of companies that spread out so they can
Speaker 1: diversify the risks, or they're spread out in the various regions.
Speaker 1: Can we talk about the basins for a second. Is
Speaker 1: there a basin that really stands out as being a
Speaker 1: top performer? Definitely the Permian if you're talking about size
Speaker 1: and performance, the Permans probably is producing about four point
Speaker 1: six million bells with it right now. And the significance
Speaker 1: if you consider the US is only its producing about
Speaker 1: eleven million belts today, so almost half of the US
Speaker 1: output it's coming from a one basin in the Permian
Speaker 1: and for those of you who aren't familiar with oil
Speaker 1: basins in the US geography sector, it's sort of in
Speaker 1: western Texas and the sort of southeast corner of New Mexico.
Speaker 1: That's where the Permian sits. And how are these plays
Speaker 1: different from each other? They're all shale that are they
Speaker 1: different geologically or anything like that. I think, on a
Speaker 1: very hard level, shell geologically are pretty much the same.
Speaker 1: They have the same characteristics, but the quality of the
Speaker 1: rock definitely could be very different from not only from
Speaker 1: basin to basin, but even from county to Candy. And
Speaker 1: the other questions the maturity of these play Some of
Speaker 1: these played, um, like the Legal Food which is in
Speaker 1: South Texas, They've been very drewed out. They've been around
Speaker 1: for a long time, and the productivity for these worlds
Speaker 1: are just not as good as they were before. So
Speaker 1: that's definitely like an age and quality aspect, as well
Speaker 1: as other characteristics to like infrastructure of variability and so
Speaker 1: on and so forth. Is there anything that you want
Speaker 1: readers or listeners to know about any of the you know,
Speaker 1: the outlook for any of these basins besides you know,
Speaker 1: Eagle Ford is is drawing down. Is there anything else
Speaker 1: that stands out, you know, we put you know research,
Speaker 1: We think that US a production show production will pretty
Speaker 1: much be fratished for the next eighteen months, will probably
Speaker 1: grow by only a hundred sixty tho pars per day
Speaker 1: wh should now and in December, and all of the
Speaker 1: growth will be coming from the premier. The other basins
Speaker 1: will probably be like out of threat or slightly over. Yeah.
Speaker 1: So if the perman ever stops growing for whatever reason,
Speaker 1: the growth trajectory is, it's not going to be exist
Speaker 1: in existence. So, either from the report or not. What
Speaker 1: are some of the major takeaways from your recent research, so, like,
Speaker 1: what are you seeing in the market and what are
Speaker 1: US oil producers saying. I think on that definitely a
Speaker 1: couple of big takeaways. The first one is that hire
Speaker 1: all prices, unlike in the past, it's not going to
Speaker 1: translate into a more oil production, at least in the
Speaker 1: US companies. The producers are really busy putting down to
Speaker 1: debt and returning capital to shareholders, and they are where
Speaker 1: we reluctant to invest capital more capital into the ground
Speaker 1: to increase production. So even if higher commodities prices states
Speaker 1: run for a while, production is not going to concrease.
Speaker 1: That's the first one. I think the second one would be,
Speaker 1: like that's colder of that is that all Pakis back
Speaker 1: in control of all surprise. Historically, like and I mentioned
Speaker 1: that all Pakis made adomy macroom for US production growth.
Speaker 1: Now there's no longer the case. All Pakistani back in control,
Speaker 1: but definitely all prices ready is going to be more
Speaker 1: much more sustainable than in the past without the undergrowth
Speaker 1: engine in the US and taking it to our clients,
Speaker 1: your listeners might know or not know that. One of
Speaker 1: the things that we do is we talk to two
Speaker 1: clients quite a bit, people that are reading the research,
Speaker 1: using the tools, using the data. Are they asking anything
Speaker 1: particularly lately, any common themes of what you're hearing from them,
Speaker 1: or what are some of the debates out in the
Speaker 1: market right now? I think that like two big questions
Speaker 1: from from our clients. The first one is that you
Speaker 1: are um at these high all price levels, US producers
Speaker 1: gonna increase the production or not? And I think at
Speaker 1: least one they will not increase production in any meaningful
Speaker 1: way now beyond um and I mentioned that your producers
Speaker 1: probably comfortable increasing the production, but like where we slow
Speaker 1: single digit through to five. So if you're looking at
Speaker 1: like US all production at eleven million bills they right
Speaker 1: now through five percent is probably about three hundred five
Speaker 1: fifty bellars per day of increase on an annual basis,
Speaker 1: so very far away from what we've seen before about
Speaker 1: one mon and a half million bellars per day of
Speaker 1: increase every year right before the pandemic hit. UM. The
Speaker 1: second question is, Marcus, it is more philosophical. UM is
Speaker 1: that will will these us all producers changed the tune
Speaker 1: and you know, are they're gonna ever going to increase production?
Speaker 1: And I think the answer to that is, and this is, um,
Speaker 1: it does not lies with producers. It probably lies more
Speaker 1: with the investors. So if investors added to change and
Speaker 1: they're like, hey, you know what if you guys, I
Speaker 1: think it's okay if our companies start producing the production
Speaker 1: a bit faster than five percent, if they allow that
Speaker 1: without you know, setting off the stock. Whenever these new
Speaker 1: these ARE producers said they're going to increase production, I
Speaker 1: think you know, we could see more product, faster production
Speaker 1: growth from us ARE producers. Further down the line. The
Speaker 1: two things that come to mind on my side, I mean,
Speaker 1: it's time mentioned One of the big ones is what
Speaker 1: would it take for US production to come up back online?
Speaker 1: And that would really just be a change in strategy
Speaker 1: amongst the producers themselves and the investors who back them.
Speaker 1: H If there is appetite for shale growth, it's there
Speaker 1: if you come back fairly quickly, but it would require
Speaker 1: the capital to shift towards that end. The other question
Speaker 1: I think that is hounding the industry at the moment
Speaker 1: is what should the focus be? Right we talked about
Speaker 1: this trade off between focusing on production growth and focusing
Speaker 1: on capital returns, But then there's this other question of
Speaker 1: like where does sustainability fit into this puzzle too. You
Speaker 1: have some of the majors, especially across Europe, looking to
Speaker 1: transition towards zero carbon diversify away from oil and gas.
Speaker 1: At the moment, most of the US producers, especially these
Speaker 1: smaller independent ones, are really focused on production. And then
Speaker 1: the question is do you produce a lot and put
Speaker 1: all your capital into increasing supply or do you keep
Speaker 1: production flats and just generate returns. You know, the third
Speaker 1: option would be do you take that capital and transition
Speaker 1: it to some other energy source or some other type
Speaker 1: of growth for the company, and I think that's a
Speaker 1: question that especially some of the bigger, you know, more
Speaker 1: financially sound of these companies are starting to think a
Speaker 1: bit about or starting to see pressure on And you
Speaker 1: can see this obviously at the highest levels with Excell
Speaker 1: and having the activist investor pressure now to change up
Speaker 1: their board and change up how they're thinking about things.
Speaker 1: But some of the bigger independence like Occidental Pioneer, are
Speaker 1: also starting to talk a lot about what their emissions are,
Speaker 1: what their plans are for sort of the longer term
Speaker 1: lower carbon future, and they've made investment in a yeah
Speaker 1: exactly that they've made investments and things like carbon capture.
Speaker 1: They're doing things like emissions tracking, which makes sense. You
Speaker 1: have Biden newly elected and a new focused on emissions
Speaker 1: um and then you have sort of the demand picture
Speaker 1: you can't escape to. Right. We just published our the
Speaker 1: electric Vehicle Outlook for be Enough and it's showing an
Speaker 1: even faster adoption of electric vehicles globally than we'd anticipated before.
Speaker 1: So it looks like sort of peak peak oil demand
Speaker 1: is going to start edging even closer, and so especially
Speaker 1: when the outlook for oil is looking more and more tenuous,
Speaker 1: the question comes if you are doing this long term
Speaker 1: strategy of financial returns, do you just ride out the
Speaker 1: oil wave is it declined slowly, or do you try
Speaker 1: and actually actively pursue other industries. Okay, these aren't just
Speaker 1: little debates, these are existential questions. Is pretty heavy stuff.
Speaker 1: And I think in the electric vehicle outlook that just
Speaker 1: came out, they said they can pretty confidently call peak
Speaker 1: new automobile or new internal combustion engine vehicle sales what
Speaker 1: four years ago, I believe. So if that's a you know,
Speaker 1: indicator of what's to come for oil, I mean yeah, wow, Okay,
Speaker 1: existential indeed, yeah, there are some demand sector is certainly
Speaker 1: still growing. I mean aviation. We anticipate aviation demand will grow.
Speaker 1: We anticipate petrochemical demand will grow. But it does point
Speaker 1: to the fact that you know, you have to pick
Speaker 1: and choose your battles at this point too. So what's
Speaker 1: next in your line of research? So what are you
Speaker 1: looking at? Are you trying to answer these debates or
Speaker 1: go somewhere else in new direction? What are you looking at?
Speaker 1: One of our next research on operature right now is
Speaker 1: I'm looking at gas production in the US UM since
Speaker 1: we brew out like most of the models for for
Speaker 1: use all production already, and gas production is pretty much
Speaker 1: follows like a similar track in terms of like a
Speaker 1: mothering and forecasting. So we're working on that right now. Yeah,
Speaker 1: and then on the bigger picture discussions. The note that
Speaker 1: I think is going to be really interesting is some
Speaker 1: of our colleagues covering oil demand out of Asia are
Speaker 1: looking into divestment. So sort of on that same note
Speaker 1: of oil companies deciding how much exposure to have to
Speaker 1: the upstream oil and gas space, a lot of the majors,
Speaker 1: especially the international oil companies, are starting to diversify away
Speaker 1: and divest out of maybe their most heavily polluting assets
Speaker 1: or their most expensive assets. So if they sell off
Speaker 1: major assets via acreage in Alaska or offshore or whatever,
Speaker 1: that can not only reduce their exposure to oil and gas,
Speaker 1: but also take a huge chunk of emissions off their
Speaker 1: books and put it on someone else's, right. Yeah. So
Speaker 1: that's the question though, is who's buying it um A
Speaker 1: lot of these seem to be private producers purchasing them,
Speaker 1: or some national oil companies purchasing them, where the transparency
Speaker 1: around emissions is a lot murkier and so that's something
Speaker 1: I think we'll be diving into it in a bit
Speaker 1: more depth. Is what's happening around this divestment, what assets
Speaker 1: are being divested, who's divesting them, and who's buying them? Well,
Speaker 1: these all sound like upcoming shows for they will have
Speaker 1: to have you back for ti Anna, Thanks for joining,
Speaker 1: Thank you for having us. Thank you so much. Mark.
Speaker 1: Today's episode of Switched On was edited by Rex Warner
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