WEBVTT - Why It's So Hard to Get the Oil Taps Turned Back On 0:00:11.680 --> 0:00:15.640 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:15.720 --> 0:00:19.279 I'm Joe Wis and I'm Tracy Hallway. Tracy, you know, 0:00:19.320 --> 0:00:23.759 we recently talked with Goldman's top metal strategist, Nick Snowdon, 0:00:24.000 --> 0:00:26.200 and one of the things that really stuck out there 0:00:26.239 --> 0:00:29.160 are a lot of things we talked about copper scarcity, 0:00:29.600 --> 0:00:32.680 but what one of the things, among many interesting points, 0:00:32.920 --> 0:00:35.320 was the idea of, like there's been a talent shortage 0:00:35.360 --> 0:00:40.320 in this industry. Yeah, and you can kind of see why, right, 0:00:40.920 --> 0:00:45.639 I mean, first of all, um environmental concerns, and I 0:00:45.640 --> 0:00:49.959 imagine that, like particularly the younger generation might have some 0:00:50.040 --> 0:00:55.280 reservations about going into something like mining. And then secondly, 0:00:55.480 --> 0:00:59.080 it just wasn't a profitable industry for quite a long 0:00:59.120 --> 0:01:01.680 period of time, or at least I'm thinking specifically about 0:01:01.680 --> 0:01:04.200 shale oil in the US. But you had the big 0:01:04.240 --> 0:01:06.480 boom and sure people made a lot of money in that, 0:01:06.520 --> 0:01:09.560 but then you had the massive bust and it often 0:01:09.560 --> 0:01:14.000 feels like kind of an uncertain industry that swings between 0:01:14.000 --> 0:01:17.080 feast and famine all the time. Yeah. So imagine you're 0:01:17.120 --> 0:01:20.280 like thinking about your career and you're like pretty technical minded, 0:01:20.440 --> 0:01:22.479 you're pretty smart, you could do a lot of things. 0:01:22.560 --> 0:01:25.720 You're intelligence, and you're like face with like two options. 0:01:25.800 --> 0:01:27.880 It's like, Okay, do you want to like go to 0:01:28.000 --> 0:01:32.440 North Dakota or somewhere up in Canada and analyzed rock formations? 0:01:33.080 --> 0:01:37.080 Or do you want to live in California and work 0:01:37.160 --> 0:01:40.240 for Facebook and get lots of free lunches and free 0:01:40.280 --> 0:01:43.200 dry cleaning and maybe make millions of dollars. I don't know. 0:01:43.360 --> 0:01:45.280 It seems like kind of an easy choice from the 0:01:45.280 --> 0:01:49.040 perspective of a potential tailted person thinking about which direction 0:01:49.080 --> 0:01:51.240 they want to take their life in. Well. Also, I mean, 0:01:51.280 --> 0:01:53.800 Silicon Valley was very good at selling the idea of 0:01:53.840 --> 0:01:56.560 making the world a better place, yeah right, which I 0:01:56.640 --> 0:02:00.800 don't think is as impactful as it once is. That message, 0:02:00.840 --> 0:02:02.800 I don't think as many people believe it. But like, 0:02:02.880 --> 0:02:05.200 certainly for a while it was about come build a 0:02:05.240 --> 0:02:09.920 better future, um in tech versus come dig out of 0:02:10.000 --> 0:02:13.840 rock in northern Canada. Yeah, so come to Canada, dig 0:02:13.840 --> 0:02:16.040 out of rock, be cold all the time. Oh and 0:02:16.120 --> 0:02:18.680 by the way, you're contributing to the worsening of the 0:02:18.720 --> 0:02:21.360 planet through global warming. Oh and by the way, this 0:02:21.639 --> 0:02:24.639 industry has no future. These were like the messages I 0:02:24.680 --> 0:02:26.960 mean the message we can tell it's like you're gonna 0:02:27.000 --> 0:02:31.400 contribute to climate change by participating this industry. Also, the 0:02:31.440 --> 0:02:33.760 industry has no future because it's all gonna be you know, 0:02:33.800 --> 0:02:36.240 disappear because of electric cars or whatever. So all these 0:02:36.280 --> 0:02:39.480 things it's like or you know, do software make up fortune? 0:02:39.520 --> 0:02:42.080 It seems like you can see why people made one 0:02:42.120 --> 0:02:44.880 choice or not the other. Yeah, so we obviously have 0:02:45.040 --> 0:02:48.600 to dig into this no pun intended, but um, yeah, 0:02:48.639 --> 0:02:51.919 we're gonna dig into the talent shortage in energy and mining, right, 0:02:51.960 --> 0:02:54.320 and so there's all kinds of bottlenecks, you know. Now 0:02:54.440 --> 0:02:56.880 of course everything's flipped, and you know there's like, well, 0:02:56.880 --> 0:02:59.200 why can't we restart the minds? Why can't we get 0:02:59.240 --> 0:03:02.800 drilling again for energy? Uh, you know natural gas and oil. 0:03:03.000 --> 0:03:05.680 There is a pickup in activity, but it has not 0:03:05.760 --> 0:03:09.639 been as rebustes people expected. So what are the constraints 0:03:09.800 --> 0:03:13.320 on getting everything going again and getting dirty stuff out 0:03:13.360 --> 0:03:17.120 of the ground for whether it's gasoline or fuel or 0:03:17.600 --> 0:03:21.040 medals that we need for decarbonization and electricity. I'm very 0:03:21.080 --> 0:03:26.239 excited about our guests, Uh, someone who understands the space deeply. 0:03:26.280 --> 0:03:29.000 We're gonna be speaking to Peter to sack In. He 0:03:29.080 --> 0:03:33.080 is the managing director of ARC Financial, a private equity 0:03:33.120 --> 0:03:36.920 company that specifically focuses on energy, and he knows a 0:03:37.000 --> 0:03:39.680 lot about the nuts and bolts of this space and 0:03:39.720 --> 0:03:42.520 investing in this space. So, Peter, thank you so much 0:03:42.640 --> 0:03:45.680 for joining us. Well, it's my pleasure. I'm delighted to 0:03:45.680 --> 0:03:49.320 be on the program. So is that true they're sort 0:03:49.360 --> 0:03:52.080 of like the premise that we started out this conversation 0:03:52.240 --> 0:03:55.800 that they're really uh, the number of people wanting to 0:03:55.840 --> 0:03:58.760 make a career sort of like petroleum engineers or mining 0:03:58.760 --> 0:04:02.280 engineers has really tailed off over the last decade. Yes, 0:04:02.360 --> 0:04:05.320 that's true. Actually there's a double whammy. Also, what we're 0:04:05.360 --> 0:04:07.280 seeing and we're going to see more of, is that 0:04:07.360 --> 0:04:12.400 the older generation is set to retire and now with 0:04:12.480 --> 0:04:17.400 these higher commodity prices, they are going to cash in, 0:04:17.560 --> 0:04:21.240 so to speak, and be much more apt to exit 0:04:21.279 --> 0:04:24.599 the business. And with nobody coming into the business, it's 0:04:24.600 --> 0:04:27.520 going to make the problem more acute. So so the 0:04:27.600 --> 0:04:30.720 higher prices increase the need for talent. But what they 0:04:30.720 --> 0:04:33.920 do in the immediate term is a bunch of people like, oh, 0:04:33.960 --> 0:04:36.440 I can finally retire because my oil stocks are up, 0:04:36.520 --> 0:04:38.760 or by commodity whatever it is, by copper Stock, the 0:04:38.920 --> 0:04:41.520 company that I worked for. So the first order effect, 0:04:41.560 --> 0:04:43.960 even before it has the effect of bringing a new talent, 0:04:44.200 --> 0:04:47.400 is to accelerate the departure of the existing til Yeah, 0:04:47.440 --> 0:04:49.680 that's going to be a big problem. And the other 0:04:49.680 --> 0:04:55.360 part of losing the older generation is that resources exploration, 0:04:55.640 --> 0:05:00.440 certainly oil and gas, has a lot of tact knowledge. 0:05:00.440 --> 0:05:03.840 In other words, it takes years to really build up 0:05:04.000 --> 0:05:08.039 gut feel expertise, which is just as important as you know, 0:05:08.200 --> 0:05:12.400 raw numerical expertise. I have this image of like Bruce 0:05:12.440 --> 0:05:17.160 Willis and Armageddon teaching the youngsters how to mind properly, right, 0:05:17.240 --> 0:05:22.800 remember that? Yeah? Right? The asteroid Yeah yeah, yeah. I 0:05:22.800 --> 0:05:24.960 mean those are the sort of the Hollywood perceptions of 0:05:24.960 --> 0:05:26.800 the way things work. I mean, I have to say 0:05:26.839 --> 0:05:31.839 that the the industry is actually very technologically advanced, and 0:05:32.240 --> 0:05:36.440 that uh, you know, the loss of knowledge is much 0:05:36.520 --> 0:05:39.680 more than just sort of these perceptions of people going 0:05:39.720 --> 0:05:41.800 and digging holes in the ground. It's it's much more 0:05:41.800 --> 0:05:45.080 complicated than that, which exacerbates the problem because there's a 0:05:45.080 --> 0:05:47.960 lot of taskit knowledge that needs to be replaced. So 0:05:48.240 --> 0:05:53.080 when you mentioned an older generation, potentially entering retirement. It 0:05:53.160 --> 0:05:56.840 reminds me a lot of the pilot shortage that we 0:05:56.880 --> 0:05:59.080 saw and this idea that you know, we had a 0:05:59.080 --> 0:06:03.640 lot of pilots we're coming through the military primarily, and 0:06:03.680 --> 0:06:06.880 then after they completed their service that would go into 0:06:07.320 --> 0:06:10.839 commercial flying and then they entered retirement age and we 0:06:10.960 --> 0:06:13.960 don't have a lot of people to replace them. Where 0:06:14.000 --> 0:06:20.960 historically has energy talent come from, Well, energy talent comes 0:06:21.000 --> 0:06:24.279 from to places. First of all, there's the field, and 0:06:24.440 --> 0:06:28.960 that talent typically comes from hiring people and training them 0:06:29.000 --> 0:06:32.479 also out of technical schools, and there's a lot of 0:06:32.520 --> 0:06:35.080 training that goes on in terms of safety and how 0:06:35.120 --> 0:06:39.520 to operate equipment, and that can take many months certification UH. 0:06:39.520 --> 0:06:42.560 And then in the offices where a lot of the 0:06:42.600 --> 0:06:46.120 engineering is done and the and the and the geoscience 0:06:46.240 --> 0:06:49.239 is done, I mean those the talent pool there comes 0:06:49.320 --> 0:06:56.359 from universities, petroleum engineering courses, geophysics, geology, chemical engineering, you 0:06:56.440 --> 0:06:59.880 name it, petroleum engagineering. Yeah. So what has enrollment been 0:07:00.120 --> 0:07:03.960 like at these uh, at these at the university level 0:07:04.000 --> 0:07:06.839 for petroleum engineering and some of these related fields, Well, 0:07:06.839 --> 0:07:11.280 it's declining and in the handful of universities and the 0:07:11.640 --> 0:07:15.160 Western hemisphere, I'll call it in Europe, United States, Canada. 0:07:15.200 --> 0:07:18.120 Whereas there's a lot of expertise in the universities to 0:07:18.200 --> 0:07:23.160 train students, the enrollment is going down. In some instances 0:07:23.240 --> 0:07:26.400 the university are shutting programs down. And it's what you 0:07:26.400 --> 0:07:30.880 said earlier. I mean, the the emphasis for students and 0:07:30.920 --> 0:07:35.480 the desire for students with technical backgrounds is to go 0:07:35.720 --> 0:07:38.680 into Silicon valley type ventures and so on. It's not 0:07:38.720 --> 0:07:42.480 to go into the resource economy. So it's so it's problematic. Yeah, 0:07:42.600 --> 0:07:45.760 what was the sales pitch earlier? So you know, I 0:07:46.040 --> 0:07:51.080 guess the seventies, eighties, nineties, if someone was thinking about 0:07:51.120 --> 0:07:55.880 a career in resource management, what would they What would 0:07:55.920 --> 0:07:58.520 be the benefits of such a career. Well, the benefits 0:07:58.520 --> 0:08:02.760 certainly would be pay to start with, because historically and 0:08:02.760 --> 0:08:05.880 even now, these are very high paying jobs. Uh and 0:08:05.920 --> 0:08:10.320 even so it's difficult to attract paying people. But historically 0:08:10.360 --> 0:08:13.640 it's also been viewed as well, with the growth of 0:08:13.680 --> 0:08:17.080 the economy, you need more energy, energy dominated by falsil 0:08:17.120 --> 0:08:20.840 fuels over the course of the last couple of centuries. Therefore, 0:08:21.000 --> 0:08:26.800 you are contributing to the UH, the growth of society 0:08:26.800 --> 0:08:31.320 and energy needs in the economy, and so it's historically 0:08:31.760 --> 0:08:36.720 been the paradigm. But now that paradigm is broken, certainly 0:08:36.720 --> 0:08:39.120 in the Western world, it's broken, and that leads to 0:08:39.160 --> 0:08:42.680 the problems that we're going to see are already seeing 0:08:42.720 --> 0:08:44.640 in terms of the price of the commodity and the 0:08:44.679 --> 0:08:49.120 supply shortage. Can you uh, what schools have actually shut down? 0:08:49.240 --> 0:08:51.200 I went to University of Texas, so there was a 0:08:51.240 --> 0:08:53.640 geology program. They're pretty I think at the time there 0:08:53.640 --> 0:08:56.240 were a pretty decent number of people going into the 0:08:56.280 --> 0:08:58.480 patrolling industry. But where have we actually seen you said 0:08:58.520 --> 0:09:02.360 some schools have shut down, like just the Yeah. I 0:09:02.360 --> 0:09:05.120 can't speak for the American universities as much. I mean, 0:09:05.160 --> 0:09:09.959 there's certainly the Texas universities, including s m u H, 0:09:10.080 --> 0:09:13.359 some of the schools in Louisiana, you know, the Oklahoma 0:09:13.480 --> 0:09:15.680 does big. I mean, those are the states where that 0:09:15.720 --> 0:09:19.079 have a lot of the resources. Not surprisingly, that's where 0:09:19.600 --> 0:09:23.079 the schools are. Ditto here up in Canada where I'm located. 0:09:23.160 --> 0:09:26.680 University of Calgary, Canada is the fourth largest producer of 0:09:26.679 --> 0:09:30.440 oil and gas in the world now, and so we 0:09:30.559 --> 0:09:35.280 have the schools here in University of Alberta, University of Calgary. 0:09:35.840 --> 0:09:39.160 The enrollments are way down and some of the programs 0:09:39.240 --> 0:09:43.880 are likely to be shut so we are going to 0:09:43.920 --> 0:09:47.600 see a talent talent pool shortage. There's no question. Can 0:09:47.600 --> 0:09:50.640 you give us a little bit more color on how 0:09:50.760 --> 0:09:55.800 much enrollment is down or exactly what the extent of 0:09:55.840 --> 0:09:59.080 the talent shortage actually is and are there particular areas 0:09:59.400 --> 0:10:02.480 where it's more are acute versus you know, other types 0:10:02.480 --> 0:10:08.560 of energy jobs. Yeah, so the petroleum engineering department here. 0:10:09.600 --> 0:10:11.840 I had a conversation a couple of weeks ago with 0:10:11.960 --> 0:10:16.080 one of the faculty members and he indicated school are 0:10:16.120 --> 0:10:19.240 you referring to this University of Calgary? I mean, you know, 0:10:19.320 --> 0:10:24.239 typically probably see uh thirty students a year and graduating 0:10:24.360 --> 0:10:26.720 clause maybe more. I mean historically it would have been 0:10:26.760 --> 0:10:29.400 much more than that. I think they have enrollment for 0:10:29.559 --> 0:10:33.280 one student. You know, it's uh, you know, it's that 0:10:33.400 --> 0:10:35.439 kind of thing. Now that may pick up as we 0:10:35.480 --> 0:10:38.200 get it closer to the fall session, but the numbers 0:10:38.200 --> 0:10:42.720 are not looking positive in terms of replenishing the knowledge 0:10:42.720 --> 0:10:46.600 base one student. I introduced you as the managing director 0:10:46.679 --> 0:10:49.080 of ARC Financial, But can you just sort of give 0:10:49.160 --> 0:10:52.679 the summary of like you've seen these cycles come and 0:10:52.720 --> 0:10:55.439 go for a while, like what's your person, what's your 0:10:55.480 --> 0:10:59.520 sort of like general background and story. Having watched and 0:10:59.600 --> 0:11:04.200 been in bold within the extract of resources industries, Yeah, well, 0:11:04.240 --> 0:11:08.360 I started out as a geoscientist back in the eighties. 0:11:08.480 --> 0:11:11.240 I worked for one of the multinational oil companies. I 0:11:11.280 --> 0:11:14.079 worked in the field, I worked in the office, UH, 0:11:14.120 --> 0:11:16.200 and then I migrated to the world of finance, the 0:11:16.200 --> 0:11:19.400 world of technology, the world of energy technology, and so 0:11:19.480 --> 0:11:22.439 I sort of have a very holistic background in energy 0:11:22.520 --> 0:11:25.760 and energy technology, and in my career over the last 0:11:25.760 --> 0:11:28.840 twenty years, have financed everything from oil and gas to solar, 0:11:28.880 --> 0:11:32.360 to win to you name it. So, as I watched 0:11:32.400 --> 0:11:35.120 the boom and the bus cycles, there was always a 0:11:35.160 --> 0:11:37.360 repetitive theme on the oil and gas side, is that 0:11:37.640 --> 0:11:40.440 when the price of oil and gas went up, that 0:11:40.600 --> 0:11:46.000 was the signal, the siren goes off for the companies 0:11:46.000 --> 0:11:49.320 to go back and drill more and bring more supply on. Now, 0:11:49.440 --> 0:11:52.680 as we all know, they're over. Over the course of 0:11:52.720 --> 0:11:56.679 the last half dozen years, that signal has been broken. Right. 0:11:56.760 --> 0:11:59.400 It's because of the vilification of the industry, the climate 0:11:59.480 --> 0:12:04.679 change can arns, the divestment movement UH, and of oil narratives, 0:12:04.720 --> 0:12:08.240 all that kind of stuff. So and then of course, uh, 0:12:08.480 --> 0:12:12.760 the turnover of investors in many of the publicly traded 0:12:12.800 --> 0:12:16.600 Western oil and gas companies basically who want their money 0:12:16.640 --> 0:12:19.360 back in terms of dividends. So that means that there's 0:12:19.400 --> 0:12:21.319 not a lot of money going back into the ground, 0:12:21.520 --> 0:12:24.040 certainly not as much as use there used to be 0:12:24.520 --> 0:12:29.160 to give a supply side response to to meet the 0:12:29.200 --> 0:12:32.679 demand which is still there. And and and as we 0:12:32.720 --> 0:12:35.520 can see growing, everybody's back flying and going on vacations 0:12:35.559 --> 0:12:38.839 and driving, and so you know, it's a and then 0:12:38.920 --> 0:12:42.200 you lose your your upstream talent pool. And that just 0:12:42.840 --> 0:12:46.280 combined with the war in Europe with Ukraine and a boy, 0:12:46.400 --> 0:12:50.600 it's just sort of like the perfect storm two create 0:12:50.600 --> 0:12:53.120 an energy crisis the likes of which we have not 0:12:53.240 --> 0:12:56.679 seen since the nineteen seventies perfect storm. We hear that 0:12:56.720 --> 0:12:59.600 phrase so much on this podcast, but you know, for 0:12:59.600 --> 0:13:03.360 for eight different things. But okay, so I'm looking at 0:13:03.360 --> 0:13:07.520 the chart of Brent oil and it's currently above a barrel. 0:13:07.640 --> 0:13:11.720 So in olden times, olden times being you know, just 0:13:11.800 --> 0:13:15.560 ten years ago or so, you would expect shale driller 0:13:15.640 --> 0:13:18.200 of some sort to see that chart and go, oh, 0:13:18.280 --> 0:13:21.800 we're going to restart some of our old wells um 0:13:21.840 --> 0:13:24.760 and presumably they would have gotten that done fairly quickly 0:13:25.040 --> 0:13:29.600 given the incentive there from the price. When that happens. Now, 0:13:29.600 --> 0:13:35.360 when oil goes above one as it is, now, what's 0:13:35.400 --> 0:13:39.480 the hold up for restarting those drills? Like walk us 0:13:39.480 --> 0:13:44.040 through exactly all the points um in actually ramping up 0:13:44.040 --> 0:13:46.680 that production. Well, first of all, a little bit of perspective, 0:13:46.679 --> 0:13:51.280 add twenty barrel today. If you inflation adjust the price 0:13:51.360 --> 0:13:53.760 of oil and take it back historically all the way 0:13:53.840 --> 0:13:57.040 to the beginning of the lost entry, in other words, 0:13:57.200 --> 0:14:00.640 undred and twenty years ago, a d is is typically 0:14:00.679 --> 0:14:03.800 the high point on an inflation adjusted basis, like beyond one, 0:14:04.920 --> 0:14:07.040 all of a sudden you will get a demand response 0:14:07.240 --> 0:14:11.640 and people will start peeling back. The supply response typically 0:14:11.760 --> 0:14:18.959 starts around in earnest. Now, we didn't see that this 0:14:19.120 --> 0:14:21.440 time around. So last year when we certain that the 0:14:21.480 --> 0:14:28.280 price started to escalate through and the call went out, hey, 0:14:28.360 --> 0:14:30.600 you know, like the price is going up, we better 0:14:30.680 --> 0:14:34.360 get some more production going. Well, the publicly treated companies 0:14:34.840 --> 0:14:37.160 and the CEO has basically said, well, wait a minute, 0:14:37.640 --> 0:14:42.680 everybody told me to uh focus on profitability, not production growth, 0:14:43.280 --> 0:14:46.040 and give give the cash flow back to the shareholders. 0:14:46.120 --> 0:14:49.520 What are we doing here changing the tune right? And 0:14:49.720 --> 0:14:52.920 you know not And by the way, everybody's saying, it's 0:14:52.960 --> 0:14:54.640 the end of oil, so why should I go back 0:14:54.680 --> 0:15:00.520 and drill? So a's then you get into hundred. Oh 0:15:00.600 --> 0:15:03.040 that's interesting, and the rid count starts to go back 0:15:03.120 --> 0:15:05.880 up a little bit, but it's very muted relative to 0:15:05.960 --> 0:15:08.960 what it would have been historically. And so here we 0:15:09.000 --> 0:15:12.360 are today at one The allure of going back and 0:15:12.440 --> 0:15:18.280 bringing on production will be irresistible, but it's still I believe, 0:15:18.360 --> 0:15:24.120 not going to be the same level of drilling. And 0:15:24.200 --> 0:15:27.640 then there's all the field level constraints which we haven't 0:15:27.640 --> 0:15:31.080 talked about yet, the physical the physical equipment, and the 0:15:31.160 --> 0:15:32.720 people in the field. I mean, to this point, we've 0:15:32.760 --> 0:15:35.640 talked about university graduates and engineers who typically go work 0:15:35.680 --> 0:15:38.280 in the office. Now you've got to talk about the 0:15:38.320 --> 0:15:40.840 shortages in the field. So yeah, what are let's talk 0:15:40.880 --> 0:15:44.840 about those? So how many people like compare the sort 0:15:44.880 --> 0:15:48.120 of upswing cycle now, the ease of hiring, the number 0:15:48.160 --> 0:15:50.440 of people willing to do the work, How is that 0:15:50.680 --> 0:15:53.800 different than you know, previous cycles that you've seen the 0:15:53.920 --> 0:15:58.360 challenge of staffing the field. Yeah, so what we've seen, well, 0:15:58.640 --> 0:16:04.320 you have to wind back to late At that time, 0:16:04.640 --> 0:16:07.360 shale drilling was so prolific and the money was being 0:16:08.120 --> 0:16:10.760 given to the industry from Wall Street to drill. We 0:16:10.920 --> 0:16:15.880 created a supply glut. The Saudis said, we'll wait a minute. Uh, 0:16:16.240 --> 0:16:17.920 We're not going to give up our market share. So 0:16:18.040 --> 0:16:20.920 that started the price war. They flooded the market. The 0:16:21.000 --> 0:16:25.280 price of oil collapsed down to thirty bucks uh. And 0:16:25.400 --> 0:16:29.080 that started a prolonged period where prices were low. So 0:16:29.400 --> 0:16:32.960 the industry went into sort of a downturn. Prices recovered 0:16:32.960 --> 0:16:35.720 back to kind of like the fifty level, and and 0:16:35.920 --> 0:16:39.320 and stay there. Fifty is not compelling, fifties not compelling. 0:16:39.400 --> 0:16:41.280 And then layered on top of that, the end of 0:16:41.320 --> 0:16:45.600 oil narrative started. And so there's this whole negative paul 0:16:45.760 --> 0:16:49.640 around the industry. So in that context, it's been now 0:16:49.840 --> 0:16:55.200 seven years of negativity. And so the service companies that 0:16:55.320 --> 0:16:59.480 go out to the field with their people basically said, well, 0:16:59.520 --> 0:17:01.520 why would I build new equipment, why would I even 0:17:01.560 --> 0:17:04.920 maintain equipment. I'm just going to cannibalize parts off old 0:17:04.960 --> 0:17:09.960 equipment to keep the equipment of a smaller equipment fleet going. 0:17:10.720 --> 0:17:15.159 So here we are today with a shrunken field capacity 0:17:15.760 --> 0:17:19.000 and by the way, a lot of loss of knowledgeable 0:17:19.040 --> 0:17:22.480 people trained on how to operate this equipment that's being 0:17:22.560 --> 0:17:25.080 called back and saying, hey, go go drill again. We 0:17:25.200 --> 0:17:28.000 need it because we want to get off Russian oil. Well, 0:17:28.040 --> 0:17:31.920 wait a minute, Like, I can't just tool up and 0:17:33.200 --> 0:17:36.080 and hire a cruise overnight to do this, even if 0:17:36.160 --> 0:17:38.680 I wanted to. And then on top of that, you 0:17:38.760 --> 0:17:42.200 have the inflationary effects of things like steel and chemicals 0:17:42.320 --> 0:17:46.679 and raw parts, supply chain issues, and so even if 0:17:46.720 --> 0:17:49.840 you wanted to grow it meaningfully, it would be very difficult. 0:17:50.520 --> 0:17:52.720 Can you talk a little bit about this from a 0:17:52.840 --> 0:17:56.600 technical perspective? So, if I have a well that I 0:17:56.720 --> 0:17:59.800 haven't been using for a while because oil prices were 0:17:59.840 --> 0:18:02.480 so low, what does it actually take to restart it? 0:18:02.560 --> 0:18:04.720 I mean, assuming I can get the labor, what are 0:18:04.760 --> 0:18:06.840 the technical things that I need in order to get 0:18:06.840 --> 0:18:10.800 it going again. Well, it's not so much restarting old 0:18:11.000 --> 0:18:14.720 wells because wells you typically do not want, especially oil wells, 0:18:14.760 --> 0:18:17.320 you don't. You never want to shut them in because 0:18:17.400 --> 0:18:21.119 restarting them is is problematic. So a lot of wells 0:18:21.200 --> 0:18:23.840 the other get choked back. But if you want to 0:18:23.880 --> 0:18:26.480 grow production back to where it was before, you have 0:18:26.600 --> 0:18:31.280 to drill more new wells. And so that's where the 0:18:31.359 --> 0:18:34.000 problem lies is you need drilling rigs, you need hydraulic 0:18:34.040 --> 0:18:38.320 fracturing crews, you need all sorts of peripheral services to 0:18:38.440 --> 0:18:42.720 get these things going, and so the ability to bring 0:18:42.800 --> 0:18:47.120 on new wells, and then you also need service equipment, 0:18:47.160 --> 0:18:50.719 by the way, to wrap up the old wells. Again. Uh, 0:18:51.200 --> 0:18:54.240 it's it's said that you want to bring on the 0:18:54.320 --> 0:18:58.720 amount that we're forfeiting from sanctioning Russia. I mean, you're 0:18:58.800 --> 0:19:02.240 talking several million earls a day, which the Permian and 0:19:02.520 --> 0:19:04.000 feels like that and up here and kind of we 0:19:04.040 --> 0:19:06.760 can do, but you just can't turn this spigot on overnight. 0:19:07.200 --> 0:19:10.240 And then there's just this general reluctance by investors and 0:19:10.440 --> 0:19:12.560 others saying, well, I don't know if I believe all this, 0:19:13.119 --> 0:19:14.960 And by the way, you told me was the end 0:19:15.000 --> 0:19:16.920 of oil, so why would I put money into the ground. 0:19:33.040 --> 0:19:35.480 I'm sort of fascinated by something you said about like 0:19:35.680 --> 0:19:40.760 equipment either having been not preserved or preserved in a 0:19:40.880 --> 0:19:43.960 bad state, like what equipment, Where was it housed? You know, 0:19:44.080 --> 0:19:46.360 for these last seven years while the industry was sort 0:19:46.359 --> 0:19:50.680 of shrinking or downstairs? Where was it housed? And what 0:19:51.119 --> 0:19:52.840 you know? Now it's like, okay, we're back. And then 0:19:52.840 --> 0:19:55.359 they opened the warehouses. What is it like literally rusted? 0:19:55.440 --> 0:19:58.639 Like can you tell what type of equipment and what 0:19:58.880 --> 0:20:02.840 is actually well, I don't know if it's arrusted, I 0:20:02.880 --> 0:20:07.840 guess environment. Yeah, yeah, I get what you're saying. Yeah, 0:20:07.880 --> 0:20:09.760 So I mean the whole thing is is that when 0:20:10.160 --> 0:20:14.040 when prices fall and they still commodity prices, when they 0:20:14.080 --> 0:20:18.760 fall and they stay low, that's a signal to just contract. Right. 0:20:18.880 --> 0:20:24.080 So basically, the service companies, unfortunately, especially if the downturn 0:20:24.160 --> 0:20:28.480 is severe, which it was, have to shed people and 0:20:28.960 --> 0:20:32.920 they basically have to stop building new equipment. In fact, 0:20:33.320 --> 0:20:35.600 you have to contract your fleet. So they say, well, 0:20:35.680 --> 0:20:39.240 why would I keep say a hundred units active and 0:20:39.520 --> 0:20:44.080 maintained when my customers, the oil and gas companies, only 0:20:44.200 --> 0:20:47.880 want the equivalent of forty units. So basically you park 0:20:47.960 --> 0:20:52.480 everything in a yard and you keep the forty units going, 0:20:53.640 --> 0:20:55.920 But instead of buying a whole bunch of new spare parts, 0:20:56.000 --> 0:21:00.200 you just start cannibalizing the other parts of the for 0:21:00.280 --> 0:21:05.560 the existing are in action. You're cannibalizing the other sixty 0:21:06.119 --> 0:21:08.960 to keep them buying new spare parts because you don't 0:21:08.960 --> 0:21:11.680 like exactly new. But then when it's time to go 0:21:12.000 --> 0:21:16.680 access those other sixty, they're missing parts exactly. So that's 0:21:16.720 --> 0:21:19.399 what's been happening over the last seven years, is saying, well, 0:21:19.440 --> 0:21:22.400 why would I buy new stuff? I just keep things going. 0:21:23.320 --> 0:21:27.159 And it's so you know, this creates the situation now 0:21:27.240 --> 0:21:28.720 where he say, okay, I need a bunch of spare 0:21:28.800 --> 0:21:31.040 parts if I want to ramp up, and then he say, okay, 0:21:31.080 --> 0:21:34.280 now we've got supply chain issues. Now I've got people issues, 0:21:34.920 --> 0:21:37.879 and so the ability to ramp back up at the 0:21:37.920 --> 0:21:42.240 snap of your fingers is very difficult. So I remember 0:21:42.680 --> 0:21:45.920 back when oil prices were quite low, So I guess 0:21:45.960 --> 0:21:51.280 around one of the talking points in the industry was 0:21:51.720 --> 0:21:56.000 well why do people keep pumping at these prices? And 0:21:56.119 --> 0:22:00.760 we saw production be a lot um sticky, I suppose 0:22:00.840 --> 0:22:04.080 than than many people had expected, and so so a 0:22:04.280 --> 0:22:06.640 why do you think that happened? And then be one 0:22:06.720 --> 0:22:09.000 of the things that I remember people talking about around 0:22:09.040 --> 0:22:14.520 that time was standardization of parts for rigs and drills 0:22:14.920 --> 0:22:17.159 and things like that, and basically just a discussion that 0:22:17.480 --> 0:22:23.320 technological advancement and standardization meant that producing oil was a 0:22:23.440 --> 0:22:25.480 lot more efficient than it used to be, so you 0:22:25.560 --> 0:22:29.119 could pump more without necessarily spending tons of money. So 0:22:29.760 --> 0:22:32.840 is that, like, doesn't that also work the other way? 0:22:33.000 --> 0:22:36.439 You know, with high oil prices, shouldn't standardization help um 0:22:36.720 --> 0:22:41.119 keep some production up and hopefully increase it? Yeah? Okay, 0:22:41.160 --> 0:22:43.920 so I think it's actually brought up some really important points. 0:22:44.000 --> 0:22:47.080 But let's let's let's tackle the one. Why keep pumping 0:22:47.280 --> 0:22:49.440 if prices are low, as I said, because it's very, 0:22:49.560 --> 0:22:54.280 very costly for oil wells to to turn them off 0:22:54.600 --> 0:22:56.399 and then to bring them, so you you want to 0:22:56.520 --> 0:23:00.159 keep producing for as long as possible. Now, in two 0:23:00.200 --> 0:23:02.440 thousand fifteen, when the price went down, you know, we 0:23:02.480 --> 0:23:05.640 went down to for a while, but for the most part, 0:23:05.960 --> 0:23:09.920 over the course of the latter half of it was 0:23:11.119 --> 0:23:14.880 fifty bucks of barrel. So there's three kind of costs here. 0:23:15.040 --> 0:23:18.160 There's operating cost, which is the cost to keep pumping, 0:23:18.840 --> 0:23:21.320 and the oup costs are typically lower than that, and 0:23:21.480 --> 0:23:24.680 so it makes you make money just by pumping. But 0:23:24.800 --> 0:23:27.880 what happens is is that if you don't drill more 0:23:28.200 --> 0:23:33.440 into the same reservoirs, the production declines, and it's called 0:23:33.480 --> 0:23:36.280 a decline curve. In other words, today you're pumping a 0:23:36.359 --> 0:23:40.280 hunter barrels uh and typically some of these wells decline, 0:23:41.160 --> 0:23:43.000 maybe more a year. In the first year, it's even 0:23:43.040 --> 0:23:46.440 more so a year on you're only pumping let's just 0:23:46.480 --> 0:23:48.960 say seventy barrels for the sake of argument, and the 0:23:49.080 --> 0:23:52.840 next year it's only fifty barrels. So the basic operating 0:23:52.920 --> 0:23:57.280 costs keeps the oil flowing. Then you need the maintenance 0:23:57.720 --> 0:24:01.480 capital costs, which is drilling us to keep production level. 0:24:02.280 --> 0:24:04.320 So what happens is when you're go into a downturn, 0:24:04.880 --> 0:24:09.680 depending upon your cost structure of an individual company, you 0:24:10.440 --> 0:24:13.440 have typically pull back on your maintenance cost and you 0:24:13.520 --> 0:24:16.280 might decline your production. But if you're in growth mode 0:24:16.600 --> 0:24:19.800