Shale Capital Discipline

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Video Transcription edited for grammar. We disavow any errors unless they make us look better or smarter.

Michael Tanner: [00:00:09] What’s going on, everybody? Welcome into the Monday, January 20th, 2025, edition of the Daily Energy News. Beat Stand up. Here are today’s top headlines. First up, U.S. shales. Capital discipline outweighs Trump’s pro-growth rhetoric. It’s almost like we know what we’re talking about, Stu. Next up, days before Trump takes office, Brayton Point loses $300 million offshore wind cable plant development project. This one, super interesting. We’ll go abroad next. China and India scramble for crude as sanctioned Russian tankers turn back around will come back home. U.S. Treasury to take, quote, extraordinary measures after Trump inauguration. And finally, back abroad, Ukraine threatening the new European energy crisis. This is an opinion article. And that’s got some interesting, interesting stuff in a stool then tossed over me. I will quickly cover what’s going on with oil and gas prices and then talk a little bit about a rare look into some successful offshore drilling economics, which I always find fascinating. We will cover all that. And a bag of chips. Guys, as always, I am Michael Tanner, joined by Stuart Turley. Where do you want to begin? [00:01:23][73.6]

Stuart Turley: [00:01:24] Let’s start with drill, baby, drill, drill. When fiscally responsible excuse me. I mean, when US shale capital discipline outweighs Trump’s pro-growth rhetoric. It’s an interesting article, and this actually comes from Rystad Energy. Our folks over there rystad. There are three main bullet points. My goal and then there’s some details in here. U.S. shale producers are focused on capital discipline. Really, what this is, we’ve been saying this for quite a while and shareholder returns increase. Permian rig activity is unlikely to significantly boost production due to inventory depletion and efficiency concerns. I believe this great man has been talking about that. I believe his name is Michael Tenner. Yes. Thank you, sir. And then the U.S. is already on track to meet a Besson’s 333 hydrocarbon production target without policy changes driven by NGOs and gas. I’ll tell you how the growth could come in at the expense of the capital spending more than 11 billion. While Permian reinvestment rates are also expected to edge higher during 9%. Point is pretty interesting for I love the folks over there at Rystad. They normally have some good stuff. [00:02:37][73.6]

Michael Tanner: [00:02:38] No, they have great stuff. I love this this look because again, I think it piggybacks off of what we’ve been saying here on the podcast. Stu That yeah, I think drill, baby, drill. Wow. That’s great rhetoric. And I think, you know, corporate executives, as this article talks about, are going to be encouraged by this. It’s not necessarily going to all of a sudden, well, we got to pick up three rigs now. Nobody’s sitting there like that. You know, they specifically mentioned shale 4.0, which, you know, really is a combination of of the learnings from 3.0, what went on in shale 3.0, increase production at all costs, show production growth, show inventory, not really what’s going on now. It’s all capital discipline, it’s all consolidation. It’s how do we squeeze the most amount of profit out of what theoretically is a declining inventory count, not necessarily declining? Well, count not a play on words there, but a diminishing, you know, economic inventory at these prices. So it’s going to be really interesting. I mean, this article does point out that, you know, Trump’s Treasury secretary, Scott Bazzi, has floated an increase of 3 million barrels of oil equivalent per day as part of his broader 333 economic plan. You know, again, whether that’s BOE or barrels of oil, who knows? As always, you know, there is a BOE. It’s a sleight of hand. If someone’s thrown BOE at you, you should ask, well, how? Give me the breakdown. What’s your gas versus oil? Because you’re sometimes using, you know, it’s a 6 to 1 ratio to convert gas to oil equivalent, but it’s about a 20 to 1 economic conversion. And so if someone’s giving you BOE and they’re doing it in 6 to 1, it’s look over here, not over here, because it can be a sleight of hand. So it’ll be interesting to see what he says underneath. But again, I think what this does is specifically underscore and, you know, things that we’ve been talking about in terms of it’s a Trump is not going to be able to just wave a wand and increase production because it wasn’t like there was production being held back in the previous administration. For all the power, all the knocks that Joe Biden gets, one of them can’t be, he’s holding down. Oil production actually increased under his administration whether he likes it or not. [00:04:50][132.0]

Stuart Turley: [00:04:50] Well, the the malarkey that they did under the Treasury. And we’ll talk about her and her haircut. I mean, we’ll talk about her here in a second. And but the stuff that they just put out will cost a lot of people, a lot of money and all this stuff. But let’s go to the next story here. Days before. Trump takes office, Brayden Point loses 300 million in offshore wind cable plant development project. This is actually very important because instead of drill, baby, drill, it’s the whales are going to be happy on this one when I’m president. Trump has said that he’s going to put a moratorium on offshore wind for several months while they take a look at it. The Italian company seeking to build a cable manufacturing plant at Brayden Point in Somerset, Massachusetts, pulled the plug on the $300 million project Friday, dealing a blow to the offshore wind development on the East Coast. The Parisian group has spent nearly three years obtaining all necessary state and local permits, including beating back a regulatory challenge brought by a handful of neighbors at Brayden Point. But you know what? This is all out of the Inflation Reduction Act and the poor keyless bill. This brings us back to the drawing board. It is a major blow, Sousa said. We’re scrapping. We’re down to bare bones. I’m sorry. It’s just not going to be feasible. We’re going to have a lot of projects, Michael, that are going to get canceled. [00:06:19][89.0]

Michael Tanner: [00:06:20] No, we will. And you know, if there’s one stance Trump has taken, it said he doesn’t like offshore wind and why? You know, that’s you know, I think for a bunch of different reasons. But to consider the amount of money that they spent to get this project to this point and then walk away from it means they’re very concerned about the ability for it actually to ever get done. I mean, they’re probably ten, 20, 15, you know, and 15, $20 million in the hole on this project. So, you know, I do think that they’re they’re making they’re making a long term decision and they’re probably hearing stuff from the incoming amidst administration that says, good luck with that. We’ll see how it goes. [00:06:59][38.8]

Stuart Turley: [00:06:59] And they’re you know, Italian based in Trump is trying to say, you know, we want investments in the U.S. Let’s go the next story here. China and India scramble for crude is sanctioned. Russian tankers turn back. This one is very interesting. Here’s a quote out of the article. It is even likelier there will be a sustained market disruption. Fishman added. We could see a meaningful drop in Russian exports. I think that it’s going to be ended fairly soon. So I don’t think this disruption in fact, I think we’re actually going to see sanctions being released on Moscow, because when you take a look at China and India, listen to this have bought 81% of Russian seaborne crude exports since the invasion of Ukraine. Now, Michael, here’s where it gets funny. India and China’s refinery capacity has grown substantially. The U.S. has shrunk. So guess who’s selling Russian refined products? India and China. Guess who they’re selling them to? The U.S. and the EU. This is a gigantic can of worms. [00:08:10][70.7]

Michael Tanner: [00:08:10] It really is. Talk about the dark fleet. This is going to get super crazy. I think a lot of this is what you’re seeing reflected in kind of the current weekly bump in prices. You know, I mean, we saw, you know, early in the week, prices were above $80. We’re now kind of sitting in that 77, 78 range. But you’re talking about 600 or 161 tankers are involved in about basically 2000 shipments have been sanctioned since this the old invasion. But now it’s it’s continuing to match Indian. You know, India and China are going to get and are already seeing effects of this being turned away. You know, it’s about 1.4 million barrels of crude oil per day, according to an estimate from the some London based E.A. Gibson Ship Brokers Limited. This equates about half of Russian seaboard crude exports, which is pretty unbelievable. The Maguire Group estimates that this is going to be even greater at 2.15 million barrels per day of global exports, which obviously is could drive up prices. So it is a big old hairy mess. I don’t know what’s going to happen here. What’s the read on the the the Trump admin stance on this? They’re going to keep these sanctions in place. What are they going to do? [00:09:21][70.8]

Stuart Turley: [00:09:21] I think it’s going to be dependent on the negotiations on ending the war. It is so important for President Trump to end the Ukraine war immediately. And I think that sanctions are going to ease everybody saying, sanctions are going to stay in place for a long time. And the Democrats are quite honestly putting some landmines out there. They are despicable players in this whole process. But I believe that Trump is going to meet with Putin sooner than later. So I think it’s going to be great. Let’s go to the next story here. Speaking of bang on somebody’s head, I mean, get a bag for the get a barber for this person, Janet Yellen. I’m so glad that she’s out of office, but I’m going to lose a lot of my hair jokes. You know, I have a lot of rocks to throw here in the U.S. secretary of treasury to take extraordinary measures. After the Trump inauguration. This raises some serious questions for me, Michael. Serious. She is saying that she needs to take extraordinary measures not to go over the debt limit, but they’re going to not pay out retirement from the U.S. Treasury to the end of it. How much are they paying their retirement people? No idea. This one reeks of like, holy cow, Batman. She’s incompetent. But how bad is it? Because we’re going to come up against a budget, the debt limit, and it is going to be a problem for President Trump. I was watching Professor Strange and Professor Strange just got it right. The Biden administration overspent by $2 trillion. That’s another $7 trillion that Biden administration has spent. That is the most expensive presidency in the history of this United States. Unbelievable. Oculus going on. And this is despicable. Let’s go to the next story, Michael, before I lose a blood mind. Ukraine threatened a new European energy crisis from O’Brien. Hungarian prime minister. He’s actually kind of entertaining. I I’ve always enjoyed trying to watch is man made the smart remarks Saturday in Belgrade where he met with Serbian President Vokey to discuss the security of energy supply in the two countries in recent days. Unfavorable developments have occurred in Europeans energy supply. The Ukrainians have shut down the pipeline through which gas was supplied to Hungary, and the outgoing U.S. administration has introduced measures that would have raised energy prices as well. He’s talking about more sanctions around the LNG tank. Oops. [00:11:57][155.9]

Michael Tanner: [00:11:58] Because yeah, it’s it’s it’s it’s interesting. [00:12:01][2.7]

Stuart Turley: [00:12:01] It is a mess out there. I mean, if you don’t have hip waders, you better get in there. [00:12:06][4.8]

Michael Tanner: [00:12:07] Absolutely. I mean, Russia knows that the energy it provides to Europe is its key negotiating tool in this whole region. The other side of that is so does the Trump administration. They know that as well. So energy will be at the center of the negotiation table when eventually decides get together and try to hammer out a deal if they haven’t already. [00:12:28][21.1]

Stuart Turley: [00:12:28] I want to tee up Steve Reese. I just finished my interview with him this Friday. And Steve Reese had talked to Harold Hamm. He talked to Tobey Rice about net LNG exports. He has got a company that is the first company in the United States that is cradle to grave all the way from the pumps to LNG export facilities to Germany. They they they own the import facility there. So this is a huge deal to try to save Germany. I don’t know that they can do it, but boy, they have got the whole right business model and they’re going to expand it out and all these other places. [00:13:07][38.8]

Michael Tanner: [00:13:08] That’s what they absolutely do. And yeah, it’s going to it’s going to be interesting. Let’s go ahead and jump over to finance. But before we do that, we’ve got to pay the bills. As always, thank you for checking us out via the world’s greatest website. www.Energy News Beat.com the best place for all your energy in oil and gas news. Stu and the team do a tremendous job making sure that website stays up to speed. Everything you need to know to be the tip of the spear when it comes to the energy in the oil and gas business. I’m going to hit that description below for all links to the timestamps, links to the articles. You can also go ahead and check us out on substack. The energy news beat.substack.com. The best ways to support the show. Go ahead and sign up for a subscription. Guys. We really appreciate all of our current subscribers. I mean, it’s again the best way to support the show. We’re dropping a lot of paid only content recently, so if you do sign up for a paid subscription, you will get access to a bunch of other stuff. I’ve got a I’ve got a follow up to a white paper we posted last week, coming this week on some critical mineral stuff. Stu’s got a bunch of stuff that he’s dropping on natural gas LNG, so it’s a blast over there. Again, that’s the energy news beat.substack.com. And then you can also visit us invest in oil.energy News Beat.com. It’s never too early to start thinking about one cash flow for 2025 and reducing your tax burden again. Anything you invest, even if it’s in January of 2025, you can in oil and gas very easily write off. And you can also also become Billy Bob Thornton from Landman. So again, I can’t stress that third piece, that third piece, if you want to be held up by the cartel because of a surface use agreement, I promise you investing in oil and gas will get you there. That’s invest in oil.Energy, Newsbeat.com. [00:14:49][100.7]

Michael Tanner: [00:14:50] Let’s go ahead and look at the overall market. So Stu on Friday, S&P 500 was up. About one percentage point. Nasdaq up 1.6 percentage points. Yields up 1.3 percentage points. When you wake up. Only four people, about a half percent. Spread between the two and ten year yield dollar index, up about a half a percentage point, a Bitcoin up above 100,000 at 1048 at $104,000. Probably rip tomorrow with Trump being in office. Crude oil actually dropped about a half a percentage point on Friday, down to 7739. Brant was actually slightly up at 80, 71. Natural gas down about $0.30, or about 7.2 percentage points below $4 to $3.94. XLP, which is our EMP contract, was basically flat down about 2/10 of a percentage point down to one 4545. You know, it’s four straight weekly gain if you kind of look over the long term here. A lot of that has to do with those US sanctions that ended up on Russia. I’m Phil Flynn. He’s he’s quoted a lot here and in these articles. Sanctions on Russian are causing tightness of supply in Europe, China and India. Wow what a what a fascinating quote arrow They might dive into that a lot more. You know we’re also again I think people are you know, as you listen to this, the inauguration is happening. There’s an entire new administration coming in. So I think it’ll be it’ll be interesting. Interesting to see what happens. We do know that the incoming treasury secretary, Scott beset, he’s already ready to impose tougher sanctions on Russian oil, which is only going to drive prices up. You know, I always like looking at the Commodity Futures Trading Commission report. They show that that money managers actually increased their net long crude futures and options positions as of the week prior. So people are getting ready for potentially some higher prices, which is interesting. And it was about eight, 8000 contracts that were being held, which is which is pretty interesting. We have seen a potential ceasefire deal in Gaza. So that is interesting. The Israeli security cabinet did approve that deal on Friday, which hopefully paves the way for for some hostages being returned as early as Sunday. I think we’re also going to look and people are looking at some specific China data to see what happens. You know, I laugh when it says the China has announced that its economy fulfilled the government’s ambitious 5% growth for last year. It’s like, yeah, I’m going to probably take the counter to that, but hey, it does not matter. We did see China’s oil refinery throughput in 2022 fell for the first time in two decades outside of the pandemic of 2022. So it’s a little interesting. Our economy grew 5%, but we used less energy. I don’t know if that equates in my mind. It’s going to be really cold this week, folks. I’m so stay warm. We also did see U.S. rig count drop by two. Again, it I guess, goes back to the all we talked about. There’s not much Trump can do to raise rig count. The only way to raise oil production is to raise rig count. So what’s going to happen there? Who knows? But again, we did see rig counts drop by two. I’m the last thing I always find interesting is, you know, if you don’t have any high priced production software like in various well database, our personal favorite here, I always find it interesting. So we actually see a press release where they announce some offshore well results. I’ve always find that a super interesting Talos energy. I mean they’ve been going through it a little bit pretty pretty intense management turnover there. And they did announce they announced on Friday, though, that their latest commodity, West number two well, which was located in the Ewing Bank area of the US Gulf of Mexico, has successfully encountered commercial quantities of oil and natural gas, a 35% under budget, which is interesting, 400ft of pay. [00:18:25][215.6]

Stuart Turley: [00:18:26] By 35% under budget. [00:18:28][1.9]

Michael Tanner: [00:18:28] Yes, which is great. Now, who knows what that budget was originally? You know, did they just boost the AFV? I trust me. I’ve I’ve seen it all still. But this is what I always liked is the expected delivery from the well in line with pre drill estimates 15 to 20,000 BOE per day. So that gives you an idea, folks. You go drilling offshore, well, you need somewhere between 10 to 30,000 BOE per day in order to make that thing economical. That’s moving, folks. That’s moving some liquid right there. It’s also TBD, total vertical depth at 27,000ft. So, I mean, it’s pretty pretty down there. So I was just like, you know, thrown out there. When we get when we do see some public, well, results or at least some expected public results, I like to that because I think it’s interesting. People always ask about how much does an offshore well do? Well, here’s kind of if you have a high price software like well database, which is a high priced very economical more talking about their counterpart in various which will ask for your firstborn son. But second you get a little estimate right here. So I love that too which we’ll be watching for this week. I know you’re you’re you’re celebrating tomorrow as you listeners today you’re probably take the day off, but. No, not paid vacation, I promise you. [00:19:36][68.0]

Stuart Turley: [00:19:37] No. Tomorrow morning or today when we go through this, I will have been on the By the time people are listening to this, I will have been on the energy reality podcast with David Blackman, Irene Islam and Tammy Nemeth. And we’re going to be talking about what land policy, land mines did the Biden administration leave the world? Oops. [00:19:58][21.4]

Michael Tanner: [00:19:59] Yeah. No. And, you know. We’re we’re turning a leaf to a new era. It’s going to be awesome. And we will hopefully, again, be able to see some stuff. But it is going to be interesting to see what what what all this does with energy. But, you know, as we would say, great day for the United States. We’re excited over here, guys. And we appreciate you tuning in and making us part of your. We have a with that. Guys, we will let you get out of here. Go ahead and start your day if you have the day off, great. If you’re like us and got to work. Well, guys, this show was meant for you for Stuart Turley Turley, I’m Michael Tanner. We’ll see you tomorrow, folks. [00:19:59][0.0][1179.4]

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