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The Energy Question Episode 30 –  Josh Young

David Blackmon [00:00:10] Hey, welcome to the energy question with David Blackmon. I’m your host, David Blackmon and my very special guest today is Josh Young, the founder and chief investment officer of Bison Interests in Houston, Texas. Josh, how you doing today?

Josh Young [00:00:23] Good. How are you?

David Blackmon [00:00:24] Just great. Just great. It’s a beautiful day in Texas, as they all seem to be. Before we get into questions and answers about what’s going on in the energy investment space right now, talk about Bison Interest, its history, how you ended up deciding to found the company and your background. Just give us two or three minute primer.

Josh Young [00:00:44] Sure. So I went home versus Chicago. I’m from L.A., originally studied economics, did management consulting out of school, then private equity, then worked for a multi-billion dollar family office, ended up leading their energy investments and doing a number of public equity energy investments, along with other activities for them.

Josh Young [00:01:04] Launched a hedge fund which failed gloriously in the early 2010s. Then mostly did private investments lining up family offices to invest in usually publicly traded oil and gas companies, but sometimes convertible debt deals or private asset deals.

Josh Young [00:01:25] I helped then to back an asset to a rapidly growing public back and focused company. Just very sort of interesting off the run things.

Josh Young [00:01:33] In 2015, after the oil price crash in 2014, I partnered with an advisor to a number of my clients at the time to launch Bison the thought was that after oil prices crashed there would be this. There was a dislocation that we knew was temporary we didn’t know it would last this long.

Josh Young [00:01:50] So we set up an opportunity fund and the idea was energy opportunity to go buy oil and gas stocks that were down, let’s say 70% at that point from their 2014 high.

Josh Young [00:01:59] And the idea was that they may double or triple from there and then we would sell them return capital that was in 2015. My business partner left and co-founder left in 2019 to go pursue his next his next endeavor. I guess it’s sort of in line with our initial thought on timeframe. And here I am continuing to face into the storm years later.

David Blackmon [00:02:19] Well, the last couple of years have been a very interesting time to be investing in oil and gas. We’ve, I guess, been the best performing sector in the whole market last year. And, you know, what kind of happened? What kind of environment did that create for you and your business?

Josh Young [00:02:35] Yeah. So in 2021, from the stats we saw, it looks like bison may have been the best performing equity investment fund, at least in the U.S., if not the world. And again, there’s an asterisk there. There’s a lot of sort of caveats and whatever. But, you know, we were up, I think it was similar and 49% that year, which was wild.

Josh Young [00:02:58] I mean, look, we were down in 2020 and oil and gas stocks were depressed but, you know, it’s it’s been a real interesting, weird space. 2022 was actually not as good a year for us by a lot.

Josh Young [00:03:12] And, you know, the first half started out strong but, you know, I think I think there’s not a lot of belief in this oil and gas bull market. And I think it’s sort of been heated the whole way out. And it’s definitely not been allocated to or invested in from a sort of broad market or broad asset allocated perspective.

Josh Young [00:03:29] So, yeah, it’s been really it’s sort of this weird thing where like the better we do as an industry, the better buys and does the less interesting it is, which again is sort of as a contrarian, is wonderful as a business owner, it’s maybe not so much and I think eventually it will turn and it’s just a matter of time.

David Blackmon [00:03:46] How much of that hatred of this rally in oil stocks has to do with the whole ESG investment philosophy in these big investment houses? I mean, is that a big factor there?

Josh Young [00:03:58] I think I think it’s it’s more just a psychological like price drives narrative thing where typically the first third of a bull market, it’s hated and everyone just thinks it’s getting ready for another crash. And we were dealing with that with the broader equity market right now where it’s unclear if it’s a bear market rally that we’re in or a new bull market for equities. And I don’t really have a strong view on that. And, you know, I sort of joke that my equity crystal ball and short term crystal ball are broken.

Josh Young [00:04:24] But, you know, it is it is notable that in 2009, if you said, hey, I’m buying stocks, people thought you were crazy, you know, in 22 or 23, if you said you were buying stocks, people thought you were crazy. I listened through to lots of different speeches by various high net worth people and other, you know, successful people who talked about how equities were dead and how it was gambling and horrible.

Josh Young [00:04:47] So I think it’s sort of a similar thing where, you know, prices have done well, but we’re still way below where we were in 2014 and the market’s way above the broad equity markets, way above where we were in 2014.

Josh Young [00:04:59] So I think I think we’ll start to get some traction when the overall oil and gas equity market has actually outperformed the broader market over a ten year. Period. So I think we’ve got the next couple of years to really catch up, and I think that’ll happen. I think it’s pretty likely the returns may be phenomenal if that happens.

Josh Young [00:05:17] I think that’s really I think the ESG thing is just people tell themselves stories to try to rationalize why they feel the way they feel. And so it’s really it’s just the latest excuse for, oh, I didn’t own that. And it’s done really well. Here’s why and it’s something that makes them feel good. It’s a story that people tell each other rather than rather than from what I can tell, a real imputs.

David Blackmon [00:05:40] So I saw a report two or three days ago now, and I apologize. I’m not going to remember be able to cite where I saw it, but it was some research that had been done that indicated the the average return, I think it was over the past two years by ESG focused funds was lagging non ESG funds on average by about two percentage points.

David Blackmon [00:06:02] Is that something you’ve seen? And I don’t I honestly can’t tell you where I even saw it, whether it was on TV or radio or what. But I is is from your research, are ESG funds performing as well as non ESG funds, funds that, you know, include the whole market rather than discriminating against certain stock classes?

Josh Young [00:06:24] Yeah. So so one of the interesting things is that almost all funds became ESG funds when funds were getting allocated to that sort of theme, similar to how a lot of funds are now and companies are now magically artificial intelligence.

Josh Young [00:06:39] There’s some commodity analysis firm that claims that they have a neural network that can predict shale oil productivity and it just I mean, it just does words, right? Like it’s not like and actually their analysis was like precisely wrong.

Josh Young [00:06:53] I tweeted about this earlier where it’s just like, hey, here’s an exact opposite example, right? Like what they they mean something else, but it sounds good.

Josh Young [00:07:01] So ESG, I think, is complicated, right? The broader market’s down a little and the companies that were included in ESG are typically companies that are actually not very environmentally friendly. They don’t treat their people well. They’re not well governed, but somehow they end up, you know, through the magic of not producing hydrocarbons or certain other, you know, just sort of like negative buzz words. If you don’t do that, then you’re in this sort of ESG group.

Josh Young [00:07:27] So I think a lot of that is related to market performance. And the really interesting thing is that there is this supposed Inflation and Inflation Prevention Act or whatever, which is the Inflation Production Act, really, which is is throwing hundreds of billions of dollars right now in stimulus to these, you know, solar companies and wind companies and various like nonsense technologies that are super low energy return on investment like hydrogen, which doesn’t even work, or geothermal, where I know the people and they’re like, yeah, we’ll take the money, but it’s not making things.

Josh Young [00:08:05] So for those stocks to not be massively outperforming, even with hundreds of billions of dollars a year being thrown at them right now actively, like it’s not something that happened last year or five years ago.

Josh Young [00:08:15] It’s like it’s new money coming in and it’s money it should get priced into equity valuations for those stocks to not be obviously now massively outperforming, I think is indicative of just the enormous malinvestment as well as the, I think, risk of substantial potential negative returns. And then just one caveat. None of this is an offering or solicitation. I’m just we’re just sharing thoughts and helping educate the public.

David Blackmon [00:08:39] Yeah. Yeah, I guess we should have done that disclaimer upfront but anyway, I don’t have that my mind’s not focused that way I just get on and talk and it just so everyone knows, if you’re not following Josh Young on Twitter, he mentioned his Twitter account a minute ago, you’re really missing out on some tremendous information, not just about investment, but but just about energy and what’s happening in the energy space in general.

David Blackmon [00:09:01] I’ve been following him for a year and I he’s one of my first reads every morning, Josh, you really do a great job and I’ve actually used a couple of your charts and a couple of my Forbes pieces so it’s really, really great stuff and you all should be following him.

David Blackmon [00:09:16] So. So let’s one thing you’ve been talking about and I’m not sure what you mean, so I want to throw this out here. You’ve talked about the small versus large cap divide and energy stocks. And I want you to explain to me what you mean by that.

Josh Young [00:09:30] Sure. So one of the big movements in the finance world in the last few decades has been moving from active managers. So mutual funds, hedge fund managers, even using your broker to help you buy individual stocks towards indexing so putting money into ETFs and index funds to sort of match the broader market performance.

Josh Young [00:09:50] And there’s a number of good things about that, which is that most managers underperform their benchmarks. That’s sort of one of the things we’re most proud of at Basin so since we launched, we’re up, let’s say 130% versus XLP, which was sort of the investable ETF for oil and gas stocks down about 30%.

Josh Young [00:10:07] And again just illustrative the goal isn’t to write me a check the goal is to explain that it is possible to outperform. The statistics are that almost all active managers materially underperform.

Josh Young [00:10:20] So what’s happened is wealth managers who are generally trying to do the right thing for their clients are shifting over capital to index funds. And the most popular by far overall over time has been a sort of S&P 500 index fund, which sort of funnels money into the 500 biggest publicly traded oil, not really the 500 biggest publicly traded companies here in the U.S.

Josh Young [00:10:47] And so among the oil and gas companies, the ones that are biggest are seeing the most inflows because funds aren’t really flowing into sector ETFs like XRP or XLE. I mean, those have gotten a little bigger, but the predominant sort of flow of funds is towards these large companies in the stock market and the larger oil and gas companies are sort of getting hit by those flows.

Josh Young [00:11:10] And so you have this very weird thing where we’re in the early stages of an oil bull market where in past early stages, small caps dramatically outperformed large caps and valuations sort of reflected that where you’d see I had lunch with the CEO of a Canadian oil company on Saturday, and he was telling me about how at this stage in the last bull market, his stock was at like nine times EBIT, EBITDA. Now is that two and a half times. So nine times essentially operating cash flow before interest tax depreciation.

Josh Young [00:11:40] And so, you know, that’s a huge difference. And the interesting thing is the large caps in some cases are at run rate sort of seven times operating cash flow or even done. So, you know, there’s this big divide, the small caps, many of them are trading at sort of two or three times EBIT, but there aren’t really good mechanisms. So we’ve tried to use PSC, which is a sort of junky ETF. I’m never recommending anything, but particularly that one’s like we’re using it as an indication of just how much small caps have underperformed, but there’s not even a good real mechanism to get exposure to that through the ETF space.

Josh Young [00:12:15] And so, you know, if you were to catch up with XLP, for example, it would have to go up, I think, something like 300% for it to catch up to accepts multi year performance. And so there’s this big divide in valuations and big divide in sort of the representative ETFs or indexes.

Josh Young [00:12:33] And I think it has to do with sort of a change in capital market structure where there is sort of so much more money that’s gone into these ETFs, that’s chasing large companies and the gas companies are part of that. But also the deep unpopularity of oil and gas makes it really I mean, there’s just there should be a better small cap and mid-cap ETF or ETFs and there’s don’t exist really.

Josh Young [00:12:58] And so if people want to allocate money, it’s a real it’s a real problem. And it’s not that that problem is translating to a real disparity. What we’re seeing is now big companies trading at large, high valuations are buying smaller ones very aggressively.

Josh Young [00:13:14] I think we’re going to see a merger boom, and that’s sort of what we’re writing our next white paper on. And that’s why we’ve been talking about this so much. When we look, we own the small ones because we like cheap stocks,.

Josh Young [00:13:23] But regardless of what we own or not, it’s just if one thing trades at seven times, that one thing trades at two times, if they go pay four or five, they’re going to get that uplift. And so and every time in almost every cycle you see that happen. So I think it’s not this is this time, is it different?

David Blackmon [00:13:38] So you think we’re about to have a real I know merger activity has been pretty soft here for a year now. You think that’s about to change?

Josh Young [00:13:45] Yeah. I mean, actually merger activity so far this year hasn’t been that soft and we’re seeing a lot more activity. There was a lot of talk about investment bankers and lawyers being really busy over the holidays and first part of the year and then you see some deals show up. And I would not be surprised if there were much larger deals.

Josh Young [00:14:03] And again, I have no off market information about any of this. But, you know, you can just sort of tell through these sort of soft legal indicators that that that stuff like this is happening. And again, just theoretically, you can tell because if you have this sort of giant valuation gap that’s going to get closed and people will again try to rationalize these things, they’ll say, oh, well, the big companies have more inventory.

Josh Young [00:14:27] But then, you know, we tried to dispel that. That pushed back to the big companies, booked more inventory so they might actually have less land, but they have more available liquidity. And so they they’re more careful in terms of counting all their different, well, locations where some of the small companies under book their inventory in some cases substantially.

Josh Young [00:14:44] And so there’s just like as you pick apart this argument of like why should why should larger companies be more highly valued, you get back to this sort of price driving narrative aspect, and that’s very exciting as a fundamental investor.

Josh Young [00:14:58] And I think it’s interesting as energy markets sort of comment or as well when these sorts of things, they get sort of overextended and just everyone believes in them and they won’t even really reconsider they’ll call companies in one class. Various negative names and the people who invest in them names. And so it’s really you know, I think that’s a very promising environment in which to play capital.

David Blackmon [00:15:21] Excellent. Excellent. Well, listen, I want to talk about oil markets. I couldn’t help noticing that the International Energy Agency once again increased its projection for crude oil demand increase for 2023 and 2024. Now, I guess they must be projecting over 102 million barrels a day, average demand during 2023, right?

Josh Young [00:15:44] Yeah, something like that. I don’t know. I don’t remember those numbers. I track them obviously, but I don’t they change so much. I don’t really track them by memory. I try actually not to do that because, you know, it’s easy to be precisely wrong because you know that I think that might have been the EIA that changed their forecast.

David Blackmon [00:16:01] It was EIA excuse me I yeah I’m sorry.

Josh Young [00:16:04] But either way both of them been wrong both of them keep underestimating oil demand and so I actually I posted about that on Twitter and one of my friends was like, oh they’re actually still understating it. And I’m like, Yeah, okay. That just means that the demand estimates are going up more.

Josh Young [00:16:18] And she’s like, Well, that’s wrong and it’s like, Well, yeah, I mean, okay, But if you just understand what’s happening, you have this weird narrative still of, oh, it’s going away and right begrudgingly, even government agencies where their mandate is to accurately report information are just sandbagging these numbers over and over and over again.

Josh Young [00:16:36] And so it’s very weird. Look, I’m not that optimistic about the U.S. and world economies I think will do fine, but maybe not great. And there is a downside risk. But even with that, if you look at the absurdly low estimates and the ridiculous claims around, oh, it’s going away or there’s not going to be an oil demand recovery similar to the last times there was, you know, oil demand disruption.

Josh Young [00:16:57] I mean, it’s just they’re just wrong and you can measure it and they just keep being wrong over and over again.

Josh Young [00:17:03] So it’s very it makes it very easy to be bullish, I think, at this part of the cycle where we’re just we’re like it’s like Wiley Coyote running off the edge of the cliff and it just keeps running even though there is a gravity, which is that the world uses oil, emerging markets need oil or people as they use more of their lives, get better.

Josh Young [00:17:20] And so no surprise, they use even more when they’re able to and so, you know, I think there’s just this sort of like theory which is off the cliff and there’s a reality which is pulling it down. And in this case, that pulling it down is oil prices eventually going higher and oil and gas equities going by track.

David Blackmon [00:17:37] Yeah. One of the interesting things you’ve done here in recent months is is, you know, you’ve been looking at China reopening and tracking that. And one of the ways you’ve done that, which which I enjoyed watching you know that’s one of the reasons why I’ve latched on to your Twitter feed so much is tracking their flight activity right in China as a gauge of the pace of the reopening.

David Blackmon [00:18:02] Where do you think China is? Well, first of all, why did you latch on to that idea as a way to to track the pace of the reopening? Where do you think China stands now in terms of getting its economy fully reopened?

Josh Young [00:18:14] So I’ll just explain a little. Like my Twitter feed is partially just sort of sharing some early research ideas ahead of you, putting them together as white papers and publishing them. Sometimes it’s relevant in terms of researching various specific investments that we’re looking at, and it’s a wonderful way to get feedback and to sort of figure out if we’re missing something or, you know, to get additional sort of information or confirmation just confirmations through essentially crowd sourcing.

Josh Young [00:18:43] So it’s a wonderful, you know, I guess we share a lot, but there’s there’s a lot we’re not sharing, but there’s also a lot that we get out of the Twitter community and through through sort of contributing in that way.

Josh Young [00:18:54] So flight tracking is something we’ve done for actually a few years and it’s something where you can sort of tell early on that there was a problem for oil in, let’s say, February 2020 by looking at how flights were falling off.

Josh Young [00:19:08] And, you know, I can’t say we went and shorted oil or anything like that, but it was something that we were aware of and we fortunately got into tankers sort of on the early side and didn’t lose quite as much as we could have if we weren’t sort of ready for it to some extent.

Josh Young [00:19:22] So some of them were done for a while and it was becoming sort of better known. So there was less edge, I think, in terms of tracking it and understanding the trajectory.

Josh Young [00:19:32] And then there were also weird narratives saying that there were never many macro economists and forecasters and pundits were saying China was never going to reopen. And it’s just sort of to track these shifts. Often they’ll try to like, delete their things they’ve shared or whatever. But, you know, China, there were like sort of these conflicting concurrent narratives of China isn’t reopening or China’s already at max oil consumption or no, I don’t know what.

Josh Young [00:19:58] But anyway, Chinese flights when I started posting it, were at sort of 4000 daily domestic flights. The forecast was, hey, they’re going to over the next year. And really. By the end of 2023, they can get back to their 15,000 daily flights that they were at pre-COVID.

Josh Young [00:20:14] And I mean, it was remarkable we actually thought they would recover slower they went from 4000, I think it was daily flights when I started sharing that in was November, October or something like that to now we’re over 12,000 daily flights and then the passenger numbers are rising, too.

Josh Young [00:20:31] One of the arguments was, oh, they’re flying empty flights sort of the argument about China building empty cities. You know, most of the cities people claimed were empty five years ago were full.

Josh Young [00:20:40] And lo and behold, they flew flights and so people showed up and started buying those tickets. First. They were very cheap and now they’re less cheap. And, you know, passenger numbers are through the roof.

Josh Young [00:20:49] And we’re just starting to see the next wave of international flights get restarted here in the start of March. And so, you know, I think we’re we’re well on track to 15,000. And when you look at the orders for new planes and so on, you know, we should get way over that over the next few years and we should get to a global flight number that’s way higher.

Josh Young [00:21:09] And from an oil consumption and jet fuel consumption number there’s two things to keep in mind.

Josh Young [00:21:14] One is a bunch of old planes that were taken out of commission because they weren’t so fuel efficient are getting brought back in as we more flight demand is there than people expected. Also, they tend to be sort of some of the bigger planes. And if you have a limited number of pilots, it’s way better to have, let’s say, 400 people on a plane than it is to have 50 people on a plane. If you have one pilot to to fly and again, that’s not extensible that broadly but there are sort of specific examples where that’s changing.

Josh Young [00:21:42] And then the other thing to keep in mind is as there’s more passengers on planes, it’s not just the jet fuel. It’s also how people get to and from airports and what they do wherever it is that they go.

Josh Young [00:21:52] And so it’s a good proxy. There’s probably a sort of 3 to 1 or 2 to 1 demand increase where whatever the jet fuel is that they’re using, you end up with two or three times as much gasoline or diesel demand from the various activities that they engage in, whether it’s vacation or work, travel or whatever.

Josh Young [00:22:11] And so, you know, a million barrels a day of incremental jet fuel demand may lead to like three or so million barrels a day of total sort of gasoline, diesel and jet fuel demand. So that’s why it matters so much. And that’s sort of how, you know, those EIA numbers are way too low.

David Blackmon [00:22:27] Well, and I’ve tended to agree with that, but didn’t really have a lot of detailed knowledge to understand why I agree with that. But I you know, I wonder what your view is on the direction oil prices are going to head over the next few months.

Josh Young [00:22:42] It seems to me the way things are shaping up with the with China, the robust demand coming back from China and everything else that’s happening in the world and us going into summer driving season soon, it seems likely crude prices are probably going to be headed north here in the next few months, but I wonder what your view is. So I have.

Josh Young [00:23:02] A crystal ball I bought on Amazon and when I consulted it doesn’t work and then I made one of my one of my Twitter followers. I got to know real well. He’s an asset allocator is semi-retired. He sent me this little gas station Amaranth branded so I have this little gas pump that has amaranth on it.

Josh Young [00:23:21] So these are reminders that the short term is inherently unknowable and so while I personally believe that oil prices should rise as oil consumption rises, there are lots of realities that can come up in the short term, whether it’s a economic dislocation or a war like we started last year, or various other factors that could lead oil prices in any direction.

Josh Young [00:23:45] So I think on a multi-year basis, oil prices need to go way higher because there’s just not enough development activity to be able to yield enough oil versus even current demand. And then demand does tend to rise by a little over a million barrels a day every year, just sort of in the natural enrichment of India and China and various other places with very poor people improving their lives.

Josh Young [00:24:09] And so over time, oil prices are going to way higher, is actually a little surprising to me that oil oil is as low as it is right now, a little below $80 a barrel, but it could go a lot lower in the short term. It could go a lot higher in the short term.

Josh Young [00:24:23] And I think there is really there’s this sort of we all want something to latch on to. And so we make these sort of short term predictions. But I think I think there’s a freedom in understanding that these things are inherently unknowable.

Josh Young [00:24:34] And then just back to social media, it’s funny, right? You find some like important fundamental statistics or a change or inflection in oil demand or policy or whatever and share it. And people say, oh, but the price of oil is down over this x period. Right? Was a bad day that week.

Josh Young [00:24:51] And so, no, that’s not really that’s not how it works. It’s not the prices is not forecasting a future price. The price is what’s the clearing price for oil right this second. And there’s a lot of real specifics.

Josh Young [00:25:02] So yeah, I do. I think oil prices should go higher. Yes, but there’s a real possibility they. Or stay flat before they go higher. And I think there’s just a real unknowability around sort of that whole price forecasting world.

David Blackmon [00:25:16] Yeah. You know, I mean, what I always tell people when they ask me where oil prices are going or gas prices going. What I always tell them is if I knew that I would be as wealthy as Elon Musk, if I knew that, if anyone knew that, you know, I wouldn’t have to be doing podcasts for a living it’s just. You know, it’s just not it’s not the way the world works.

David Blackmon [00:25:38] But one last thing. Natural gas. I assume you also follow natural gas prices. You know, we had that that spike last year in natural gas prices and now the collapse back down to this kind of zone where it’s been for a decade now.

David Blackmon [00:25:55] Do you see any hope for gas producers of stronger prices, you know, in over the next several years? Or are we just kind of stuck on this treadmill for the foreseeable future?

Josh Young [00:26:04] Yeah, I mean, you’ve seen folks with the neural network analysis of shale oil productivity also had this like theory about the convergence of U.S. and European natural gas prices, which clearly hasn’t happened.

Josh Young [00:26:18] You know, both have fallen, but U.S..Natural gas prices have fallen a lot more than than European. And there are some structural factors that should keep that.

Josh Young [00:26:26] I think I think the issue is that, well, productivity on the gas side has stayed very strong. And even as there’s been core depletion in the Marcellus, some of the improvements in well productivity in the Haynesville and elsewhere have been phenomenal.

Josh Young [00:26:39] So credit to the oilfield services professionals, credit to the oil and gas companies that have really helped entity that and then associated gas from shale wells is increasing, not decreasing.

Josh Young [00:26:49] And so you sort of have this production wave that’s way above where consensus forecasts for. And so it’s just really hard to have very strong pricing. There’s something I’ve talked about for a number of months and sort of people are like, wait a second, aren’t you bullish on commodities? Like, well, not all commodities are the same.

Josh Young [00:27:06] So I think do I think that 250 natural gas or something like that is sustainable? No, I think prices need to go up over the next 18 months, closer to $4 or so just to incentivize some dry gas development. But and then once LNG exports start coming on in scale, there’s a next build wave that’s happening that’s supposed to start coming on in late 2024.

Josh Young [00:27:28] But realistically, let’s say, will have come on in size by early 26. I say by that point there’s a decent chance of balancing the natural gas market and at that point we might see prices closer to what we saw last year. But I think it could be pretty rough for a little while.

Josh Young [00:27:45] And, you know, I would expect significant current continued volatility where gas prices could go way lower than they are right now. They could go way higher temporarily. But there’s going to be there’s going to be a significant sort of suppression of the market, even if the winter had been normal and not warmer than normal.

Josh Young [00:28:01] And even if Freeport LNG had stayed on, I think we’d be in sort of a $4 natural gas price environment and not the $9 or so that we saw last year. So I think it’s a it’s a tough market. If people want to be bullish on variable oil.

Josh Young [00:28:15] I just think I think natural gas for a to medium term is just it’s the producers are doing too good of a job. They’re drilling too many phenomenal wells. Well, productivity stepped up meaningfully in the Haynesville and in the mid Con there’s been some great wells in the Permian natural gas production is I think it’s at an all time high.

Josh Young [00:28:33] So, you know, I just think they’re doing a great job and that means it’s great for U.S. producers. I listened to a podcast you were on, you talked about how it’s really great for the U.S. sort of manufacturing renaissance and North American manufacturing renaissance.

Josh Young [00:28:47] So it’s wonderful for our industry and for the US economy, but it’s pretty tough for the producers, and I don’t see that changing in the medium term.

David Blackmon [00:28:55] Yeah, well, that that doesn’t surprise me. I mean, I just feels like that’s kind of where we are. We just have so much natural gas in this country. It’s it’s people don’t understand the magnitude of the resource. It’s it’s truly phenomenal.

Josh Young [00:29:07] Well, not just that, it’s also the people and the technology there’s really just this credit that’s owed to these people. And and that’s where this sort of neural network analysis sort of messed up. It’s not it’s not all about the rock. It’s about what you do with it.

Josh Young [00:29:20] And there’s rock that people are really discarded or said, for example, was second tier Haynesville that’s now producing just as much or more than the historic core of the Haynesville, for example.

Josh Young [00:29:32] So, you know, is that core rock better? Yes. But is that second tier rock producing just as much at like a reasonable cost? Yes. Why? Well, there’s great people with great technology. There’s a lot of competition, there’s a lot of innovation, there’s a lot of pressure to do better. And those are I mean, that’s what’s great about America. And it’s really wonderful.

Josh Young [00:29:51] It was tough for those producers that they’re realizing low prices, but it’s really I think it just can’t be said enough. There’s just phenomenal innovation and really great people. And, you know, I’d bet on people and I’m bullish oil and I’m bullish on the ability for people and technology to solve this problem.

David Blackmon [00:30:08] Me, too. And, you know, when you understand the history of the oil and gas business, it’s been a very common theme for the for the oil and gas industry over the years is innovating its way out of problems and just developing new technologies and improved techniques to maximize production and drill yourself out of a out of a high price, you know, which which has done repeatedly, historically. And so here we are again with natural gas.

Josh Young [00:30:33] Well, I’m you know, in terms of drilling ourselves out, that’s the last point, I think. I think there is a risk that we do eventually drill ourselves out of high prices for oil. But we’re in such a deep hole from having done way too little on exploration.

Josh Young [00:30:47] And we’ve seen over the last ten years that we are we need to start drilling a lot and we have a long ways to go to backfill, to refill reserves and to refill production capacity, to be able to meet the needs that we’re likely to see over the next five years.

Josh Young [00:31:05] So I think even believing in technology and people, we just need a lot more capital and a lot more activity for a bunch of years before we’re going to get to that point again.

David Blackmon [00:31:12] Yeah, Yeah. I think I think you’re right and yeah, we could have a real could have a real bottleneck at some point, a real supply demand issue in the market. I think it could create a bit of a crisis. But hey, you know with, you know, now, how long has our industry ever gone without a good crisis so here we go again probably.

David Blackmon [00:31:30] Listen, man, we’re out of time. I really appreciate you doing this this has been great. I want to have you again here and then in the months to come. And when there’s a good inflection point to talk about some more and wish you the best of luck and really appreciate you coming out.

Josh Young [00:31:45] Thanks a lot for having me on. I appreciate.

David Blackmon [00:31:47] It. Thank you. And thank you all to our viewers and listeners and to our folks at Sandstone who produce our show and our extraordinary producer, Eric Burrell. I’m David Blackmon, signing off for now. We will see you next time.

Fellow Podcast Travlers:

Mark LaCour, Editor in Chief, OGGN

Mark LaCour, Editor in Chief, OGGN

Paige Wilson, Host of Oil and Gas Industry Leaders and Co-Host of Oil and Gas This Week Podcast.  

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Stu Turley, Host of the Energy News Beat Podcast.

Stu’s LinkedIn is HERE

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