Pod Insights Odd Lots The Oil Industry's Double Whammy of Higher Costs and Lower Prices About this episode The new administration has a "drill, baby, drill" mantra and a much more liberal attitude towards the oil and gas industry than the last one. But that hasn't translated into great profits for the oil industry itself. Crude prices have sunk and tariffs have raised the cost of components for companies trying to get energy out of the ground. So, what's the future for the industry? And who is actually making money right now? In this episode, we talk to longtime energy industry veteran Peter Tertzakian, the founder and president of Studio.energy, which consults with various industry players. We discuss the state of the overall North American energy industry, the prospects of peak onshore oil production in the United States, pipeline politics, and why liquified natural gas is expected to be the hydrocarbon of the future. Read more:Say Hello to ‘Nil, Baby, Nil’ in the Oil PatchTrump’s Thirst for Cheap Oil Irks an Industry He Loves to Praise Only http://Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.
Transcript 7,927 words · 10 speakers
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0:00 Speaker 00 Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace, but help accelerate it? Find out more later in the podcast.
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1:09 Joe Weisenthal? Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.
1:14 Tracy Alloway? And I'm Tracy Alloway.
1:16 Joe Weisenthal? Tracy, I think, at least temporarily, some of the trade related headlines are quieting down. And so it's sort of time perhaps to understand, I don't want to say new normal. I just don't feel, that's like jinxing it a little bit. But like what the new environment looks like for some of the industries that have been whipsawed and affected over recent weeks and months.
1:39 Tracy Alloway? Yeah, 90 days for investors, executives and podcasters to kind of catch their breath and consider the new environment. That's how I would describe it. And then it'll probably all change again.
1:50 Joe Weisenthal? It'll all change. We're never going to run out of fresh material and fresh stories to talk about. You know, there's always this thing, people are always surprised that there is this phenomenon which seems to occur in markets in which Republican presidents tend to not be great environments for the oil industry. Like people think, oh, Yeah, here we're gonna have this pro oil president come in, but pro oil, I don't know what that means. But if it means a more pro drilling, pro liberalization of energy regulations, then often that means lower prices and less profits. And then, you know, you get an environment where you get a democratic president who wants to constrict expansion, focus more on alternatives, and then profits go up.
2:33 Joe Weisenthal? Anyway, the pattern seems to be repeating now, and oil prices have done pretty badly since the start of the year.
2:39 Tracy Alloway? Yeah, so this is something we've been watching. We've been writing about it in the Odd Lots newsletter. There was that great report out from the Dallas Fed, their regular energy survey, and it had a bunch of quotes from anonymous oil officials that were really kind of extreme in various ways. And I think one of them kind of nailed the theme, which is that you can't really have $50 per barrel oil and US energy dominance.
3:07 Joe Weisenthal? That's right.
3:08 Tracy Alloway? Like, it's incompatible in various ways. So I think we should talk about that tension.
3:13 Joe Weisenthal? We should absolutely talk about the tension. In addition to the supply, and we know that OPEC is pumping more, there are all the input costs going up, particularly from tariff affected companies in the US. What is it, steel, tubular?
3:27 Tracy Alloway? Tubular components, Christmas trees. Those are the little collections of valves and spools.
3:34 Joe Weisenthal? Yeah, so we're gonna get into all that, this double whammy, so to speak. We have seen a bit of a rebound as we're talking about this. On April 13th, 2025, at 10:07 AM Eastern Time, the price of a generic barrel of West Texas Intermediate, $62.96. I don't know how profitable it is at that level, but we have the perfect guest, someone we spoke to a few years ago when the industry was under very different conditions, but someone who has a very sort of granular understanding of the industry. We're gonna be speaking with Peter Tertschaki, and he's currently the founder and president of Studio.energy. Previously, he was a managing director at Arc Financial, which did investing in the oil industry.
4:16 Joe Weisenthal? So an expert in the space, has written books about the energy industry, energy transition periods and so forth. So Peter, thank you so much for coming back on Odd Lots.
4:27 Speaker 05 Well, I'm delighted to be back. Thank you.
4:29 Joe Weisenthal? Sixty-two dollars and ninety-five cents now. Can the industry make money at these levels? Who's making money at these levels?
4:37 Speaker 05 Well, the industry is composed of many, many players that have many different geographic land holdings.
4:44 Joe Weisenthal? Right.
4:45 Speaker 05 And therefore, many different extraction methodologies and different grades of oil. So, you know, sixty-two ninety-six, if we think of it as an average price.
4:54 Joe Weisenthal? Yeah.
4:55 Speaker 05 Is sort of okay. It's marginally profitable for a large part of the industry. But there's no question that higher cost producers start falling off the map. And what you also see is things like stripper wells, wells that are very low productivity start to get shut in at these levels. And then there's the boardroom discussion about, well, what is the longevity of these prices? You know, the sixty-two ninety-six is, and actually, it was only about a week or two ago, it was in the high fifties.
5:24 Joe Weisenthal? Yeah.
5:24 Speaker 05 You know, it's, it's like you sort of look at that in the boardroom and you just say, okay, is this going to last a quarter? Or is it going to last a year? And you'd probably say, you know what, I'm going to wait a quarter before I start making any major decisions on my budgeting.
5:39 Tracy Alloway? What's the funding environment like right now? Because I remember if you look back at the shale oil boom in the sort of mid-two thousand and ten's. This was the big driving force, right? Like, everyone wanted to invest in oil. And so we had this big boom and then we had oversupply and prices crashed. And now all the energy companies say they want to be really disciplined when it comes to capital spending. They want to return more money to shareholders. I don't know, are shareholders interested in that particular proposition? And is funding still like a little bit difficult to get?
6:14 Speaker 05 Yeah, so let's talk about that because it's really important. You know, the equity funding, which was so much a part of the shale revolution. You know, it started really in the Bakken around two thousand and nine, moved into the Permian around two thousand and eleven. And more broadly, and there was a lot of equity financings that sort of the money just came in at low cost to capital. Things really started to change, as you pointed out, Tracy, in two thousand and fifteen, sixteen with the price wars. The drop in the price per barrel as the Saudis tried to take their market share back. But there was another moment that was really important. That was around circa two thousand and seventeen, eighteen. And that was when the whole end of oil narrative started to occur.
6:55 Joe Weisenthal? Hmm.
6:55 Speaker 05 Right, that was, and if you wind back to Elon Musk, the Model S was coming out and starting to make traction. Lots of buzz about electric vehicles. And it was as if the end of oil was nigh within 10 years. And so investors, sort of the combination of, hey, you guys aren't making money in the oil and gas industry. The prices are low, and by the way, it's a sunset industry. Therefore, just give us your cash flow or a significant portion of cash flow. We'll put the money elsewhere. Right, and that was the sentiment. And that sentiment, you know, recently started to come back post invasion of Ukraine and the geopolitical elements sort of coming back.
7:36 Speaker 05 And the price of oil rising above $70, it made it, okay, well, let's have another look. And then the sort of the demise of the whole ESG type narrative. But, you know, this latest oil price drop has sort of taken the resurgence off, what do you call it? The sentiment has sort of turned a little, hmm, I'm gonna just watch this. I've seen this movie before.
7:58 Joe Weisenthal? Hmm. What does it take? Like, oil isn't gonna go away in 10 years, obviously. But there was a unique set of conditions in the 2010s. There are also the technological gains, there is the cheap capital. Like, is that gone forever? Or is the industry so cyclical and so boom and bust that it's plausible that at some point we see another crazy drilling war? Like, it feels like maybe I'm naive to think that that can't be recovered. Because people in the oil industry, they're a little bit crazy. And you can never count out the possibility that they all go gung ho for expansion again at some point in the future.
8:38 Speaker 05 Well, it's a great point, because as I said, it's sort of like, okay, we've seen this movie before.
8:43 Joe Weisenthal? Yeah.
8:43 Speaker 05 If you recall, like, it's just only been in the last couple of weeks that OPEC plus is basically, which is really Saudi Arabia, basically saying, okay, we're gonna open up the taps another 411,000 barrels per day on top of the 600 or so. So at a time when the economy is weak and you sort of question the motive. Okay, are these guys trying to take back the market share that they feel that they're lost? We saw that movie back in 2015. But to be able to go gung ho, we say, Joe, you need capital. Yeah. You need to be able to replicate the low cost of capital era of the 2010s, which was coupled with low inflation, low interest rates. Uh, we don't have that. We don't have that circumstance right now. So the planets are not aligned for a gung ho drilling.
9:28 Speaker 05 And I think that the, the oil and gas executives and are, are much more savvy today that they, they sit in the boardroom table and say, okay, I'm going to watch this. I've seen this before. And by the way, in the world of corporate governance, it's shareholders who really oversee the board and the board oversees the management. So ultimately the shareholders are the ones that are deciding whether or not the industry is going to go gung ho and, and right now the sentiment is no.
9:55 Tracy Alloway? You know, Joe made the point earlier in the intro that one of the strange realities that we all live with seems to be that the oil industry leans Republican. I think that's fair to say. Meanwhile, the price of oil tends to do better under democratic administrations. And in fact, our Bloomberg colleagues had a really good piece out, I think just this week. It was called Trump's thirst for cheap oil irks an industry he loves to praise. And in it, they quote a guy who owns a sort of oil component store in Texas. And he has this really funny quote where he, he says, we make our money during democratic administrations. I killed it during Clinton, Obama and Biden.
10:40 Tracy Alloway? I said that at the country club and I thought somebody was going to kill me with a butter knife. Which is hilarious, but like, what is the attraction? What is the Republican pitch to the energy industry? Which seems to resonate potentially in the face of reality.
10:54 Speaker 05 Yeah, that's great. I mean, I, from a statistical perspective, if you want to get into the details, then correlation does not imply causality. In other words, I'm, I'm a little suspicious that democratic administrations are the cause of greater prosperity for the oil and gas industry. Because the overlay of the technological revolution of horizontal drilling, fracking and all that stuff has nothing to do with political administrations, nor does it necessarily have to do with other major factors. But it does speak crazy to the tensions you're talking about. I read that article as well, and there's no question that. The Trump administration and in the lead up even to the last election, the rhetoric was drill, baby, drill.
11:34 Speaker 05 The industry was very closely aligned with the Republican narratives and particularly with the narratives of reducing regulations and getting rid of ESG and all that kind of stuff. But there wasn't a lot of narrative about necessarily what they're going to do with price.
11:52 Joe Weisenthal? Right.
11:53 Speaker 05 And prices set globally. And that's a whole other dynamic that comes into play.
11:58 Joe Weisenthal? What's happening? So you're based in Calgary.
12:01 Speaker 05 Yeah.
12:02 Joe Weisenthal? And obviously, Tracy mentioned that Dallas Fed Energy Survey and part of the concern for the US-based players is that their cost of goods, you know, what is it? The tubular?
12:15 Tracy Alloway? Tubular component.
12:16 Joe Weisenthal? Sorry, I don't know why I can't remember. Prices are going up, et cetera. Can you talk a little bit about input costs?
12:23 Speaker 05 Yeah.
12:24 Joe Weisenthal? And what's happening there on sort of both sides of the US-Cana border?
12:28 Speaker 05 Yes, this is a big issue, is the trade wars, the tariffs. And you can get into the details and call it tubular goods and valves and so on, but ultimately, we're talking about steel.
12:40 Joe Weisenthal? Yeah.
12:41 Speaker 05 And we're talking about the raw inputs that are fundamental to building facilities, to drilling, to production tubing and so on and so forth. So when the Trump administration started the trade wars effectively and the tariffs, slopping tariffs on steel, well, yeah, the input costs are ultimately going to go up until such time as their desires, in other words, the Trump administration's desire to domesticate or repatriate the steel industry to the point where it's competitive with the cheaper steels from the rest of the world. So there's no question that you're going to see inflation in the oil field. And there's often a lag.
13:24 Speaker 05 I mean, this story is only a couple of months old, right? Three months old. Like you will see the permeation of higher.
13:32 Speaker 05 Steel and steel product prices into places like the oil field over the course of the year. So yeah, stay tuned for the costs. You know, we've talked earlier about this $62 and whether or not that's economic. Well, it becomes less economic when the core inputs to the oil field start going up.
14:07 Speaker 00 What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.
14:23 Speaker 06 We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service insocial clients.
14:31 Speaker 00 As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese Merrick of Ripple says.
14:39 Speaker 07 A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.
14:58 Speaker 00 Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.
15:09 Speaker 08 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices, but according to recruiters,
15:53 Speaker 08 advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.
16:32 Tracy Alloway? Where are we in the sort of oil technology upgrade cycle? Because I remember a few years ago, I guess, again, coinciding with the shale boom, there was this big drive for standardized components, and that was starting to bring down some of the costs for producers.
16:49 Speaker 05 Yeah.
16:50 Tracy Alloway? Are people still doing that? Like, do we still have big upgrades taking place?
16:54 Speaker 05 Well, there are. Again, it depends upon the extraction methodology. So there's two sides to this. One is the drilling, the exploration-completion side of the business. So I think there's still more surprises coming there. It's just amazing in terms of the types of wells that are being drilled a couple miles down, several miles across, and then horseshoeing back to be able to recover more and more oil, and natural gas, by the way. And which means that the capital cost per foot that you drill, the capital cost per barrel that you liberate, goes down by virtue of technology, only to be offset by, we just talked about it,
17:37 Speaker 05 the capital input cost of then developing the facilities to be able to extract, process, and distribute the oil out of the ground. You know, getting back to your question, there's the subsurface technologies which continue to surprise. I think there's more to come in that. And above ground, what's happening is the drive for greater efficiencies to turn the oil field more into a manufacturing operation and to drive costs down through scale. Hence, you've seen the consolidation of the industry happening. Scale does matter. And so, you know, there's a lot going on from the perspective of process. And efficiency drive to bring costs down only to be offset by the, as I said, the input
18:19 Speaker 05 costs going up and then the pressures of price going down, which is the number one dominant variable, which then dictates whether or not there's a margin squeeze, a profit margin squeeze or not.
18:31 Joe Weisenthal? Can you talk a little bit more about the discovery process and, you know, what tech looks like in May 2025 versus say 2015 or 2005 and like what specifically, like what specific tech is being employed so that
18:47 Speaker 05 Yeah.
18:47 Joe Weisenthal? these companies can gain greater visibility into what's happening underneath the earth surface?
18:53 Speaker 05 Yeah, well, that's a good bracketing. 2005, the industry was still dominated by vertical wells.
19:00 Joe Weisenthal? Okay.
19:01 Speaker 05 You drill a well in the ground and it's like throwing darts at a board. You know, the geophysics, in other words, the ability to map the subsurface and understand where the, the oil is, where the gas is, was pretty good, but it was still a sort of a hit and miss type of thing. And that was the way it was for over a century.
19:20 Joe Weisenthal? Huh.
19:21 Speaker 05 The advent of more precise horizontal drilling, which was really nothing new in 2005, but it really started to take root with better instrumentation, better mechanics, you know, mechanical instrumentation and so on. And the ability to position the drill bit was a major advance. And then by 2015, it was, okay, you're driving this drill bit down into the ground, you're bending at 90 degrees and you're going out. And then from 2015 to today, 10 years, it's like, okay, let's go down. And now the subsurface looks like a fork. It doesn't look like a single well.
19:59 Joe Weisenthal? Huh.
20:00 Speaker 05 And the importance of this can't be understated because now you're exposing more surface area of a well, you know, instead of one vertical well with say, I don't know, 20, 30 feet of exposure in a vertical cylinder. All of a sudden, now you have miles of exposure of a well going out horizontally and then forking and then now even making U-turns and horseshoeing back. I mean, it's just incredible what we can do. You can think of a drill bit, which was this solid steel pipe, it's seemingly, but it's more like now a piece of spaghetti going down and winding around to make sure that we optimize it. Let me say one more thing that's super important is that the technology is now a game
20:44 Speaker 05 that the extraction methodologies become much more technical and the ability to now focus on extracting the maximum amount out of a reservoir using these new geologic penetration technologies is just amazing. So there's more to come, in my opinion, and I never want to underestimate the the the ability of the technology to get better.
21:09 Tracy Alloway? So on the pros and cons of the current environment for oil producers point, I guess you have technological advances that are still happening. You also have, from the Trump administration, some regulatory changes, and I think there's something about co-mingling, I think they call it, so a regulatory change that would, I guess, allow oil producers to pull crude out of multiple reservoirs. But are the regulatory changes enough to offset some of the higher costs we've been discussing?
21:42 Speaker 05 Well, that's a good question and one to be seen. I mean, generally speaking, the number one regulatory issue is to be able to drill a well, complete it, and bring the oil and gas to market as quickly as possible because of the time value of money. Time is money. And so the removal of barriers to be able to drill, produce, and sell oil and gas is a big deal. And so, you know, we're sort of seeing some of that. But, you know, there's a big difference between what the Trump administration can do at a federal level versus what companies have to do at the state level. And it's the same in Canada here. It's sort of like federal regulations are overlaying on top of provincial regulations.
22:27 Speaker 05 So the the we call it the pancaking of regulations is also problematic. And so to the extent that pancaking is reduced and regulatory drag in terms of the time it takes to do things is reduced. Oh, and particularly, it's not just the drilling and extraction process, it's then building of the pipelines to get the commodities to the market.
22:48 Joe Weisenthal? What's the state of pipeline politics these days? Because I know that seems to go in and out of favor, but maybe tell us about Canada. What is the state of the the appetite to expand pipeline networks?
23:02 Speaker 05 Yeah, that's a great question. So it was. Definitively out of favor for 10 to 15 years, starting to come back into favor within the Canadian public. And we now have a new Prime Minister, Prime Minister Mark Carney. And he has indicated that, okay, we're ready to think about pipeline and export facility development and infrastructure development. It's, it's, I would argue, more biased to the natural gas side and particularly LNG, liquefied natural gas exports off our West Coast. But what was considered almost unthinkable, say, five years ago, is all of a sudden invoked. And it's largely driven, frankly, by the trade wars.
23:47 Joe Weisenthal? Yeah.
23:47 Speaker 05 Desire for sovereignty here in Canada over our oil and gas supplies. And the need to diversify our markets away from the United States. Because for 70 years or longer, the United States has been our number one, in fact, our only market for oil and gas.
24:07 Joe Weisenthal? It's pretty striking, Tracy, that Mark Carney, of all people, I mean, it sort of does tell you a lot about how the winds are changing. That Mark Carney is also, you know, sort of on board or much more comfortable with pipeline expansion.
24:21 Tracy Alloway? Yeah, it's, it's a shift for sure. Peter, since you mentioned LNG just now, can you sort of give us the state of play there as well? Because this is something that's also been coming up, I guess, like the differing fortunes of crude oil versus LNG in North America.
24:39 Speaker 05 Yeah, well, to get the North American sense, you got to get the global sense. So which commodity is growing faster in a demand? And it's natural gas. Natural gas continues to grow quite handsomely. Oil is starting to level out. I don't think it's peaked yet. I think we've got a few years before oil consumption peaks, but natural gas continues to rise. And we also now see the expansion of liquefied natural gas, certainly from the United States.
25:10 Speaker 05 In Canada, our first big terminal opens up potentially in a couple of months. And more to follow. Globally, LNG, whether it's Australia, the Middle East and other places is growing. And so it's it's becoming competitive, but the competition is also matched by growing demand. So LNG is definitely the hydrocarbon fuel of the future in terms of growth. And I think you're going to see more. And you talked earlier, Tracy, about regulation. I think that the Trump administration is definitely on board with reducing regulatory drag on building liquefied natural gas terminals.
25:50 Speaker 05 And I think the drill baby drill narrative is much more tuned to natural gas than it is to the oil side of the equation.
25:56 Joe Weisenthal? Yeah. Does the expansion of LNG export terminals raise prices domestically for domestic consumers of natural gas, say, in the US?
26:08 Speaker 05 Yes. And the reason is because for the past several decades, natural gas has been bottled up in North America. And particularly the last, I would say, 15 years with the shale revolution and the liberation of prolific amounts of natural gas here in North America, it's made our prices here. I mean, it's, what is it, $3 an MMBTU? Something of that order, 350 maybe. I don't know what it is today. Maybe you can pull it up. But whatever it is, I mean, globally, the price is much higher. It can be, you know, $8, $9, depending upon the geopolitical state of the world.
26:49 Speaker 05 Yes, there is liquefaction costs. Yes, there is transportation costs, but there's no question that there was an imbalance in supply and demand in North America that has kept the price low. The producers have adapted to that and can make money off of it. But the whole desire to export globally is to liberate North American gas into the global market and raises the prices. So you're going to see the prices rise. And the forward curves are indicating that already.
27:36 Speaker 08 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices, but
28:20 Speaker 08 according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
28:59 Tracy Alloway? So I have to confess, I rewatched Armageddon last week. Such a good movie. I can see why people think it was like secretly sponsored by Exxon though. But just on this note, Peter, the first time we ever spoke to you on All Thoughts, I think a big chunk of our conversation was about talent in the energy space and actually securing workers who want to get into the oil industry and how difficult that was in the current environment. So fast forward, let's see, when was the last time we spoke to you?
29:33 Joe Weisenthal? I think it was probably 2021, maybe 2022.
29:36 Tracy Alloway? 2022. Okay, so fast forward three years. What's the talent picture like right now?
29:43 Speaker 05 Yeah, so there's two components to the talent. One is the downtown office workers, the Geologists, geophysicists, engineers, and that talent pool. So that talent pool was definitely, and there was concern because of the retirement profile, the aging of the expertise and the last decade where, again, we were talking earlier about oil and gas being perceived as a sunset industry. So why would any young person ever want to go into this business? And so it was creating a situation whereby there could be like a real talent shortage. And, you know, talent is still hard to come by. However, one of the things that's happened,
30:26 Speaker 05 again, technologies never ceases to surprise is that the combination of new digital processing technologies, AI and so on, means that whereas it used to take three geologists to do a job function, now you can do it with two or potentially even one. So actually what we've seen in the drive for efficiency that we discussed earlier as well, it's not just confined to the field, it's also in the office. So we're seeing actually reductions in workforce, but we'll see what that does to productivity. But generally speaking, there is this uncomfortable balance, in my opinion, between the supply and demand of labor.
31:07 Speaker 05 In the field, blue collar workers, the issue is, is that if there's better jobs that are not away from home, so to speak, because there's, you know, working on a drilling rig, going in and out is hard, particularly if you have a family, that has not been as much of a problem and there's sort of a stabilization. For example, if you look at the US oil rig count over the course of the last while, I mean, it hasn't really grown that much. In fact, it's, if you go back to since the last time we talked, the number of rigs that are active have fallen from six, seven hundred down to five hundred, less than five hundred. I think it's a precarious balance at the moment.
31:43 Speaker 00 Mm hmm.
31:44 Speaker 05 The saving grace is it's still of a very high paying industry relative to other industries. So that does tend to attract people.
31:52 Tracy Alloway? The one other thing I was wondering while watching Armageddon and all these drillers on an asteroid saving the world, is there a competition from geothermal nowadays for workers?
32:05 Speaker 05 Candidly, I haven't followed the rig count in geothermal. I don't think it's that big personally compared to the oil and gas industry. Could there be competition going forward? Potentially, yes, but I don't see it as being that big, but I could be wrong.
32:19 Joe Weisenthal? Yeah. Also, speaking of careers, someone DM'd me this yesterday on Twitter and I confirmed it, which is that if you go to the careers page for Chevron, there is literally two openings that are being advertised in the United States. Now, I think this is like office jobs. And then there is a lot of openings in for software developers and other things like that in both India and the Philippines, also Sri Lanka, also Buenos Aires. How much of these sort of like the office jobs in the industry, thanks to technology of various flavors, is capable of just simply being moved offshore?
33:03 Speaker 05 I think quite a bit. I mean, it's like the digital revolution, which seems like an old antiquated term continues, right? And now it's AI and I think you're going to see more displacement of white collar workers in the office as a consequence of this. I mean, very much the art of exploration and mapping the subsurface and engineering, you can now do with fewer people and more technology.
33:30 Tracy Alloway? So I'm very conscious that we're having this big discussion about oil and I think we've only mentioned OPEC a couple of times. And we're recording this on May 13th. President Donald Trump is currently in the Middle East. I think he's in Saudi Arabia right now as we speak. What's the state of OPEC at the moment? I'm aware there seems to be this market share war and there's been discussions about boosting production yet again, but what's the overall picture and what is it that Trump might want to get out of Saudi, at least when it comes to the oil?
34:06 Speaker 05 Yeah, well, it's the OPEC situation is really. Complicated on its own, let alone with what the president may or may not say behind closed doors and want. So backing up to the question, what is the state of OPEC? The state of OPEC is that the cartel sets quotas for production. So, I mean, in any country, in most countries, this would be illegal, certainly in Western countries, but there's a global cartel, which has been around since the seventies, and that is the OPEC cartel, which has expanded into OPEC plus to include the Russians and a few handful of other countries over the last couple of years. Overproduction amongst some of the
34:51 Speaker 05 members has always been a running theme. Recently Kazakhstan has been overproducing.
34:57 Tracy Alloway? Right.
34:58 Speaker 05 And that has made the Saudis not very happy. The Saudis are the largest producer in OPEC and really the, the leading country within the cartel. So to teach them a lesson, basically, they said, okay, we're gonna ramp up production and try and drive the price down so that it brings into line all the various members of OPEC. This is not a new story. This, this happens periodically. And so that's the state of play within OPEC. And so that comes at a time when global demand is weak as a consequence of the trade war and the uncertainties therein. And so the combination of tenuous demand, combined with
35:41 Speaker 05 opening up the valves a bit to teach some of the members of OPEC a lesson, has led to the fall in the oil price from seventy bucks down to sixty or sixty-two today. What President Trump will say behind closed doors, I mean, as you said, he, his objective has a lot of tension, as you pointed out at the beginning of the show, because on one hand, he wants to keep gasoline prices low at the pump, say around the low three dollar level per gallon. At the same time, if you keep the price of oil too low, the whole drill baby drill narrative falls apart. So therein lies the tension.
36:19 Joe Weisenthal? Right, and I don't know how serious you're supposed to even take it anymore. I don't even know if people talk about it, but that was like part of Scott Besant's, you know, 333 plan was the plan, you know, expand oil production by another 3 million barrels per day in the US. That was one of the threes. And right now, I think it's pretty clear we're going in the exact opposite direction. Just going back to the trade war for a second, from the just the North American perspective, what are the impacts? You mentioned Canada wanting to diversify its export partners and so building out more export capacity. But when it comes to energy, what are sort of the first order impacts of the tariffs
37:04 Joe Weisenthal? in terms of the flow of energy across the border?
37:07 Speaker 05 Yeah, that's a great question because it's multi-dimensional. Okay, so the US produces about 12 million barrels per day of oils skewed toward the light barrels, lighter oils like West Texas Intermediate. Canada exports to the United States 4 million barrels per day for a total of 16, and then you make up the other four by importing from various countries like Mexico and so on. So to bring it up to your 20 million barrels per day of consumption. So we are a very significant component of that. Most of our barrels that we send to the United States are the heavy barrels, which are refined in the Midwest and in the Gulf Coast. And those refineries there are very much tuned to refining, in
37:52 Speaker 05 other words, the recipes for heavier oils, not lighter oils. So, you know, initially when the tariff war broke out back post inauguration, it was like we're going to put 10% tariff on Canadian oils coming in. Well, that would have definitely increased costs to the refiners, which would be passed on to the
38:16 Speaker 05 Consumers at the gas pump in part. Now, some of it would have had to be borne by
38:20 Joe Weisenthal? Yeah.
38:21 Speaker 05 The producer as well. It's all very complicated, but the bottom line is it's inflationary because effectively a tariff is a tax and somebody's got to pay. And ultimately, if it's passed on to the consumer, they're going to pay. Now, we don't have that 10% right now because the trade wars have simmered somewhat of late, but that has not prevented Canada from thinking, okay, wait a minute. We can't be reliant on one customer. MBA 101 says, don't be reliant on one customer. It's concentration risk. So let's start looking for other customers. That's, that's where it's at.
38:57 Joe Weisenthal? With the Trump administration coming in, one of the things that we've seen is all these companies of in all kinds of different industries feel very comfortable dropping a lot of their sort of, I guess you'd call more liberal commitments, whether we're talking about ESG or DEI. And we see banks and everybody withdrawing from all these groups and at least the big oil companies, you know, paid lip service or had various greening or climate initiatives or decarbonizing their own supply chains in some sense. Would you say like broadly, like were any of those,
39:36 Joe Weisenthal? were they ever serious about them? And by and large, like, does the industry sort of feel liberated at this point to not have to
39:45 Speaker 05 Hmm.
39:45 Joe Weisenthal? Spend effort and time talking about these things?
39:48 Speaker 05 You know, it's a great question and it doesn't have a simple answer because the oil and gas industries in both Canada and the United States, as I mentioned earlier on, are quite diverse. There's hundreds of companies.
40:01 Joe Weisenthal? Yeah.
40:01 Speaker 05 And there's various attitudes towards things like climate change, decarbonization, ESG across the board. So much as certainly we can point to certain CEOs.
40:14 Speaker 05 Whether it's in larger or small companies that are delighted by dropping all these things and thought they were nonsense to begin with, there are certainly other CEOs that take it seriously and have made conscious efforts to decarbonize things. So there's no, you know, I hate to fall into sort of these binary answers. Sure. To questions like that where I say, yeah, the whole oil industry is relieved because that's not the case. I think that there's definitely a full spectrum of attitudes. And I think that's true in any industry, but particularly this one. By and large, there's a certain set of policies, regulations that the industry will be relieved to get rid of because if nothing else, the reporting burdens became so onerous that you need an entire
40:59 Speaker 05 department to report on these things and that's costly. So there's, there's no quick and clear answer, but generally speaking, I personally think the industry was overregulated from many dimensions, but that's not to say that I don't feel that some regulations are necessary.
41:15 Tracy Alloway? Joe, I'm going to ask a peak oil question.
41:17 Speaker 05 Okay, good.
41:18 Tracy Alloway? I'm going to do it. No, okay. It's not really peak oil, although it does have the word peak in it. But I was looking through some comments from oil companies recently. I saw the CEO of Diamondback Energy say that as a result of the activity cuts in the oil industry, it is likely that US onshore oil production has peaked and will begin to decline this quarter. And there's actually a decent amount of discussion about US production actually peaking and now coming down. Is that roughly correct, Peter? Would you say that US onshore oil production at least has peaked?
41:56 Speaker 05 Well, I would answer that by first of all, saying there is no shortage of oil in the United States underground. Like there's, there's massive amounts of oil.
42:06 Speaker 05 Has oil production, in other words, extracting oil peaked at 12 million barrels per day. My answer is at $65 or so, yes. At current levels of capital inflow from investors, yes. Does that mean that it can't grow? The answer is no. We talked earlier about technological improvements. It depends upon the geopolitics of the world. It depends upon the price of oil. Therefore, if the price goes back up to $75 and that investors see that there's money to be made in the business, you'll start to see more growth and potentially competitive, the ability to compete even more with other producers and jurisdictions around the world.
42:51 Speaker 05 So there's no short answer again to this kind of question. Say, has oil peaked, oil production peaked in the United States? The answer is yes, at $65 and under the current conditions, it's peaked, in my opinion.
43:05 Joe Weisenthal? Peter Chertzek, thank you so much for coming back on Odd Lots and we'll catch up with you in a few years under what will probably be a totally different, unforeseeable set of conditions.
43:17 Speaker 05 Well, thank you so much. I'd love to come back.
43:32 Joe Weisenthal? Tracy, I want to like, look at some of all this technology. Like, the idea of what we think of as a sort of simple steel pipe actually being more like spaghetti that can U-turn underground. I want to, I want to learn more about how that works.
43:46 Tracy Alloway? Yeah, that's amazing.
43:48 Joe Weisenthal? I know, it's incredible.
43:49 Tracy Alloway? It would have been useful when, when they were trying to destroy the asteroid.
43:53 Joe Weisenthal? Yes.
43:54 Tracy Alloway? Say that. Okay. Well, I thought one of the, one of the important things out of that conversation, and I still think it's underappreciated in sort of oil market history, is just how much the shale boom was really a capital market story, as well as a technology story and a cost-cutting story and people, you know, standardizing little individual valves and reducing costs that way. But I think that's sort of the key at the moment. Like, how do you entice capital back into an industry which has been burned multiple times and which, as Peter said, at the current level of oil prices, just doesn't necessarily work?
44:36 Joe Weisenthal? And I guess the other question, maybe that could bring more capital to the energy space is if more of these LNG export terminals in both the US and Canada were to open up. And that gap, and people have been like, there's never been a global price of LNG because the infrastructure hasn't been there. And there's been this glut in a way that's been very good for US electricity consumers, this glut of LNG that hasn't been able to make it outside of the borders. But with pipeline politics changing, and it really is striking that someone like Mark Carney is warming to pipeline expansion for various reasons, with pipeline politics
45:16 Joe Weisenthal? changing, with export terminal likely to be more built, you could imagine, at least on the LNG side, a lot of money looking to exploit that persistent, that persistent global price arb, so to speak.
45:30 Tracy Alloway? Well, this is a big theme, right? And I think I said it on the podcast, or it was in my question, but the differing fortunes between crude versus LNG right now just feels so, so striking.
45:41 Joe Weisenthal? Totally. Like, maybe we're getting somewhere close to peak oil demand, but as Peter said, LNG is clearly, or it looks like it is going to be, the hydrocarbon of the future. So when we think drilling, et cetera, we still mostly think oil, but maybe we have to reshift our mindset towards natural gas.
46:03 Tracy Alloway? If LNG is going to be the hydrocarbon of the future, I feel like we really need a benchmark to look at, right?
46:09 Joe Weisenthal? Well, we're gonna, yeah, we need a global price, right? But then, you know, by the time there's a global price, then the arb will be closed.
46:16 Tracy Alloway? If anyone's working on a global LNG price, get in touch. I'd be interested.
46:22 Joe Weisenthal? Yeah.
46:23 Tracy Alloway? All right. Shall we leave it there?
46:25 Joe Weisenthal? Let's leave it there.
46:26 Tracy Alloway? This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
46:30 Joe Weisenthal? And I'm Joe Weisenthal. You can follow me at TheStalwart. Check out Peter Tzatzak and his number of very interesting books on energy history. Go check them out on Amazon, All Goodreads. Fellow producers, Carmen Rodriguez at Carmen Armin, Dashell Bennett at Dashbot, and Cale Brooks at Cale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter and all of our episodes. And you can chat about these topics, including energy 24/7 in our Discord with fellow listeners, discord.gg/oddlots.
47:03 Tracy Alloway? And if you enjoy Odd Lots, if you like it when we talk about tubular components in the oil industry, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.
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