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>> Bloomberg audio studios podcast radio

news

>> [music]

>> Hello and welcome to another episode of

the odd lots podcast. I'm Joe

Weisenthal. And I'm Tracy Alloway. Tracy

recording this April 17th big drop in

the price of oil today

on the headlines the growing optimism

that I think I'm you know ceasefire will

endure anything could happen but at

least for now it appears the extreme

left tail scenario like $200 oil maybe

off the table. Right so I'm looking at a

chart of WTI at the moment which might

be a little hint as to our guest that

we're about to introduce but it's

currently at around $83 a barrel down

>> was that you didn't say Brent. Right.

Yeah good hint. Yeah good

hint. It's a good hint. Yeah yeah it's a

good hint. Everyone can see already see

the headline on this episode if they

clicked into it but anyway it was at

$112 per barrel in March or actually in

early April God time flies when you're

talking energy crisis and war in the

gulf. You know even setting aside the

war however there's a lot that I've been

very curious about the future of the US

oil industry. You know we were in Alaska

last summer and I think one of my

favorite parts of that trip was talking

to that company that made the steel

tubing for oil companies up on the Not

the north shore the north the north

slope. Oh yes. For the companies up

there The north slope. The north shore

of Alaska

like it's Long Island you know the way

steel prices were going to affect the

break even cost of American oil

producers etc and the interaction of

tariffs and higher services costs etc

and we know that the US produces a lot

of um oil and it's an exporter but

prices went up and Chris Wright he went

down to zero week a few weeks ago he's

like please produce more but as you've

been writing about the rig counts have

been going the other direction. Yeah

that's right so I mean this was also of

the Iran story this idea that well if we

get a huge hike in the price if oil is

going to be above $100 per barrel then

maybe we'll see some sort of supply

response in the US right but if you look

at the Baker Hughes oil and gas rig

count it's basically been trending

sideways in fact the last available data

it fell by three and then if you go out

even further you know it's kind of been

going sideways and slightly down since

basically 2023 so

you know we haven't seen a big supply

side push and that's despite a lot of

noise coming out from the administration

about unleashing US energy and you know

letting everyone including your grandma

drill. You know getting it right is it's

tricky for all administrations right

every in theory it's like oh yeah let's

produce more there was a lot of

production actually under Biden but the

administration didn't want to brag about

it it's kind of weird then you have an

administration that does want to brag

about it but they're like oh and now

there's a bunch of Venezuelan oil on the

market unsanctioned so what does that

mean anyway here's the other thing

I'm really into the show Landman and I

really just want to talk

>> this is just an excuse for you to talk

about Landman.

>> and so I like I got to talk to someone

who's just out there independent small

oil and gas company because I have a

million questions about how realistic

that is I like it every time we get to

talk about Christmas trees of like

valves and spools and casings and There

you go well we really do

>> an episode for both of us. You really

have written a lot about the technology

of oil production for a long time. One

article and then I think I revisited it

but it had one of my favorite headlines

of all time and one of my favorite ever

leads but the headline was how actual

nuts and bolts are bringing down oil

prices and it was about standardization

of oil drilling parts. Well we really do

have the perfect guest someone who is

who's in the game actual got skin in the

game in the space. We're going to be

speaking with Jack McClendon CEO of the

small oil and gas company called Sienna

natural resources. Jack I've wanted to

have you on the podcast long time so

thrilled you're here what do you tell us

what Sienna natural resource what's your

business? Yeah sure thanks for having me

on. Yeah we're just a small independent

oil and gas producer so we operate in

the the part of the segment called the

upstream oil and gas industry so that is

the actual direct companies that extract

the hydrocarbons from the ground and so

yeah our business is a little bit

different from a lot of the publicly

traded companies that you see you know

the the Exxons and the Diamondbacks of

the world who are drilling kind of

horizontal shale wells there are many

more companies that are much more

similar to mine you know that the

horizontal shale game has largely become

the domain of a very large companies I

mean you've got to have scale to be able

to operate in that space. We're largely

production company so the way to kind of

think about it is you know we buy assets

that we think are undercapitalized under

appreciated try to squeeze a little bit

more juice out of each producing well

and try to get cost down. Although there

are smaller companies that that do do

drilling and we have drilled in the past

and we will likely drill in the future

as well too. Would you say you're

essentially going around and buying odd

lots of

oil and gas assets that other companies

may not be getting the best out of?

Yeah you could you could say that I mean

a lot of just as I said a lot of the

assets that we're targeting are just

they're just too small you know they're

rounding errors you know on the balance

sheets of these large shale companies

who you know are buying tens of

thousands or hundreds of thousands of

acres and drilling you know two to three

miles under the ground so it's it's just

we produce the same product it's just a

very different business. And I'm reading

here it says you started this business

in 2018 which I find really fascinating

because 2014 2015 the shale bust was an

incredibly painful moment in time not

just if you were in the energy

specifically but also if you were in

other parts of the market like the debt

market at that time. And there was crazy

stuff going on at that time like people

talking about oil going down to like

zero I remember being in a restaurant

and well it eventually

it didn't go to zero

but that was different but I remember

being in a restaurant and I was talking

to my husband about oil prices at that

time and some random guy like overheard

us at the next table and got up and said

like oil is going down to I think it was

either 20 bucks a barrel or zero and

then just like left the restaurant.

That's very that's a

weird anecdote. So it was like a very

strange time in the oil market and yet

you decided to start a shale company at

that time what was the thinking? I'm

going to I'm going to correct you

quickly and then and then go back into

context so it's it's not a shale

business so

>> Okay sure. We operate largely

conventional reservoirs and so you know

the way to kind of think about it is

shale is what is called unconventional

so conventional reservoirs have much

higher porosity and permeability they

are actually much better reservoirs from

a geologic standpoint and so for the

most part you'll hear it in the industry

parlance those were the easy the easy

reservoirs to find right if you go back

to like the 1920s 1930s you know

drilling a field like the Yates field

which is kind of one of the most

prolific oil fields you know you were

basically drilling a thousand feet into

the ground vertically and they were

getting you know 400 to 500 to 1500

barrel a day IPs you know so it's just

the conventional reservoirs are the

better reservoirs they've largely been

exploited so when you say shale company

that's the unconventional reservoirs and

so that was the rock that largely was

thought it was impossible to produce

Right. and really until the advent of

horizontal development well not

horizontal development so much as

hydraulic fracturing it was because the

the pore space was just too small and so

there was no way to commercially extract

oil and gas from those reservoirs we

knew the oil and gas was there we just

couldn't get it out so that's just a

little point of distinction there that's

the difference kind of between a

conventional and an unconventional

reservoir so most of what we operate is

conventional reservoirs so these are

this is these are reservoirs that were

found you know anywhere from 70 to 100

years ago and have largely been

exploited but still have plenty of oil

and gas kind of left to offer and so

just a little bit of my background

so I I kind of grew up in the shale

space you know my father obviously

played a pretty instrumental role in

bringing shale gas and shale oil kind of

to mainstream America you know I'll

remind you back in 2005 and it's kind of

hard to believe now that there was a lot

of fears that America was actually

running out of oil and gas production I

mean I think it was as as early you go

as 2004 2005 the country was only

producing about 5 million barrels a day

and you know importing anywhere between

19 to 20 million barrels a day and so

there was real concern and you know

really really some fears of you know

what happens if

you know oil runs out and lo and behold

we have the shale revolution and one of

my favorite

quotes is never underestimate the

ingenuity of the American oil man and

>> [laughter]

>> I just think it's a a testament to the

tenacity and grit and intelligence of

our industry largely maligned by a

pretty big segments of the company that

do not realize how much this has

transformed our country you know we've

gone from producing you know anywhere

from 5 million barrels a day now we are

now we're the largest oil and gas

producer in the world we produce more

oil than any company in the any country

in the world and so you know it's just

it's kind of gone unnoticed and so I

want I you know I wanted to kind of get

out and

bring that up. Sorry I'm so used to

saying shale as a byword for US oil

production like I I get the distinction

between the horizontal drilling and what

you guys are doing. And that's fair and

and the majority of of oil production in

America right now is from shale you know

the largest conventional fields are

largely in Alaska you guys just

mentioned the north slope most of

Alaska's conventional but you know that

the Permian Basin and and a lot of the

other big shale basins I mean that's

where the majority of the oil comes from

these days. I mean, you know, out of

that 13 million barrels a day, you know,

at least five come from the Permian and

that's mostly from shale. So, it's I

think it's fine to kind of conflate the

two, to be honest. That's where most of

the capital goes and that's where most

of the oil comes from. You mentioned

growing up in the business and your

dad's role in making America the energy

behemoth that is today, your dad being

Aubrey McClendon. One of the things I

know about him was that he is a famed

map a huge map collector and I kind of

feel like all oil and gas people are get

really into maps and I'm

You tilt your camera and I was like that

is that map to your your right shoulder?

It looks like Texas a map of Texas. Is

that one of your dad's part of your

dad's map collections? No, it's not part

of his collection, but I did inherit a

lot of his loves and one of them is that

is I also love maps. That's an old map

of Texas and Oklahoma, which was Indian

territory back in the 1800s. I think I

think that map was I think this map was

made in like 1870. So, I do really

appreciate vintage maps and so yeah,

you'll you'll see that in the back and

and that that may be particular to the

oil and gas industry as well too,

because any good oil man, if you walk

into a conference room, they're going to

have maps up cuz you kind of got to know

as you said, there's probably a lot of

that in in land man.

Well, I noticed you don't have a poster

of Billy Bob Thornton in your office.

However, I asked this question on behalf

of Joe. How accurate is Land Man in your

experience? I mean, there are certain

aspects obviously that that famous

windmill speech that he makes is is how

a lot of people a lot of people in our

industry feel and I I believe it's the

truth.

A lot of it is obviously there's plenty

of exaggerations. I don't know too many

land men who have had a gun held to

their head from from a member of the

cartel. There's a lot of truth in the

industry as well.

>> going into business with the financial

backer of the cartel is a little weird.

Anyway. Yeah, exactly.

>> spoilers. Please. Yeah, yeah, yeah,

sorry. I'm an imperfect narrator for

that as well too, because I I will admit

that I I have not watched the show maybe

as religiously as other people that have

watched it. Actually, there's another

element of Land Man that I this is going

to be a little bit far afield from oil

business clay shows, but this is

something I've heard and feel free to

answer this as with any level of tact or

delicacy. I have heard that a lot of um

the wives of the oil industry don't like

it as much as the men do because of the

high degree of sexualization of both

Billy Bob Thornton's wife and daughter

in the show and that they the men think

oh it's a great show. It shows our

industry and that actually there's some

gender

families in the patch in the space in

the industry, there's some gender divide

on the show. Does that resonate? You

know, as as as I said, I my

My wife watched two episodes with me and

she said this is ridiculous. Okay, well

then [laughter] I'm okay. Okay, well

there you go. So, so maybe maybe that's

maybe I'll just leave it at that.

>> [music]

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[music]

>> Okay, let's talk a little bit of

economics. Even before the recent war in

Iran, we wanted to talk because I'm very

interested in just like what's happening

to your costs and break evens,

particularly in the wake of tariffs, in

the wake of ongoing services inflation,

in the wake of a big dash for

commodities because every there's so

much building data centers, etc. Talk to

us a little bit about the evolution of

your costs as a business in the last

several years, but also maybe in the

last year. Yeah, no, sure. I'm happy to

do that and you know, I won't tell you

anything that you guys maybe haven't

already heard, but

costs in general, you know, our our

costs are kind of allocated into two

buckets, right? You have your operating

expenses, which are kind of fixed and

variable costs. Those are the the

day-to-day costs to run a business,

whether that's paying your people who

are actually out in the field, you know,

the cost of chemicals to treat your

wells, the prices you pay for

electricity to power your wells. And

then you have your capital costs, which

are, you know, largely tangible and

intangible goods, right? So, the you

know, the day rate of cost to drill, the

amount you pay to drill a well, the

amount you actually pay for the the

physical tools and equipment that

actually go into a well, you know,

that's steel and metal and other human

labor. But what I will tell you is is

since COVID and and this is as I said,

not unique to us is you know, costs

costs have gone up. You know, personnel

costs are up and you know, and you know,

back in the day in COVID, you know,

salaries went up across the board and

and you know as well as I do, once you

raise salaries, it's very hard to get

those back down. Chemical costs have

gone up. Utility costs have gone up. You

know, so costs in general are up, I

would say about 25 to 30% for my

business really over the last five years

and as I said, a lot of that is power, a

lot of that is chemicals. The biggest

chunk of that is is people. You know,

people costs have gone gone up across

the industry. Capital costs, tariffs

obviously have had a material impact on

the price of steel and the price of

aluminum. Those have largely gone up.

What I will tell you though is recently

and this is kind of a couple of a couple

of months,

there has been some slack in those

markets and a big part of that is kind

of due to what you due to what you

identified with the Baker Hughes rig

count. You know, with prices kind of

hovering in the 50s and 60s, with those

rising costs, the industry is just not

as profitable as it once was at 50 or

60. And so, you know, there was really

starting to be some slack in the rig

market, some slack in the the frac fleet

market and you know, quite frankly, all

of that leads to a little bit of pricing

deflation. And so, generally speaking, I

would say costs are up across the board

20 to 30% even though recently,

especially on the capital side, you've

seen a little bit of a decrease and that

is largely due to the fact that the

price has been depressed and the

industry was just not as profitable as

it once was. And the other thing I'll

mention as well too and and this is

largely due to efforts of companies like

Kimmeridge and when I say companies, I

mean investors. You know, one of the big

reasons you had such prolific shale

growth, especially in you know, the

2010s

was compensation executive compensation

was tied to production growth and so you

had a lot of incentives across the board

to kind of grow production at all costs.

And you know, due to as I said, you

know, there have been a couple of shale

busts, right? There was this that shale

bust in 15 and 16. And then you have

another you know, you've had another

kind of shale bust when COVID came along

and along those, they've reformed a lot

of those incentives and so, you know,

companies are increasingly rewarded for

rewarding shareholders versus focusing

on kind of production growth. You know,

this is exactly what I wanted to talk to

you about, which is the capital

situation because one of the running

themes on our our show is this idea that

you can have these boom bust cycles that

then like leave a lasting scar on the

industry and I think coming out of the

bursting of the shale bubble,

a lot of energy producers suddenly

decided like well, we're not just going

to spend a bunch of money to expand,

we're actually going to pay dividends to

our investors and it's all about capital

discipline and being very, very certain

about what we're actually spending on

and the return for investors.

What's the capital situation been like

for you just you know, going from 2018

to now? How hard was it to actually

convince investors that you know, you're

not just going to spend money in an

unconstrained way and how difficult was

it for you to compete with some

potentially bigger players who are also

fighting for that same capital? I'll

break that into two parts. You know, I

think I think the industry is is had to

do a lot of explaining and a lot of you

know, there's been a lot of kind of show

me you know, investors wanting to see

that there actually is going to be some

capital discipline and I think if you

look really over the last two years, you

know, we've we've seen we've seen that

and

I think even with this latest price

spike, you've seen that. I mean, people

aren't rushing to deploy rigs. I mean,

you've had one large company Continental

Resources who's a you know, one of the

largest private companies say they're

going to increase capex, but I think for

the most part, you know, the the the

industry has been able to attract more

capital by actually showing that that

discipline and I think part of that too

is just you've had a lot of

consolidation in the industry, right? I

mean, when I was first getting started

as an investment banking analyst in

2008, I don't have the number off the

top of my head, but it felt like there

were 70 to 80 kind of publicly traded

companies and you know, now, I mean,

with all due respect to lots of kind of

mid-size companies, there's really only

about 10 companies that actually matter,

right? You know,

as far as the publicly traded companies

go and and the two biggest ones who have

really kind of started to corral the

market for shale are Exxon and Chevron,

right? And those guys those guys have

massive, massive balance sheet,

integrated operations

and yeah, I mean, you just you know,

it's just a little bit kind of

different. There's still a cowboy

element to it for sure, but yeah, I

mean, I think in order to to attract

capital, the industry has had to show

discipline and I think we've done a

pretty good job of doing that over the

last two years. I mean, the you know,

kind of the days of a million barrel a

day growth year over year are largely

gone and and some of that is due to

geologic constraints, although you know,

I will reiterate kind of never never to

underestimate the ingenuity of the

American oil man, but I think another

part of that is is obviously due to

capital and you know, you've had two

three crashes really in the last 10

years. So, you know, investors investors

really are kind of holding everybody's

feet to the fire on that. And then I'll

say is kind of as it pertains to my

business, you know, as I said, there are

a lot more of my businesses than there

are of large shale companies. I mean,

this is the business of operating older

oil and gas assets, right? And like any

business, when things are older, they

break more. And so yeah, you know, it's

it's it's difficult and it's

challenging, right? Because you have a

lot of volatility and you know, you're

dealing with wells where operating costs

are higher, right? We move more water,

so I need more electricity per per well

to move more water. Our operating costs

are higher, and so you've got to do a

little bit more convincing on that cost

discipline side when you're raising

capital. But what I would tell you is

that the pockets of capital that I'm

kind of talking to are are going to be

very different than the pockets of

capital that the larger shale guys are

talking to. I mean, for the most part

the large shale companies are either

publicly traded and so you're talking

to, you know, people that invest in

public markets or they're large

institutionally backed private equity

capital, right? So you have really kind

of four to five large energy private

equity backed firms, most of them in

Houston and Dallas. And you know, they

wield large sums of capital kind of in

the nine, you know, nine to 10 figure

range. And for the most part

that's who's backing shale. You've got

to have scale now. It's a consolidation

game. And yeah, there's just it's

different from my company where we're

largely kind of talking to family

offices, alternative investment

vehicles, you know, people who are

looking to put smaller quantums of

capital to work, you know, to to kind of

find a unique way to play the space.

Cuz really for these larger companies

it's it's the Permian or bust, right? I

mean, that's that's really that's really

kind of the story. This is great because

this allows me to bring it back to

Landman again, which is that the Cooper

character it seems like his business is

kind of like yours. He went around and

there were these old wells that were

producing something and he's like

there's probably more potential. And

then this was like the key thing, he

went out to some like small hard money

lender that was based out of Fort Worth

and they gave him a good he gave him a

good deal. And then the dad said there's

no way the deal could be that good

because I know how financing works, so

like there must be a catch here and

there was I won't get into it. But talk

to us about the structure. Okay, so

you're it sounds like you're kind of

like Cooper because you're finding these

wells for that other people may like be

ready to discard. You're going to non-PE

scale financiers, although his was again

related to organized crime. I assume

yours isn't. But talk to us about some

of the terms of like what is it? Like is

it like you're going to pay me back 100%

plus 20% interest until we break even?

Like how are some of these financing

deals structured? Yeah, no, that's

that's a really good point. I mean, you

know, largely what I found is on the

equity side it's it is similar to

traditional private equity, right? Where

but you know, money is invested and then

you get money back plus a rate of return

and then you have a waterfall structure

which is based on return of capital. And

that can be, you know, either kind of

based on an IRR basis or on an ROI kind

of absolute return of capital. I've seen

it both ways, but that's kind of largely

the way that the equity equity capital

works. So it is actually pretty similar

to a lot of the traditional private

equity firms. You know, on the debt side

it's largely bank capital which you know

is is kind of 7 to 8%.

And then there are, you know, some of

these alternative firms and so these are

more kind of structured credit

providers. You know, there are some that

largely just operate in the energy

space. And you know, you're paying 400

to 500 basis points above what you would

pay a bank, but they're willing to lend

a little bit more aggressively against

the collateral, maybe give you a little

bit more credit for

reserves you have that are not currently

being produced currently being produced.

And you know, they'll they'll they'll

ask for a little bit of upside. So

whether that's in the form of like an

overriding royalty payment, so just

think about that as like a basically

just a cut of the revenue. It's like

similar to like a royalty deal deal in

music. So for every barrel that gets

produced maybe they get a little bit of

percentage and this is obviously after

they've gotten their money back. And so

the way the capital works for my

business is not all that dissimilar to

the way capital works for for larger

businesses. As I said, it's just there's

there's a couple of different ways to

play the space, but traditional equity

investment is pretty similar to, you

know, even the larger kind of private

equity investments. So when the price of

oil starts going up, say we're talking

late March, early April and WTI is

climbing above 100 and then it hits 112.

What actually happens in your business

and what are the thoughts that are going

through your mind? Like do you suddenly

get a bunch of calls from potential

investors going, oh, you know, we're

interested in putting some money in the

company? Do you start thinking like,

well, I need to expand production and

maybe ramp up CapEx?

Or are you just, you know, sitting there

waiting to see what actually pans out

with the Gulf situation? How does it How

does it all work? That's No, those are

really good questions. I mean, obviously

there's there's excitement, right?

>> [laughter]

>> Cuz cuz, you know, the the when it when

a price when a price kind of jumps like

this, obviously your costs don't don't

rise in tandem, so that is that is

profit on top of everything. What I

would tell you in 2022,

you know, last time we had elevated

pricing, you know, where and that was

largely kind of based on the fear of

supply loss that never really happened,

right? The you know, everybody was

saying the you know, Russians were going

to lose three to four million barrels a

day and you know, we need so we need

prices to kind of stimulate more

production. So everybody got really

excited, everybody got to work. You

know, I will say for a company our size,

we authorized a fairly large capital

plan because as I said, I thought that

there was some bite to that bark. And

what happened was as I authorized

everything in May and June when oil was

at 100 and then first production came on

in August and September when oil was

back to 70. So you know, you had this

you you had this big rise in prices, a

commensurate rise in costs, obviously

not as high, but costs go up. I mean,

oil and gas service providers aren't

dumb, right? You know, they see the

price of oil go up 20 to 25%. They're

like, well, you know, your day rate on a

workover rig has just gone from 175 to

275.

>> Huh. Yeah, I mean, it's the the service

the service companies aren't dumb. The

chemical providers might say, well, you

know, this is your your you know, this

chemical you use this xylene you're

using going to go from, you know, 20

bucks a gallon to 40 bucks a gallon

because I know you can pay it because I

I have a computer and I can see what the

price of oil is as well, too. So so you

know, what I would tell you and and

these are in conversations I've had with

a lot of other people in our industry. I

talk to people on the industry on a

day-to-day basis. I have friends that

work for large operators, large capital

providers. I have friends on the service

side, friends in private equity, friends

in investment banking. I mean, I think

everybody's very cautious right now. You

have a president right now who on the

record demonstratively on a daily basis

has shown his disdain and hatred for

high oil prices. You know, a big part of

that is I think he kind of sees oil

prices as the easiest and most visible

way to keep inflation in check, which

leads to kind of his goal of getting

interest rates down, which is beneficial

for a lot of other sectors. And so, you

know, I think similar to just about

every other industry player here, I

think we saw prices go up. And you know,

this is not some Chinese super cycle

like you had in the early aughts, right?

Where like effectively you had to, you

know, the the company the country was

industrializing kind of in front of our

eyes and so you had this step change in

demand growth, which you know, any oil

man will tell you that is that is kind

of the beautiful increase in prices,

right? Versus this sudden, you know,

geopolitical driven supply shock. When

prices rise this fast and this high, you

know, it's really kind of not beneficial

for anybody. And so I think, you know,

the the the tenor of the industry and

the tone of the industry is really kind

of wait and see. I mean, sure, you know,

you're you're going to have some

companies that are going to look to put

a rig to work, are going to increase

CapEx, but you know, we're just able to

pay our debt down a little bit more and

you know, we're going to kind of cash

flow and I'm I'm really interested to

see, you know, kind of where everything

settles out. you obviously had that

announcement today that Hormuz has been

opened, but if you listen to the

Iranians, they've been saying Hormuz is

open, you know, for the last six weeks.

You just, you know, you got to play by

our rules and you got to pay pay by the

you know, the Iranian Republican Guard's

rules. So I'm not quite sure what has

changed. But you know, I I I tweeted

this out a couple of days ago, you know,

the the market kind of clearly thinks

that the war is over and you know,

you're kind of seeing that wash today in

prices. And so I just what it'll be

interesting to see where prices are

going to settle out. I don't think we're

going back to the 50s or 60s. You know,

are you going to see you know, to get

back into Landman, are you going to see

that sweet spot at 75? You know, that

that would be a better baseline for us

than 65 and 60. And so to reiterate what

I said earlier, I think the you know, I

think the industry is largely kind of in

a wait-and-see mode.

So when oil prices collapse like they

seem to be doing today, do the oil

service providers start cutting their

prices as quickly as they raise them?

They do not.

>> [laughter]

>> Yeah.

They do not. You know, you're starting

to see some fuel surcharges on some of

those bills. I would imagine if you

settle back in the 70s or 80s, those are

going to kind of go away. And part of

that is kind of tongue in cheek, right?

You the operators always play a game

with the service companies. So it it it

it it it remains to be seen. As I said,

there's

there's just so much noise in the market

right now. I mean, I can't remember the

last time we ever lived in an era where,

you know,

a tweet could move the price of the

world's most liquid commodity 5 to 10%.

And so yeah, I mean, I I think

everybody's just kind of waiting to see

where this will settle out. It's

effectively impossible to plan a

business, you know, with the [music]

price as volatile as it is right now.

>> [music]

[music]

>> Getting burnt seems like it's just as

much as part of the industry as making a

lot of money. And you get it on both

sides in 2015. And then you mentioned

the sort of the fizzling out of the

post-Ukraine boom, etc. And then here,

of course, the war and the spike was too

short to make any big plans. But like

and then you have this president who

clearly wants more production, but a a

drill, drill, drill, but also wants

lower prices, and these things are in

conflict. Could you see a set of

conditions again in which there's real

meaningful expansion of US drilling or

etc. Or what would it have to take? What

would be the the constellation of events

that would have to happen for like,

okay, we're going to really we're going

to really ramp this out again? Yeah,

that's a good question. I mean, as I

said, I hate to I hate to use round

numbers, but that's just yeah, kind of

the world we live in. And I think if you

saw a sustainable price above 80

over a prolonged period, maybe call it 4

to 8 months, I think you would see a

supply response, cuz there's you know,

there there are a lot of there are a lot

of shale wells that work at 80 to 90

that don't work at 50 to 60.

Depending on who you talk to in the

Permian, you know, there's kind of

anywhere between 5 to 10 years of of

what you would call core inventory left

or economic inventory left. That

obviously change that's obviously

largely a function of price as well as

geology. So, a higher for longer price,

I think you would you would you would

see a production response from the

industry. Now, you know, do I think

we're going to go back to the days of

growing 1 to 1 and 1/2 barrels a day?

You know, I I don't I don't think so.

But could you see, you know, could you

see an an era where, you know, we're

growing 300 to 500,000 barrels a day?

Yeah, I mean, I think that that's

possible, but as I said, you would you

would need to see prices settle above 80

for a prolonged period of time, I think,

to kind of see a supply response, cuz

even shale, which, you know, is kind of

called a um

that's a that's a short short supply

response, right? That's about as short

as it gets.

>> barrels, yeah. Yeah, it's about as short

as it gets, right? I mean, you've got,

you know, but it's still it's still a 4

to 6-month response time, right? I mean,

cuz a lot of the a lot of the rigs that

you saw kind of start to roll off, you

know, that's a that's a 6-month lag,

right? So, you had the liberation day

tariffs where prices kind of cratered

from, you know, 70 to 57, and then we've

kind of bumped around the 50s or 60s,

but even decisions that get made in

April, you know, got made in April and

May of of 2025, you didn't really start

to see the rigging supply response for 4

to 6 months later, and that's largely

that's largely kind of the turnaround

time here. And so, you know, as I said,

I think I think you would need to see

higher for longer prices for the next

couple of months for us to see a

meaningful supply response. But, I mean,

I and and and this is kind of the

consensus view of you know, most of the

sell-side oil research analysts that I

follow as well, too. But, you know, the

as I said, never underestimate the

ingenuity of the the American oilman.

Well, setting price aside, one of the

things the administration said it wanted

to do to get, you know, oil pumping is

basically streamlining, you know,

environmental review and the leasing

process, basically liberalizing the

regulatory environment around starting

new drilling projects. And I know you're

not necessarily specialized in

exploring, you know, for new locations,

but do you get a sense from your

colleagues elsewhere in the industry

about whether or not that liberalization

has actually, you know, translated into

people drilling more or thinking about

drilling more? Yeah, you know, I mean, I

I I think it's certainly helped, but for

sure, I mean, price is a exponentially

higher dictator, you know, of whether or

not somebody kind of chooses to drill.

Yeah, I mean, as I would say, you know,

there's there's the old saying in the

oil patch that

you know, Democrats are actually very

good for the oil and gas industry, and

you know, but they're anti-industry, and

that Republic the Republicans are very

pro-industry, but they're actually very

bad for the industry. You know, and

that's kind of largely a function of

some of those regulations. So, I'm not

going to say that they they don't play

an impact. I mean, there's there

certainly is an impact, and you know, to

the extent that the, you know, the Biden

administration or some of the other

Democratic administrations have been

more punitive to the industry, you know,

that does effectuate a supply response,

you know, that is largely beneficial to

the industry, but but I would tell you,

I think for the most part, you know,

those regulations matter, but they don't

matter nearly as much as what the price

of the commodity is, and then the the

cost of the inputs is. I mean, that's

ultimately, as I said, that's an

exponentially more important factor

than, you know, whether or not there's

50,000 acres in Wyoming that are now

open for drilling that weren't open for

drilling. Tell us a little bit more

about the politics. You know, as you

mentioned, we we we've observed

everyone's observed this that actually

the oil industry, I think why they hate

Democrats so much. It always seems like

the price of oil is high under them,

etc. I understand publicly who's on

whose side because of a very, you know,

various affiliations, etc. But like, how

do people talk about politics at a

country club in Fort Worth or Midland or

something like that? Well, I don't

belong to any country clubs in Fort

Worth. [laughter] Um

And but but I yeah, and I'll I'm going

to try to use my words carefully here,

but

>> I understand.

there's no

there's no surprise that most of the oil

production in this country is done in

Republican states, right? I mean, Texas,

Oklahoma, uh Louisiana. I mean, New

Mexico, I guess, is a is a

democratically run state. The parts of

New Mexico where the oil is produced are

very, very conservative. And and so,

yeah, you know, I would I would tell you

the politics are tricky because

obviously oil country overwhelmingly

supports Trump, but I also think, you

know, behind closed doors, there's a lot

of frustration in the industry of, you

know, Trump, you know, actively kind of

trying to jawbone oil prices down. You

know, I I think that there are a lot of

people that wish that, you know, as I

said, I hate to kind of bring landman

back up, that we could just kind of find

some happy price equilibrium, right?

Whether it's

you know, 70 or 75, you know, not not 55

or 50, which I think was kind of what

they said as their their target price,

but you know, not not 90 or 95, which is

a price that, you know, hurts demand.

And so, yeah, I mean, the the politics

are you know, the overwhelming majority

of the oil industry is Republican and

conservative. But yeah, I think a lot of

people are very frustrated by some of

the administration's rhetoric and

policies over the last year. You know, I

noticed on your Twitter profile, it says

you're based in Colorado, but you

clearly have the Oklahoma roots there,

big fan of the Oklahoma City Thunder, OU

Sooners. You say you're political

independent. The senator from Oklahoma

just moved to the White House, Markwayne

Mullin. There's going to be an open seat

in 2026.

You going to move back to Oklahoma and

run as a independent? Is that a any

possibility of trying to vie for that

seat? An independent oilman like

replacing I don't know, I could see it.

>> [laughter]

>> fame No interest no interest in politics

right now, you know, as anybody will

tell you. Right now. No no interest in

politics right now. Yeah, I've got I've

got young kids, and you know, working on

growing a business, and just politics is

politics is increasingly a you know, a

pretty a pretty nasty game, especially

in a country as polarized as ours. We've

noticed. You know, um you referred

earlier to this idea of like short cycle

shale or short barrels from the shale

patch. And this is one thing I'm curious

about when, you know, given that again,

I'm looking at the Baker Hughes oil rig

count, but like

has that assumption kind of eroded given

that a lot of these basins have matured,

and also, you know, we spoke about

capital discipline before and investor

expectations. It doesn't seem like shale

is as responsive as it used to be. Yeah,

I I mean, I I think that that's right,

and I think that that does have, you

know, a lot to do with the consolidation

in these basins. You know, the other

thing that I'll say, too, and and this

is why the the rig count in in a certain

extent is honestly it's not as important

maybe as it still very important, but

maybe not as important as it was 5 to 10

years ago, and that that's largely just

due to to the ingenuity of the American

oilman. I mean, you you know, back when

I worked for a shale company, this is in

2015, 2016, we were drilling wells in

the Permian Basin, and 7,500-ft lateral,

which is, you know, effectively like a

mile and a half, you know, took anywhere

from kind of 25 to 35 days to drill. The

industry's largely largely doing it

under 10 now. So, just the amount of

time it takes to drill and complete

these wells is just dramatically shorter

than it was even 10 years ago, and I

just people who don't live in the space,

I think, just don't do not realize how

much more efficient these companies have

become at drilling these wells, and so,

effectively, you can do more with less.

And so, as I said, you know, the the rig

count is important, but it is it is less

important maybe than it was 10 years

ago, just cuz as I said, these these

companies can drill these wells so much

faster,

and get production on kind of so much

quicker than they could, you know, even

even 10 years ago. But yeah, I mean, I I

I would agree with you that I would say

on a whole, I think the industry is is

probably less responsive to some of

these price signals, and I think just I

think honestly just a big part of it is,

you know, we've been burned pretty bad,

you know, three times in the last 10

years. And so, it's, you know, kind of

one of those

you know, fool me once type anecdotes, I

guess. I would never underestimate the

ingenuity of the American oilman. But I

you know, in addition to the engineering

prowess, and you know, get it's and it's

it's all really impressive. Is that all

like

you have to be a little messed up in the

head? Like, is that also like I get the

I get the prowess part, but is there

also, you know, in commercial real

estate, I have a friend, and he talks

about like the sickness that people in

this industry have because they're all

just like hyper-optimists, and that

nothing can convince them that they can

fail. Is that also part of why we should

not be underestimating the industry

because there's something going on

in the heads of people like you? Yeah,

people in this industry have a certainly

have a high pain tolerance. You know, I

think

there was a saying in the oil patch that

the difference between an oilman and a

smart oilman is the the smart oilman

makes his money in oil and gas, and then

puts it in real estate. You know, it

takes a it takes a kind of a

particularly sick individual to to live

through these kind of boom and bust

cycles. And uh yeah, what you know, what

what what I will tell you, though, is

that we are resilient, and and everybody

in the industry firmly believes in what

they do and I think that's a big part of

it, right? I mean, you're talking about

extracting a a substance from, you know,

under the ground that literally powers

everything in our world, right? I mean,

I think there was I read some I read

some quotas in an article that, you

know, without new oil and gas

production, if we just were to basically

shut off oil all oil and gas, you know,

development and production, that, you

know, 60% of the world would starve in 6

months. And so, you know, I think that

there is there's obviously a little bit

of uh you know, you got to have a high

pain tolerance, but I think the other

thing too is that everybody in this

industry really believes in what they

do. And, you know, we we create and we

produce a product that powers the modern

world. And so, I think there's a

tremendous amount of pride in that as

well, too. And I don't think you'll talk

to anybody in the industry that does not

feel just an enormous sense of pride in

what we do. And, you know, I think you

know, someone said this to me once and

and I firmly believe in it and they

said, you know, Jack, one of the things

your dad did that I firmly believe in

is, you know, without the shale

revolution, there would have been a lot

more wars. Um and I really do believe in

that because I think that this resource

abundance that, you know, we've kind of

largely taken for granted over the last

10 years has prevented a lot of

conflict, believe it or not, because,

you know, America is largely we're not

wholly energy self-sufficient, right?

There are different blends of crude. We

largely produce one type of oil, which

is called light sweet. You don't just

produce oil and put it in your car,

right? It's got to go to a refinery,

it's got to get broken down into kind of

various products, and you need different

blends of crude oil to be able to do

that. So, we still do import some crude

from other parts of the world, whether

it's Venezuela or the Middle East or

Canada

or Mexico, you know, that's blended

together to kind of make the products

that power the modern world. But, you

know, just the just the fact that, you

know, we're not worried or running of

you know, talking about running out of

oil anymore, I think is just a you know,

just a tremendous achievement that I

just people don't kind of talk about

enough.

And I think they should. Jack McClendon

really appreciate talking to you. Really

glad you came on Odd Lots. Thanks for

indulging our land man related questions

and everything else. And uh let's check

in again in 6 months or year or maybe 7

years when the the 2032 election is

happening in Oklahoma and uh

kids are a bit older. Well, thank you so

much for having me on. As I said, I love

listening to your Odd Lots podcast.

>> Oh, thanks. Appreciate it.

>> [music]

[music]

>> Those stats about the increased

efficiency of the drilling, etc. always

like blow my mind.

>> They're insane. And the story that I

wrote, I guess it was like back in 2016,

was actually super interesting to me and

it was literally about like the oil

companies getting together to

standardize

>> Yeah. a bunch of drilling components

that hadn't been standardized before.

>> Yeah. And so, even eking out these tiny

improvements in cost end up like adding

to the overall supply and enabling

people to keep drilling even when the

benchmark price is really low. I just

found it really fascinating. It's uh it

is really fascinating. You know what

also is what might be a future episode

for us to do at some point, which is the

production refinery mismatch in the

United States and why it is the case,

right?

>> meant to ask that question. Oh, I'm

kicking myself.

>> like we have all these refineries, but

mostly they were built from the era of

when we imported a lot more, right?

And we're producing then we start

producing a lot more, but I think

there's like a new refinery opened

pretty recently, but prior to that, I

don't think like a new refinery had

opened in the US in like 50 years. Some

crazy number.

>> always hear different things about this

cuz I hear that story and then I hear

other people say that like actually the

idea that we can't refine light sweet

crude, Jack, that's that's just for you.

>> [laughter]

>> Thanks, Jack. Sorry.

Is actually like a bit of a myth that

there is some capacity. So, I I would be

very interested in this topic.

>> Jack I'm back on the phone. I know. I I

actually wrote this down in my notes and

then just started thinking about land

man, obviously, and completely forgot to

ask it. So, next time. Next time. But,

there's a lot of interesting stuff

coming out of that episode. One of them

was this idea that when the price of oil

increases, your costs go up, too,

because all of your suppliers can see

that you're making more money and they

can ask for more in return. I you know,

that's a little bit obvious, but I'd

never really considered it before. And

then the other thing that stands out is

just that tension from the Trump

administration where, you know, you want

American oil producers to drill and

boost production, but at the same time

you're very vocal about keeping gas

prices low and the industry is very

aware of those statements as well. So.

By the way, there was in the last couple

minutes, another headline said Iran

would reclose the strait if the US

blockade persists. So, we'll see what's

going on there, but it is interesting

also this element of like

Jack talked about it, the show Land Man

talked about it, finding that sweet

spot. But it doesn't seem like it like

it doesn't ever seem like it stays it's

a pretty volatile thing. You don't get

the sweet spot time for very long.

>> No. Yeah.

>> Um doesn't seem like it. I I do think

you have to be a particular type of

person to to be in this industry.

>> Definitely. Shall we leave it there?

Let's leave it there. This has been

another episode of the Odd Lots podcast.

I'm Tracy Alloway. You can follow me at

Tracy Alloway. And I'm Joe Weisenthal.

You can follow me at the Stalwart.

Follow our guest Jack McClendon. He's at

Jack_McClendon.

Follow our producers Carmen Rodriguez at

Carmen Arman, Dash Bennett at Dash Bot,

and Caleb Brooks at Caleb Brooks. And

for more Odd Lots content, go to

bloomberg.com/odd lots where we have a

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>> [music]

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