Integrity • Tenacity • Clarity
Intro
00:00:00.240 – 00:00:22.720
Welcome to the ITC Tax Podcast, where we cut through the complexity of taxes and help businesses plan smarter, save money, and stay ahead.
Each episode, we’ll dive into real conversations about things that matter right now, data centers, site selection, incentives, property tax, and more. If your business is growing or planning big projects, you don’t have to navigate it alone. Let’s get into it.
Mark
00:00:25.120 – 00:01:06.820
Today we’re joined by James Wicklund, a longtime veteran of the global energy industry.
Over his career, he’s worked nearly every part of the sector, from geophysics and engineering to equity research, hedge fund management, and investment banking.
He’s worked internationally throughout his career and has been recognized multiple times for his expertise in the oil and gas space, including Best on the street honors from the Wall Street Journal. Most recently, Zhang served as managing director and senior banker in the energy group at Stevens. Hey, Jim, glad to have you here. In our podcast, I’m sure you’ve seen the world’s changed a lot in the last six days.
James
00:01:07.460 – 00:02:21.960
Really? I don’t know if I’ve noticed anything really different about anything.
There’s a number with a seven in front of it on my screen, but I don’t know what it goes through. Something crudely. No, it’s just amazing.
There was a debate a week ago whether Trump would actually do something, and the consensus of opinion was that he was going to give people, give Iran more time, because if he attacks Iran and they shut down the Straits of Hormuz, gasoline prices go up and it really hurts Trump’s midterm election chances if all, all of inflation, including gasoline, goes higher. So we decided, a group among ourselves, analysts who are usually wrong, that he would probably wait.
And then, of course, the next morning, he attacked. But it’s interesting. Oil’s up, what, 12% so far? Don’t get me wrong.
I remember when the world was ending and oil was 147, and now we’ve got the Straits of Hormu shut down for four or five days and oh my God, oil’s almost 80. It’s not quite as panicked as it used to be, isn’t it?
Mark
00:02:22.760 – 00:02:40.840
No, I agree. I mean, it’s kind of shocking when you think about it. You know, you would have thought, like I said, it’s the difference in oil.
Just the incremental change, you know, is a great multiple. But apparently this time, the 20%, you know, decline really hasn’t had much of an impact.
James
00:02:41.880 – 00:04:00.410
Not yet. Not yet. Not yet. I am hoping that doesn’t cost anything.
I am hoping that is because the world understands how quickly Mr. Trump is going to make the Straits of Hormuz safe.
And I have to believe that very early on in the war planning, a great deal of attention was paid to how to keep the Straits of Hormuz open in case of attack. And we have had such an overwhelmingly successful military effort that I think there are people out there being as optimistic as me.
And then there’s the worry, of course, that before the Iran thing escalated and oil was sitting at 64, we were at a conference and the consensus of opinion was the expectation that oil would be 54 at that particular point in time. So you have an industry right now that believes XRM Oil’s $54.
So how big of a premium do you really want to put on a bet that could be closed out tomorrow?
Mark
00:04:00.970 – 00:04:18.070
Yeah, and it seems like Iran’s, what, one of their largest customers is China. And, you know, all their allies are being quite quiet, shall we say, just like, you know, Venezuela, they’ve all been kind of quiet.
All these countries, allies, smart people.
James
00:04:19.190 – 00:04:33.840
The last two times I can remember, people daring Trump, fine. Oh, yeah, well, come get me. And twice he actually did, so. So if I was Kim Jong Il, I might be keeping my mouth closed, too.
Mark
00:04:34.160 – 00:04:46.240
Yeah. I was thinking, you know, after watching what we did and what the IDF did, I was thinking maybe we should hire them to go find Nancy Guthrie.
They could probably find her in 20 minutes.
James
00:04:48.880 – 00:07:50.170
The intelligence, I mean, to me, if anything is going to spook other countries, it’s the level of intelligence that the US and Israel had about everything having to do with both gutter, when the attack happened last year, or this time with Tehran. I mean, it makes you believe there truly are no secrets. But, you know, the collateral damage to me is the issue in its. In some ways kind of sad.
When Europe, when the Ukraine, Russia war broke out and gas deliveries from Russia ended and natural gas prices spiked like crazy, and everybody who could divert an LNG cargo to Europe did.
Pakistan was one of those countries that had the weakest contracts, and so they were taken advantage of exceptionally four years ago with cargoes that were being lost to higher bidders in Europe.
And Pakistan made the observation, you know, I think we’re going to move back to coal, since this is unreliable, and they have, in part, moved back to coal. But now 99% of their natural gas comes through the Straits of Hormuz. For, I mean, Bangladesh and Pakistan, it’s 99% and 72%.
So you’ve got two of the poorest countries in Asia who just lost access to 70 to 100% of their energy source. And, you know, we talk about how the US People are gonna have to pay a little more for their gasoline.
No one in Europe or California has much sympathy for us, considering what gasoline costs them. But when you think of an entire country losing all of its power, that’s going back to the Stone Age in a big hurry.
And so some of the collateral damage is going to be to the countries that can least afford it. So far it’s been four or five days and the biggest news is that the Gulf States countries are running out of storage.
To me, the biggest story is nothing’s getting out. But that’s going to be the question until that changes.
And we were going to record a podcast the other day, but realized that by the time it gets published, you have no idea what will happen. Now, I realize that’s also the same with this. I think your process probably a little quicker.
But if the Straits of Hormuz haven’t opened, prices will be higher and the situation will be more desperate. And that will go on every day until Iran gives in.
Mark
00:07:50.490 – 00:08:21.080
How do you think it’ll, what impact do you think it’ll have domestically on, say, oil field service companies as well as oil production in the US Because I’ve seen a couple articles, just, I guess, speculation.
But, you know, after Venezuela and now this, some companies are starting to look, maybe more, well before this, probably more overseas as opposed to domestic, at least some of the international companies. Do you see that continuing or do you think maybe this is going to put a quick halt to that?
James
00:08:21.160 – 00:10:10.440
Well, it was actively continuing until a week ago.
All the largest, all the oil field service companies that can grow their international presence are growing it as fast as they can against the backdrop of a US Market that wasn’t supposed to grow. It’s actually supposed to be down a couple of percent this year and not have a growth spurt for a little while.
So it was interesting when Maduro got taken, all the service companies went up and there for a couple of weeks, we were the best performing subsector of the market. Okay. This week, while oil prices have marched up, the stock prices have marched down.
Because now instead of the promise of working in Venezuela, you have the reality of not working in Saudi Arabia and Iraq, where you actually were making money before. I mean, Iraq shut in half of its oil production already.
You shut down half your oil production, you shut down half, almost half of your oil field service needs. So I think that’s what’s hitting them lately. But they’re back to the Same issue.
The oil companies aren’t doing as badly because they’re more diversified. But service is the end of the whip. They’re the most leveraged. Anything that changes at $50 oil, your oil is still worth $50.
My drilling rig has the value of a boat anchor. Okay. So the issue with service is usually more severe.
And since the Middle east was the growth engine for the next several years, second being deep water, having that come to a halt, I think it has a lot of people spooked. But again, if this ends, if they open the straits tomorrow, it’s all back to completely normal again.
Mark
00:10:10.840 – 00:10:36.980
Yeah, it’s just, it’s interesting to see it all get politicized so quickly. And of course, you know, it becomes really clinical here. But you know, you’ve just got a bunch of people butting heads.
But you know, are they really look, looking at, you know, the price of oil and how it’s going to impact the U.S. probably not so bad. I think China and some of the other ones are the people who are using the boats and things like that.
I don’t know, maybe India, some of those other ones are going to feel the impact possibly. Would you say China will?
James
00:10:36.980 – 00:11:02.220
China’s been putting a million barrels a day into their strategic petroleum reserve so they can cut back on their purchases and just quit filling their SPR for a while. But they’ve already started to shut down refineries because they aren’t getting delivered crude. So they’re taking a multi pronged approach.
But if you’ve got a factory and you can’t get raw materials, your choices are kind of slim.
Mark
00:11:02.540 – 00:11:12.380
Yeah, there were, I guess some of the refineries in the Middle east they were talking about. Those shutting down was surprising. I mean, Kuwait or Saudi Arabia, some
James
00:11:12.380 – 00:11:48.730
of them, Kuwait did and I think Saudi was talking about it. They were going to shut down the export of products which is effectively shutting down their refineries. Again.
If you can’t send it anywhere and I’ve got storage, my storage full, I can’t keep running crude. I got no place to put it.
Remember a couple years ago when the price of oil for one day went negative $37, he said, oh yeah, okay, that’s what you may have in the Gulf of Mexico. I mean in the Arabian Gulf, if you have no storage and you can’t get it out, you’ve got five pounds of something in a two pound bag.
Mark
00:11:49.130 – 00:12:01.290
Yeah, it’s kind of, it’s just kind of interesting. Every thought, you know, administration, it will change, you know, the price of oil will just shoot up. And it really hasn’t shot up.
It’s been maybe these foreign interventions that seem to have as much impact as anything.
James
00:12:03.320 – 00:13:34.110
But I think that shows how we’ve gone to just in time delivery. The price shocks we saw 10 and 20 and 30 years ago, they were serious. But you were from an information point of view, you were in the dark.
Today I’ve got a Bloomberg terminal and I can tell you where every cargo of oil and natural gas and LNG and cargo of oil is anywhere in the world on the ocean. I can tell you where it is, who owns it, who to call to buy it, what’s in it. I can see all of that on my screen.
So instead of me going, oh my God, how do I fill my refinery? I look on there and start making calls going, instead of delivering it to Spain, bring it to the UK, I’ll pay an extra $2 a barrel.
And that’s what happened. And so just in time delivery. You know, there’s some analysts who still talk about how the correlation of inventories affects oil price.
Well, inventories used to matter because you had to have a lot of inventory. Now I order something on Amazon, it’s here the next that afternoon, okay, everything’s going to just in time delivery, including oil.
And that’s one reason why inventories don’t matter as much anymore.
And people don’t get their knickers quite in a twist because if you go, I don’t know where I’m going to get my oil, I call my trading desk and say, I’ll pay up to this price, secure me cargo.
Mark
00:13:35.550 – 00:13:47.860
It’s kind of like drilling rigs. You know, you, you know, they used to be only drill what drill a hole.
Now they go lateral and everything else and you don’t need, you know, the changing rigs is not what it used to be for the price of oil.
James
00:13:48.500 – 00:14:36.690
No, no, they have, they have made themselves so efficient and so capable and the associated technologies of top drives and iron roughnecks and everything else, they have almost worked themselves out of a job. In 2008 I had 1600 drilling rigs drilling for natural gas. Today I have 120 every year since 2008, natural gas production has gone up but 1.
So I’m producing twice as much gas with 10% of the rigs, which is great if I’m an oil company and it really sucks if I’m a drilling contractor.
Mark
00:14:37.090 – 00:14:41.160
I think we’ve seen some of that, haven’t we? And consolidation.
James
00:14:41.800 – 00:16:16.430
Yes. You’re still seeing Some the problem is the big guys on shore have pretty much consolidated as much as they can.
And offshore it’s been several years of consolidation. But keep in mind for seven years deep water was in a deep ditch and nobody cared.
And so most of the consolidation was either at the front end sharing a life jacket or at the back end post bankruptcy. In the case of Transocean, no bankruptcy, but everybody else bankruptcy, opportunistic, combining with someone.
While Transocean didn’t declare bankruptcy, it bought several companies who did. And that’s been a very positive consolidation.
But the idea, and it’s good because we’re not going to build a current generation offshore drilling ship. Not while I’m doing this. A billion dollars in five years if you’re lucky. So everybody has to.
You’ve seen the best land drilling equipment, you’ve got neighbors, Homer campaign, Patterson and Precision four player.
No offense to independence, but they’re in a different league and those four won’t combine with each other and they have no interest in buying the smaller guys. And so in some places you kind of hit the wall in overall services. Good God. You can consolidate that dramatically from here.
There are just some companies that don’t seem to want to make a mark
Mark
00:16:16.910 – 00:16:27.990
with I guess some of the LNG being cut off and Qatar. What do you think that does that raise the prospects for some of the American export of lng? Maybe the Cheniere’s.
James
00:16:28.390 – 00:17:46.010
Well, the people like that, it’s good. But keep in mind Cheniere doesn’t. It’s just a tolling business, okay? It’s going to make four or five dollars an mcf.
Turning it into lng no matter what the price on the market is. Most all the US LNG is contracted, okay? We had to get the contracts in advance of building the facility. So we had.
That was basically project financing to build the LNG facility. And once I get kicked up, I start delivering it.
That’s why I said earlier that Pakistan got taken advantage of because they had a weak contracting situation. But most all of us LNG is contracted.
And don’t get me wrong, the parts, the business that’s on the spot market or if you can claim force majeure or anything else and free up delivery of cargo, you are making a really nice bit of change because of what’s going on. Gutters shut down and so they’re our size, so that’s a hit. So that’s why natural gas prices in Europe are going through the roof.
And if US LNG can divert, they will, but it won’t change the timeline of any projects that are currently on the books.
Mark
00:17:46.090 – 00:17:53.970
I think what Venture Global is probably one of the bigger ones, but I don’t know how far along they are with all their projects over there in Louisiana.
James
00:17:53.970 – 00:18:02.650
I think they’re coming up in the next several months. I think right now we’re doing 20 bees a day and that’s expected to go to about 28 bees a day by 2030.
Mark
00:18:02.890 – 00:18:30.690
Well, it doesn’t sound like it’s going to change that much initially. Right now, like you said, 10%, give or take. Nobody’s really thrown in the towel, I guess.
That being said, do you think maybe the data centers and all the demand for power to power these data centers and who’s going to pay for the power in generation? Do you think that maybe is kind of a lifeline or a big help to the natural gas industry?
James
00:18:31.090 – 00:25:19.420
Well, absolutely. Natural gas is Elvis Presley at the height of his career. I mean, the only option we have for the next five to seven years is natural gas.
And so it’s expected that the current US consumption of about 106 bees a day will go to 130 by 2030. 25% increase over five years.
And I asked the heads of EQT Expand and another company that well EOG and they all took the over on the one hundred and thirty.
So from a volume point of view, we are definitely going to increase the amount of natural gas we move around this country and it will be used for both the continued expansion of LNG and to your point, the AI data center power. And there’s a problem that will be easily, easily surmounted as we sit here today.
I don’t have a basin that’s capable of producing 25 more bees a day in five years.
In fact, if you put all of my basins together today, the idea of growing them in aggregate by 25 beads a day in five years, you can’t see a way to do that. So what has to happen is natural gas prices in the next couple of years has to Spike to probably $6 and it’ll probably stay there for a year.
And it will spur a big increase in drilling, it’ll spur building of pipelines. And after about a year, year and a half, we will hit 130 Bs.
135, 140 Bs, whatever it is, and gas prices will drop back down to $4 and 4:50 and we will just hunt along producing 130bcf a day plus some growth rate just like we are now But I don’t see how it happens without getting some spike in commodity prices and natural gas over the next couple of years. The idea that with the current future strip, we’re going to increase gas production by 25 beats a day by the end of 2030.
There is no technology that will let us do that that’s even close on the horizon. So it’s going to require more drilling. In order to kick up drilling, you got to have more price.
But the AI data centers, I mean a lot of them are running by distributed power right now.
Any pressure pumping company that was operating had a diesel powered or natural gas powered by fuel engine, running a generator, okay, to run their whatever they had that wasn’t diesel powered on location. And we’ve been moving to electricity frac spreads, right?
So along come data centers and a couple of the pressure pumping companies go, well, you know, we’ve got generators and engines, why don’t we buy a couple more and we’ll help power your data center. And so this is why you’ve seen Propetro, Liberty Atlas, all these different companies go into that well, not expand that business.
You know, we got a bunch of them in the field, we’re using most of them. We’re going to go buy some more and we’re going to power your plant. Now that’s distributed power.
And then there’s combined cycle natural gas turbines that are much more baseload power. Okay, but you can’t get one for two or three years, they’re sold out.
And the three biggest manufacturers who control 70% of capacity in the world are doubling capacity. So we’ll overbuild them in five or six years, but we won’t start delivering them on an accelerated basis for another two.
And so you’re going to have the distributed mobile power start off, it’s going to move to more turbine powered combined cycle gas plants. That’s behind the meter. That means it never goes, it never pulls power off the grid, but it can put excess power on the grid. Okay?
The distributed power, they’re trying to stay off the grid because if I’m buying power from the grid, not only are you, my residential neighbor, going to get pissed because I’m using up all your power and raising the price. Me building a Data center for 20 years without knowing what my primary operating cost is going to be is a challenge.
And so what as an example, Fermi, Rick Perry’s project outside of Abilene, they have cut a deal that’s very reminiscent of Enron’s gas bank where they go to a couple of far west Texas E and P companies and say we’ll buy your gas for the next 20 years. You produce this much gas and we’ll pay to do it.
And you sell us this much gas and we’ll just take it off that interconnect pipeline that’s right next to our facility. There’s actually two pipelines and they’re going to take them off those two pipelines.
So they have to build a five mile interconnect and they have 20 year supply of natural gas though they’ve already filed for their nuclear permit being the far thinking people they are. But for the next several years it’s going to be all natural gas, whether it’s distributed power or gas turbines. Nuclear is going to come back.
Small modular reactor is going to come back, but that’s probably going to be five to seven years away. But it’s going to come back in a fairly big way. And wind and solar, which are great, I’m big fans, okay, all the above is what we need.
But you can’t use them for data centers. You can’t use solar and wind power for data centers because it’s not six points unreliable. So natural gas has a fabulous future.
And in my opinion you have to see a spike in commodity prices to meet that future. That doesn’t mean they’re going to go to $9 and stay there forever, but shoot to 6 for 18 months before settling back down to 450 to me. Makes sense.
People forget the 25 year average price for crude oil is $63. You always seem to revert very close to the mean.
Mark
00:25:20.460 – 00:25:26.220
I think you do. We’ve seen 60 for how many years now? Like you said, not much deviation.
James
00:25:26.380 – 00:25:29.540
No, not I think, yeah.
Mark
00:25:29.540 – 00:25:31.580
Natural gas has had some big swings though.
James
00:25:32.460 – 00:26:17.540
Yes. With LNG it became a much more global commodity. And just the natural trending arbitrage over time doesn’t happen right away.
US gas prices have to go higher and the rest of the world natural gas prices have to go down because the more we export, the more I normalize the global basis. And so some people got excited about it and kind of front ran the timing on that. And it was three years ago in August that natural gas average $9.35.
I wouldn’t hold your breath on that anytime soon. Don’t get me wrong, it’d be great. But it’ll, it’ll, it’ll last about as long as it did last.
Mark
00:26:17.940 – 00:26:38.470
And I guess there’s going to be a lot more demand for, for all these data centers, it looks like they’re starting to. Well, Texas is now starting to get a lot of the growth versus maybe Virginia. least they’re talking about it, which.
And then you see them being talked about in their backyard, like out there in the Permian. And then anywhere from Dallas to Austin to San Antonio seem to be where they’re putting them all.
James
00:26:39.270 – 00:29:21.000
Mississippi, Memphis, my old hometown. Northeast Louisiana. That one is the size of 94 football fields. Virginia had been the home. But there’s an interesting distinction.
It’s the home to data centers. Not AI data centers, just data centers up. Well, even today, the cloud is one of those sites in Virginia.
The AI model that somebody’s using to run the government, that’s at one of the new facilities that are being built. So the difference between a regular data center and an AI data center is fairly significant. Most all the ones being built now are AI data centers.
You’re also seeing a great deal of activity in the Marcellus area because the thinking is we’re never going to get to build pipelines out of the Marcellus. So all that is stranded gas. So that’s happening, which I think is great. Texas is doing well because we have so much stranded gas in West Texas.
We’re building interconnects that can take Permian gas to Louisiana, which we can’t do right now, which strands all the Permian gas. But that’s just going to start out as an interconnect. So that’s going to take four or five years to move enough gas to matter.
So in West Texas, you’ve got a million gallons of water. You need to do something with cooling for an AI data center and natural gas that on half of the days last year you sold at a loss at the Hub.
Seems kind of easy decision time, doesn’t it? But the problem, again, is how do I power it? Okay, now, the Texas public utility has decided to electrify the Permian, and they’re fast tracking it.
So they’re putting the grid into the Permian, and that’s going to be nice and helpful in many ways. But I’m back to, you can’t put all these data centers on the grid. They can’t get a turbine right away. So my fear is you’re going to be ready.
Okay, flip the switch, Bob. We’re ready to turn it on. And the guy goes, I’m sorry, we don’t have any electricity yet. That’s my biggest concern right now. But that’s temporary.
That’s an arbitrage that will be met as fast as smart people can fill it. But it’s going to be a shortage of power more than it’s going to be a shortage of chips or buildings to put the chips in.
Mark
00:29:21.000 – 00:29:26.680
Yeah, I think. Would you say that three companies built a lot of the, was it turbines? What was it? GE and Siemens.
James
00:29:26.760 – 00:29:50.460
GE, Siemens and Sunday Heavy. But they control. They built 70% of the large gas fired turbines and they are all doubling capacity.
But I mean six months ago the wait list was two years. Now I’m hearing it’s close to three.
Mark
00:29:51.420 – 00:30:06.500
And I, I guess you see a lot of projects being announced. Of course then you see some pushback from the local communities.
You know sometimes they don’t realize a data center may not make the same noise as maybe a bitcoin mine. But it seems like they all get thrown together.
James
00:30:06.980 – 00:32:58.850
They do and I guess I can understand because of the size of these things. They are just, I mean if you could imagine 94 football fields and that’s before they put the power on. But, but, and they make a low humming noise.
You know with a gigawatt of power you would, you would kind of expect that. There is a new term called banana and it’s don’t build anything anywhere near anybody. I’ll have to get the thing right.
Instead of nimby it’s now banana.
And Robert Bryce keeps a track of all the projects that get turned down and he’s done that for wind and solar for several years and he’s now adding data centers to it. But you know there’s a whole lot. You don’t need an urban area. It would be nice to add access, have access to the grid. The big interconnect.
JPM is asking FERC to pass a rule to let them fast track large scale power plants to interconnect. 10 a year, 250 megawatts and higher. And that’s in response to data centers needing power.
And so everybody that can be in the value chain is scrambling to provide what they can as fast as they can. I just don’t think the market has decided yet. The developers, long term users have decided yet exactly how they’re going to do this.
A lot of these places are leased so whatever emissions there are aren’t mine. I just lease it.
And all these tech companies are doing, some of them arm’s length and some of them they’re owning, they’re trying to own the ones that emit the less the least three mile island by Microsoft and at least the ones that pollute the most but own the ones like Three Mile island that don’t pollute as much. And so if you look, while Meta and all the tech companies are behind these projects, they’re not always the ones owning these projects.
And so that’s going to lead to a whole interesting slew of power contracts that are cut.
You’re not going to be cutting a power contract more than likely with Oracle or Apple or Meta, but we haven’t gotten to the point where that’s an issue yet.
And anybody says, oh, we’re already working at a data center, that’s great, but whether it’s full of AI chips or not, I’m going to doubt and that’s what you need all the power for. Not building more of Virginia type data center.
Mark
00:32:58.850 – 00:33:11.210
Yeah, kind of like what is it the one out there in Abilene, Stargate or. Then you see names like Blue Owl come up and some of the other names like who owns who and who’s paying for all the. Who’s taking on all the debt.
James
00:33:12.490 – 00:35:00.810
Blue Owl and debt have definitely been in the news lately. That’s the private credit market appears to be entering a very difficult phase, mainly thanks to the actions of Blue Owl.
They’ve been a big, big, big debt holder in place of banks and other typical credit sources for some of these data centers and Fermi being one, that’s one in Abilene, they aren’t going quite as well as expected. And so they’re having to sell some assets to meet redemptions and they had to deny redemptions to some people.
And whenever a fund starts denying redemptions, that is the equivalent of the bank saying, I’m not going to give you your money. And that causes a run of the banks. And so you mentioned Blue Owl. I just have a concern about the overall private credit markets right now.
But Ferma is the project one of the projects. There’s Stargazer 1 and Stargazer 2, but Fermi is the project that Rick Perry was involved with and they did the stock offering.
6,000 people out there building these facilities and it’ll start up and work here in another year or so. I think they’re talking about the end of this year, which means it’ll be sometime next year. But it’ll be interesting to see what happens.
I mean, one problem is Abilene didn’t have places for 6,000 temporary workers to live and they didn’t have an extra 6,000 workers who didn’t have anything to do. It’s interesting. I’ve been trying to look at getting into the Accommodation, business.
But all the man camps that existed two years ago are now being used for AI.
Mark
00:35:01.450 – 00:35:11.930
Yeah, I remember seeing names. Was it like Target Hospitality out west or you see like, you know, what is it?
There’s like an Armadillo palace out there in Odessa, but you know, the man camp kind of atmosphere.
James
00:35:11.930 – 00:35:25.060
Yep. And now it’s welders working in an AI data center. least they found another use for them. They’ve been kind of empty since oil broke 70.
On the downside.
Mark
00:35:25.140 – 00:35:35.780
Yeah.
Then another name that seemed for a while like Blue Owl was, Coreweave was another name you’d see in the press for a while how some of them would kind of migrate from one business initially to a different business down the road.
James
00:35:35.780 – 00:36:10.110
Yeah, it’s, you know, we’ve been telling people in the oilfield service sector and the energy sector sector overall, find you a spot. There’s lots of things we do. All of this stuff is going to be outside, ruggedized, needing air conditioning, needing power, needing mechanics.
You do all that. So get creative and figure out how you fit. And you’re really starting to see that pick up now. So I think that’s good.
We are no longer in the oil and gas business. We are in the energy and power business.
Mark
00:36:10.430 – 00:36:14.910
I think it makes sense to kind of, I guess, redefine what your mission is.
James
00:36:15.230 – 00:36:15.790
Absolutely.
Mark
00:36:15.790 – 00:36:30.910
I mean, for a lot of companies, like, they’ve expanded their horizons like you said, Atlas, Liberty, Pro, Petro, they’ve all kind of made that a bigger world. And now it keeps, you know, one’s not so busy, another one is picking up and they’re just trying to put out fires.
James
00:36:30.990 – 00:37:01.890
And so far it’s the biggest and best part of their business. Even though it’s brand new, that’s, you know, that’s taking a step ahead when others don’t, you know, Patterson looked at it and passed.
Several companies have looked at these evaluations and passed. You know, if this equipment didn’t being 100% utilized in four years, what value do I give it?
But right now, asking somebody what equipment is going to be utilized, what their utilization rate is going to be in four years, I think I’d rather oil prices.
Mark
00:37:03.330 – 00:37:14.530
I guess sometimes it takes, you know, you have to make a bold statement, maybe like Atlas and, you know, putting in that conveyor, going to New Mexico, sometimes you just have to, you know, strike out. Compared to maybe some of your competitors.
James
00:37:14.770 – 00:37:39.260
Couldn’t agree more. It is the oil business. We got famous with wildcatters, people who took risks. It turns out that it wasn’t brains.
It was perseverance that made all our oil people rich. The Big Rich is one of my favorite books and was required reading for anybody who worked for me.
And you read that and you realize they weren’t brilliant. They just never quit trying.
Mark
00:37:39.740 – 00:37:48.140
Yeah, I think, yeah, perseverance is probably the right word. You know those wildcatters, how many times did some of them make it and break it, find it again and lose it all?
James
00:37:48.780 – 00:37:54.390
Several of them. Too many to count. So merchants poor. I mean, you never know.
Mark
00:37:54.470 – 00:37:57.350
He died one way and the Hunts go another try.
James
00:37:57.590 – 00:38:07.670
So I guess the Cowboys and one on one on the cheap. Yeah. No parallels. No parallels. I just couldn’t resist that.
Mark
00:38:08.310 – 00:38:09.550
Well, I live in Dallas.
James
00:38:09.550 – 00:38:11.830
I’m from Kansas City, so I get to pick on both.
Mark
00:38:12.390 – 00:38:18.320
You know what? You know, one is the most valuable franchise in sports and the other one wins Super Bowls.
James
00:38:21.750 – 00:38:24.230
I’ll take the money. I’ll take the money. I’m not going to complain.
Mark
00:38:24.310 – 00:38:41.990
So I guess looking what would be some, maybe some points people should look out for in the next couple weeks or maybe months. I don’t see this, you know, Mideast drama lasting too long. I don’t think the sides have enough weapons to fight that long.
I don’t have the munitions to fight that long.
James
00:38:42.550 – 00:41:14.120
I think it makes for a very good time for everybody to sharpen their pencil and look at where we were before this happened and be realistic about it. The oil field service companies are going to continue to be needed for a long, long time.
Oil demand is going to go up, maybe at a slower rate than we did the last several years, but oil demand is going to go higher for the next several years. And the most pessimistic people out there agree with that statement.
We argue about how much but net up technology will continue to win, but geez, that’s what’s got us where we are today over the last 15 years. Look for new opportunities. You know, Exxon’s one of the biggest lithium producers in the United States.
Now four years ago, most of us couldn’t spell lithium and take advantage of opportunities. Be bold in an industry like this that looked like it was in secular decline for a little while.
Be bold and brave, meek and mild does not work in this business. And especially right now, capital discipline is finally being understood in this business. I won’t say it’s important. It’s exceptionally important.
And we didn’t have it for years and five years ago. Return on invested capital was a term that most of these companies, E and P and service didn’t know what it meant. And now it’s all they operate on.
And so pay attention to their discipline on that.
But considering it’s usually set by the board, and I figure There are only 7,000 board members who are in bankrupt companies over the last 10 years, that’ll teach you a lesson. So the boards are making it very difficult for a foolish EE and P CEO to start drilling.
Just because oil prices go up, the likelihood we get stupid is low. So you can’t be. You shouldn’t be stupid on drilling wells. You shouldn’t be stupid on borrowing money. So what else can you do?
Find other businesses, become more efficient, focus more on culture than you might have in the past, because that’s becoming a greater differentiator than we’ve seen in a very long time. And keep your head down and do what you do because there’s demand for it.
Mark
00:41:14.280 – 00:41:35.500
Jim, I appreciate it. I guess we should have this conversation another two weeks. It’s amazing how fast our world changes now.
Like you said years ago, you didn’t know where anybody was, where a vessel was, or where a truck was. Nowadays, everybody knows where every vehicle in the fleet is, where it was when it was there, and what it’s carrying.
James
00:41:35.900 – 00:42:23.930
I’ve got an interactive map showing every ship and every time it moves in the entire Middle east.
And I can put a cursor on it and I can tell you the name of the ship, how big it is, where it’s coming from, where it’s going to, who owns it, what’s in it, and how to contact, which I have no need for, of course, but the level of information that’s available to your fingertips today. And then you start thinking about how AI is going to be. Jump into this. Find me the most optimized cargo of everything that’s on the water. Click.
It’s going to be amazing. So it’s gonna be fun. Mark, I appreciate this. Ask me back sometime. I’ll be more than happy to give us where I was wrong.
It’s usually an easy thing to do.
Mark
00:42:26.170 – 00:42:30.010
Jim, I think you’re kind of the old sage when it comes to this industry.
James
00:42:31.209 – 00:42:37.290
I’ll give you all. I’ll give you all question to take. Okay. All right.
Mark
00:42:37.850 – 00:42:39.530
Thank you so much, Jim. Take care.
James
00:42:39.530 – 00:42:41.420
Okay, Appreciate it.
Mark
00:42:41.420 – 00:42:41.860
Bye.
