Energy Stocks Are Still Cheap? Eric Nuttall Explains the Opportunity

[MUSIC] Welcome back to another episode of the Oil Ground Up podcast. I'm your host, Rory Johnston. A reminder to hit subscribe and leave us a review. And if you have any questions of us or any feedback on the show, please drop us a line at [email protected]. Oil Ground Up is distributed in partnership with the Clear Comodity Network at clearcomodity.net and also the Oil and Gas Global Network, the leading podcast network for oil and gas. Our guest today is Eric Nettle, a partner and senior portfolio manager with nine point partners LP here in Toronto, where he manages the nine point energy fund and nine point energy income fund. Our discussion focused on the current unprecedented four-moose energy crisis and have the largest energy shock in history is affecting the value of North American oil and gas producing companies. Eric Nettle, welcome to the Oil Ground Up podcast. Thanks for joining us. Yeah, you bet. Great to be with you. So again, I, Eric, I've known you for years, senior work on Twitter and on B&N, the Canadian Bloomberg, up in Toronto here for, you know, for years and years and years. And you've always been someone that has a positive outlook on oil markets. And honestly, very frankly, we've occasionally crashed on that outlook. But I think right now we're pretty aligned in seeing this current kind of four-moose crisis, the largest energy supply shock in history, as pretty different and pretty special in the kind of sweep of history. So before going into that, could you just give our audience a bit of a background of who you are, you know, where you come from and what you do today. Did it? Yeah, you do day to day. So I am a partner and senior portfolio manager at nine point partners, we're a small asset manager based in Toronto. I run the nine point energy fund, which is the kind of our flagship fund. It's the largest energy fund in Canada. EUM is about $125 billion, depending on the day. We run it energy income fund as well. I've ran that fund since 2010. So there's been a lot of ups, more downs. We've seen the rise of you as Shale hard landing, soft landing, the biggest demand shock in history, and now the biggest supply shock in history. So there's a lot of been a lot of wisdom earned over that time period. And I've been in the business since 2003. So before going into the equities, could you just kind of give a sense of your framework for how you think? Because I think every energy analyst or even anyone tangentially relayed with oil now has a pretty developed framework of how they're thinking about the Hormuz shock about the Iran War. Can you just briefly kind of outline how you are thinking about it? What numbers you're using and kind of how you see it shaking out? Sure you've been. So I've got a short-term view, meaning day by day, tweet by tweet, headline by headline. But the real investment thesis is the medium term. And so we've had a good year so far. And so I would say the near term numbers that I'll go through are more of a frame of reference in terms of how much exposure do we want to have on right now. We've had a great year. Is the market going to take that away from us or not? But when we speak to investors, really the investment case revolves around what I have called the day after. What does the world look like? What does the energy world look like when the straight eventually does normalize and we can debate what that means? The numbers that we use, and we would use a host of different data sources, many of which I think we probably share, use Kepler for inventories, we use oil acts for near real-time production numbers, refinery runs, etc. So in my mind, I would say number one, middle eastern production down 12 to 14 million barrels per day, which we would both agree is ginormous. It's none I don't think any sober mind. And some people would debate this. But just a sober mind on the planet Earth ever thought that the straight would be closed. And if it were to be closed, we'd be closed for 66 days. It is just staggering. And we can talk to the equities and what a stick to energy stocks specifically. But it blows my mind at just the level of apathy in the broader markets where the S&P 500, the Dow can make all-time highs. And yet we're staring at we're down 14 million barrels per day. I think global inventories are going to reach record lows in the next month to month that I have. We're talking about product shortages, real-time demand of furl, the need for a price spike to let's say 177 or 200 pick your number. And yet the Dow makes all-time highs every day. It's just be well-during to me. So I would say, what numbers in my mind? Production down 12 to 14 million barrels per day. Obviously, I have certain mentions on the east and the west. My net numbers were drawing six to eight million barrels per day. Like net net net net net. Is that net of SPR or is that inclusive of SPR? That's inclusive of SPR. Okay. Yeah. So that's the here now. And we tried to monitor, okay, our thing's getting worse or things getting better. It's funny when you have to, you know, way do you trust the IRGC, more than you trust the US Navy in terms of, you know, a ship got hit, a ship didn't get hit. There are lines. I interrupt you here just to timestamp us officially because I think that's especially important in these podcasts these days. So we are taping right now 9.30 AM Toronto time Eastern. And the news this morning is that the IRGC claimed to have hit a US naval vessel and then sent calm has denied this. So this, you know, yes, and I agree completely. We don't actually know it's happening. And everyone's kind of suspect at the moment. Yes. Yeah, we all recall like there were no minds, right? And then we had confirmation from the US Navy over the weekend. And so that's why for investors, like I think it's all it's doing is leading to premature agent to follow this to that level of minutia. I really, we wouldn't do a lot of marketing. I go just regain my voice because we were out in a clonin and Calgary last week. And our messages, you really have to focus on the day after, you know, because you can have a higher conviction call in that. We know or we think we know that irrespective like if the straight opens up today, we're still in a world of hurt. There's just some very historical days coming at us in the next couple of months. And then, okay, what do we look like beyond that? And so that's the numbers I have in mind is an 80 dollar WTI floor for 2027 and going forward. How we kind of get there like we look at, okay, we will have depleted just a shocking amount of inventories both visible and invisible. There is an SPR that will have to restock. Depending on the cadence, our guess is that's 350 to 400,000 barrels per year for three years. Just to replenish the SPR, we would think it is likely that the absolute number of global SPR stocking will be going up. So set that aside. We think we're in a world where it's likely we'll have some element of reservoir damage, productive capacity challenges. And again, we do not know, but is it reasonable to say even 5%? Well, if it's 5%, that's 700,000 barrels per day. A lot of lost production, which is all of the supposed production that UE is claim to want to surge to. So we think about the 80 facilities that have been struck. That's a 9.8 number, a third of which are severe or very severe. So the timeline to replace those. So I don't think it's heroic to think that $80 WTI is a good floor. And that's kind of the basis that we use for security stock selection. Where do we want to be? Do we want to be short duration assets, long duration assets, U.S. Canada, oil, neckass refining, uranium coal, etc. So that's kind of the basis which we're using going forward. So one thing I've noticed through this crisis is, you mean the ever-trueism that price drives narrative. And that when the price has not kept up with, I think, our level, at least I would say justified alarm, there has been this kind of backcasting. This kind of, well, look, and I've literally heard people say, well, look, the Marker Reaction proves that we never needed Hormuz was an exact verbatim that I heard before. I think we've clashed before on the degree to which various of us have thought that the Marker has been underreacting or overreacting to something. But what do you make of the specific? And again, at this stage, it's really harmed my ability to say, look, let's trust the market. The market's always right because well, I would say the market seems shockingly sanguine in here. And again, I can make the math work that this reaction makes sense given the lag and the realized stock declines. And I wrote a piece two weeks ago now about this. And you can make the case. But even in that case, if Hormuz remains close using that same logic that justifies current prices, we're at nearly $200 a barrel by July. If this continues. Because there's no way to get around. If you believe that inventories have any bearing on the market, if you think the supply and demand matter at all, there's no way to get around just the massive gargantuan size of the whole left by Hormuz. Could you just talk, again, in your chatting with investors constantly? I have found that the closer you are to like broad equity investing, kind of S&P 500 or kind of the macro side, there has been this kind of rabid attempt to backfill a logic that makes sense of what's going on right now and to justify equities at all time highs and oil, you know, Brent right now. Now I'm looking at my screen 110 this morning on July, on July brand. That's high. It's not crisis high. So kind of what are what are the conversations like and kind of what is the what is the tone the tenor like what are people sounding like when they're dealing with this market and you're kind of telling them like no, seriously, there's a massive hole like a loony tunes kind of plug has been pulled out the drain here and we're just swirling around the bottom. What are they saying? I think too few people listen to your podcast clearly. I just don't think people understand. I just endorse. They were going to clip this Eric. Absolutely. I think you're doing great work. My job today is not to degrade the average quality of guests that you've had so far. I just don't think people understand what we're going through. Equity investors have been conditioned to sell every geopolitical rally and it's always paid off. I think of Abkake. We lost seven million barrels, ready, eight million barrels, pretty give it give it take. It was just ginormous and we can debate how that actually evolved on the ground in the kingdom. But from a price perspective, anybody who chased that spike, you got your face ripped off. And so every geopolitical spike you go back to Russia, Ukraine, the IA, oh my God, we're going to lose three to four million barrels per day. Biden releases the SPR head of the midterm. You get your face ripped off. So I think there's a tremendous level of ongoing apathy due to historical treadmarks on all of our backs. Secondly, I think just the broader market, very few people benefit from a rising oil price. You're basically your opac, your oil companies and my clients. Everybody else gets hurt. And so there's always this negative bias in the media to always spin things positively or negatively depending on which narrative you want to run with. So I just think reality is becoming so incontrovertible. You, when gas stations are running dry, as we're just at the tip of the spear, as we've used up, you reference the safety buffers, last of the ships, et cetera. The SPR releases our finite in nature. We're using up that safety buffer. And I think reality just has to smack people in the face for them to recognize just the gravity of the situation. People say that Nuddle Guy's talking his book, "No energy investors should want what we're going through." Because a geopolitical spike, it paralyzes capital. The generalist investors are guys with all the money. You know, in energy funds in Canada, let's say roughly $5 billion. And that's a rounding error. So you really need the buy-in of the generalist. And we're not getting that today. We just said a major transaction in Canada. It was a $22 billion acquisition. Over cash, you could say the paper is probably a very low quality. So we should have had a material recycling of those fund of flows back into equities. And you're not. Trading a desk, say, look at. Guys are selling, but they're just sitting in cash or they're going elsewhere. You're not seeing that capital come back. And so geopolitical spikes are not positive in nature. But to address your primary question, like, why can people not see what we think we see? Then I would say on you and for me, it's a pretty high conviction call at the moment, because it's just as math and it's logic. And you're just, it's this ongoing, it's going to be okay. The straights got open up. Well, why? Because it has to. Well, what happens then? Well, we fall back to $60 oil. Like, that's just, that is consensus right now. And in that, I think there is a massive opportunity. I would almost say generational, but generational was really the COVID lows. But we're close to that where I combine names. I think discounting an oil price in the 60s. We think 80 is floor. Obviously, we're training materially higher than that. But it's just this ongoing apathy that is just astounding to try to answer. Did it be an interview with Andy Bell? It's the last. His last one, I believe. Andy Bell, for those that are aware, is a long time kind of stalwart of the Canadian commodity coverage space. 25 years. And I was honored to you, accruciated me to be his last guest. And we've, I've been doing shows within for 15 years. But that, I think that kind of went viral over the weekend. There were some people that retweeted that saying, ah, I see, they're just starting to figure it out. We're just at the tip of the spear. So for anybody that feels like you've been going slowly insane from like looking at what has happened, what is going to be happening and asking why is the broader market not seeing that? I think that's just it. It's just people want to believe in a different reality because it suits them better. But where we're heading, I think, is is incontrovertible and unavoidable. So I think when we're talking about this kind of, you know, the day after and kind of when this eventually wraps up, I had been modeling that if we reopened, ah, hormones like full bore on May 1st and we started the restart process, we were still down roughly cumulatively near, you know, roughly a billion barrels of total golf production that we expected to be produced this year. This is factoring for the lagged restarts that we expected to be produced this year that now just wasn't going to be there. That was going to kind of mathematically be taken away from global stocks and we thought, well, there's eight billion barrels of global stocks. Well, actually, it's more like two and a half, three of functional, accessible kind of OECD commercial stocks are like, we're talking a huge chunk down, like largest stock decline in history. And that assumed we were open on May and well, guess what? I don't know if you're aware of this, Eric, but the straight-up hormones is still closed. It's still closed. So at this stage, it kind of seems like maybe like, okay, like if we're talking June, then it's near one and a half billion barrels. That's exactly my number. I'm 1.53 billion. We're all making numbers up. Yeah, I mean, it's all rough approximate. That's my number. That's my number. 1.5 billion. And you've got JP Morgan last week in the viral report saying there's only 800 million of, I'm going to call it working capital, working inventory that you can draw down before the, you know what hits the fence. And that's been the question of every conversation I've had for the past months. I go, okay, yeah, when does the, you know what, hit the fence? When, when does the system break? Because that's when you can have as many journalists as you want and CNBC saying this is all fine. We don't use oil. And, you know, we're only 4% of the pocketbooks of the American is spending on oil. We will get through this analogies of the 70s, all this stuff. But when does the, you know, at hit the fence where the average guy going in CNBC goes, okay, we got a problem. And that's really when energy equity starts to respond. And we're approaching that day very, very soon. Is there, is there any, and again, I, as I was saying in our, in our, in our pre chat, I don't do a lot of equity analysis at this stage. I hope to do some more in the future. But at this stage, I'm like pretty pure commodity market. When the equity start responding, is it, is it basically the same time that, you know, prompt Brent futures will also be responding? But do you see it as kind of those will begin to rise together when that kind of, when the you know what hits the fan? Is this the entire, basically the entire energy complex, re-rates higher? Or how do you kind of, is there any difference? Like it is there a lag between oil? And again, we're all going to get the specifics and the stick handling of the exact timing of this wrong. But just like again, in your mental model, just crude leap and then equities follow or the equity equities actually should lead crude. Because we always talk about how commodity markets are spot assets, not anticipatory. These by definition are anticipatory assets. Like how do you think about that timing? I've never been to believe that the, the equities lead the commodity because the equity guys know better than the commodity guys. And we're going to find out together because honestly, there's no playbook. Like I wish I could go to my bookshelf now, take off the, you know, 2026 biggest supply shock in history playbook. And we're, we're really trying to figure it out. So my job is, okay, decision one was when do we want to allocate fully towards oil? We made that decision in January pre-earned because what we coined the most anticipated oil supply glut in history was not showing up when we can debate that and we'll save that maybe for another show, but no, I'll have you back on after this is done. You can debate the glut. And we're never going to find out unfortunately, but I know, I know it's, it's lost. It's so sad. There was a good, we could have sold tickets to that one. So I would say that we were not seeing it show up. And so we went from heavy natural gas to heavy oil. So roughly 70% and then it started become a little obvious that, okay, not the straight closing is again, I would say none of us fully believe that ever, but that there was going to be some tensions in Iran. G maybe that's going to influence oil price. And yet oil stocks were being priced off of $60 then, I would say. So we went full bore. So decision one was already made for me as a fund manager. When do you deploy made the done? Now we're fully deployed. So the question now is when do you undeploy? When do you take risk off? And there's two decision making trees in my mind to that. One is the very short term. Will we, you know, you we've had two US merchant vessels supposedly travel through the straight last night? Is that indicative of a non freezing? Will those, you know, sea captains be to be willing to navigate? What is now being confirmed of late sea mines? You've got a leak Pentagon reporting. This is going to take six months to fully take care of them, etc. Fine. Will the oil price crash because you've got financial liquidation? You had a guest a while ago and I met him in if you had an OPEC meeting. He's great. Like he's all about the financial versus the physical market. It is ratio. It is great. He's great. Yeah. So I put him on the podcast. I think he said the ratio now is 83 to one. Like for every one barrel that we consume 83 of them are traded. So as an equity guy, you have to be aware that you can have short term deviations where you've got, you know, you got to know about positioning and at length. And it's the 83 to one ratio. It was crazy in the short term. It's the reason I think some time. where you can be saying, "What's Jesus?" This is really, really bullish. And yet the financial market is just not reflecting that. So the two decision trees is short-term. When or if do you take risk capital off because you are worried that the equities will pull back? I'm not that worried right now. And the reasons for that is I think there's a tremendous amount of buying power on the sidelines that recognize what I'm going to talk about in a moment. That is, there is no normal that we're going back to. The floor price is certainly higher. We can debate it. I would say consensus now is 70 to 75. I'm a little higher than that. And I think there is a lot of capital on the sidelines waiting to buy equities because nobody wants to buy the rip. But they recognize there's been a structural change to the macro in a positive way. And they want to buy it, but they just, they're afraid of being wrong. I think it's just human nature. Nobody wants to be wrong. And so you don't want to buy a spike and then have to justify to your CIO or your clients. You know, we bought oil when is it 110? And Trump came out and saved the day. And we crashed down to $70. So the next decision tree I have to make is, well, how do we retain exposure and what does the view that we're using for that? And that's where I referenced earlier. We just think the world looks a lot more bullish than it did even in January and February. I would say that equities, energy equities are cheaper today than what they were like in January and February. Even though we may forget energy stocks were outperforming in the beginning of this year. Even before a run, there was this whole halo trade, you know, this concern about software and AI and stuff. And, you know, people wanted to own hard assets. At the time, copper was working, gold was working, oil was certainly starting to work. So there's this underpinning of support. You've got a lot of money on the sidelines wanting to buy and stocks are cheaper today than they were, you know, three, four months ago. And by cheaper, is that based on your new floor price, a new floor price, is that based off of the kind of historical relationship? Because as I understand, equities tend not to price purely off spot, but some kind of, you know, average of the forward curve, you know, et cetera, et cetera. Is that what you're meaning that relative to forwards, that they're even cheaper or how do you see that? My two favorite metrics that we use is enterprise value to cash flow or free cash flow yield. And when we look, we look to 2027, my partner, who's based in Calgary, does all of our internal model and we don't rely on banks to do any of our work. I think the average sell side analyst today is just focused on job preservation and isn't financially incentivized to make bold calls anymore. So it's really critical to do your own work internally. And we do that. We have almost every company in North America modeled out. We model it out the next five years between $1,600 oil. So what I would say is stocks were probably discounting an oil price in the 60s in January. Our target for oil was about 70. So you're discounting 60, or upside is 70. Today, I would say that we're through discounting an oil price in the 65s, depending on where you look. You know, I can reference the large cap Canadian guys at 60 to, sorry, at $80 oil, they're trading at six times cash for lower. We think fair value is eight times, or about an 8% free cash flow yield because they've got, you know, decades of steflight inventory. I look at the midcaps and at a 80 floor, they're probably discounting an oil price in the low 60s. Where we see meaningful upside. So on a free cash flow basis, they're cheaper today than they would have been where we thought the reasonable floor was before. So, you know, we're up roughly 45% on the year index up 42, 43. But there's still, I think an incredibly compelling investment thesis in energy and specifically in Canada and specifically in oil. We'll be right back after this short break. In mining, the difference between a good project and a great investment often comes down to one thing. Visibility. Tara Hutton is a Sweden-based mining investor platform built to make the invisible investible. Even the strongest project can be overlooked. Geology is inherently complex and data heavy. 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I would almost argue though that like the long term trajectory, like there's there's always a cost to these crises. And to your point that, you know, there is this is not what the oil industry itself would ideally want. Even though they are going to make pay off of this spike, you know, the volatility is in no one's interest for the long term economic health of the economy for long term demand. This is why, you know, OPEC itself had always been in favor of, you know, low or and stable prices to preserve that kind of long term demand for the product. So I wonder sometimes about whether or not, you know, what this is going to cost us and say a decade from now in the delta and where Asian demand was going to be. Or could you talk to me about how you think about those different segments in the equity space between Canada US, between large and mid, between let's say oil field services or refiners and and straight MPs. What do you think about, like what do you think has the best prospects in over the next say five to 10 years of kind of the view that there will be some kind of additional bid, I think overall, you know, tighter markets, overall higher prices. And I think on a narrative and sentiment basis, kind of this tilt towards, or at least tilt away from the Middle East in terms of energy security. I think we, you know, prior to this again, back in the super glut kind of debate, there was, they was basically OPEC versus the non OPEC Americas five. You've got US, Canada, Guyana, Brazil, and Argentina, kind of the main bulk of the growth at side of OPEC. Do all of those producers see a beneficial tilt from investment interest and kind of trade diversification interest or does Canada the US as an example outperform relative to those as well? Yeah. So I think the single largest opportunity today is in the Canadian oil sands or other plays such as the Duverne or the money that share the same attributes, which is long life reserves whose average quality does not erode over time, significantly, where you can benefit if because you have long dated reserves, you don't need to deploy nearly as much capital of inventory replacement. You're generating more free cash flow. And we were the biggest champion going back several years in terms of the power of meaningful share buybacks over time, the compounding impact that that has. We have names that we bought, one specifically is one of the greatest buys of our lifetime. We bought 9.9% of a small, what was then a small cap oil sands producer off of stat oil directly at 18 cents and the stock today is $12 and the stock today is cheaper than when I paid 18 cents and we think it's ultimately a $22 stock or higher. Why is that stock performed so well? Partially it was because of the oil price. You know, when we bought it oil was at 53. We thought I was going to go to 60 the time this is many years ago. You'd benefit from the free cash flow increase that they would experience. But it's really they were the first company to commit to use 100% of free cash flow for share buybacks and they've bought back a ton of their stock. And in doing so, it's a certainty that the remaining shares become more and more valuable over time as long as the oil price doesn't fall and it's gone up since then. So What we want are companies with long dated reserves in a world where my view is demand for oil, skinny, and grow for many decades to come at a probably a moderating pace. But that's fine because nobody talks about the decline rate in the offsetting barrels that we need to replace every year. The stat that I love is like there's 79 oil producing countries within Nanopack or maybe that's 80 now with the UE and 74 of those 79 were in permanent decline. So you listed the countries that can grow. It's a handful. And you look at even like a guiana beyond 2030, you can debate whether there's growth or not. And so I'm structurally bullish oil, the level of that ebbs and flows. But it's just really what excites me the most are companies that can just every year consistently buy back 10% of your stock, maybe organically grow production a little. Like we've got one company that I referenced they're growing their production by 75% of the next five years while also buying back their shares. And when they reach that plateau production level that have sustaining production of 40 years, well, they'll be training at a 17 18% free cashier at that time. So theoretically, they can pay me at that point a 17% dividend year for 40 years. And they'll have already retired a lot of their stock. I've got another guy they're growing by almost 50% of the next five years. And at $80 oil, the generate excess free cash while doing that to pay me a 9% dividend along the way per year. So that's really the power of compounding. It's super corny, but I believe Einstein called it the most powerful force in the universe. It's just giving it the passage of time year after year after year and you wake up three, four years from now and you're like, wow, like this was wild. And so when we've seen that, 18 cents to 12 bucks. No oils helped, but it's really them consistently buying back their shares at a time when sentiment has been really challenged. Like, it's not true today, but we were bleeding money as a fund manager for three years. We were getting fired every day by about a million bucks a day. Like our, our EUM in our main fund peaked at 2.2 billion in November, 2022 were up since then significantly. And yet we fell from 2.2 to 1.2. So we, we bled over a billion dollars of Exodus funds flow because people did very well. And they were suddenly overweight and we had to fight the ESG narrative and the divestments in the sunset industry and peaked them in at all of these different things. And so it's sentiment has been hugely challenged. And that's why it's been even more important for these companies to be so aggressively buying back their shares. You could argue that given the structural imbalance now and the supply challenges we have, perhaps it's time to see a little more organic growth than what we would have championed over the past couple of years. But you have to be confident that the equity market will reward companies for that. And I'm just not confident supremely in that yet. What I am supremely confident in is, you know, as long as oil price cooperates, if a company buys back 40 or 50% of their shares of the next five years, the stock's probably going to double from here. So again, you, so you focus primarily on the, on the Canadian oil and gas phase, although you kind of, you do look across North America as well. The last time we were together in a room was at the CD how energy conference here in Toronto. It's a big think tank in Toronto. And we were talking about the kind of outlook for Canadian oil and gas, the oil for the oil sands and the kind of policy environment in which that industry operates. And that was at, you know, in the, or is still relatively early days of the new carny government. Could you talk a little bit about how you're seeing that change, kind of what has changed, what hasn't changed and how I think importantly from your view, you know, the degree to which global capital is also noticing a change. If there has been, you know, if there was a Trudeau discount on, on Canadian equities, our Canadian oil and gas equity specifically, you know, is there still a carny discount? Is it a premium now? How do you think about the effect of the change of leadership and tone in the country? I think we can always, I think we will always, you know, say that, you know, the, the, the government can be more pro oil and gas. But I think it's, it's fair to say that carny is less against the sector than, than was the Trudeau government. So can you talk to me about a little bit about how you're thinking about that tone from the top element in perception internationally at least of the industry? Yeah. So from a tone and talk perspective, undeniably, things have vastly, vastly improved. Like we've gone from a prior government that said there's no business case in LNG. We had an energy minister that said that, you know, oil demand was going to be peaking in 2025, which was kind of starboard. That was, that was a doozy. That was, he's only now our ambassador to Europe, I think. So that was a bad, that was bad. Like just so bad, you know, from an energy and perspective, you, you, you, and I got to travel the world and meet with other oil ministers and just the level of sophistication in like Middle Eastern countries versus here is kind of embarrassing at times. So okay, what's changed? Tone is improved, talk has changed. We've eliminated, I would say like the lunatic fringe within cabinet that we're debating or championing windfall prophetaxis twice, like though that was hotly debated twice at a cabinet level. So the gui-boes of the world, the Wilkinsons of the world, thankfully they've moved on to other things. So I don't think we need to worry about elements like that. However, my read of the room is that Mark Karney remains a bit of an eco-zellate. They're committed to this notion that Canada can save the world by lowering the carbon emissions footprint of our production. And the, you know, that leads to, well, we should invest $30 billion into the pathways initiative fully loaded, which is the most recent number I've heard. And the reason we, for listeners that aren't aware, the pathways initiative is a large integrated oil sands, carbon capture and sequestration project in Alberta that was tied to the promise of this West Coast pipeline. And again, it was just, just, just context that. It was going to future proof our industry and was going to give us social license. Those two phrases drives me insane because they underpinning philosophy, which shows why all of this is so flawed is I am told Mark Karney believes that Canada would get a premium for its production if we had a lower carbon footprint because the India is the world, the Africa is the world, would actually pay a premium because we had a lower carbon footprint. And I can assure you from speaking to certain ministers of those countries and also directly asking the oil sands, CEOs who sell the barrels, what their thoughts were on that. Like when I asked, okay, so how many of your clients, your customers ask you about what the carbon footprint is of your barrels? And it took in three nanoseconds to yellow none, like zero. So going back to your question, I can we could talk with this for a long, long, long, long time. Like I did a talk in front of a standing committee at the House of Commons for natural resources. And it was just, I think one of the lines I said is as a private citizen to have to sit here and explain to you why this is such a vitally important component of the Canadian economy and why we shouldn't be handcuffing it is embarrassing. They was just startling. But so I think tone has changed, talk has changed. The whole we're going to build fast and then we've ever built before. Over 15, 16 months, something like that into the government, I haven't seen anything new. So my base case is the business case of a new million barrel party pipeline to the west coast while it makes all of the sense in the world. I think it is a pipe dream. I think industry should walk from pathways. It's just genuine, scenery capital. It's relying on a functioning carbon credit trading market which does not exist globally. It's going to make us less competitive. And frankly, we don't need the pipeline. We've got this new, a primary connector, I think is the most new name for it, which is a 550,000 barrel per day proposed pipeline using keystone existing infrastructure. It expandable to 900,000 barrels per day on stream 2029. I'm told maybe really 2030. There's expansion of existing pipelines and infrastructure that amounts to about 700,000 barrels per day. So we get up like a million and a half barrels per day of incremental takeaway that gets us through to the 2030s. So we don't to bend the knee and to have to take on this massive, the onerous project, which was contemplated in a very different world than the world in which we are today. I think would be epic stupidity. That is what I'm told is the grand, you know, I've pointed the grand ransom. You know, what do we have to concede to Merckerny to get a pipeline that we no longer need, given that there's been workarounds to it? So I'm probably slightly more charitable on the Northwest Coast oil pipeline or whatever we're calling it these days than this. But let me push back on something because I think there's an important debate to be had here. And I actually had the opportunity alongside Peter Turgzakian to speak to the same standing committee that has the commons. I want to say that two weeks ago or so in my big push in my comments were essentially that there are so many different paths. I think as you noted, there's I didn't realize that they officially renamed the bridge or expansion pipeline to the prairie link pipeline. So I, as a much more Canadian ring to it, which I like. And we have the kind of 400,000 barrels a day potential on Nbridge mainland expansions, 360 on incremental expansions on Transmountain. You can make the case, and particularly on the economic acts, that the Northwest Coast oil pipeline is by far the least attractive of those options. That you could probably, you could basically build all the rest of those connections, all those just those south and Vancouver facing pipelines for a fraction of what it would cost the $30 plus minimum billion would take to build this pipeline, which you couldn't have told that high to cover that likely, because it would destroy the kind of marginal discount and kind of clearance price in the basin. It's kind of, there's a lot of messes to it. The challenge, I think, and then what I kind of press the committee on, I'm going to press you a little bit on now, too, if we can, is the historic evolutionary path for the Canadian oil industry, in particular, a Canadian oil trade, has been, the US has basically been the plan for the very, very long this time, that we've always talked about West Coast and Pacific Basin access, and we finally did get that with the Transmountain expansion. Great. It's kind of a drop in the bucket of our overall kind of exports, which remain 90 plus percent dominated into the US, particularly into the US Midwest, and to pad two, which kind of buy that kind of mutually assured destruction of those two, basically where the only possible supplier of heavy crude into the Chicago area into the Midwest, and there also the only place we can put that group. So when it came to this time last year, when we were staring down the barrel of potential tariffs on Canadian oil and gas, and again, I think you and I both believed it was never going to fully happen, but then there was like two days there where it was actually priced into differentials, very annoying, whereas I think you looked back at the other experience, the broader experience inside the Canadian industry with tariffs. And the research is kind of showing that US consumers and corporates paid 90 plus percent of the incidence of those tariffs, whereas in the Canadian oil issue, because we didn't have the ability to diversify our trade away from the United States, we were likely going to eat minimum 50% of that incidence, potentially more depending on where the power push up the pipe. Is there, because again, the corporates view, and I think you as someone that buys and manages the corporates as kind of investment assets, your interest is primarily in the greatest possible egress at the lowest possible per barrel price for those expansions, which maximizes netback, which I think is exactly the purpose and the kind of, you know, the main goal of industry. I would argue that the West Coast pipeline has this kind of strategic and tangible element to it. And again, we've been talking about how the Saudi East West pipeline as an example was an asset that was built in the 80s, was only marginally utilized. I think it's got a 7 million barrel a day capacity, two to 2.5 million barrels was all that traveled on it for 40 years. I think if we talked about that in Canada, that would be we would talk about it through the tone of an underutilized government boom doggal. But all of a sudden overnight, that pipeline became arguably the single most important piece of energy infrastructure on planet Earth. And I think there is an argument. I don't think that necessarily in the I argue that there should be government involvement in the capitalization of that pipeline, whether that's a Alberta government or the crown directly in Ottawa. But there, you know, there needs to be some kind of way of paying for that strategic value, which I don't think that the industry itself can pay for because it's a sovereign risk. It's not something that is kind of, you know, by doing so in some ways it's almost a violation of antitrust because it would be them banding together to get around some kind of greater common kind of commercial adversarial strategic adversary. So I'm I'm I'm blathering here, but I just kind of want to get your feeling on this because I think I completely agree that in order to get a Northwest Coast oil pipeline, it has to be a much bigger national project. Whereas, Roger expansion or the peri- peri-lank pipeline and bridge main line, et cetera, if we leave the industry entirely to its own devices, that is what will happen. That is we will see incremental expansions along our current path. A lot of those barrels will likely end up finding their way back down the same initial Keystone XL and original pipeline route down to the US Gulf Coast and Houston basically becomes our primary Canadian kind of blue water port to the global market instead of it being in Canadian sovereign territory. Could you talk to me a little bit about again, even separating your mind a little bit from a portfolio manager to kind of enthusiastic Canadian about the oil industry and also kind of how industry talks about this. I'm just curious to kind of hear your thoughts. It's going to be a very short debate. I completely agree. I completely agree. OK. Like, no, if we were a business, if Canada was a business, and you were selling prior 97% of your product to a singular customer, you would identify that as a mission critical problem to have to be solved. And you would want to diversify your customer base. And Canada for many, many, many, many, many, many years didn't see that as a risk. So I completely agree. We need to diversify our customer base. And we need to have a more direct way to send barrels to those areas in the market that are growing. However, the reason why I say it's a pipe dream is I've get to talk to the companies that would be writing the check to pay for it. And I cannot identify a single entity that is willing to pay a check, write the check for $35 to $40 billion. So that's why I'm not up to agree with you there. And I've used a line like, no other country would do those to themselves. No other country would shoot themselves simultaneously in the head and the foot and have to debate about whether we should building out pipelines. They don't have that debate in the United States. They don't have that debate in the Emirates. They don't have that debate in the Kingdom of Saudi Arabia, where the only country in the world that thinks that it's it's debatable in terms of whether we should be increasing our export capacity. Like, of course we should. It's our biggest net export. And it's the only industry that can lift us out of our 1.2, 1.3 trillion dollars of new debt. Like it's just shocking that it's a, I did a CTV interview last week. The lady ended it off. And of course, it was the last two seconds of a debate. She goes, and yes, it's very controversial. It's like, what's controversial about a piece of tubular steel that transports a product that everybody on planet Earth either uses or wants to use in ever increasing quantities? Like, how is that contract? How did we get to the state of a nation where we're, it's actually a debate. Like, I know, I'm sure how much trouble you've had in the Middle East, but I was in Qatar four or eight years ago. They just had the world cup. And it's a country completely financed through LNG, a little bit of natural gas. And I actually got to meet the gentleman who he was actually thought of the actual notion of LNG. And you walk through this country. We don't debate the politics and social systems, whatever, but just the infrastructure. Like, this street, there was not a pothole, you know, nowhere who is the smoothest, wonderful streets. My street here, I live in North Toronto, like Good Neighborhood, it feels like I'm off-roading in the Sarangetti on my street. Like, the schools, they have three times more doctors than we have on a per capita basis. All of it is financed through hydrocarbons and LNG. And so, the line is like, we could have what they have if we were just not so stupid as a country and make it controversial and whether we should be building up more pipelines. Like, of course, we should be. We literally have people calling us now, begging us for our energy. And we're like, ah, I don't know. I don't know if we had the social life license. We're sorry. We have to future proof before we send you more barrels. It's just so dumb and it's so frustrating. Can we, let's turn our gaze briefly south of the border? And I know you don't spend as much time following those companies at the kidney, but obviously you kind of still are, you know, aware of the broad kind of factors driving them. One of the things I think that has been an uncomfortable and unwelcome reality for the Trump administration through the past year or so has been, you know, the administration that came in on drill baby drill is likely going to be the one that oversees, again, at least prior to, or moves, you know, all indications that we were going to see and, you know, exit, you know, US-product crude production exit, 2026 at a lower level than an enter 2026. So this was likely going to be, what I would at least consider the economic peak of shale. I push back against some of the kind of geologic fatalism, but I do think that like at 60, 70 bucks, that was going to be it. But now again, there's this question of like, does this change things? I think so far we've seen rig counts only continue to fall through the crisis. So I would say so far there has not been a visible uptick in upstream activity stateside. But we also know that the United States now is the largest oil exporter, like I can't remember the exact style. It was like, it was that, you know, last week it exported more than Saudi Arabia, Russia, Kuwait, Iraq, all together. And sure, those are some pretty charitable kind of, you know, on the floor baselines to comp against. But again, I think the point is that right now in the world, North America is the most energy secure region on planet Earth by a long shot. And the rest of the world right now, Hormuz starved as it is, is willing to pay much more for those barrels than our North Americans right now, which is why US exports in particular or surging to like well past all time highs. What do you think? And again, so far, there's no new oil yet, right? That's all a combination of stock drawdowns and SPR releases. Basically, the US hemorrhaging it stocks to the rest of the global market. Do you think that there will be kind of an attempt to chase these prices, like after it'll give this last another month? Like if we get to end of June and Hormuz is still closed and we're kind of, we're up around kind of like 170, 180 Brent, let's say. Do we see the US industry kind of kickstart into action? Or is there just kind of a trend change entirely that won't pick back up again? Because I think what was it? 2018 saw the all-time high production growth rates. If I want to say two million barrels a day, you're over a year in total liquids. Largest any country ever grew supply and history. It seems unlikely that we're going to get back to those levels even with prices well above where they were obviously in 2018. Yeah, so one of the reasons why we were bullish on oil pre-eron for 2026 was we thought it was going to become consensus that the toilet of US Shale was here. Now, you point out it's price dependent, right? I don't know, 60s, 70s. We were thought production would peak. Peak rates were August of 2025. I think we're down 130,000 barrels pretty roughly from those levels. Yeah. If we hit 170, do you see a rig or two here or there added? Yeah, probably. But it's those the era of meaningful growth, the hyper growth as I was calling it. I think it's clearly over. You know, when you think about the magnitude of inventories that can have to be restocked, SPRs, Enchored, and Minturic commercials, all that stuff, we actually need it. Like, we're going to need every barrel that can possibly be produced. But I just don't think US companies will chase a rise in spot if the other years don't meaning free re-rate. I think 70s and new marginal cost to supply for US Shale. And it's become a more honest conversation in the past three years where we would go into a company, you know, meetings and we'll mention companies. But the conversation started with there is no problem. There is no inventory problem. That was like three years ago. To yes, there is an inventory problem. But it's not us. And then one more year's think, yes, there's an inventory problem. Yes, we have our challenges, but we're much better off relative to that company over there that you're going to be meeting with next. And this is inventory in terms of producible inventory, like reserve base, not stocks. Yeah, we always ask, okay, how many years of state flight inventory do you have? And it's a simplistic question because obviously, a quality of inventory will be a road to retirement. I said all of that's a set aside. How many years do you have? And it went from 10 to I would say the average guy would say we have five years of quality state flight inventory left, which probably is a lower number than what they're actually saying, if history is any kind. And it's one of the other reasons why we favor Cano over US because we can we've got decades and decades and decades. I'm going down and Houston next week. All of a more informed answer to your question. I'll put some stuff up on Twitter. But I don't get the feeling like one, the the private realm of US shale oil focus companies has been hollowed out. A lot of it has been consolidated. They have usually been the very bad actors. We're seeing that actually happened natural gas right now, which is another reason why we're bearish gas. So you don't have the privates. They're going to, you know, they're going to chase spot. From a more mid cap larger cap, you've already had Chevron commit to keeping the premium flat even though they're going to grow from wanting to find X on his X on they're going to do a Dexon does diamond back. We're waiting on there probably going to add a rig or two soon. But I think on an X index, we're talking very, very modest production growth. I don't think US shale in an aggregate can grow by more than two to 300,000 barrels per day going forward, even if they wanted to chase spot price because I don't think they have the inventory to allow for that. And also as you chase production growth, your corporate decline rate increases meaningfully and then you're cannibalizing your existing scarce inventory just to, you know, the faster you're around the faster the treadmill is going. And I think companies are very lery to do that. So I think sticking in the US for a second. And again, I think this almost connects back to my prior question around kind of strategic optionality and access to Pacific and everything else. I think one of the things that if we still, if we continue to draw down these stocks really aggressively is stateside. And inventories are basically emptying. Prices are beginning to rise. And this still isn't wrapping up that, you know, the the optimism the White House fades that, you know, this is getting, you know, this is more of a slog than they had even planned. I still think and despite all the protestations and kind of claims to the contrary, I still think that we see a risk of export controls out of the United States. I think probably not uncrewed because I think the crude side is so imbalanced, but I think there's a chance of it on the product side. And I think that, you know, particularly dovetailing with their, you know, three month extensions through August of the exemption waiver for the Jones Act. A lot of it is like the pieces are in place to limit product exports, keep, or try and isolate or buffer the US, voting public in particular against some of these price increases. How do you think about that risk again? And they've, they've denied this, you know, at, at nausea at this stage, but they also, I mean, Bessent also denied that they were going to extend the waiver on Russian, at, you know, you know, Russian barrels. And then two days later he extended. So I'm not putting a lot of stock in what they're saying publicly, but again, acknowledging that they have denied that they're going to do this and then either you're thinking about it, everyone's talking about it. So one, how do you think about that risk and again, how that kind of plays into this monopsony kind of over concentration risk in the US market for the Canadian exporters? And then specifically what kind of, you know, this crisis already had a bunch of interesting effects on, you know, different differentials. So like, you know, Canadian West, West Canadian select prices were lower in Venezuela than really tight again on the crisis and I've widened back out again, whereas synthetic and mixed suite in Edmonton are trading really, really rich relative to the WTI premium right now or WTA benchmark right now. So there's a bunch of, a bunch of weers of happening with King Group pricing through this crisis as well. How do you think about those risks and how they bear specifically for the Canadian industry given that we are kind of locked into the US kind of oil market broadly and we're going to have to kind of eat whatever they put down on this. It's a very good question because it identifies one of two key risks that I am spending as much time identifying, you know, what's the upside and where it should be from an asset mixed perspective, geographic perspective. The two risks I see one is, you know, erosion of demand growth due to high prices. I think that's a certainty and we would probably both agree is necessary to balance things. So is that a risk? I'll categorize it as such. The second is definitely the possibility/likelihood of an export ban I agree with you. I don't think it'll be on oil because if it is, it's an interesting conversation in terms of what happens to Eastern Canada. Both of us, you know, where does our gasoline come from? But I do think it's reasonable and it's something. It's a reason why we use several different consultants to try to identify that risk for us that have experience either existing or prior in the White House. I think it's a, as of today, it is not a risk. I think as we get nearer to the midterms, as we have the gas thing price nationally rise, I think we're roughly five. Give or take now. Like if we approach six, I've been told there's kind of three red lines that as we get near to the odds of that go up. One is the national gas thing price because no US president cares about the oil price. They care about the gas thing price. We know that. That's six bucks. The other is a 15 to 20% decline in the S&P 500. This is a president that watches the Dow and the S&P on a daily basis. The White House sends out tweets to announce record highs. So very clearly it's something that they're watching. And thirdly is the 10 year if that rises, I think I was told 5% give or take. So if the rates go up, the prevents interest rate reductions by the Fed, which is clearly a bias for the current administration. If the stock market goes down meaningfully and if gas thing prices go up, that is where we're going to get more and more concerned. And we would then look to, we're going to do our best to anticipate that we need to. That's when you start to take risk off. I think it would be a short term. It would be self correcting eventually. I agree. It would have a negative impact initially on US and P, but the second derivative is very clearly would back up oil into Canada. And it would be very very negative for a Canadian oil producers as well. So it is a risk. We're aware of that. And we're doing we're doing to the best of our abilities to monitor that in real time to see if it's something we have to take action to or not. And I should note, it's a risk that would be greatly moderated if we had a empty one million barrel a day bit of an pipeline to the norther bank. It's not much of a debate. I totally agree with you. I just you're going to have to rate the $40 billion check though because I can't find anybody else. You know, just a few more subscribers Eric and we're going to get there. You're like a hundred thousand on Twitter. No, it's amazing. There we go. It's all the US president stealing your material. It's incredible. I didn't get paid for it. It's so sad. I was so sad to talk to you about two experts. Like how dare they crop you? I know. I was actually quite, quite happy with the crop out actually it. I think it saved me some, some unhappy in bounds. But anyways, before we let you think again for joining us, I really, really enjoyed this conversation. And before we let you go, kind of tell our audience where to find you and your writing, where to find you and your fund and anything that you think that they should be watching in terms of, kind of road signs along the next month about how this is going to turn. Well, I just, so I'm on Twitter. I'm not, I'm old enough to call a Twitter. I'm not going, I'm never going to call it X. We're active there. I love it. I cannot do my job without Twitter. I don't think people appreciate the value, the free value, the guys like yourself. And I put up there on it on a daily or for you, an hour or two, or a minute basis. So you can find me on there for my, my funds just at ninepoint.com. There's no, there's no shortage of information in terms of how I'm going to find information on that. Awesome. Eric Netto, thank you so much for joining us at the Oil Ground Up podcast. The information presented should not be considered investment advice. The ClearCamber Network and its affiliates are not responsible for any loss arising from any investment decision in connection with material presented herein. Please do your own research and speak with a licensed financial representative before making any investment decisions.