Today with Steve Blackwell, we cover some interesting shifts in the oil and gas market. The shale revolution changed the global dynamics as a commodity and its price. The ESG investing movement came after that and brought some good and bad things to the market.
The ESG investing movement accomplished two things. Limiting the capital for drilling programs and investors demanding returns in months rather than years. The United States industry listened, evident today with the many returns provided to investors. The world listened, and the activist and fear to invest in drilling programs have left the supply side short for the next decade, even with demand destruction.
Steve is an industry expert and has seen many different types of operations. We have fun and see what may be in store for investors and consumers.
Thanks, Steve, for stopping by the ENB podcast. – Stu
Please reach out to Steve Blackwell on his LinkedIn HERE. And the Invito Energy Partners website is HERE. Any Alternative Investment Question Check HERE.
We would also like to thank our ENB Podcast sponsor. Enverus. You can find out more at their website: Enverus.com
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A shout-out to our fellow travelers with Enverus.
Fellow Podcast Travlers:
Mark LaCour, Editor in Chief, OGGN
Paige Wilson, Host of Oil and Gas Industry Leaders and Co-Host of Oil and Gas This Week Podcast.
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ENB Podcast with Steve Blackwell – Episode 87
Automatic Transcription Edited for Grammar. We disavow any mistakes unless it makes us better-looking or appear smarter.
Michael Tanner [00:00:00] Today’s episode of the Energy Newsbeat podcast is brought to you by in Enverus.
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Stuart Turley [00:00:43] Hey, everybody. Welcome. Today is another fantastic day because I get to have a podcast and a great discussion. My name’s Drew Turley, president and CEO of the Sandstone Group. And I’m here with Steve Blackwell.
Stuart Turley [00:00:56] He is the CEO and managing partner for in vitro energy. Welcome. Thank you for being here.
Steve Blackwell [00:01:05] Thank you, Stuart. It’s a pleasure to be here. Thank you for inviting me.
Stuart Turley [00:01:08] Hey, I would steal a little inside baseball for both of our fans, and that is that I really enjoyed getting to talk to you about industry stuff over the last month or so,.
Stuart Turley [00:01:22] And it’s really a lot of fun. You just were at a family office investing that you were invited to speak. What was that like for you?
Steve Blackwell [00:01:33] Yeah, it was here in Dallas. They held the around there. It’s, it’s, it’s a group called the Family Office Forum and they had a investment kind of two day investment panel that went on this past week.
Steve Blackwell [00:01:46] And so I got invited and sat on a panel. And when we got to the topic of how the energy industry and so I was myself along with two other folks and, you know, it was a good time a lot of family offices in the room and on line.
Steve Blackwell [00:02:01] Everybody’s obviously kind of interested in paying attention a lot more to the energy sector, specifically with where the markets have been this year and where commodity prices are at.
Steve Blackwell [00:02:11] So it was a good opportunity to share kind of with that family office environment or market. You know, some insight on the oil gas business.
Stuart Turley [00:02:22] What were some of your big topics?
Steve Blackwell [00:02:25] Yeah, obviously one of them was, you know, obviously commodity prices, right? Everybody wants to know what the kind of outlook is for commodity prices.
Steve Blackwell [00:02:34] And then, of course, from the family office perspective, it’s kind of what are the investment opportunities, you know, for private capital, which is beginning to fill that gap that has kind of been a void in capital over the last few years of a lot of the capital has moved out of the space.
Steve Blackwell [00:02:51] And of course, the topic always eventually ends up on to ESG, you know, and kind of what are our views on the ESG movement and especially from an environmental standpoint. So those are the three main areas.
Stuart Turley [00:03:04] Well, you know, with BlackRock losing was it’s a bunch of money. Trillion. Yeah, 1.7 trillion in the first half of this year they got blindsided by the ESG funding and so what I’m seeing is that there’s a lightning up of the ESG.
Stuart Turley [00:03:23] People are now going, hey, I got to make profit and with the Biden administration coming out with the Inflation Reduction Act, they snuck in nuclear and natural gas and they’re saying, oh, we got to have these in order to do ESG. So, you know, try to get there.
Stuart Turley [00:03:43] So I’m seeing investors in a different light trying to say, hey, wait a minute, I might as well be able to invest in it. Did they have anybody come up and say, I invested in BlackRock now? Do I need an alternative investment?
Steve Blackwell [00:03:58] Yeah, nobody specifically brought up the BlackRock issue. I think the general theme is look, at the end of the day people are looking for returns and if there are alternatives, I guess to get your returns that maybe are perceived to be more ESG friendly, maybe they would look at those.
Steve Blackwell [00:04:18] But obviously with where the markets have been, the performance of the S&P and the Nasdaq this year, people are looking for alternative investments.
Steve Blackwell [00:04:29] And I think from an ESG standpoint, they really just want to understand that you’re you’re not ignoring it. And are you being responsive, especially from an environmental standpoint? Right.
Stuart Turley [00:04:38] Rright.
Steve Blackwell [00:04:39] Are you what are you doing to address it from a socially responsible and environmentally responsible mandate, which from my perspective, the oil gas business, ESG has been around ESG has been around forever, especially right environmental.
Steve Blackwell [00:04:54] Now the definition has changed a little bit or has been hijacked by, you know, the oil and gas business, from my perspective, has always taken the environmental side of the business serious, and we continue to do so and, you know, a lot of innovation has come along, even in recent years, to make us more efficient, that we should run on methane side.
Steve Blackwell [00:05:16] So, you know, I think it’s you know, when they bring the subject up, you can’t your response can’t be we don’t pay attention.
Stuart Turley [00:05:23] Right.
Steve Blackwell [00:05:24] You know, But yeah, they want to hear some responsibility out here just to make sure it’s kind of like checking the box.
Stuart Turley [00:05:30] But you know what’s fun, Steve, is when I I’m excited about the majors just, you know, social and the governance piece,.
Stuart Turley [00:05:39] The governance is really come on strong with the commitment for the big boys to give money back to the investors.
Stuart Turley [00:05:47] There’s a transition and that maybe that’s helping a little bit but people need to understand that 50% of the oil that we generate is by the privately held.
Stuart Turley [00:06:00] So now you have the big boys giving back so much money, it’s driving everybody nuts and even President Biden was talking about windfall profit taxes. And all that’s going to do is just shoot everybody in the foot.
Steve Blackwell [00:06:16] Oh, man. I mean, the windfall profit tax. I don’t even want to go there. Right? I mean.
Stuart Turley [00:06:21] Oh,.
Steve Blackwell [00:06:22] You know, but if you bet in the industry especially and you’ve been around a while, right, you know, where where where does everybody forget the pain this industry was going through?
Stuart Turley [00:06:31] Right.
Steve Blackwell [00:06:31] You know, really, you know, for basically 2014 through 2020. Even pre-COVID. And then, of course, COVID, you know, this industry had a mass change of bankruptcies, lost thousands of employees.
Steve Blackwell [00:06:47] You know, nobody was looking at us with any sympathy at the time. And then when the market’s going well for us, they want to point the finger at us. Oh, yeah, a little disingenuous on my part, but it’s politics, so I get it.
Stuart Turley [00:07:00] But the I think here’s the the cool thing is, is that when you take a look at the Exxon and the Chevron CEOs, they were kicking back and saying, we can’t both of these things can be true.
Stuart Turley [00:07:14] We can give more back to our investors and increase production and I think that that’s great that we’re finally standing up in the industry to give more money back to the investors that, to me is one of the good things that came out of ESG, don’t you think?
Steve Blackwell [00:07:32] Yeah. I mean, I think look, I think the industry right. We had a, you know, the shale revolution, which basically started what, maybe about 06 – 07.
Stuart Turley [00:07:41] Right.
Steve Blackwell [00:07:42] And for about a decade it was drill, baby, drill everybody remembers the term drill, baby, drill.
Stuart Turley [00:07:48] Right.
Steve Blackwell [00:07:48] And the big public equity market is or the equity ENP companies really were being rewarded for growth.
Stuart Turley [00:07:56] Right.
Steve Blackwell [00:07:56] Build reserves. Build the reserves with the promise that someday that would translate to cash flow that you could return to shareholders with probably around 2015-2016 when the you know, the street woke up and said to the to the people, our public companies,.
Steve Blackwell [00:08:13] Look, your your model doesn’t work. We’ve heard for a decade it was going to lead to this and it’s not you’re just burning capital.
Steve Blackwell [00:08:20] So part of it was the industry itself in terms of performance, right. I mean, at the end of the day, you know, imagine this from a business standpoint. You need to make money, you need to drive profit, you need to drive cash flow. You need to be able to return that to shareholders. And that’s what that’s what shareholders want. And that’s the responsibility, primary responsibility of CEOs or boards of public companies.
Stuart Turley [00:08:41] Right.
Steve Blackwell [00:08:41] So that shift was painful. A lot of companies went out of business. Capital moved away from the market. I think the S&P 500, I mean, you go back to 2006, I think the S&P 500 was about nine, 10% public equities.
Steve Blackwell [00:08:56] And today, you know, pre-COVID, it was about two and a half percent. So I think we’re back up to around 4% so the market’s turning back towards the energy industry,.
Steve Blackwell [00:09:08] But a lot of it was self-inflicted and ESG contributed to it. But now where we are, right, I mean, the public equities and EMP are performing they have good, you know, dividends, good yields, the returning cash to their clients.
Steve Blackwell [00:09:22] And I think and they’re being rewarded for it to some degree and their and their their stock prices.
Steve Blackwell [00:09:27] So if you’re a CEO and you reverse trend and you go back the opposite way and just try to build production to appease an administration, and now you’re going to get hammered on the stock side.
Steve Blackwell [00:09:37] So I think the industry has learned its lesson and financial discipline. It’s no longer drill, baby, drill. It’s distribution, baby distribution, if you will, baby.
Stuart Turley [00:09:48] I like that, Steve. Distribution. Distribution.
Steve Blackwell [00:09:52] Yeah. You got to give money back to your stock, to your shareholders. Imagine that.
Stuart Turley [00:09:57] But you know that it is a nice fiscal responsibility that has come around on on that. On your experience, you as Steve, when I talked to you, just like a lot of my other friends and CEOs,.
Stuart Turley [00:10:18] You mention oil, you suddenly you’re you’re physical change because you’re talking about deals, you’re talking about getting these things and getting low cost energy to the US is important and it’s nice that you’re part of that.
Steve Blackwell [00:10:35] Yeah, I mean, look, that’s the that’s the as part of ESG, right? the social and again, when I said that ESG was hijacked or redefined, the S is what was redefined. Right. So I’ve there are there are leaders in the industry that the CEO of Liberty Energy’s great at this and always has been Chris. Right.
Stuart Turley [00:10:58] Aint he Great.
Steve Blackwell [00:10:59] He’s awesome.
Steve Blackwell [00:10:59] So I mean I’ve never you know, from my own personal perspective, you know, in terms of what I do and what I go to, what I do for work and every day is we feel good about what we do because we realize that from a social impact,.
Steve Blackwell [00:11:11] You know, there’s still, you know, 2 billion people around the planet that cook with biofuels, which is wood and dung. I mean, there’s another billion and a half people who have no still have no reliable sources of energy, let alone affordable energy. Right.
Steve Blackwell [00:11:27] So, you know, when we have the meetings in Davos, we’re going to go talk about climate change and CO2 that’s really a first world problem, right? I mean, because there’s billions of people around the planet that have absolutely no access to energy.
Steve Blackwell [00:11:41] So and I think, you know, I’ve said this to many people, like maybe next to the discovery of fire and the round wheel, the discovery of hydrocarbons has changed humanity and advanced humanity probably more than any other other than maybe those two discoveries, humankind.
Steve Blackwell [00:11:59] I think the discovery of hydrocarbons is probably advanced humanity more than any other discovery. And we forget that. And and unfortunately, we get the industry gets demonized. I’m just.
Stuart Turley [00:12:11] You know, Chris Wright is such a cool cat when he is he just like you talking to oil and gas. He gets up there and talks about elevating poverty people out of poverty through consistent low cost energy. And I love that about Chris. And when you sit back and back up just a hair.
Stuart Turley [00:12:35] The first world countries are imposing their belief on renewables, on Africa and other countries like that. We got here buy low cost carbon. Why shouldn’t we let them elevate themselves out? I mean, it just doesn’t make sense to me on that, but.
Steve Blackwell [00:12:54] Well, that’s exactly what I’m talking about, right? I mean, you know, my wife goes to Sierra Leone on mission trips. She’s probably been about four or five times and, you know look, when she comes back and shows the pictures to me of what it’s like down there.
Steve Blackwell [00:13:08] I mean, it’s unbelievable that that exists in the 21st century. Right. They have no no running. They have no sewers. They have no running water. They have they have no electricity. They have some places have generators running. And that’s in the 21st century of today that large populations of people are living like this.
Steve Blackwell [00:13:29] And the quality of their lives would change dramatically if they had access to reliable and affordable energy. There’s no question about it.
Stuart Turley [00:13:41] You know, just really kind of gets me all worked up is this morning I had somebody send me a note, and I’ve known this for a long time, that 70% of the oil that is generated out of the rainforest is consumed by Californians. And you just talk about it.
Steve Blackwell [00:14:02] I did not know that.
Stuart Turley [00:14:03] Oh, it’s horrible, Steve. And China. The Chinese. China. Try this one on. The Chinese owned the oil companies that are taking advantage of the rainforest.
Stuart Turley [00:14:16] So they’re having the I believe it’s Ecuador is having to allow the Chinese to come in and strip the rainforest and then export Chinese oil and diesel and air fuel to California.
Stuart Turley [00:14:35] I’m like, there’s some hypocrisy right there. I mean, we could use does it so much better for our great U.S. EMP operators both private and majors will go out and do it according to ESG standards, so much better than the rest of the world.
Steve Blackwell [00:15:00] Well, maybe that’s why it makes no sense, right? If you want to go the current administration wants to go ask other countries to give us, you know, oil when we’re the ones that do it the cleanest. Right.
Stuart Turley [00:15:13] And and yesterday, Biden says he wants to do the windfall profit that we just talked about that a second ago. But he went back and said, I’ve given all of the oil companies they’ve they’ve not had any problems doing it and so he basically now he’s cut the hands of the thing. But anyway, let’s leave that alone there.
Stuart Turley [00:15:39] What what do you see coming around the corner? We’re going to need all the oil we can produce and what do you think are some of the things in the U.S. that we can do? Find the right spot. Find the right play. What are things that you’re focusing on? Focusing and so as you wait to dog Steve, focusing on to help your part in trying to get more oil, low cost energy to the U.S. market.
Steve Blackwell [00:16:09] Well, I mean, look for a smaller company, right, from a, you know, a discovery standpoint. Right. It just kind of to back up on your question. Right.
Steve Blackwell [00:16:19] You know, the CapEx budget cap ex budgets for the energy industry from 2015 four have decreased by like 25%. Right.
Steve Blackwell [00:16:28] You know, COVID from 2022 from 19 to 28 dropped by 50%, but they’re still down 25% but the bigger portion of that is which is.
Steve Blackwell [00:16:40] What part of those budgets typically historically were for discoveries, new discoveries, which was about 25%. Historically, CapEx budgets for the ENP were about 25% for new discoveries. That’s down to about 10%.
Steve Blackwell [00:16:54] So you’ve got to look at 2019. I think we had $16 billion equivalent of new discoveries across the world that not the United States but across the globe and then in 2022, so far, that’s only four.
Steve Blackwell [00:17:09] So we definitely need the majors and we need the bigger companies that have the resources to look for new discoveries. Of course, we also have the we also need the independent geologists, the independent guys that are going out and looking for new business, new discoveries as well.
Steve Blackwell [00:17:28] Invito Energy Partners specifically for what we do is specific because we run really more like a drilling fund. We’re definitely not engaged on the exploration side. So, you know, our our role in it really is to go into areas where we know the hydrocarbons are there. Maybe they’ve been stranded, use the new technologies and pull them out of the ground in an efficient, cost effective manner and get those to the market.
Steve Blackwell [00:17:52] So I’d say that’s the that’s the portion that and Invito specifically plays. But from a supply side, not only domestically but globally, you know, the the it’s very bearish, in my opinion, on the supply side going forward for the next few years, because there just has been a large amount of capital pull out of the industry.
Steve Blackwell [00:18:15] And even on those even of that capital, it is less going towards new discoveries so that doesn’t that’s very bullish for commodity prices, but that’s bearish on the supply side.
Steve Blackwell [00:18:28] So that’s in my opinion, I that’s where I see kind of the macro structural issue in the energy space today, not only domestically but across the board, across the globe.
Stuart Turley [00:18:37] You know, one of the things that, you know, we talk about is while getting is pretty much a thing of the past in so many of the fields, because you take a look at the wells that are out there, you take a look at the production for the last X number of years and you got a really good idea of the formation and everything else.
Stuart Turley [00:18:58] You’re not doing any well, getting I mean, while getting is gone from most people’s vocabulary.
Steve Blackwell [00:19:05] It’s definitely gone from our vocabulary. You know, with the way the way we’re set up and the way we’re structured, there are still guys out there doing it there are definitely still. Especially on the smaller independent side, there are guys that will do the conventional, conventional reservoir drilling, which you could you could classify as more on the exploratory wildcat inside.
Steve Blackwell [00:19:27] Of a course offshore. Right. I mean, again, this is where you need the majors right now looking for offshore discoveries, because when you discover, you know, a field offshore, that’s, you know, billions of barrels of oil or natural gas, but of course, that takes massive amounts of capital.
Steve Blackwell [00:19:43] So no small independents are going to be doing, you know, exploratory offshore drilling. So but yeah, yeah, definitely is on our side we are more focused on the resource kind of using modern day technologies to go into areas where it’s not a question anymore of the hydrocarbons are there. It’s just a matter of how efficiently you can pull them up out of the ground.
Stuart Turley [00:20:05] Hmm. Excuse me.
Steve Blackwell [00:20:06] Yeah.
Stuart Turley [00:20:08] I think I swallowed a bug. You know, it’s kind of like I’m on a motorcycle or something, but.
Steve Blackwell [00:20:12] It happens sometimes now.
Stuart Turley [00:20:13] Oh, all right. You’ve got some things going on right now. How do people get a hold of you if they’re interested in finding out your opinions and your thought? Leadership in the oil and gas space.
Steve Blackwell [00:20:26] Yeah. I mean, you can follow us on LinkedIn or follow me personally on LinkedIn. Of course, our website is on InvitoEP.com.
Steve Blackwell [00:20:34] You know, and you can, you know, get a get a kind of a feel for what we see, how we see the industry, and especially on LinkedIn. And of course, you know, you know, if anybody’s interested in what we’re doing or the investment opportunities.
Steve Blackwell [00:20:46] Because that’s part of what we why we started, Invito Energy Partners was we felt that there was a need in the market for putting an investment fund out there for direct investment that kind of aligned the sponsor and events and the investor and were structured in a proper manner to give the best chance of performance so, you know, our team’s got a we’ve got a nice technical background. Team has been together a while. So, yeah, that’s what we’re that’s what we’re doing and we’re excited about it we’re a new company, so it’s always someone’s always going to start somewhere.
Steve Blackwell [00:21:17] But, you know, we’re really passionate about the space. We like being in the energy business and feel good about what we do and feel good about what we offer to the market and feel very bullish about oil and gas is from an investment standpoint going forward. To be quite honest, I think the the macro issues from a structural standpoint and energy, so much capital has been pulled out.
Steve Blackwell [00:21:41] If you’re in this industry, you know how capital intensive it is. And there has been a lot of consolidation and then there has been a lot of capital pulled out, one for performance, two for ESG issues and that lack of capital and reinvestment.
Steve Blackwell [00:21:55] From my perspective and many others, I’m not the only person that views it this way, that there’s a lot of downward pressure on the supply side going forward and from a demand side, you know, the world is still projected to grow from a demand from a demand side over the next ten years, even with the advent of electric vehicles and alternatives,.
Steve Blackwell [00:22:17] You know, hydrocarbons are still, you know, put produce 80% of the energy across the globe. You know, alternatives are what renewables are, what, 6%? You know, the crazy part about that is that of that 6%, 4% of that is biofuels. So only 2% of that is wind and solar and of course, hydropower, I think is around 20%. But, um, and so let’s.
Stuart Turley [00:22:42] Not talk biofuels because ethanol is such a waste of food and it’s not good for your cars, in my opinion. I think it was a big mistake. That’s just my personal opinion.
Steve Blackwell [00:22:53] So that’s not not shared by a lot of folks.
Stuart Turley [00:22:59] Well, I’ll tell you what, Steve, thank you for stopping by the podcast today. All of your information is going to be in the show notes and we’ll be getting in this out very quickly. Thank you and look forward to speaking to you again.
