This week Porter and Buck sit down with legendary Texas wildcatter and CEO of Chisholm Exploration, Cactus Schroeder, and talk all things oil. Tune in and hear why Porter thinks oil prices will eventually go to $500. Stansberry Research’s resident resources editor, Flavious Smith, sits in on the interview. He and Porter share their view on the upcoming super cycle in oil. Learn why this trend in oil will produce a mass amount of wealth and why you should be educated at the bottom of the cycle and not the top.
Male: Broadcasting from Baltimore, Maryland and New York City, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episode of Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.
Buck Sexton: Welcome everybody to the Stansberry Investor Hour. I'm Buck Sexton and, of course, Porter Stansberry, CEO of Stansberry Research with us now. Porter, good to talk to you, sir.
Porter Stansberry: Always good to be here, Buck. We started off a little private conversation a minute ago. Before we introduce our guest can we jump into that?
Buck Sexton: Sure. You mean the odds of impeachment for President Trump?
Porter Stansberry: Yeah, where do you put the odds of impeachment during his first term?
Buck Sexton: I said one in five. But that's assuming – well, it takes into account the likelihood of the Democrats taking the House. Right. But it's not removal from office. That would be the Senate as well. But just impeachment, I give it a 20 percent shot.
Porter Stansberry: Twenty percent. I think that's high. I do. I think most people would say it's high. I think the media hates Trump more than the American people.
Buck Sexton: Oh, definitely
Porter Stansberry: So I'm gonna go with – well, my usual guess with anything like this is seven. So I'm gonna go with 7 percent.
Buck Sexton: Okay. That's fair.
Porter Stansberry: I don't know how that benefits anyone. And you know way more about politics than I do. So if you're betting out there, I'd say fade Stansberry and go with Sexton. Is there a – does anybody know, has anybody looked? Is there in one of those English betting sites or, you know the presidential election betting thing. What is it called? Real Money or something like that. Where you can bet on who's gonna win the presidency.
Buck Sexton: Bet on political stuff?
Porter Stansberry: Yeah. You know what I'm talking about.
Buck Sexton: I haven't checked that but.
Porter Stansberry: We've got a researcher on it. We'll get back to that. But listen, Buck, I want you to meet my good friend Cactus Schroder. Cactus is on the line with us today. We're gonna be talking mostly about the oil business this hour. And Cactus has an unusual perspective on this, Buck. He actually knows something about the oil business.
Buck Sexton: Well, then he shouldn't go on TV and talk about it because.
Porter Stansberry: So, Cactus, can you give my new friend Buck and our listeners out there who may not know about you, could you give us a very brief review of your history of the oil business? And I know you're a Texan and I know you're modest, but try to tell us the truth.
Cactus Schroder: Well, Porter. I have been in the oil and gas industry for nearly 40 years now. I was trained as a geologist but I started my own company immediately out of college. And we drill primarily in the Permian Basin. However, I've also drilled in New Mexico and Louisiana and North Dakota and Ohio. So I've covered a little ground in my career.
Porter Stansberry: And, Cactus, how'd that Ohio drilling go?
Cactus Schroder: Well, it didn't go too well, Porter. We didn't find a lot out there. We ended up with a blowout. We had the townsfolk were pretty upset. We had to evacuate a small town. And fortunately we didn't hurt anybody or hurt anything. But, you know for about 36 hours it was a little touch and go. But we finally got it under control. And but that's one of the few blights on my career. But definitely a learning experience.
Porter Stansberry: Cactus and I met each other, this sounds like one of these stories from a movie or something, but this is actually what happened. We got invited by different friends to go share a boat in Panama and go fishing for sailfish and blue marlin. And this is back in I want to say it was '02 or '03. So it goes back a ways for us. And I don't think either one of us are still friends with the guy who invited us on that trip. But we met each other and we were like, wow, I like hanging out with this guy a lot better than I do my buddy who invited me to go fishing.
Buck Sexton: Who caught the biggest fish?
Porter Stansberry: I think Cactus did. I know we caught like 40 sailfish in one day. We had a good trip. So we've been friends since. And most of the time I've known Cactus I have been fairly bearish on oil. Especially since the mid2000s. Since about 2006 I really got bearish. And what I saw happening, of course, was the things that everyone sees to. Which is there was a technological revolution happening with the combination of fracking, horizontal drilling and using these things called propens, like ceramic and sand to increase the productivity of our drilling. And, Cactus, fortunately, like I said earlier, he was actually involved in these things and he's been a great source for me and helped me learn how things are happening. And it was Cactus who called me in 2010 and I pick up the phone and there's Cactus and he says, well, Porter, they ring fenced me. And I'm like, what are you talking about? So Cactus, can you share with us that little vignette about how you got ring fenced one time in Texas.
Cactus Schroder: Well, Porter, it kinda goes this way. We got down there before all the excitement started and we were drilling some Edwards _____ wells. And we were – we knew we were in the good Eagle Ford area cause we were getting really good shows. Cutting through the Eagle Ford, you know going down to the Edwards line. And so consequently, you know we kept track of it. Was watching it. And, you know watching what other people were doing. And we'd been down there probably two years and had accumulated close to 50,000 acres. What eventually ended up happening was once that first well or two got drilled in Eagle Ford and everybody saw what a great play this thing was going to be, I got ring fenced. They started coming in and leasing everything around all of my borders. And so we did have 50,000 acres, but they sure gobbled up all the acreage around us. And so we got called what I term as ring fenced.
Porter Stansberry: And this was a big one, Cactus. This is some property you won with partners down in south Texas, wasn't it?
Cactus Schroder: Yes. We owned this property down with some partners in south Texas. And the – and During Resources out of Denver was the main operator. A guy named Bart _____ that I've known for probably 25 or 30 years. And anyway, we were quite successful down there. Ended up selling out to Stat Oil after we kinda proved up our acreage. And so it was a pretty nice payday for me.
Porter Stansberry: That was at the beginning of the big Eagle Ford land rush.
Cactus Schroder: Yeah, Porter, that was the beginning of the Eagle Ford land rush. And they have – it's just amazing what has happened down there, you know since then. You know I saw a small town go from two restaurants and a convenience store to a town that had banks and car dealerships and Super Walmarts. It was just crazy the way that area down there developed. You know through the years. And it's becoming active again. Not as much as the Permian. But it is still being quite active right now.
Porter Stansberry: Yeah. And, Cactus, again, is being very modest. They sold that particular acreage to Statoil for around 2 billion dollars. So it was a very nice play. And then it was right after you sold that ranch that you called me about the Permian and you said, hey, I know the Eagle Ford's all over the press now, but the Permian's gonna be even a much bigger shale play because of the multiple pay zones and the thickness of the organic levels. I'm sure I'm using the wrong terminology. But basically there's a whole lot more oil in the shale in the Permian. And, Cactus, do you have an update for us about that? How has the development of the Permian progressed?
Cactus Schroder: Well, Porter, it's progressed amazingly well. There's anywhere from two to seven pay zones in every well that they drill. So besides producing the zone that they're in, which might be a 5- to 10,000 foot lateral, they also have oil that they can book in that particular hole that's above them. So it really looks good from the standpoint of engineering and reserves from a Wall Street standpoint and an SEC standpoint. Also there's been a lot of activity, a lot of folks selling out to big companies there that are basically turning it into a mining play more than a true oil play. They know it's there. It's just they're trying to get the cheapest and best way to get it out. Which at this point the Permian is by far the cheapest play in the United States as far as cost per barrel of oil. It's got the best infrastructure, the best pipelines, it's high quality oil, sweet oil. You know when you start looking at the other plays that are so much more expensive _____ that's Canadian oil sands and Bachan or Gulf of Mexico, they're all substantially more cost per barrel to drill those types of plays. And so consequently that's one thing that's made the Permian so popular is that it's gonna be there for several generations and it's also commercial –
Porter Stansberry: I think that's –
Cactus Schroder: - probably 35 or 40 dollar oil.
Porter Stansberry: Cactus, I think that's been inevitable since 2010, 2011 when these plays were first proved to be economic. And when you think about how many of these wells have been drilled but not yet put into production. It's just a matter of time, isn't it?
Cactus Schroder: Oh, yeah. I mean there – it's a matter of time before they get it all drilled up. I'm sure it's going to be, you know my grandkids will probably be in wheelchairs by the time they get it all drilled up.
Porter Stansberry: Did you see that they're now talking about loading the VLCC carriers directly?
Cactus Schroder: Yeah. I haven't read a lot about it, but that –
Porter Stansberry: Those are the biggest oil carriers in the world. And they're talking about loading them for export directly now out of the Galveston channel.
Cactus Schroder: That makes a lot of sense. You know they're – a lot of the Permian production is being piped down, you know into the Houston _____ channel area. While a lot of the Eagle Ford is actually being shipped into the Corpus Christi area. Just because of proximity. And so both ports I think are exporting oil right now. And I don't – I think the exports now are nearly up to a million and a half barrels a day. So I think it's gonna be a real – it's gonna start to be a real viable business exporting oil as opposed to, you know consuming the oil that we produce here right in the United States. And, of course, you know the Houston ship channel is a huge facility. They've got, you know loading, offloading, refineries. I thought the Texas _____ at one time was very irresponsible in reporting that would probably be one of the best places for a terrorist event to occur. Which I thought that was rather irresponsible of them. Because there is so much oil and gas that goes through that Houston ship channel that it would create a nightmare if there was ever a terrorist event there.
Porter Stansberry: Yeah. Houston ship channel. Well, let's talk for a minute about price. One of the things that I've noticed that's very interesting is that the strip prices. So further out in the futures markets the long dated strip prices have sort of fallen from where they used to center around maybe 85, they've really fallen to maybe around 55 now. Even going out several years. And it seems like the shale producers have used the recent OPEC cuts, which jawbone the price up to maybe even around $60.00 at one point, to hedge a tremendous amount of their production. And so the question I have for you is when you talk to people in the oil business and you look at their hedging activities, would you say that the Texas production is rendering OPEC's power over the market price obsolete?
Cactus Schroder: Yes, I think there's a lot to be said about that. And that, you know it's kinda disappointing to us smaller guys because the bigger oil companies, you know they have total staffs that take care of their hedging. And the first time they see those strip prices get up to a certain point, you know they're hedging out there and then when they do that then it drives the price of oil back down. So it's I think, you know all the hedging going on has definitely had an effect on keeping the prices lower cause every time they get up to a certain level so many people hedge that it ends up driving the prices back down.
Porter Stansberry: So I've got some data from Bloomberg that I don't know if you've seen yet, but I think it's very interesting. And it says that about half of the oil companies out there currently – so talking about continental producers. So about 21 to 37 of them. So a little bit more than half. Have hedged any of their 28 productions so far. So almost half of them haven't hedged any. and right now in terms of total production that's expected for 2018, only about 10 percent has been hedged. And what this tells me is if OPEC announces an extension of their cuts or even if they announce a more aggressive version of their existing cuts, that these products are just waiting for the price to bounce up and then they're going to sell production like crazy. And so that's why I think there's a big ceiling right now in how high the price of oil can go from here. Does that data much what you're hearing in the fields?
Cactus Schroder: Well, there's definitely a ceiling there that I think has come down. I think, you know they were hoping to get 75 to 80 dollars a barrel type prices, you know going into '18. And now it's probably more in the, you know 60 to 65, maybe 70 type range. And I think that's basically due to either they're waiting to get a better price, and also some of them, you know have a, you know departments and they have basically criteria where they can, you know they're only gonna hedge 12 to 24 months. And if they think it's better off to wait, you know they may have only hedged 12 months through 2017, you know waiting for 2018 to get better or to where they see a little bump. And they can go ahead and once they see that bump they'll go ahead and start their hedging. But it's tough to say. I've never really talked directly with the people in the hedging departments of these larger companies, but I kinda watch what they do. And you can see how they tend to follow one another. Also, about I think that's interesting in the way the hedges are looking right now, we have a large number of companies that are hedging in the 2017 market and not as many as your stats are telling us.
But I think that might be because when we saw the, all the optimism back last fall, you know when OPEC first made their announcement about their cuts, you know it really drove the prices up a bit. And I think people really capitalized and locked in their production for 2017 at that time.
Porter Stansberry: Well, this is for the 2018 production. So there was tremendous amounts of hedging from the 2017 production. Pioneer Natural Resource, for example, has hedged about 85 percent of their production this year. So they hedged, you know speaking in averages, I would say that the Permian producers have hedged more than half of their 2017 production. But they haven't yet stepped up to hedge 2018. As though they're expecting for some kind of a geopolitical event or perhaps an OPEC move to give them an opportunity to hedge over 60.
Cactus Schroder: Well, yeah, Porter, but they also may have purchased a lot of production back there. There was a lot of activity going on with companies buying out other companies. And, you know banks or financial institutions requiring them to allocate more hedging to the production that they were buying to make sure that they had a guaranteed price and that these institutions were gonna get paid back in a timely manner. So I think that might be part of it as well as, you know the actually waiting to see if there was gonna be higher prices coming '18 due to any other OPEC or Russian activity.
Porter Stansberry: That's right. Yeah. I just want to make one correction to the data. If you look just at the Permian, the production there is about 22 percent hedged among the public companies. So 10 percent for continental overall and about 22 percent in the Permian. And I think the increase in the hedging in the Permian is related exactly to what you said. It's related to the amount of financial acquisitions that have occurred there in the past six months. And those deals have to be hedged to get financing.
Cactus, I don't want to take up all your time, but I did – I always love talking with you about a couple things that are probably beyond most people's radar. You brought the Eagle Ford to my attention long before production there ramped up. You brought the Permian to my attention long before production raped up. Are there any new big important plays that you think most people in the United States are not aware of but where a lot of capital is being put into exploration today?
Cactus Schroder: Well, Porter, I think they're taking some of the things that they've learned with these conventional reservoirs and, or excuse me, these unconventional reservoirs and applying them to the conventional reservoirs. You know the horizontal drilling, the fracking. I think you're going to see some of those things come out. I think that some of the areas they've looked at before are not as cost effective. You know whether they're gonna be trying to drill in the Arctic or Alaska or certain parts of the Gulf of Mexico that are ultra-deep. I think those are kinda be putting on the back burner. But as far as Texas goes, you know the – right now it seems like the main things that are catching everybody's attention is the Eagle Ford and the Permian. I think that those two plays are going to expand a little further than they think cause technically the Eagle Ford goes from the Rio Grande all the way into east Texas. And then, of course, the Permian covers pretty much the west part of Texas and southern New Mexico.
Probably the newest production that's been found out there is what they call the Alpine High. And it is southwest of Midland, you know nearly into the big bend country. And I believe it's Apache that has really gone out there, done their homework and drilled several wells and proved up this big play. But it's basically still Permian basin. It's just they've expanded it in the far deep southwest Texas. You know nearly all the way out to El Paso. So it's gonna be very interesting to see how that plays out. That's kind of in its infancy at this point.
Porter Stansberry: And I guess I have to ask the question that you probably get asked more than any, which is when you look at the combination of talent, managerial talent, drilling talent, execution and acreage, who do you think, out of the Texas producers that you're familiar with, who's in your, you know your top two or your top five or your top three? Who really has the shale place in Texas going the best?
Cactus Schroder: Well, I don't know that there's too many more areas. I think that the new thing right now is that they may be a applying a lot of the horizontal drilling and fracking to conventional type pay zones as opposed to these unconventional type pay zones. And I think that's where you might see some added areas that could contribute significantly to the overall production. I think we have companies like also Pioneer and EOG that are at the top of the technology curve and they're always learning new things and how to frack with more sand and drill longer laterals and those type of things. So those two companies have always been, you know probably at the top of this unconventional play. Particularly in the Permian and in the Eagle Ford. I think they may, and I'm – EOG may be involved I think also in the Bachan. But I think when you're looking down in Texas those are the two companies that are probably on the cutting edge.
Porter Stansberry: Yeah. So those two names have not changed. You know, Cactus, I know you know this, but Pioneer's actually Boone Pickens' old company, you know with a new skirt on. That's the old Mesa Petroleum. And EOG ironically enough, used to be Enron. Probably people forget, but back in '96, '97, I think it was '96, Boone lost his company to Rainwater. To Richard Rainwater in a bankruptcy situation. He took on too much leverage, bought too much natural gas assets and then the price fell out of hydrocarbons in the late 90s and he lost that company. I don't know how Rainwater did with it, but I'm sure he did very well because those assets, of course, don't go away. And I wanted to talk about this with you for a minute. This longer term idea. Even a problem as bad as Enron had, you know didn't dilute the value of its reserves. And even a financial problem as bad as Boone had with Mesa didn't destroy the value of these assets. They come back. And we have a new analyst working with us here at Stansberry Research, Cactus. His name is Flavius Smith. I don't think you guys have met each other yet. But Flavius actually is a veteran of EOG. And he's got about 30 years in the corporate side of public oil and gas companies. He's also – he also built a small oil and gas company, a family owned one, for, I don't know, maybe a decade. He'll tell us the details about that in a second.
But I just wanted to get you guys together to talk about this long term idea. Because, Cactus, as long as you've known me, you've heard me saying that oil was gonna go back below $40.00. And happily it happened twice. It happened in '09 and it happened again in let's see, 2016 I believe. And I think that oil is gonna go back – I think oil is gonna go back below $30.00 in the second wave of this technological revolution we're in. And I think this lower price for oil is going to last for longer than most people expect. So we might see very low oil prices for another two or three years. But, Cactus, you know that I believe that markets eventually work. And that the cure for low prices is, ironically enough, low prices. Because if the prices go low enough and the amount of oil in storage, which we didn't talk about, goes high enough and the amount of days production we have – Cactus, can you believe that the amount of days production we have in storage in the US has been above 30 for like 18 months? I mean we haven't seen this kind of oil in storage in America since ever.
So there's a lot of oil around and people are continuing to find more ways of producing it at a lower price. And all those things eventually are gonna cause a lot of oil companies some financial problems like Boone Pickens experienced in the mid90s. And that will reduce investment. That will reduce discovery. That will eventually reduce production. And, of course, you're setting yourself up for the next super cycle. And I can't tell you when, but I can tell you that the coming super cycle, the coming leg up in oil prices, is going to be the biggest one yet. And by the way, I don't think that's a risky prediction at all. This is, of course, the way the oil business works. It's not gonna change.
But what is changing this time is the amount of people and the size of the markets that the US oil business will soon be serving. So when you look at China, you look at India, you look at the people in Indonesia, the billions of people around the world that are not consuming any oil currently that desperately want to have things like automobiles and air conditioning, there is an enormous demand, in fact, an insatiable demand for energy, there always will be. And these lower prices are going to lead more and more people to experience energy in their lives and they're not gonna want to give it up.
So I can't say when, 7 years, 12 years, 15 years. But we see oil bouncing back to over $500.00 a barrel. And we get that price by looking at the previous boom and bust cycles and just sort of taking the average. So if you know that oil – Cactus, or Flavius, you're gonna have to help me with this. The prices. But if you know that the price of oil, so for example, bottomed in 1998 at around $7.00 a barrel, you know expecting it to go tenfold to 70 might have been a bold prediction. But it wasn't. It actually went all the way to 150 which is more like 20 fold. I think you're gonna see an even higher bounce back.
So I just want to talk about the long term trends in oil for a minute. Flavius, can you help us with some of these cycles and the price points? The one that I recall, I remember living through it, was the collapse in '98. Does anybody remember how far oil fell in '85?
Flavius Smith: I think it was 32 and it went to 10.
Porter Stansberry: Ten dollars a barrel. And in '98 it went all the way down to 7. Because you had the emerging markets demand collapse at the same time you had a glut. And then, of course, it peaked at 150. So if we think of 150 being the most recent peak, you know a tenfold increase from 150 would be $1,500.00 a barrel. And I don't think anyone – I don't think that's even on anybody's radar, but that's kind of how these oil cycles work. Each peak is about ten times bigger than the next.
Flavius Smith: Right.
Porter Stansberry: So if we see a bottom in oil of around 25 or 35, at some point, that would set up good for any investor who is interested in making a long term commitment to the oil business. And, Flavius, what was your career like through these cycles?
Flavius Smith: Like everybody else in the oil business, looking for a job sometimes and then having a job sometimes. But in '85 you couldn't find a job. Eighty-six. In '81 things were booming and then you couldn't find anything to do. And so you had to start your own business like I did. Drilled my first well in Nebraska. Old DJ well in Nebraska. And a _____ sand well and it came on. I was on the rig and it came on. We did a dual stem test and oil to the surface. And I called my wife and said, we're rich.
Cactus Schroder:Famous last words for an oilman.
Flavius Smith: It was the famous last words. I wasn't rich. But I felt like I was rich cause there was oil everywhere and all over my clothes. And it was fun. But that old well's still producing too. It's making about five barrels a day. So I'm still getting a little money off that deal.
Cactus Schroder: That's gotta make you feel good.
Flavius Smith: It does. You know I drilled that well in 1986. It was actually right then. And so that well's produced a long time.
Porter Stansberry: That's really neat. Cactus, you got any wells from the 80s that are still producing?
Cactus Schroder: You know I don't think I do.
Porter Stansberry: Well, Flavius has got you.
Cactus Schroder: - it was – I do have a lot of scars from '86 that I can show you. If was pretty depressing.
Flavius Smith: If I'd have been smart, Cactus, I'd have sold that and pulled that money forward because, you know the net present value of that well back then would have been a lot more than it is today.
Porter Stansberry: Yeah. So that's one of the things I wanted to talk with you guys about. My friend Rick _____has a wonderful saying that in commodities you're either a contrarian or a victim. And I don't know why, but that's always really – that idea has really appealed to me philosophically and intellectually.
So back in '06 and '07 when everyone was talking about peak oil and you had natural gas above $10.00 and you had the natural gas oil ratio so completely out of whack, and everyone I saw – I mean any investment conference I went to I could just watch billions in capital being allocated to this commodity market. And I knew that this boom was not gonna end differently than any other commodity boom. And so I'm like the one guy at the conference saying, yeah, it's probably not a good idea to buy uranium after it's run up 400 percent. And it's probably not a good idea to buy oil when oil's over $100.00 a barrel. I mean just common sense. But, of course, you know the emotions of people, when there's big discoveries everyone thinks they're gonna get rich. No one realizes that there's big discoveries in the next county too and those people think they're gonna get rich as well.
And so what I'm trying to do and why hiring Flavius and starting a new newsletter, Cactus, called Super Cycle, is I'm trying to teach people that what they want to be ready for is the bottom in oil, not be excited by the top. And so we're very interested in watching production come up, watching storage come up, watching prices go down, because we're interested in finding that point where we know that producing oil is no longer economic. And we're interested in knowing what the unemployment rate is in the oil patch. Because if you start buying oil properties when unemployment's at about 50 percent in the oil business, you're gonna do a hell of a lot better than if you're trying to buy oil properties when, you know when there's no unemployment as there probably basically is now in the oil business. And, Cactus, I know you're in the industry and I know you know more about the cycles than just about anybody. But why do you think the industry itself has such a hard time understanding this concept? Because, you know, it's not just investors who fall for these booms and busts. It's the oilmen too.
Cactus Schroder: Oh, yeah. Yeah. Sometimes they'll think there'll never be another poor day. And, you know you saw these bumper stickers back in the late 80s that said, please, dear god, give us one more boom and we promise not to piss it off. You know –
Flavius Smith: I think I've got one of those.
Cactus Schroder: I've seen that same bumper sticker go through a couple of cycles already. So I think it's human nature. You know it's – they get carried away in the moment. You know whether it's somebody in the oil and gas business or whether it's somebody at the peak of selling buggy whips, you know in the 1800s. You know it's – they don't look around the corner to see the next thing coming. And so you've seen it in several different industries, not just the oil and gas industry. But that's always been business. And, you know it's – that's why it's so interesting to look at companies that have survived for so many centuries. You know whether it's Hershey's or Beretta shotguns. You know they've been around through so many generations and they continue to have a demand. And they keep up with the technology and I guess, you know everybody's gonna want a piece of chocolate no matter how old they get.
So anyway, I think that's part of it in the oil and gas industry. And also, I think if you look across the oil and gas industry you see probably 95 percent optimists and 5 percent pessimists. You know. They're always thinking the glass of water is half full.
Porter Stansberry: Yeah, also in real estate development.
Cactus Schroder: That's right. You know. It's not just common to the oil industry, it's in others. But I think it's more prevalent in the oil and gas industry.
Flavius Smith: You know, Cactus, one of the things that we're not very good at in the oil business is we don't – we do what's not in our best interest. And one of the things I'm worried about, and I think's probably gonna happen, is, you know we went through this down cycle of prices. And this is kind of a really complex bottom we're going through. It's one of the oddest bottoms I've seen in a long time. And the biggest problem I think we're gonna have, and I want to know your opinion, is we're probably gonna overproduce again. We're gonna continue to drill these wells at $50.00 thinking that, you know we're gonna make money and we're gonna throw a lot more production out there at these low prices and then sooner or later , as Porter says, we're gonna go back to 30. And it's gonna make another bottom and we're gonna see a lot more companies go broke.
Cactus Schroder: Yeah. I think that's one way to look at it. The other thing though is that you've got to look at is people that are producing a lot of high priced oil. And if you look at the North Sea. If you look at Canada. Even if you look at the Bachan shale, you know they don't have infrastructure. They've got to wrestle with cold weather, bad conditions. And eventually that oil price is going to register a fall out in these higher priced production areas. So, you know what is that price gonna be? You know how low does it have to get before they shut down all the mining of oil in Canada or before the North Sea –
Porter Stansberry: That's the craziest thing ever.
Cactus Schroder: - just says, hey, we're done. We're folding up our tent and we're out of here.
Flavius Smith: You know we were up in the – Cactus, we were up in the Bachan the last company was with at Four Star, and we had – our break even costs, and we were on the reservation up by EOG stuff. It was $56.00 is our break even cost. And so right now if you're not getting 56 bucks you can't drill a well.
Cactus Schroder: Exactly.
Porter Stansberry: Well, let's talk about that for a second. Because on the financial side I think I can explain some of this behavior. So one of the things that's happened with the fed policies around the world is the tremendous amount of liquidity that's been pushed into financial markets. And everyone's desperate for yield in any form. Even in something as crazy as a securitized auto loan security where 30 percent or more of the loans are subprime and you know for a fact that the underwriting was fraudulent. I mean why people are buying these securities, it makes no sense, until you understand, well that's the only way they can get the yield that they need to make their insurance contract good. So they don't have any choice either. There's this dearth of yield out there. And one of the ways people are getting yield is the futures markets. And so there is so much capital, so much liquidity's being pushed into all corners of the market that that's holding up the forward curve. And it's pretty funny, we're beating Saudi Arabia because of our financial markets as much as our drilling prowess. And it's that forward strip price that's allowing people to still drill profitably. And I can't tell you when that's gonna collapse, but sooner or later it will. Sooner or later people are just not gonna keep losing that bet. But it's a very interesting phenomena that this is how a financial bubble can produce a commodity glut. Same way with all the funding that went into the oil business in 2010, 2011, 2012.
All right. I've got one more question for both of you and then Buck and I have got to get back to talking about politics. We have the percentages, by the way, Buck, for the impeachment risk from the betting site.
Buck Sexton: I looked it up on 5 38, which is Nate Silver's site, by the way.
Porter Stansberry: I got 27 percent from my staff here. What have you got?
Buck Sexton: Nate Silver said it was about 20 percent.
Porter Stansberry: So you're tracking –
Buck Sexton: I swear I didn't know beforehand.
Porter Stansberry: You're tracking the pundits. I'd be a seller at that price, but I've been wrong before. So, Cactus and Flavius, one last question for ya. I'm a firm believer in the idea of a hoodoo. Now there are guys out there that seem everything they touch turns to gold. And then there are guys out there that everything they touch eventually turns to shit. And those are the hoodoos. And you could learn to make money with both.
Now I will tell you that the hoodoos are a lot more fun to be around. But you don't want to invest with them. So growing up I met my first hoodoo. And I don't want to say his name. Cause he's a dear friend. But this guy went bankrupt four times. He went bankrupt four times. And he went bankrupt in the same say four times. Which was he was a developer and he would do a big warehouse deal or he'd do a big apartment deal. And then he'd roll all the money he made into a bigger deal. And so he would just pyramid.
Well, if you pyramid and you never put any money aside it's only a matter of time till you go broke. It's like people ask all the time what do you – you know I drive a motorcycle, it's not risky. There's only a 1 percent chance I'm gonna get in an accident. Well, yeah, there's a 1 percent chance each time. And so if you keep driving a motorcycle until you wreck, you will. Some people don't really understand statistics, but that's how it works. This is the case with this developer.
And so I could always know when it was time to get out of real estate cause all I had to do was see that he was being really successful. So when he bought a big house, when he bought a big plane, when he bought a big whatever I knew, oh, time to get out. And it never failed. So, Cactus, I know you must know some hoodoos in Texas. And, Flavius, I know you must know some hoodoos all over the oil business. So where are your hoodoos today? Are they celebrating or are they hurting?
Cactus Schroder: Well, I think _____ _____ these low oil prices weeded out a lot of hoodoos. And so you don't see very many, but the one thing that's a statistic, and I nearly got caught up in it myself. That I think can tell you when it's starting to top. When you start seeing private airplane sales go up in Texas in the oil and gas areas, I think you need to start getting real careful.
Porter Stansberry: Yeah, that's a good way to lose a lot of money. By the way, I refer to my fishing boat, which is not an airplane. Just a boat. But, you know same concept. I refer to the fishing boat as my estate planning process. If all the money goes into the boat you don't have to worry about paying taxes on it. What about you, Flavius? Any hoodoo stories?
Flavius Smith: You know I – I can't really say – I really don't want to say it out loud to people because a lot of those guys are still my friends. But they've all gone broke.
Porter Stansberry: Yeah, they're fun to have around.
Flavius Smith: Yeah, but I agree with, Cactus on the airplane thing. And, you know the airplane market's been flooded for the last two years. My son is involved in the aviation business and he tells me you can buy Leer 31, the most efficient jet that exists, for sometimes less than – little more than a million dollars. That's a 5 million dollar airplane. So I mean it's a – the airplane business has really changed. Sol I'm with ya on that.
Porter Stansberry: Hmm. Maybe it's time to go shopping. Stansberry Research needs a corporate jet. Time to sell us short.
Flavius Smith: That's always a problem.
Cactus Schroder: - I can tell ya that.
Flavius Smith: Let me tell ya, that's always is a problem too. When people start buying corporate jets you start to worry about what their future's gonna be.
Porter Stansberry: Well, we just bought a big new building in Baltimore. And we have a beautiful new studio. So there are some signs of a top _____Stansberry. Let's hope we can avoid the course of the hoodoo. Cactus, thanks so much for your time today. I always love talking with ya. It's been too long since we've gone fishing. We gotta get on that.
Cactus Schroder: I'm ready any time. Certainly nice to talk to you guys and good luck.
Porter Stansberry: And, Flavius, pleasure to see ya. Of course I get to work with you every day. I'm looking forward to our first big webinar with Flavius.
Flavius Smith: And nice to meet Cactus on the phone. Hopefully I'll meet him in person soon.
Cactus Schroder: I hope so soon, Flavius.
Porter Stansberry: And listeners, I want to tell you guys on Wednesday, June 14. That's Wednesday, June 14 at 8:00 PM, we are going to host a webinar about this idea of a super – approaching super cycle in oil. And it's an interesting concept. I don't think it's gonna necessarily resonate with everybody. But the time you want to get interested and educated about the oil business is at the bottom. Not the top. And so we know we're approaching a long term multi-decade bottom. We want to get you educated. We want to get you involved. Because there's gonna be, of course, another huge uptrend. A 10X improvement over the last peak. So we're talking about oil prices going above $500.00. This is a huge long term trend that can really produce a lot of wealth. And we're gonna have Flavius, our in-house expert, along with a lot of other guests, here to talk about all the different ways to play this safely and for the long term.
So to sign up for the webinar, Wednesday night, June 14, 8:00 PM, go to www.oil-500.com. That's oil-500.com. Here's the best part. You're going to hear from all my experts. You're gonna learn a ton about the way oil supply and demand works. We're gonna talk about the new US oil export market. We're gonna talk about OPEC's declining influence. We're gonna talk about the next 20 years in the oil business. And we're gonna show you exactly where to put your money and it's free. That's right. It's completely free.
So, Buck, we've got about ten minutes left in the show. Why don't we run through some headlines? You are way more involved in the politics and the national security side of things than I am. But I haven't seen anything like what's going on with Qatar ever before. Can you read between the lines? What's really happening over in the Persian Gulf?
Buck Sexton: Well, look, I mean for a long time people have been looking at the situation with Qatar and the fact of the matter is that there are some of these states that are involved in extremism and you've got the Saudis, which is funny cause the Saudis are involved too. But you've got the Saudis, the Bahrainis, the UAE, Yemen. And they're cutting off diplomatic ties with Qatar. And they're saying this has to do with, you know Qatar's support of terrorists in the region. So honestly, this is one that I have to drill down into a little more. It just came out this week. I haven't been following Qatar all that closely. I don't know if this gonna have any effect on markets or anything. I'd have to check out what the geopolitical implications would be. But this is something that we're gonna be watching closely.
Porter Stansberry: Yeah. I mean all the sudden – it didn't even seem to be about US pressure. The Saudis are just like kicking Qatar to the curb. And there was an allegation I read, this is fake news, I have no idea. I don't know anyone in Qatar. But something about paying the Iranians a billion dollars. What?
Buck Sexton: Yeah, I don't know. I mean, again, this is – I'll be honest with you. I was completely consumed over the last few days with the London terror attacks and now it looks like the stabbing out in front of Notre Dame Cathedral in Paris. So the Qatar thing was a secondary issue –
Porter Stansberry: Oh, so I hit you in the soft spot.
Buck Sexton: Oh, yeah, for sure. No, I read The New York Times on the Qatar, but I'm not gonna lie to you, I have not been looking at this one closely. So actually why don't you tell me. You're more up on Qatar than I am right now.
Porter Stansberry: Well, I mean I see these – this is probably gonna get me in a whole lot of hot water. But I see these so-called terror events as being just, you know basically nonsense crime. I mean, you know listen, I understand there's more to it than that, but I don't think that we're gonna lose western civilization because of people attacking people with knives or running people over with cars. If that's what ISIS is – if that's as bad as it's gonna get, you know we're gonna be okay.
Buck Sexton: Well, as bad as it's gonna get is people running planes into buildings and –
Porter Stansberry: Right. Or nuclear bombs. Plutonium.
Buck Sexton: Yeah. I mean it actually can get a lot worse than guys running around with knives and cars and –
Porter Stansberry: Right. I'm just not – it's almost like – I mean it's almost like petty crime. Like, you know people get stabbed every day. Whether you're stabbing people in the name of religion or just in the name of Rolex, it doesn't really matter to me. It's not gonna change what I eat for breakfast.
Buck Sexton: I mean I don't know how much time you have for this. Now this is a big area. I wish we had got into this – we'll have to get into this another time on the Stansberry Investor Hour. But the difference between petty crime and what you see – well, first of all, it's not petty. Right? I mean you got people getting stabbed to death and this isn't someone getting their watch stolen. But the difference is that this is part of a cohesive global ideology that has many millions of ideological supporters to be sure. No one really knows how many financial supporters. And no one knows how many actual active adherence. Real jihadists. People that will take up violence in the name of this creed. Although we know the numbers are large. I mean they're tens of thousands of fighters in the Islamic state alone in Iraq and Syria. And then when you expand that out into all the other jihadist groups. I mean name a major Muslim country and – Muslim majority country and you'll be able to most likely also name or look up a jihadist Muslim extremist entity that operates within its borders. So I mean this is a widespread problem.
They think, I mean I know you're saying it won't change that much of what's going. But first of all, they view this whole migrant situation in Europe as an opportunity to create tremendous divisions and pressure inside the European Union because the moment a country doesn't have control over its borders, and more to the point for a lot of these European countries, they feel like they don't have any sense of nationhood or nationality is no longer. Not just protected but also revered at some level. That exposes that the EU is a financial union not a political union. And they – one of the amazing things that – people talk about Vladimir Putin and strategy and everything he's been doing by bombing parts of Syria and exacerbating the refugee flow into Europe, usually via Turkey, he put a lot of pressure on NATO and on European countries that are trying to stop Russian expansionism. Because he sows dissention among them, right.
I mean that's just in the near term. In the longer term jihadists look at what's happened with the Arab Spring and they think that all of these – I mean you guys were talking about oil. In the jihadist perspective, I mean the Saudis it's just a matter of time before that state goes. And that will send shockwaves through the region. Egypt went. It's kinda stabilized for now. But who knows how long that will last. Syria's in the midst of a horrific civil war. They don't – Iraq. Obviously we got rid of Saddam but who knows what's gonna happen in Iraq in five years. There are big problems there with sectarian divisions. So they see a lot of openings is what I'm trying to tell you. They see a lot of openings. And they think that if they just give us a few good hits. I mean this goes back to bin Laden and the run up to 9/11. The perception was that if they just hit us a few times we'll go away, we'll retreat and they'll get what they want. And what they want is the overthrow of Muslim states run by autocrats that we like. Which they've gotten some of that. And eventually, I mean the hardliners would like to see Sharia in Europe and in America too. And while right now, Porter, I know that looks like a preposterous assertion, one, they're thinking about in terms of centuries, not four year election cycles. And two, demographically Europe is Islamising. It is happening in France. It's happening in Germany. It's happening in a number of important countries there. So it's – they're taking a very long – you're right. I mean tomorrow, another car bombing somewhere, while terrible and sad and we should do everything we can to stop it, is not going to end a European country. It's not gonna end America. But decades, maybe even centuries of those kinds of activities alongside proselytizing, alongside the demographic fight –
Porter Stansberry: Nope. Nope. Nope. No. Let me –
Buck Sexton: Nope, nope, what?
Porter Stansberry: Let me give you the counterview. Now this kind of reminds me of the oil business a little bit. Cause it's a little bit like a futures market. Because, just think about something for a second, Buck. Let's see, where is the county in Atlanta? It's around Stone Mountain. Maybe it's – I can't remember the name of the county right now. But it's Stone Mountain, Georgia. There's a place in the south where you have a mandatory carry laws. So people are required to own a weapon in this place. So it's the opposite of your liberal elite place. And they don't have any crime there.
So think about this concept. Remember, I think it was Thomas Jefferson who said the tree of liberty requires a little bit of blood. That, you know for people to be free there has to be a little bit of chaos, a little bit of bloodshed, a little bit of rebellion. And what I think is happening is that the Islamists terrorists are picking out the soft spots of western civilization. They're picking out the places that are the liberal elite cities where stateism is completely run amuck. Where things like open borders have led to chaos. And I think there's a natural pendulum here. You're gonna see – people are gonna see that, oh, that – running our society that way where there's unlimited welfare and open borders, all that does is attract , for lack of a better word, going back to the Baltimore TV show Homicide, just attracts a bunch of shit birds that ruin our societies and cause nothing but crime and problems
So you know what we gotta do? We – the pendulum has to come back the other way a little bit. We need a little bit more law and order. We need a little bit more carry permits. Because if those same people tried to – that, you know were using knives and cars to attack people in London or in Paris, if those same people were in rural Texas or even in a bigger city , if they were in Dallas, I bet ya the outcome would be a hell of a lot different.
And so I think you're gonna see that people and capital and power are gonna start to accumulate more towards places that are safe. Towards places that have a whole more conservative bent. And so this is a natural cycle. Where these bad ideas about welfare and liberalism are gonna be punished and eventually turned away from. And these more successful ideas about freedom and liberty and personal security are gonna be more successful.
Buck Sexton: How do jihadists and terrorist attacks tie into this? I missed the thread a little bit. What does this have to do –
Porter Stansberry: I'm just saying, if you think about it in a bigger way. In a metaphoric way. It's like if western civilization is sort of like an organism. Right. And ISIS is like a virus. And, you know the organism is gonna grow in areas that are safe and successful. Not in areas that are chaotic and dangerous. And so even though there are these little penny _____attacks, what ISIS is really demonstrating is the weakness, the areas of weakness in our civilization. And I think some of the bad ideas that have led us to this point are universal welfare and ridiculously open borders. And let me be clear about this with everybody. I'm not a fanatic. I'm not saying that we should have closed borders. And I'm not saying there shouldn't be any social safety net. What I'm saying is that, you know recently in Alabama they reintroduced the work requirement for food stamps. If you're an able bodied person you don't get food stamps unless you're at least donating your time to the county. You have to work. And the rolls dropped by 95 percent. Well, no kidding. Right. Life isn't a free ride. You can't give people endless handouts or else you're just breeding dependency.
And that's what's happened in Europe. The combination of open borders and endless welfare has attracted an entire generation of shit birds from places all over the world to western civilization. And those people are not acting to help us build or civilization. They're actively attempting to tear it down. So those processes and those polices are going to have to go away. And that's why you're seeing this tremendous shift in politics towards people like Trump and Le Penn and whoever the Dutch guy who wants to close the borders. Von Wilder.
Buck Sexton: [Inaudible]
Porter Stansberry: Wait, von Wilder was the college humor guy.
Buck Sexton: Yeah. Geert Wilders is the guy's name. So what you're saying –
Porter Stansberry: That's my theory.
Buck Sexton: But there's a struggle right now. I mean so this is a broader point about the trajectory of western civilization and less specifically about how to combat Islamism terrorism. Though I know you're saying there's some links. But the struggle right now is between I guess Trumpism, which is sort of American, America first nationalism and the progressive multiculturalist orthodoxy that you're talking about that pushes for open borders, as well and a large welfare state. The Democrats I think saw a future until Trump came along and it looked like a likely one, whereby what you're discussing, which is the pushback against all this, would be overwhelmed by the votes of the recently or newly arrived. That's why amnesty was such a huge push. So what you're talking about –
Porter Stansberry: And by the way, that's, again, that's tipping the scales in Europe.
Buck Sexton: Yeah, but they were close, right. That's the thing. I mean they have Republicans going along with that. I mean we have a respite here where it doesn't look like the Trump administration will go along with any of that –
Porter Stansberry: We're gonna have to see how that all shakes out. But I can just tell ya, whether it's solved at the polls or solved with a revolution, you're not going to have the powerful and wealthy people in America forced out by a bunch of worthless immigrants. There will be a blowback. And it'll be tremendous eventually. Especially if it's kind of chaos. I mean if people can't walk around –
If people can't walk around safely in Central Park there's gonna be a fucking problem.
Buck Sexton: People have been, I mean look, I grew up in the city and I remember what it was like when Central Park wasn't safe. One thing –
Porter Stansberry: Sorry, but I meant because of a specific poor immigrant group. I mean you've seen the tent cities in Calais. Imagine if that was in Central Park. There would be an immediate change.
Buck Sexton: Oh, there was an open air, as a child I lived around the corner from what was operating as an open – I'm totally serious. An open air homeless shelter on the street right around the corner from where I lived. And I remember walking back from church with my mother and thinking that this is not – you know I was a little kid. I was like ten. Like this doesn't seem safe. There's people pushing each other and doing drugs and everything right out on the street, right in Manhattan. But – and that was normal at the time. I mean that was pretty commonplace.
The issue though right now or an issue right now, you mentioned that the wealthy won't allow the displacement by the newly arrived or by immigrant groups. You look at the wealthiest and most powerful people in the country, and a lot of them are effectively for open borders. Mark Zuckerberg at Facebook.
Porter Stansberry: [Inaudible]
Buck Sexton: George _____. I mean, you know look at a lot of these billionaires and one of the unfortunate realities of the Republican party is that the donor class within the Republican party within the GOP has been complicit with all of that. I mean they've been complicit with turning a blind eye to illegal – I'm speaking now about illegal immigration never mind legal immigration and the million people a year that are made either permanent residents or citizens in this country every year. But illegal immigration because they like the cheap labor, the donor class, the Republicans who write checks, I'm sure you know a lot of these guys, Porter. You probably know a lot more of them than I do. But a lot of republicans who write checks to politicians and to political action committees and all the rest of it, they like this. The Trump revolt if you will, has been based, at least in some part, on people feeling like they're being displaced economically. Sure. That their party betrayed them in that displacement. But also they're being displaced culturally.
Porter Stansberry: I gotcha. I gotcha.
Buck Sexton: - the cultural pushback – yeah.
Porter Stansberry: Well, we're running –
Buck Sexton: That's been the biggest part of it when they've done the actual polling.
Porter Stansberry: We're running out of time. But I just want to tell you that you're exactly right. In elite financial circles, Trump's nativism, if you will, is completely frowned upon. And it's linked to racism and xenophobia, which are seen as afflictions of the poor and uneducated. Right. So the people in these circles look down on those ideas.
But let me just remind you of something. There's a big difference between a bunch of jihadists camped out in Central Park and a bunch of poor people on a street corner in New York. And what I'm saying is, if the jihadists think that American politics are going to not change based on these actions, they're wrong. In fact, if you want to be really cynical, you could see that the military industrial complex would be inventing these kinds of attacks if they weren't already happening. Because they're going to change the mood of the country dramatically to favor law and order. And that favors Republicans.
Buck Sexton: Are you talking false flag over there, Porter?
Porter Stansberry: No, no, no. I'm not suggesting that happens. I'm saying – I'm just saying that, you know this is what people alleged Putin did, right? He blew up a bunch of apartments and blamed it on the Chechnyans.
Buck Sexton: - yeah, I think he probably did do that, by the way.
Porter Stansberry: I don't know one way or the other. But I can tell you that it's a great way to build national resolve. And it's – and by doing so you're gonna turn those nativistic views into something that people frown upon into something that people embrace. Because, you know America first. And that's what happens after, think about what happened after 9/11. Right? You saw the same thing. So when Americans feel like their security is being threatened, they change their political views very quickly.
Buck Sexton: Yeah. We invade countries and we kick a lot of butt and do a lot of stuff. This is what happens when we get hit hard. So if that happens again, by the way, and this is just one quick thing and I know we're at time here. But people who say that the biggest threat of or the biggest threat after any of these terrorist attacks is Islamophobia and so that's what we have to be on guard for, I always say the worst thing that can happen for the predominantly peaceful law abiding, overwhelming peaceful and law abiding Muslim community either in the UK or in the United States is another mass causality, huge attack along the scale of 9/11. Because then public sentiment actually does get kinda scary. And so preventing that is a, in every respect is an absolute priority. So.
Porter Stansberry: Well, I hope that these maniacs wise up. Because otherwise I think we're heading towards eventually a real blood bath. And I don't see any way to prevent it. Just based on the immigration trends that we've already discussed. So we have that to look forward to.
Buck Sexton: Next time we hang out, by the way, we'll have heard Comey's testimony so we can get into Russia. I really want to hear your theories, Porter, on Russia, Trump collusion, the deep state and all. We've never really gotten into that yet.
Porter Stansberry: Oh, I think it's all bunk.
Buck Sexton: I know. But we should talk about why and how.
Porter Stansberry: Well, we'll have to dig into that next week. Take notes on Comey's presentation. And will you please look into what's going on with Qatar? I mean that's your end of –
Buck Sexton: I promise I'll read up on Qatar I know. I'm remiss on that one. I should be all over it as a Mideast guy, but I've just been so focused on the terrorism stuff I haven't been reading on it. But I will. I will. Next time I'll have a deep dive for you ready to go on Qatar.
Porter Stansberry: All right, man. Be well.
Buck Sexton: Rock and roll. Thank you, sir.
Porter Stansberry: Thanks everybody. We'll see you next week.
Male:Thank you for listening to the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your email. Have a question for Porter and Buck? Send them an email at [email protected]. If we use your question on the air we'll send you one of our studio mugs. This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.