Assets and Taxes - The Truth About Oil & Gas Right Now

Episode Date: June 5, 2026

Welcome back to assets and taxes. My name is Pete Dardy. I'm a financial consultant here with Asset Strategy. Today, I'm speaking with Nick White from U.S. Energy. We'll be talking about something that's on everyone's mind, energy markets, and how the AI boom and tensions in the Middle East are shaping both supply and demand. Nick, welcome. Can you tell us a little bit more about yourself and U.S. Energy? Yeah, happy to be here, Peter, and thank you for the opportunity. Nick White with U.S. Energy, director of business development. Started over here when I was 21 years old. I think that makes me one of a few millennials that stuck with one job out of college. So I've been in the business now for 15 years and working with advisors and clients directly on the macro environment of the energy sector, really educating them on, you know, where the investment opportunities are in what's going on in the sector, and then layering in, you know, how are clients utilizing the energy sector for tax mitigation investment opportunities across the board?

So hopefully you can add a lot of value here. and appreciate the opportunity to be here. You guys have been a fantastic partner, and I always enjoy your insights, so this should be good for our guests, for our listeners. So much going on in the world, but before we get into all the current events, let's take a step back and talk about some of the longer-term trends.

I know sometimes it's easy to get hyper-fixated on headlines, short-term impacts, even political beliefs can sneak in there. But when we look at the big picture for oil and gas and energy, what are the factors shaping supply and demand over the next decade? Yeah, I mean, there's, that's a really good question. And so I'm kind of kind of split it into two. So when you're looking at the oil markets, right, oil follows global supply and demand, natural gas is a little bit more domestic. And if you look back over the last decade, on average, the demand for oil goes up about a million barrels a day every single year.

So as of this past year, we as a globe consume 105 million barrels of oil every single day. it's a stark increase from what you saw 30, 40 years ago and a big reason is that energy demand really does move pretty lockstep with population, global population. So if you take it back 50 years, I think at that time we had about 4 billion people walking and living on this planet. As of last year, I think we surpassed 8.2 billion people. Well, more people means more energy demand. And historically, I usually ask the question.

You know, we get so, I would say, siloed into what's happening here in the U.S. And rightfully so, we live here. But I always ask the question, when you think about the global markets, do people want to live like the United States? Or does the United States want to live like other countries? And obviously, it's the latter. And so how do you continue to develop, right? How do you continue to grow as an economy as a country? It's access to energy and demand.

So I do think a lot of that growth on the demand side has been attributable to the population side of that equation. Absolutely. Thinking about raising the standard of living across the globe, I mean, so many countries at this stage are still burning like wood, right, which is even dirtier than, you know, from a carbon standpoint than oil, oil gas. So I think that's an interesting part, too. If you were to describe the energy landscape, you know, the mix of energy, let's say in

2035, what does that look like? What's bigger than people expect? What's smaller? What's gone maybe entirely? To what extent will alternative sources replace oil and gas? I think that's probably one of the bigger questions I've gotten over the last decade, right, with the advancement of the renewable sector, right, capital formation and funding going into that. And the big question is, is how does that impact on the demand side for actual fossil fuels? Maybe the only oil and gas company that's going to say or contact that's going to say this. But I think there's been a misnomer on, you know, energy transition, right? You've heard that a lot, like how we're transitioning more of fossil fuels.

When you pull back the data and actually see what's happening, it's more of an energy addition, right? So if I take you back a decade ago, renewables were really 4% of total energy composition, whereas fossil fuels made up close to 85% of that. You know, we've spent as a low, almost trillion. million dollars over the last decade in the advancement of wind solar renewables. After that trillion dollars of spending a decade of time, energy consumption for renewables went from 4% to 8%. So it's still the smallest sector of actual energy composition. But the fact of the matter

is it needs to. And we need to continue funding that side of the house because oil and gas, we can't meet the energy demand needs for the 8.2 billion people on this planet alone. So I'm trying to transition that conversation from an either-or discussion, either renewables or oil and gas, when ultimately it needs to be an all-hands-on-deck situation. You know, looking into 2035, you know, if I was a betting man, I think you're going to see even more, all right, advancement into wind and solar. that's not going to cut into the actual amount of barrels of oil that you need on a day-to-day basis as a global population.

People are going to continue to live longer as technology advances. I would more than likely guess that you see an uptick in nuclear. I know it's a scary word and that it follows that NIMBY model. Nobody wants one built in their backyards. But the reality is that nuclear is probably the most efficient energy source that, you know, we have as a technology. Right. So I do think you're going to see advancement of all energy sources and in all hands-on-deck type of situation. Makes perfect sense. I mean, you know, if you're when you, I mean, I guess in percentages, do you have a guesstimate from, you know, let's say we're oil and gases today to what it might shift to in a future state with maybe some other supplemental alternatives? Yeah, I think we're fossil fuels in general or about 80% of total energy composition. I think taking it to 23.

35, probably similar, right? I would say probably between 75 and 80%, and a lot of it is due to. And I think, you know, if anyone's watched Landman, they do a little bit of a good job about talking about the different actual products of oil and gas. I think a lot of individual individuals think that oil is just used for gasoline. And it is, right? That's kind of what is attributable to our ability for jet fuel and gasoline. but all the different byproducts of petrochemicals,

a lot of people don't understand where that goes. Almost every single piece of plastic that you use, almost every single piece of technological equipment that you're using on a day-to-day basis, computer chips, wiring, even most medicines, right? They have petrochemical products within them. And so this isn't something that can just be, okay, we're going to invest in wind and solar.

Oil and gas is going away. We'll know with all the different byproducts and how heavily we rely in our day-to-day lives on oil, even for manufacturing. That's always going to be a large part of our day-to-day consumption. And I think that leads us into our next conversation, which is the current events, supply chains, where do these various sources come from? How does this all fit together, right? Because oil and gas, as you said, is not just one thing.

It's a number of different. The quality of the gas, the characteristics of the oil and gas matters. and those are produced in different places. So it's been a very interesting, you know, year in terms of geopolitics. So to say the least, so maybe you can give us some, you know, some of U.S. energy's backdrop on how things are shaking out. Yeah. So, I mean, you know, going back to my first point, right, we understand that the world consumes 105 million barrels every day. really where you see pricing swings and movement is on supply side.

And so when you see these massive supply disruptions, right? Like when Russia first invaded Ukraine, you saw supply disruption. What happened to oil prices? They went up. Now, unfortunately, where this current geopolitical issue is happening in the Middle East, that's a major red flag for the supply side of oil globally. Because we're producing right now in the U.S. around 13.7 million barrels a day.

And when you factor that into the 105 million demand, we're roughly about 13% of the market. So supply movement doesn't really impact us domestically. We're not going to move the needle on pricing. But when you move over to the Middle East, right, and now you're talking about countries like Saudi Arabia, the UAE, Kuwait, Qatar, Iran, you know, roughly 40% of daily oil production

consumed comes from those Middle Eastern nations. And what you've seen over the last two months is a little old 17 mile long straight, right, with that little straight, if you guys haven't heard of this, it's the Strait of Hormuz, basically 20% of all exports are coming globally are coming through that straight every single day. That's basically been just shut down, right, for the last two plus months, where tankers are really being straight. on either side of the aisle. Fearful of an attack, maybe insurance companies aren't, you know,

insuring them to go through. But that's really caused a huge disruption to day-to-day life, right? You're talking about 20% of the market, just not making it to the end user. Which obviously is a big reason why you saw oil at $60 a barrel, December of 25 to,

I mean, I'm looking at WTI today over $101 a barrel, a big, big jump. And so, So it's important to note that when you have these conflicts over in the Middle East, that tends to add a higher level of risk premium to the price because that's where most of that supply on a day-to-day basis comes from. I guess in terms of characteristics, when you think about what's produced in, say, the Permian Basin, how is that different from what gets produced in the Gulf?

Yeah. Really good question. And so the U.S., right? So we're producing all-time himes. 13.7 million barrels a day is the most that we produced. And something that you may have heard, okay, now we're energy independent. Well, that's not really the reality. When you pull the onion back, there's different types of crude oil.

So we in the United States, we produce what's called a sweet crude. So think of that, you know, a byproduct of, you know, gasoline and jet fuel. But if we were going to make all the other byproducts, you know, asphalt, lubricants, plastics, things like that, you need a heavy crude, right, to be able to blend with your sweet crude, and that's how you're going to get those other buyproducts. And so we'll drill, we'll produce 13.7 million barrels of oil every day, but we import still about 8 million barrels a day of heavy crude so that we can blend that. You know, so I do think that what you're seeing right now is going to have an impact in terms of

our ability to import, probably spending a little bit more on those imports. Two of our biggest partners are our neighbors in Canada. Canada is a big attributor to that eight million barrels imported every day. Been getting a lot of questions on Venezuela. Venezuela also is a producer of heavy crude. So they will start to impact that and we're going to be able to collect some of that heavy crude from Venezuela, given everything that's transpired recently. So given all the you know, the tensions and the just the disorder and the global markets right now. Do you see this getting resolved anytime soon? How do you see that impacting price in the short run, the medium term run? Is there, you know, once this gets resolved, let's say,

you know, how quickly can, you know, can that price adjust downward? Yeah, I think that's probably the biggest question that I've been receiving here over the last two months is, you know, hey, if a ceasefire, if this stops, you know, what is the impact on prices? What you're seeing is every day that this goes longer is going to have a longer-term impact on, you know, pricing. This isn't something to where, you know, a ceasefire happens today as you and I are talking, right, which, as Trump said yesterday, that seems to be on life support.

But let's just say that we do see a ceasefire today and everything subsides. It's going to take a few years to get back to an equilibrium. real. You've had two years of basically historically low oil production coming from OPEC. I think I read an article yesterday that they're at a 26-year low in terms of actual production making it to market. That's going to have significant long-term impacts on day-to-day. On top of it, I think you're seeing quite a bit of avenues that are being overseen by individual investors. And that's really what we've tried to do to mitigate the rise in price from this disruption is we've released a ton of oil from strategic oil reserves.

I think the G7 nations came together and recently said that we were going to release 450 million barrels of oil in the market to try to place a stop gap within the pricing movement. And what really opened my eyes at that time is historically as I've been working in this industry, when you see news like that, that's going to drop prices pretty significantly

because you're seeing a flood of supply coming to the market, but when that was announced, energy price, oil prices actually went up 4% that day. So you're seeing actual major supply disruptions on the physical market, which aren't going to be just, you know, forget as soon as the ceasefire deal happens. On the other side of it, I don't know if we know the extent of the damage just yet. You know, for example, here in the U.S., we have hurricane seasons, right? And so as hurricanes are going through the Gulf, we have teams that will go out to the Gulf

and assess the damage from hurricanes in those oil and gas platforms. And they'll kind of look at, okay, what's the damage been to this platform? How long is supply going to be disrupted for? How much is it going to cost us to repair this asset? We haven't done any of that in the Middle East yet. Nobody really knows. And so I think that there's this really unknown impact coming down the line as the ceasefire does happen. Teams will go in and they'll assess the damage.

The only thing that we do know, Qatar was pretty open about it. Basically 17% of their LNG plant was destroyed in the conflict. In Qatar, that LNG plant's the number one producing LNG plant in the world. It said it's going to take at least five years and over $4 billion of capital to get that back online. And so I think that what you're going to see is more longer term higher prices, higher than normal prices for an extended period of time. And again, I think that that risk premium continues to go up every day that this conflict continues. Do you think that causes a shift in supply chains?

Will this result in more exports coming from the United States? Is that a possibility? And then I guess on the second half of this, I've, You know, the supply is clearly constrained globally. Some have speculated that the U.S. might kind of depart from the one world price and maybe have pricing of oil for the domestic market, maybe something different from the external market. Do you see any likelihood of that?

I think it's really tough, right? I think that right now we're producing 13.7 million barrels a day at all-time highs. You know, I go back to the last term or the last year under the Biden administration. you know what that number was? 13.3, right? So that's a 400,000 barrel increase under the Trump administration, which is obviously, not obviously, but Republican presidents are a little bit more favorable regulatory,

which I don't think is the secret to oil and gas companies. And so that's really just been attributable to 400,000 barrels of domestic production coming every day. In order for us to export more oil, I think they're going to see, need to see historic levels of, with CAPEX spending going into new wells being drilled here in the United States. And what I've noticed here is that the drilling activity has kind of dropped,

or hasn't jumped as much as we would have thought. But at the same time, these publicly traded major oil and gas companies, stock prices are at all-time highs. So the cap-back spending that I would like to see for us to export more isn't happening. And ultimately, those companies are really just really just focus on their stock price and their investors, which is working. Yeah. So what are some of those? Because it's a great point.

So some of the majors, Conoco Philoves Exxon, you know, they're a little bit more discipline, should we say, looking for high return projects and, you know, not necessarily investing heavily in new fields. So how is that discipline playing out at the operator level and what does it mean for smaller or mid-sized players like US Energy? Yeah, I can actually pinpoint the transition of this to this actually happened during COVID. So if you look, I'm going to look pre-COVID and post-COVID when you're looking at these publicly traded massive oil and gas companies. So pre-CO, you know, how those big firms, Conoco, et cetera, were valued on Wall Street was on their ability to grow the reserves.

And so what you saw is these companies is a very cheap interest rate environment. And so, you know, well, we wish we'd go back. but two, three percent interest rates, these companies would take on a lot of debt. They would use that to buy assets, drill new wells, and based on prices at that point and low interest rates, they could cover that debt payment and they could just show their reserve values were growing. If you can show your reserves were growing, Wall Street would issue a buy-side sticker on your stock and everybody was happy.

That all changed, right? Post-COVID, Wall Street was really looking at these companies on their ability to operate within their own cash flow. And so what have you seen these companies do post-COVID? Most of them are increasing their dividends for issuing stock buybacks and reducing their debt. When they do those three things, that's leaving them a lot less capital to go out and drill new assets.

But if you're the CEO of you name it, right, and you're drilling less wells, but your stock price is going up, that's your job, right? is to increase value for your shareholders. So they're not really changing at that time. So there was a massive, I would say, lack of capital spending going on over the last few years from the public side. And that gives a lot of opportunity to the private side.

So you look at these small mid-sized players, US energy, being one of them, there's a lot of potential investment opportunities. So really what we've done as a firm is we've become more of a non-operated company, right? So where we're actually aggregating capital and co-investing that capital alongside of these publicly traded majors into their assets, right? So giving investors access to institutional great acreage positions, higher rates of return, lower risk profiles. And so I think that

you're seeing that across the board on the private side to where they're that they're kind of jumping in and kind of carrying the torch per se for this U.S. production with a lot more upside potential for the investment community. Excellent. You know, I think from an investor perspective as well, you know, what's the difference between, say, investing in a publicly traded stock like Exxon and then finding a deal maybe in the private markets with something like U.S. energy? Yeah, and that's a great point.

There's a lot of different ways to have exposure to the energy sector, right? You can do equities. You can do MLPs. And then you have this other side of the avenue. to where you have direct investments, to where it's an actual hard asset partnership that you're investing in with thousands of other clients. Each have their tradeoffs, I would say.

Like if you're investing into the equity markets or MLPs, you have a lot more liquidity. Right? So those are easily changeable, exchangeable, things like that. That's more focused on, I would say, growth side, dividends are great, so you can classify that as income side as well as more income income.

growth oriented with liquidity. But if you look over at this, the private side, where a lot of clients don't realize is that the government has all these incentives for investing directly into the oil or gas space. The specific tax code, IRS Code 263C, has been a part of the tax code since 1914. Right. And so with that investors that invest, let's say, in an oil or a gas drilling fund, you know, can take a tax deduction in the year of investment, right? So if you're a super high W2 earner, 1099 earner, K1 income, or you have capital gains, the direct energy space can be a really good investment opportunity to reduce your overall tax liability with that deduction

and then gain cash flow, right, hard assets through the production of the wells that are drilled within that portfolio. At the same time, I think you have a couple of, different hedges, right? So if you're investing directly in the commodity sector, like, you actually have individual ownership of these assets based on your division of interest. And so with that, you have like an inflation hedge, right? I just saw the report today, I'm sure you did too. Inflation rose to 3.8%, right? And so when you're investing in the direct side, inflation and direct energy investments are positively correlated. So as inflation goes up, the price of oil,

and gas go up and investors kind of get a better rate of return. Both makes sense, right? I just think it's different parts of the portfolio. You know, are you focused on liquidity? Or are you really looking at these as potential unique tax mitigation strategies with strong cash flow on the private side? And let's focus on that tax mitigation strategy a little bit more because I think one of the key things here is that there's so many opportunities or most often you hear about a tax mitigation strategy, and it really addresses the passive side of your portfolio. What's unique about oil and gas is its ability to help offset some of your active income. Can you tell the folks a little bit more about that?

It's one of the best strategies in the space, right? When you peel the out of the back, there's not a ton. You know this. There's not a ton that can really alleviate active income, like your W2 or 10-Denet. oil and gas is one of those few because again the government likes to incentivize this for national security reasons and investments so investors that participate in oil and gas drilling funds they usually enter in as a general partner you're usually a general partner for a period of the drilling phase which can take up to 12 months but that general partner designation is what allows you to take this deduction against your active income right so

If you're a million dollar earner and you do nothing, you're probably going to owe $300,000 $400,000 in taxes. Now you choose to invest $100,000 into an oil and gas drilling fund, receive, let's say, a 90% deduction, you're probably saving closer to $40,000 to $50,000 in taxes based on a $100,000 investment. So to me, it's one of the best ways for clients to do tax. planning, right? It kind of gives you the similar idea of a charitable donation. But at the same time, you're getting an actual ROI, right, an actual investment return from the production of those assets

year in, year out. And so there's so many different ways I've seen clients use this, offsetting R&Ds, right? Perhaps you're looking to do some Roth conversions this year, using this as a way to help offset the Roth conversion cost through a tax deduction. One thing that I did personally this past year, because I was running into it in New York, after the tax law change, right, you saw a change in the state and local tax deductions. You know, if you make over $500,000, you're really limited to only using $10,000 of that state and local tax. Now, if you can get that lower than $500, now you're able to take it against, I believe, it's $30,000 or $40,000 in state and local deductions. And so, you know, using this is to get your AGI lower to phase insert.

benefits. There's just so many really cool different ways that, you know, very successful clients are using this type of investment space to create tax planning and also an investment opportunity that gives you strong cash flow. Absolutely. It's a powerful strategy that we've used for a number of clients and it has a number of different benefits, right? So the tax benefits, but also the diversification, a different allocation to a really unique sector that has powerful inflation hedges. I mean, if you look at inflation, how much of that is driven off of the price of oil? It's a huge. Yeah, right. Just this month's report, you need look no further. So the other, I think, really cool tax mitigation strategy that lots of oil and gas can use is the opportunity

zones. So you want to talk a little bit more about that and how that might be positioned. I think it was probably one of the more transformative tax law changes that we've seen in an extremely long time. So for those that are not familiar with qualified opportunity zones, they came out in 2017 and the Tax Cuts and Jobs Act. And what it allowed, you know, different states to do is their governor was able to designate certain areas within their state that qualify as opportunity zones. And so at that time, you started to see investment companies, real estate, oil and gas, you name it, construct funds that invest that capital solely into these opportunity zone areas,

and hence the name qualified opportunity zone funds. But to me, I kind of attributed to like a super rough conversion, right? So it really has to be capital gain focus. So if you're somebody that has a capital gain event from any sort, short term or long term, a qualified opportunity zone may make a lot of sense for you. Because you can have the ability to invest in a qualified opportunity zone, defer that capital gain, create income right from the underlying investment. And to me, the number one biggest advantage of a qualified opportunity zone is if you hold it for 10 years,

if your dollar grows to $2, $2, or whatever it may be in year 10 and you exit, all of that's tax-free, right? So you're telling me you're getting an income stream and creating this massive windfall of potential tax-free growth, and that's kind of how I attribute it to like a super-waffe conversion

without the income limitations that some may face. Again, it was just made permanent too. I think that's a huge discussion point to where, you know, you're not going to see that as a part of day-to-day planning going forward, starting in January 2027. Really cool. Yeah.

And, you know, there was the 1.0, which was fantastic and 2.0 looks like it will be just as good, if not better. So we're all looking forward to 2027. All right. So for the last bit, we're going to do a couple of predictions, Nick, and we're all going to hold you to them. So the first one is. Hormuz fully reopens by year end, 2026?

Are you saying yes or no? Yes, with the caveat of Iran still trying to charge fees to go through it. Okay, I like that. Well, it's already opened, so that's what I've heard in some cases. Depends on who you ask, yes. It's a, right. So oil price, end of 2026, over. under $80.

Over. What's the most underappreciated energy investment theme right now? The most underappreciated energy investment theme right now. It's been getting a lot of news, but I do think that the data center investment isn't getting enough appreciation, right? It's a bad topic and AI. But everyone's talking about AI. Nobody's talking about what it takes to actually power of AI.

So I do think that you should hopefully continue. to see investment in data centers specifically. We're seeing it in the Permian Basin and in the northeast of natural gas focused investments. So that would be my answer. More actual manufacturing and building data centers. All right, Nick, it was great talking with you. These are, it was incredible insights. I've learned a lot. Hopefully our audience has too. If you'd like to learn more, go to our website and download our oil and gas guide. You can also click directly in the description of this video and if you want to talk to us directly, book a 15 minute call with our team using the link below as well. Thanks for joining.