Yet Another Value Podcast - Josh Young journeys through the energy sector

Episode Date: January 27, 2022

Josh Young, CIO of Bison Investments, discusses his thoughts on the oil market and why he thinks energy prices are going much higher. Then he dives into his thesis for Journey Energy (JOY CN in Canada), a micro cap Canadian company that he thinks is dramatically undervalued.You can find all my writings here: https://yetanothervalueblog.substack.com/Josh's Twitter: https://twitter.com/Josh_Young_1Chapters0:00 Intro1:45 How Josh is thinking about the oil market today6:30 When do you know oil is high enough?10:25 Why aren't we seeing a big capex / opex ramp up from oil companies?15:45 OPEC's lack of incremental capacity19:35 Is calling for higher oil Big Short 2.0?24:50 Why the oil market today is not the oil market from 201428:50 Small technical difficulty!31:10 Why $100+ oil won't sap demand34:30 What do energy specialists look for that generalists miss?37:15 Do generalists lean towards worse assets than specialists?40:00 Journey Energy overview45:20 Breaking down Journey's SOTP48:15 Journey's growth and decline profile50:00 How are Journey's base assets positioned?53:30 What oil and gas price is baked into Journey currently?54:10 Journey's power plant initiative57:20 What type of power is Journey's power plant?58:50 Journey's Asset Retirement Obligations1:06:35 Closing thoughts on Journey

All right. Hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have Josh Young. For those looking on YouTube, you can tell Josh is the CEO of Bison investments because he's got the famous bison painting behind him. Josh, how's it going? Good. How are you? I'm doing good. Hey, let me start this podcast the way to every podcast. First, a disclaimer to remind everyone, nothing on this podcast is investing advice that's going to be particularly true today because we're going to talk about journey energy towards probably the back app of this podcast, which is. a very small cap Canadian oil and gas company. If that doesn't scream, please do your own work, highly risky, not financial advice. I don't know what does. But let's get that disclosure out the way. Second way I started every podcast is a pitch for you, my guess. You know, honestly, I feel like I'm talking to a celebrity. I said you're coming on the podcast and I don't think I've ever gotten this much inbound interest. But look, no one has nailed the recent, you know, I'd say late 2020 to today, oil, nat gas, energy, crisis, inflation, whatever you want to call it. No one's nailed it like you. Your track record really speaks for itself.

But more importantly, I'm impressed by how quickly you're able to distill kind of new information now as it comes out down and reshape it into your thesis, you know, and prep for this podcast. I listen to tons of your interviews and people can say, hey, this news came out this morning. You could tell them exactly what it meant. And you and I were talking beforehand, I can throw four energy stocks at you and you can tell me off the cough of your head. Hey, no, only generous like that. Real energy people know those assets are poor. So really excited to talk today. Let's start. I think we'll start just broadly, the oil market, NAC gas, energy market, whatever you want to call it in general. Your big theme that you've played on has been

oil prices are going up, to put it simply. But I just want to talk like, you know, as we sit today, how are you thinking about the oil market and your thesis there? Yeah. So thank you. And I appreciate that. And that's been kind of a concerted effort. Having invested in oil and gas since the last time it was popular or becoming popular, I've learned that it's very important to gather as much relevant information as possible and try to distill it as quickly and effectively as possible in order to avoid overexposure to things that can go wrong. And I think it's kind of a good way to approach any sort of investing is to really track your left tail risk. And, you know, various famous value investors,

like Buffett and Munger and so on, talk about that a lot, right? Munger says like deal with your downside risk and the upside takes care of itself or maybe Buffett said it, but both of them have addressed that. And I think like at the tail end of a long downturn, it's a lot easier to have kind of built that into one's process. And so I think, you know, as a lot of the kind of growth compound or whatever things have fallen tremendously over the last year, I think others are starting to kind of wake up to that a little bit.

But unfortunately, sometimes it takes us many years to realize just how important these things. are. So, you know, that's kind of as a result of a lot of kind of unfortunate experiences that potentially could have been, you know, addressed or risks that could have been mitigated through kind of more concerted effort. So I think what you're describing is just kind of evidence of that. And one of the things I found is that by sharing my interpretation of things, I'm definitely not always right. And I'm relatively new to focusing on macro versus many others who follow oil and gas and kind of other spaces. And so sharing some of those insights on a real-time basis or some semi-real-time basis actually is really helpful in terms of getting input and feedback in

terms of whether things are working or not or whether I'm like understanding it the right way or not. So there's a really big benefit to that. So I think that's kind of what you're describing. The thesis is kind of simple. There's been massive underinvestment in commodities over the last decade or so since China growth essentially peaked, let's say, 2012 or so. And so what you're seeing is across commodities, there's been kind of underinvestment, which leads to improving supply dynamics. And then in commodities where the demand is improving also, you're seeing prices rise materially. And then for oil in particular, unlike many other commodities, it's consumed. And And so unlike, let's say, copper, where there could be copper wire in various places or iron

ore where there's steel that can be recycled, you can't really recycle oil once you've burned it. And so in the form of gasoline or diesel or whatever. And yeah, there's like some plastics that can kind of get recycled, but even that's like not really that reusable. So because it's consumable and because of the nature of it and because it's been exploited aggressively for a long time. Oil has a particular kind of attractive dynamic. And then the other aspect is there aren't really people saying that like steel is going away or that iron ore demand is going away because steel is going away. They're not really saying copper is going away. They are saying

oil is going away. So in this kind of commodity bear market and commodity downturn, oil and oil and gas have been particularly divested from, hated, underinvested. It's been the best way to end any conversation just starting to talk about it. And so I think that's kind of exacerbated this underinvestment. And that probably makes the upside more compelling and kind of more extreme versus other commodities. So on one hand, there's a supply issue. And then from a demand side, there have been many different factors that have driven, sustained and increasing demand at a time where many, the consensus have been for a while, that demand would fall. And so whether it's suburbanization, which we've written about and analyzed in detail or increased travel or kind of

the move out of poverty and emerging in frontier markets, there's been kind of this inexorable growth in oil demand that's paused twice, right, in 2008 and then during COVID. And so I think kind of this combination of suppressed supply that's going to be really expensive and take a really long time that I think is just not well understood to get back to where it needs. to be as well as demand that it seems to be is just perpetually surprising to the upside. You kind of have this setup that should be really good potentially for a number of years. Look, that's great. I've got tons of questions. I'm sure none of these are things that you haven't heard or thought of before, but they're what's on my mind, and I'm sure

there are unless there's mine too. So I guess my first question would be, right, you and I are talking today, oil is 80 to 85 or something, right? And a big part of your thesis, I know you do real fundamental work. People are going to see this when we talk about journey. You do real fundamental work on the companies you're invested. But I think a big part of your thesis is oil is going higher, right? So my question is like, how do you know if your thesis is oil is going higher? Well, it's gone from 50 to 80, 85 in a year. That's a lot higher, right? That's almost a double in commodity prices. Like, how do you know when your thesis is no longer oil is going higher? Like, when is oil high enough? That's a great question. I mean, if you look at it on a

almost two-year basis, oil is up by, what, $130? It was negative for a day or so, so maybe it's all infinitely, right? Yeah, yeah, exactly. But just on an absolute basis, I mean, it is up, like, over $100 from a period that it was at sustained. Well, I guess not over $100, but it's up, like, let's say, $70 from where it was for a meaningful period and up $50 from where it was for almost a year during 2020. I mean, there was, like, there were months where oil was 20 or so dollars.

barrel. And if you look at the realized price for companies, it was even lower because there's always gathering and processing and transport and so on fees, almost always. So generally, like the realized price for companies, in some cases, was the teens oil price per barrel for a number of months. So one thing I look at is what's embedded in public equity valuations. So I don't generally own indexes. I own individual companies that I construct individual kind of almost, like special situation, almost like a private equity fund would do where it's like, hey, I want to own this thing, right? It's not that I want to own like an oil producer. I want to own this oil producer in this area producing from these assets and this valuation

and, you know, very, very specific. But when you look at the aggregate, like looking at the aggregate is helpful in terms of figuring out the answer to your question to some extent. And there was just a Morgan Stanley report that came out arguing that 60, $20 WTI is priced in to oil and gas stocks in the U.S. And so, and you know, various investment banks do this analysis in various different ways. I'm not sure I 100% agree with it. I don't know, right? Like, is it $55 oil priced in?

Is it 62? I don't know, but definitely not $85 oil. Yep. And that doesn't mean that if oil falls to 60, that therefore the stocks won't go down. It just tells you. Having done this a while, I'm pretty sure that stocks are going to go down if it falls. Right. But it tells you kind of what a reasonable approximation of intrinsic value.

is across the sector of like mid and large caps at this time. And so one of the things I think you see as markets revalue is you see expectations improve. And low valuations for the equities are indicative of low expectations. And this has been the case now for more than a year where the price embedded in oil and gas stocks has been materially lower than the commodity price and the commodity has been rising. So the pushback is, oh, well, that has happens at the peaks of cycles, but there are other things that happen at peaks of cycles that aren't happening that I think give credence to this argument. So rig counts are still very low, capital budgets are still very low, percentages of cash flow that are getting spent on

sustaining production and growing it are still very low. And so you have these things that you just don't see at tops of cycles. At tops, you see over 100% invested. You see growing production that's meaningful versus the global supply. And you're just not seeing these things. And so I think it helps with this interpretation. I think that oil and gas stocks are way too cheap, which also helps imply that the commodity is way too cheap. Why do you think you're not seeing the big ramp up in OPEX? Because we'll talk more about like the 2014 time frame in a second, but I remember it. I was at private equity. I remember like the oil and gas guys were the kings of the earth for a while. And then 2014 turned to 2015. We can talk about that. But they were not the

kings of the earth anymore. But look, you know, in the 2014 time frame, exactly what you're saying. These oil and gas guys, oil was 90, 100, somewhere around there, and they were all out. Every dollar that they took out the ground, they were putting it back into capital equipment. And today, you're not seeing that. And there's lots of theories around that, right? Like some of them say ESG, right? Like ExxonMobil can't really go develop new oil fields anymore because of the ESG thing. But, you know, smaller companies also aren't doing that. And I just have trouble leaving like small cap, kind of the wildcat or oil and gas, really care about E&G or really have gotten like the discipline that everyone says they're getting brave. Like they're there just drill oil and they're not doing it.

So I'm just wondering, why do you think we're not seeing the drilling, all that type of top of cap, top of cycle stuff that you would be used to? So I have to be careful with this because apparently my answer to this is why like Bison isn't all over the front page of every financial newspaper, right? I don't know about I've seen you in a couple of financial. newspapers and stuff before. A little bit, but like, I mean, you saw what happened with the big short and that sort of variance, variant performance. And like, you know, we basically are there in terms of just like an absolutely absurd year. And I can't speak to the exact performance, but like just kind of directionally, like I think it's indicative of sentiment. Oil and gas are still so hated that you can do twice as well as everyone else in the world, an investment fund

and no one's heard of it. You might have heard of it, right? But like just in general, no one's heard of it. If you do that in housing, everyone's heard of it and you run $20 billion and, you know, you can do poorly for 10 years and retire and be a billionaire, right? But in oil and gas, you do that. And it's kind of this like very kind of nichey thing where a few people kind of know and you have other people. I mean, it's wild. Like there are other investment fund managers, like making claims about like having done the best in the world that whatever. And but like not being kind of as nichey and like just that they can make those claims because like no one even bothers talking about it. So like the people that will is like a bright part of the

world, which again, it's like great. I'm glad that they like featured Bison in something. But like it's still, you know, the relative traction of something in Brightbart versus something in kind of Wall Street Journal or New York Times or whatever. Like there's just not, not that same sort of engagement. And so I think like that's one indicator, right? Like you don't have the people that are really winning in this on CNBC, you don't really have the same sort of buzz. I mean, there's, again, there's been those sorts of returns. So it's like hard to construct why that story isn't being picked up without kind of buying into this sort of like really negative sentiment, editorial bias, et cetera. So like I guess that's part of it. And then

you see it on the capital spending like you were saying for the oil majors and kind of the large publics. On the private side, there are some private companies that are drilling very aggressively, but they're not really getting outside capital. And many of the outside capital providers are swearing off oil and gas, are pulling capital. Apollo recently, I mean, they've had tremendous drama with their co-founders and whatever. And it looks like in order to kind of suppress that to some extent the other day, they announced that they will not be investing in oil and gas anymore, at least from their main fund. And they were like a big investor. What's that? It was Apollo. Apollo was the firm you said it isn't? Yeah. Yeah. That's just surprising because I know Apollo and like the history of Apollo, anyone who knows them is if there's hair on it, if other people aren't doing it, but they can get it for a low multiple, they're going in guns of blazing. So it's just surprising. It speaks to, it does speak a little bit to the environment for this.

Yeah, exactly. So I think you have kind of this combination of things. And then there is a reality, which is that like you were saying, people did really poorly for a number of years in oil and gas. And so if you're an investor, do you really. want to own stock and a company that's outspending their cash flow to drill on the hopes of higher prices in the future. Understanding that if too many companies do that, you're likely to have lower prices in the future or not higher. So there's kind of this collective understanding to some extent. There's no obviously any sort of like agreement. OPEC Plus is trying to control prices. And to some extent, they might just be trying to control the point where people realize that they're out of incremental oil to produce. But they're trying to overtly control prices. There's no oil cartel or anything like that. It's not like there's some group of investors outside of the ESG

advocates. There's no group of investors that's trying to like keep oil prices high as much as on an individual basis just like not wanting to get their faces ripped off in investments. And so I think, I think it's kind of that combination of several factors that's really, you know, institutional divestment, activism, forcing kind of lower capital deployment. And then, you know, people just being sick of losing money in oil and gas stocks and oil and gas assets, just forcing underinvestment. So lots to go there. And you kind of alluded to all the question I want to do. But let me start with one thing you mentioned, OPEC and OPEC plus at the end. You mentioned that for those you don't know, this is basically the world's largest oil and gas producers, you know, kind of Saudi Arabia,

the big one there. But these are the cartel of the world's largest oil and gas producers. And you said, hey, they're trying to keep a story going where they, don't admit to that they can't, they don't really have much incremental production left, right? And I know you've done tons of great work on this and stuff, but just that aspect of it strikes me as a little strange. Like, if you were this cartel, wouldn't you want the world to think that you didn't have incremental production capabilities? Because then the price is going to always lean towards the upside because they, it's like an area that everybody assumed of extra potential supply is not there. So prices are going to tend to run a lot hotter. Does that make

sense? Yeah. I think the risk is that oil prices go ludicrously high once it's consensus that OPEC doesn't have spare capacity. Or is running out, right? I'm not saying that they don't have any more right now. It's that it looks like over the next, let's say, few months to maybe year, they're going to hit a wall. And they've already, since we published on it, I think I first talked about this with Cuppie, who I think was on your podcast. And I think you talked about in like October time frame, though, I'm sure you knew about it before then. That's the first time I remember you saying it, though. So he and I talked about it on a podcast.

I think he was in like June or July of last year. It was something I had written about a little bit previous to that. And then on the back of severe negative pushback to that interview, we ended up doing more work and publishing our thesis. We got even more negative feedback. I mean, it's wild. Like people hated this. And still to this day, I get told I'm wrong that like, I can't know this from Houston,

that like, you know, I'm not in those fields and therefore I don't know. that I'm not like friends with people in Saudi Arabia, which actually not true anymore. I now actually directly have some connections there as well as other places. But there has been these like very powerful, almost emotionally driven arguments. And like I kind of don't care, right? Like I care in the sense that like it could be helpful to me for my thesis, but like I don't care at all in terms of if I'm not right about something, I don't want to bet on it. And like it's not, it sounds weird, but like if you lose money enough over a long enough

period of time. You just get sick of it and you just stop. And I think that's why like some of the research we put out has done so well in terms of calling these various price differentials and very specific things. It's because we're just like if we have an idea and we've had a number and that's wrong, we just don't publish it and won't talk about it. And if we talked about it, we'll like backtrack as soon as we can on the thing. And so, um, so I think it's been very interesting just how severe. I think people really understand that OPEC, spare capacity is really like necessary for the world economy. And I think OPEC understands this too. And so what they've been doing is they have this quota that they've been stepping up and they keep

missing it every month. And they were missing it already before we published, but like they really started missing it over the last few months. And various CEOs of companies in countries that are subject to OPEC quotas, OPEC plus quotas, have been like successively saying, we do not have more production capacity. So like Luke oil or Ramco, I mean, it's pretty remarkable, but the most remarkable thing is that it's still not the mainstream narrative and there's still massive pushback from many sources about this being some sort of like conspiracy theory. And it's like really weird because like you have the CEO of Aramcoe saying it, CEO of Luke oil saying it, you know, the math is saying it. And yet it's like a conspiracy theory. It's like, okay, well, I don't,

I don't know like what do you need to see to believe it? You know, one thing you said in there. So a couple questions ago, you mentioned, it reminded you a little bit of the big short, which is funny because I was thinking a little bit of the big short when I was prepped for this podcast and reading some of your interviews and stuff. And then the other thing you said was, I published on OPEC spare capacity and I got all this pushback. People hated it. People said, how could you know this coming from, how could you know this sitting at Houston? Like you don't have boots on the ground in Saudi Arabia. And it just reminded me of similar to the big short or any great fraud. You know, somebody comes out, any great fraud short thesis. Somebody comes out and people say, how could you?

you know this. Like I'm best friend with Mike Pearson at Valiant. There's no fraud going on over there, right? Like there couldn't be. You've never talked to the man. And of course, you know, so I see that and I hear that. And it does have reminiscences to that. But one thing that also strikes me is like, you know, I know I know you a little bit. I know cut you pretty well. I know a lot of the people who are making the $300 oil calls, right? And I don't know if you think it's going to 150, 300, or wherever, but who say it's going a lot higher, right? And I do find, like, there is a little bit like everybody's got the same thesis and is very aligned on, it feels like very aligned on politics, very aligned on worldviews and everything. And I, that does feel similar to the big short in some

ways, but I also do worry, like, that feels similar to things that have, you know, gone up a little bit and then gone spectacular wrong. Like, if you wanted to make some real analogies, like, late 2020, everyone worship the ground, the tech bros and the compounder bros and the growth bros walked on. and our taking this in early 2022, and it's a lot different in hindsight, right? And not that everybody here is swimming naked and not that everybody there was swimming naked, but a lot of people there were swimming naked. And you could see the reminiscence there. So I just wanted to throw that thought bubble out there and see what you would say to that. Yeah, I think there's a few things. So one, I think it's important to track people's incentives. And so there has been

over the last, let's say, 10 years, every incentive in my career and financial life to be negative on oil. Over the last 10 years, like there have been many opportunities. And frankly, it's one of the ways that Bison has done so much better than many of our competitors. And many of them that are kind of better known, that are more cited in various things, jumped on to the alternative energy bandwagon. In some cases, like as that SPAC boom was going on last year, in some cases before, there have been lots of financial and raised tons of money and made tons of money in cash, right? Like their clients may or may not have made money. Their shareholders have all now lost tons of money, but, you know, they personally made

enormous money. So there's been a big financial incentive to do the opposite. And so I think like one thing to track is what's the incentive? So like the compounder bros and the tech whatever's a year ago, they had made a huge amount of money for 10 years believing in this thing. and saying this thing, there's not really money in what I'm saying. I think from my understanding from Cuppie's situation kind of similar where people are like, oh, hey, this is great, but like, why are you doing this thing? I don't get it. But I like uranium. I don't like oil. And you can hear

it like in this podcast even when we were talking about it half a year ago. Like this is something where he and I both have gotten a lot of flack and I think had negative financial repercussions for our involvement in it. So I think like that's like one starting point is okay, like what is it costing versus, like, how much are you benefiting? And I think people think, oh, well, you're benefiting. Not really. I mean, right now it's like fine, but it's still not good. Like, if I said, hey, I'm going to go take my track record and go do anything else. I mean, I literally have offers from multiple allocators that, like, want to invest in my next thing. And we'll get to that with a specific stock idea, but similar idea. Like, people are like, oh, what's your next oil

idea? And it's like, well, what if my current oil idea is likely to go up a whole lot or is, like, really undervalued or whatever. So, you know, I think I'd focus on that aspect. And I think that's where you see variant performance is where there's a big economic incentive. And so at the point where people are throwing money at me because it's oil, that's, and there's this great book, Wall Street Meat that I read a number of years ago. And I thought it was like just fascinating. And it was by, I think it's Andy Kessler that wrote it, famous kind of venture capitalist now. was a famous tech analyst and then investor. And he talked about how when the Saudi, I think it was the Saudi, something like Middle

Eastern, their sovereign wealth fund showed up and wanted to write a half a billion dollar check to his fund. He left the meeting, like they had lunch or something. He sold all his tech stocks, closed his fund, and moved on. And so, you know, I'm not saying I'd turn down half a billion dollars today, but like, you know, over the next. That's what I heard. I heard if somebody hears this podcast and calls you up, it's like, Josh, I want to write a half

billion dollars. You're saying, I'm shutting down the fund. I'm selling all my oil stocks. It's over. It's all over. Yeah, I think, I think like in a few years, I think there is a point where this gets scary. And again, it gets back to the fundamentals and there just weren't fundamentals there or like the fundamentals were based on things that weren't immediate cash flow. Whereas at this point, it's like low rig count, barely, the world barely replacing oil that's being produced right now with demand rising versus a situation where there's line of sight to millions of barrels a day of additional production, as well as potential demand destruction for much higher prices. Perfect. I just have a couple more questions on the general oil and gas thesis, and then we're

going to go into journey. I guess the first question, and we've alluded to it a little bit, but I always have that in the back of my head. In 2014, I was in private equity. I had friends who were working at firms. We had an energy side, and oil was, I'll just say 100, right? And every person I knew in oil and gas, they would say, look, we've done the analysis. Like we invest in firms and we invest in firms who's break-even. I'm just going to pull numbers out of the hat is 60. And we've done a global supply demand analysis and oil just can't go below 70 for X, Y and Z reason, right?

Like that's the marginal cost of production, all these sort of stuff. And we're the every company we take, like we'll make money in them as long as oil doesn't go below 60. So we've got this huge margin of safety. They're making money, making money, making money. 2014, 2015 and 9 months, oil is like. like 100 to 40. Everything's bankrupt. Everyone's fired out of a job and everything. And we're not there, right? Because at that point, oil had been approaching 100 for probably three or four years.

There was a lot more drilling going on. But I do wonder in the back of my head when inflation's this hot, you know, like kind of the cure for high prices, high prices. Like, why is right now different than 2014? I mean, it's a great question. And I was investing in oil and gas then and I experienced that. And I think the amount that I spend, the amount of time I spend on researching these things now versus then is very different because I'm much more aware of how much those questions matter and getting them right matters. I guess one thing, most of those people no longer have jobs and most of those funds no longer exist. Or if they have jobs, they're not doing oil and gas. And there was a bubble that I think people didn't understand that was happening right

then. There's been a massive growth in private assets worldwide, an allocation to private assets. And so along with this growth in private equity, generally, there was a massive, like very un-economic, very odd bubble in oil and gas private equity, which wasn't really private equity. It mostly wasn't buyout. So it was mostly growth equity investments into shale well, with a poor understanding of economics that mostly ended up money losing. I mean, all my friends who I was just mentioning exactly what you're saying. Yeah. And like even like there are individual firms that have individual funds that have done okay or

a few even did well, most of that was drilling a few wells and then flipping land to others who then lost lots of money. So there was kind of like if you look at an aggregate, there was, you know, half a trillion dollars that's a loss just from that endeavor, just. on the private equity side. And again, that's not that the allocators necessarily lost money. In many cases, it was public companies that bought the stuff that then went bankrupt shortly after or whatever. So, you know, it's not all. And then there was also a private credit bubble going on simultaneously where high yield was unusually available, especially given a down cycle. And so

you had just hundreds of billions of dollars getting thrown into the industry at a time of oversupply. So that's not happening. If anything, there's still money outflowing, not inflowing into the And especially in terms of funding of new drill, there's not, there's almost no money available to go drill more wells right now. And so I think you need to see 50 billion show up to start drilling wells and then 200 billion to start to show up to start drilling wells. And then you need to see those wells get drilled for a while. And then maybe you get into that sort of context. So like the world had changed for oil and gas. It changed starting in like 2000 or so where China started to grow.

a whole bunch of commodities, there was this big commodity upcycle as everything had to get built out in order to be able to supply China's increasing growth and increasing demand at, like, let's say, a million barrels a day every year of incremental demand for a number of years. And so what you saw was kind of this growth in demand in China that kind of, you know, came to head in 2008 where we got to... Oops. Hey, Josh, I think we lost you. I'm just going to pause it for one second.

Hey, we had a quite slight technical difficulty. I think I paused it right away, but I'll just let Josh go ahead and finish his answer. He was used to talking about China's rise. Yeah, sure. So there was this commodity boom and investment boom associated with supplying China sufficiently. And so you had to be retooling as oil company or an iron ore provider or whatever to be able to adequately supply China's increasing production. sorry, increasing demand. And as China flattened out, there wasn't this sort of reset of capital provision to various commodities. And that's where you kind of saw investment peak to some extent in 2012 across like global commodities. And then you already saw like various commodities start to fall off by 2014. Oil kind of sustained. There was a lot of kind of bullish sentiment. Shale started to get developed and people were excited about the potential, especially. especially in West Texas and southeast New Mexico. And so you kind of had like, you're already off

the cliff, but oil and gas investment continued for a couple of years before things got really, really bad. So that's not what's happening now at all. And you don't have any individual incremental source of demand. You have kind of this aggregate incremental demand across many different countries. And these are countries where there's much more of a catch-up in terms of like low per capita GDP rising to less low, but still very low versus world averages. And so the incremental consumer of oil to some extent is a buyer of a gas powered scooter or something like that in India or Pakistan or wherever along those lines. And so that consumer is actually very price insensitive because oil can double

in their cost to bring their goods to market or their cost to get wherever goes up by some tiny amount, the capital cost for them of buying the scooter is way higher than the incremental cost of consuming a little bit of gasoline. So it's a very different environment, and then there's not really the capital available. So kind of both of those on supply and demand, it's just a lot more stable and a lot more precarious just in the other direction. Perfect. And the last thing on oil prices, and then we'll turn to Journey, you kind of front me with the demand thing, but I think a lot of people think, hey, it's the first side more than the second side, but I think there's two things on the demand side. Hey, you know, oil's 80 right now,

and I don't think $80 is constraining anyone's real, like, demand or use. What we've seen in the past, once oil starts going over 100, people really start looking, hey, do I need to, do I really need to take that trip, you know, making alternatives and the demand, it kind of, it's, the demand starts pulling back just because the price is so high. So that kind of serves as a constraint on the parabolic oil rise. I guess that would be the short-term demand worry. And then the longer-term demand worry, you know, the world's going electric, right? We're going to have. electric vehicles. There's going to be a million Tesla Robo taxis on the road by, I think it was 2019 was when they originally said they were coming. But, you know, the electric vehicles are

coming and that kind of saps incremental demand and stuff like that. So what worries you about the demand side or why are you not worried about the demand side, both in the short, medium, long term? Yeah. So I think I think people look at the historical prices. And one, they don't adjust for inflation. And they especially don't adjust for real inflation, not CPI. inflation. So when you look at it as how is the price changed versus other kind of similar products, car prices have risen far more than gasoline prices over the last decade, for example, by a lot. So if you tried to normalize it, maybe you'd be looking at like $200 oil over a 10-year period versus $100 oil kind of having that same sort of consumption reduction effect. I noticed

this, I was visiting, I'm from Los Angeles originally, I was visiting family early last year, and the price for gasoline in Los Angeles was almost twice what it was in Texas because of taxes and regulations. It's insane. It gets insane. I've noticed that when my wife and I go to a wedding, you know, here versus I'm in the Northeast. Northeast versus New Orleans versus California. It is just wild how different the regional differences are. Yeah, it is. But you know what's extra wild is that you see almost no demand pause or destruction in L.A. with gas at $5.50 or $6 or whatever. People just pay it. And the really crazy thing to me and the thing that got me, and I've done a lot of work on this, but like sometimes like people treat the plural of anecdote as data, here's one

anecdote. What you could see in L.A. was that there wasn't a big variance in demand between gas stations despite variance in prices. So there were gas stations with like 450 gas and gas stations with like 650 gas. And yeah, like the 650 ones, maybe people weren't going to that much, but like the five or 5-51s were very, very busy. So people weren't that sensitive to the incremental price or the slightly higher price. So that was pretty good. You know, I hear you. And you acknowledge it when you were saying it. I just worry about that type of annex data where you see it. But the concern is the marginal demand, right? Like if you and I went to the mall December 24th or Black Friday or something, it would always look super busy. But in a recession, like if you actually analyze the traffic,

there might be, you know, 10% less dollars going through. And you really wouldn't notice it until you actually had the, like, real quantity of data. But I do hear you on that. Last question, I think this will transition us nicely to our discussion on journey. You know, I'm a generalist. You're a specialist. You were telling me we were chatting before and you said, look, there are some stocks that generalists like that you can tell if someone's like really knows the oil and gas sector or not by some of the stocks they like. And we don't have to name the stocks in particular. But I was just wondering, you know, as a specialist, what do you think are the things that, not macro things, but when generalists are looking at specific

oil and gas companies, what do you think are the things that they kind of frequently pass over or miss or aren't thinking about correctly? Sure. And I just want to, the TomTom data, by the way, the actual transport data does support my observation. So it wasn't. Okay. Okay. Completely here. Just like, it's an easier thing, I think, to understand, oh, hey, people aren't varying their consumption based on price. Then, hey, the global transport data across 100 cities over many years. Here's the real question. Who's still using TomTom at this point?

I mean, there's stuff from GasBuddy. There's very other data. Yeah, yeah. I mean, it's a, and it's some of that they're like buying from cell phone providers and stuff. So it's not really necessarily people actually using TomTom as much as they've become a good source, an aggregator for that data. Yep, yep. So I think it's a good question. I think it's a common.

of like asset quality, which is kind of a amorphous. There's like lots of different aspects or I guess multifaceted topic. So it's a combination I think of asset quality where specialists tend to like higher quality oil and gas assets. Also there's like a people function where if you know the people and they've like made you money or you like know how they operate, in many cases you might strongly prefer certain operators. And that's, I guess that gets into like quality of management. But again, that ends up being multifaceted and a little more complicated than I think people often say or allude to. And then balance sheets also, I think like there's not really a good understanding of varying credit quality and not a good understanding of like what goes into that

beyond cash flow metrics or reserve metrics. And so I think, you know, the combination of those things can yield a very different result for someone that's been doing this for a while that knows a lot of people working at these companies and knows the assets and is able to actually evaluate the assets on their own versus being dependent on third-party research providers or, you know, being dependent on management or something to tell them about the assets or about the people or whatever. Would you say generalists, like, let's say I looked at two companies and one of them had some leverage on it and one of them had no leverage on it, right? And the leverage can be nice because

it gives you torque to higher prices, all that type of stuff. Would you say generalists, in your opinion, lean too heavily into the company that's kind of got a little bit more leverage on it or maybe the company that's higher up in the cost curve just because they want that tort than maybe a specialist like yourself who knows the industry a little bit better and is maybe more concerned like, hey, if I buy the best person, like they're going to be a little bit more robust on the downside. And not to put it in too simple of terms, but do you think that's a thing? Maybe, but it could have to do with like which generalists you're hanging out with. So if you're hanging out with like the high oil price people that are investing, maybe they would be

tending towards that. There's also the like people that own an Exxon or something for the yields or they own a pioneer or something like that because of perceived asset quality and perceived management quality. And you end up seeing that those tend not to be stocks that are too heavily owned, at least like as long-term investments by people that know the space pretty well. Perfect. Anything else on, we talked so much on the oil thesis, but anything else on the oil thesis you want to talk about before we head over to journey? Just that like there are services supply constraints too. And so we just came out with a white paper on that. We'll be doing more on it. And that's something that people don't talk much about. There was a giant amount of capital

spend on services equipment and innovation and whatever historically. And that sector also, it's been even more starved than the upstream side. And so when you look at like what it takes to really ramp up production, you actually need like a viable, vibrant services business. And you need a lot of investment. And there hasn't been that investment and there haven't been those people for a long time. And so it's a multi-year process just to ramp back up to even a fraction of where we were, let's say, in 2014. Yeah. Look, I'm a generalist, but I keep thinking back to, there's a famous quote, I think it was Lowe's where they went to, was it diamond offshore or something. And at the time, the market cap, this was in the 80s. The market cap was 100 million or

something. And they went to one of the big offshore things and they were like, wait, this is all steel. I think we're buying this company for less than the steel value in these offshores. Like if we're wrong, we'll just liquidate them. And I've been looking at like, I haven't done tons of work, but something like TransOcean, you know, things that they provide the things that are going to do big offshore drilling and stuff. Like those stocks are so cheap. And I've had this the same thought where it's like nobody's built one of these things

in years and years. Like if there's a real increase in demand for drilling, they're going to go up. But that's not investment advice. I'm just speaking. I've looked at it up the corner of my eye. Anyway, let's turn over to the company we want to talk about. out. I think we've got about 15 minutes left, which this is a little bit more complicated than a normal company for microcap because there's lots of little interesting things. But Journey

Energy, Canadian microcap about approaching 200 million market cap, I'll just flip it over to you. What is Journey Energy and why are you so interested in them? Cool. So, you know, from a disclaimer perspective, I own the stock and this isn't a recommendation. Like you said, the goal is education and entertainment. So hopefully this is educational and entertaining. So Journey is a company that I've owned stock in intermittently and gotten to know management in since 2015. And it's not been as larger position for me as it. There was like one other period of time where I owned a bunch of it and then more recently it's been a large position. So like just because I've owned it, I haven't really necessarily always had a large

position. It attracted me partly because of the management. The CEO of Journey was, a early exec at Bonavista, which was a very successful oil and gas producer in Canada. He was previously at Shell in a time frame where Shell was one of the premier employers in Canada and around the world. And so it meant a lot that he was there and that he got to the point where he got to in his career there. And it meant a lot that he was at Bonavista where he delivered fantastic results and where shareholders that were invested there did extremely well. He did so well there that the people involved with forming and controlling Bonnevista created a company called New Vista essentially for him and a few other people that they really liked who they thought

would do really well. And they made him CEO of New Vista. And he did really well at New Vista as well and delivered excess returns versus peers. He was a little too aggressive there for the taste of the board members and some of the large shareholders. And at the time, the unconventional revolution was coming to Canada a couple years later than the U.S. He was paying attention based on his old shell connections, as well as just he's a very smart and extremely hardworking guy. And so he was just like paying attention to a lot of different stuff, realized that there was potential in areas that he had already worked in at these previous companies to get really highly productive shale and he came in and maybe didn't do the best job of communicating and bought

these assets for New Vista that ended up being phenomenally valuable. Similar sort of thing to like the diamond offshore, not exactly the same because it wasn't steel, but like basically bought assets where the existing kind of minor stuff more than supported the value and they ended up being worth like 50 times or something which paid for them. This was again not very well received because this wasn't kind of, I guess, his mandate for whatever reason. And so... Really? He bought assets and they went up 50X and it wasn't well received. Yeah.

He got actually apparently fired in the aftermath of having done this just phenomenal deal. Like New Vista is a multi-billion dollar company right now. Their core asset that they've built their company on is this thing that he bought that he got fired for. So again, like the current team has done really well operationally. there's a lot to attribute to their success to as well. But like the thing they built their business on is this asset that he bought there. So, um, so I know him, right? And I knew him from that. I tracked what had happened there. And then I tracked as he went and started, well,

he kind of took over once he was, I mean, at this point, he was independently wealthy, right? He got kicked out, but it made people a ton of money. Um, and he, uh, he got called in. There was a pension fund that had some assets that needed some help. And so he became CEO there. And I think it was similar to the 2012 range. So he like hung out for a while and then came back in. And he took that company public in 2014. And it went public in, I think, of the $12 to $14 per share range. And it's currently at three in change, even though the oil price is around where it was at the time that they priced their IP. So good person, great track record, doing very similar stuff to what he's doing at Journey. And that was kind of the thing that like made me pay attention to it was here

was someone who like had kind of a mixed reputation because again, like he was fired from New Vista apparently. And like, you know, people didn't love what he had done. But like if you looked at it, it was like, oh my gosh, this guy did this phenomenal thing. And so that like, that like, catches your attention. And then if you can buy into his next thing where he's doing similar sorts of transactions, swapping out assets, adding a lot of, you know, spit and gum and whatever to assets to get them to last a little longer, you know, that's really like there's a lot of valuation stuff and other stuff. But at the core of it, there's like a dedicated team that's done really well over multiple iterations that got this thing started at a point that was like

maximally detrimental and where there just hasn't really been that. capital market support or understanding of what they've done. Perfect. Perfect. So I think there's kind of the, they've got the conventional plays, right, in here. And then they've also got the power play in here, which I think is fantastically interesting, but it might be a little bit more of a call option. So we can talk about any piece of it, but maybe we should do like just kind of a sum of

the parts so people know the different things within it. And then we can dive into each of those different parts. Sure. Sure. So just like very high level, like the thing that makes it interesting here, so I think people aren't buying the stock because the stock price has gone up. But like if you ignore the stock price for a second, I know that's like radical to say for like a public. Look, you said you wanted to talk Jeremy. And again, as a generalist, my first thought was I looked at the stock chart and I think it's up five or six X in the past nine months or something. And I was like, oh, shit, come on. I've missed it. Josh, why are you having me talk about this company? Exactly. So imagine a company that is generating enough free cash flow that they're going to pay off half of their debt this year while at like just forward commodity prices, which it's already like doing a little better than. But they're going to probably pay off around half of their current debt, which works out to be almost 20% of their market cap that is going to go towards debt amortization. And they're likely to grow about 15% this year. So that means that next year, they should, should be able to in theory pay off the rest of their debt and then have enough room to essentially fund the equivalent of at around today's price, around a 20% dividend, while growing 15% a year without giving them credit for that incremental kind of cash flow stack from

that growth. And again, like in general, the oil and gas industry is not growing. And there is some growth that's necessary in order to kind of meet the rise in demand and, you know, to make up for various shortfalls. With smaller companies, I don't really worry about this. affecting the macro balance and it's like kind of unusual. But just that the base business, you have this business that's declining so little that they can spend such a small percentage of their overall cash flow, still grow, improve their cash flow, build out a power asset on the side with some of the extra cash flow and almost fully de-lever over the next 18 months. So you kind of have this setup where if you like said, hey, this is a whatever manufacturer

and it's doing this thing. And sure, the prices are volatile, but man, like they're delivering essentially a 35% plus potentially compounded return, I mean, that like ranks it way at the top of the list of most companies, I think, that are out there in the public markets. And you mentioned that they're going to grow 15%, which was interesting because, again, I prep for these podcasts, but it's not like I've spent as long as you have following this company. But, you know, I was just looking at their deck, and it looked like a lot of their stuff is in decline, kind of a normal. I'm seeing 14%. percent go forward decline rate and stuff. So the growth you were talking about is that coming from,

are you just factoring in taking their cash flow and going and doing like little balt on acquisitions? I know they just closed one in September or is there something else in the growth profile that I'm missing? No, so they're doing what most public oil and gas companies don't do, which is telling you how much of their assets would decline if, and they obviously aren't doing a good job of explaining this. That's how much of their assets would decline if they spent no money on them in order to sustain their production. Gotcha. Okay. Okay. And that's a very important factor. And that's like one of the things that's so compelling about this is a 14% corporate decline rate is better than like 98% of publicly traded oil and gas companies. Most companies, if they spent no money, would decline at like

30% or 40% or whatever. These guys would decline at approximately 14%. And again, like you can tell they're not promoters because you didn't like people reading their deck don't understand that They're not saying their assets are declining 14%. They're saying their assets would decline that if they didn't spend some of the money that they're planning on spending. So very different, obviously, set up. So they're getting that production growth primarily through drilling infill and kind of just normal course wells.

They indicate how many wells they have in their inventory. My assessment is that they're dramatically understating their inventory. They have just enormous assets relative to a very small market cap. a very small budget. And so one of the things that they address that most of their peers, I think, do a worse job addressing is the ability to, subject to stable commodity prices develop far into the future without requiring any money spent on additional acquisitions. So they will buy stuff because they like to buy stuff and they've done a really good job with buying stuff. Sounds like the CEO has a great acquisition track record, too. So yeah.

Yeah. What if their base, the wells that you're talking about, their base assets, I believe they're just south of Edmonton and Calgary. Can you talk about, you know, if you look at one oil company and their assets are in super deep waters off the Gulf of Mexico, like that's going to be a much different asset than these, which are just below Edmonton, Calgary, like everything's got different costs for extraction, cost for transportation, everything. So you can talk, can you talk a little bit just about the base assets? how you look at those, those assets? Yeah, so huge oil in place, tiny percent has already been extracted. They're mostly conventional rock, which means that there's a lot of potential to get a lot of the oil and gas out that was in there originally. Generally, conventional assets have a little bit of a higher cost break-even just on the existing production, but lower required reinvestment rates. So that's what you're seeing here.

Their cash flow would be much lower if oil was at 40 and not 80. So obviously they are very commodity price sensitive, but in a stable or rising price environment, this sort of asset base offers far more financial and operating leverage than you'd have with a higher decline rate kind of more conventional but unconventional, like a shale producer, which is more typical of what you'll see among the publicly traded by gas companies. So higher break-even, but not like radically high. You know, again, like let's say their break-even might be 30 instead. of 20, just on production, right? Not on filling new wells. But with way less required reinvestment.

So if you look at it on a net of maintenance capital, their total break-even is actually probably pretty attractive versus most of the companies in the space. And I'm seeing, unless I'm misreading this, it looks like in 2020 when, you know, their average realized price was under 40 for oil and about 224 for Nat Gas, they, I mean, they made money that year, right? So you, You just threw out a number $30 break-even, but it seems like that's around, like, you threw it out there, but that's actually probably $30 is their break-even price. Yeah, I mean, I like to joke that I don't really like to actually, I used to have Morgan household intern for me for a summer.

And he taught me this thing, and I say it, but it's his, and I don't know where he got it. He says that building financial models makes you precisely wrong. So I try to be right, not precisely wrong, so I don't have a model on this thing. It was scary because I own a lot of it. I mean, I've looked at models of it, and I think a really good understanding of the assets and the cash flows and whatever. But it's like through an understanding of the business. It's not through like reading off Excel outputs. And I think that's kind of where you get to that sort of, you know, is the right break-even 32 or 28?

I don't know. It just matters that it's not 50 or 80. And so being able to get that directionally correct and then spend time on the things that matter for the business, I think matters a lot more than having a precise financial model that gets you like several digits. of precision. No, look, I hear you. One thing I've said all the time is, like, if this was 30 years ago, you and I could go buy, like the thesis for a stock we buy could be, hey, it's five times price to earnings. And that would have been fine because computers hadn't made it everywhere.

And like you could make alpha doing that. But now quant funds and stuff are doing that. If your thesis is this is five times price to earning, you're probably going to get your head ripped off in the long run. You need a little bit more than that. So as you're saying, like, you understand the company, it probably doesn't matter if you have a model that says, oh, break evens 32 or 28, as long. long as you understand. Right now, as we're talking, the price of this stock is 350, 360, something

like that. What oil and gas price do you think is kind of baked into the stock at that level? I think around kind of that $55, maybe $60 price level, something like that. It might be a little lower. And that's excluding any value for their power generation, which like you said, is still relatively early stage. But my understanding is it's probably worth around, let's say, at its current level if they never expanded it, around, let's say, $30 million or so. Canadian. And let's talk about what the power generation doing, because I think these types things, I mean, I know you were at a, you were the chairman of a company in 2017 that did oil and gas and you had them do Bitcoin mining with their excess kind of waste product, right? So

you're familiar with if you've got this, sometimes you can use it to spring into something interesting. I just thought what they're trying to do with the power plant production is really interesting. So could you maybe dive into what they're doing there? Sure. I mean, I would say that it's not entirely an accident that this company that I've been involved with since 2015 went into power generation. I may have harassed their CEO. One thing you can tell if you bug a company and you say, hey, who's your most annoying shareholder? There's a decent chance that it's me if I own the stock. So they might say that. So I think it's a really good business to be in an area where there's a lot of price volatility for the input and where the output is kind of structurally

advantage. So Alberta has been shutting down their coal power plants. British Columbia has been doing similar sorts of things. British Columbia canceled a third hydro power plant in a row. So there was like no incremental environmental impact because you already had all the ponds and everything. You already were impacting the fish. And they were halfway through building their third hydro plant and they canceled it. So I don't understand how that's good for the environment. I mean, it's definitely would have been better for me or is better for me for this power investment that they didn't do it, but I think the world would be better if they had built that third one. Anyway, very supply-constrained power market. So it's structurally advantageous for these companies to be

building out their own power gen. And most of them talked about it and didn't do it. And Journey actually went. And they got a great value purchase on some gently used power generation equipment. I think somewhere in the U.S., they tracked down how to get. it. They brought it up. They got all the permits. It took two years to get it up and running. And here it is up and running and generating. I think they're said recently publicly that they will have a two-year payout on a 20-year asset on this power gen. So obviously, like, I love oil and gas, but hey, if they can just redirect all their cash flow to get two-year payouts on 20-year utility assets or independent power producer assets, that'd be pretty amazing. And then you look at

the multiples. I mean, there's very, I mean, I don't think there's. any value in the stock at all for their power gen. And if they execute on their plan, which they're saying that they hope to dramatically increase their power gen over the next few years, I mean, they could potentially justify their market cap with zero value to their oil and gas entirely driven by their power generation. Again, that's like two or three years out. It's not like right now. But I mean, they've done it already. They've shown that they can do it. And there's not, I think, a ton of reason to think that they're just not going to do it, given how well they've done so far. And I'm looking at their deck. You know, it's exactly

what you're saying. It's a NAC gas, power gen. What type of power is it, though? So there's baseload power, which, you know, a nuclear plant is the classic baseload power. That's very low cost. It's supplying basically 24-7. And then there's, I'm a little rusty on the terminology, but basically paker power, right, which is what comes on when it's five o'clock on a hot day and everybody turns their conditioner on. It's only operating there. It's not going to operate at 3 a.m. when everyone's asleep and there's not a lot of power demand. So what type of, like, where in the cycle is this power, is their power project coming at? I mean, this is baseload. Alberta, along with all of Canada, has a carbon tax. And so natural gas power generation is significantly advantaged

versus some of the rest of the baseload. And then I think they're doing some, they may end up turning their kind of basic power gen into combined cycle, which would dramatically, with like a heat exchanger or something like that, it would dramatically improve the carbon profile, which would further improve their position on the cost curve. And, you know, that's not really like, I think Canada's done it well in terms of just putting a cost on that sort of pollution. And so, you know, I'm not advocating for that in the U.S., but like with how it's set up there, it's kind of a pretty simple thing in terms of, hey, we do this, it costs us this. and is the price we get. And the cost for Alberta power continues to rise. And the input cost

for Journey and others that are using natural gas for their power generation is not rising nearly as much as the power is rising. And you've said that in a couple years, the power side could actually be worth the entire market cap of the company. Right now, again, I'm looking at the deck. I haven't done crazy amounts of work on the power business. But right now they say, hey, the replacement cost of the power plant is $10 million. We think there's 11 million MPV. in the power generation. So what would the path look like? Obviously, $10 or $11 million, I think this is about a $250 or $300 million

EV company. There's a big gap there. What would the path look like for the power side of the business to kind of be worth the entire enterprise value? So first of all, the EB is not $250 or $300 million, and that matters a lot. So one of the- Bloomberg has lied to me again. Right.

One of the keys here is that these producers, especially journey, but many other producers, have paid off a lot of their debt. So Journey actually bought back a bunch of their debt for 50 cents on the dollar in 2020, and then they've rapidly paid down a bunch of their debt. And they had some fairly high interest debt because, again, they used to have like 150 or something million dollars of debt, and now they have 50. So through that process, they got rid of some of their moderate interest debt.

They replaced some of it with high interest debt, and they've amortized a lot of that down already. So that matters a lot, right? Because, hey, what's this thing that's $300 million enterprise value? it's not. And like a lot of what's happened over the last year and a half is they've just replaced their debt with equity and not through issuing equity just through cash flow and then market appreciation as their debt has gotten paid down. So it's a much less risky business than it was the last time the shares were anywhere close to where they are now. And they have a lot more

cash flow partly because they don't have 10% or 7% interest debt that's weighing them down. So that matters. I think that NPV calculation is dramatically low. So again, like, I think the right number for that, given where Alberta power prices are now, as well as the forward curve for Alberta power prices versus the forward curve for local natural gas prices, that MPV is probably closer to $25 to $30 million. So it's worth a lot more. And then the question is, how many more of them can they build and how long does it take to get there? And like I can say, I mean, I talk to management a lot. lot. And they're often not so happy with the regulators and how long it takes to get stuff approved. And it's like there's a lot of barriers. And journey management, like I was saying about their history, like they'll complain about it and then just push through it. So if you were to like do points in time like every month over the last two years as they've like gotten this project off the ground, it would have sounded terrible and like it wasn't happening. And then here we are with this project that, you know, is at least a two X. Maybe it's a four X or whatever.

So I think that communication gap is, it's scary if you don't know how to interpret it. And one of the ways I think to interpret that communication gap is to look at the history of the management at past entities, as well as to look at what they've accomplished with their current one. What else should we be talking about with Journey? Asset retirement obligations. So this shows up on their balance sheet. It's very, very poorly understood. If you have producing wells that have liabilities, they're getting double counted because, they're in the reserve report with the liability netted out and they're showing up on the balance

sheet. There is, I think this is something that generalists have mostly missed. And I think this is something that you'll be hearing about over the next year or so. Maybe as journey continues to do well, maybe as other sorts of similar situations happen, this is a silent form of significant commodity price leverage. So your reserves at $40 oil, if your journey, are heavily impacted by old wells that will eventually need to be shut in and remediated. And even if that's 30 years from now, that's a very high percentage of the value if oil is only going to be at 40 because you're making so much less money. At 80, that's a very small percentage of the total value.

So your move and reserve value is not linear as the oil price goes up, partly because the asset retirement obligations have been essentially obscuring the total value of your reserves. So in Journey's case, they're kind of one of the more extreme in terms of high liabilities versus reserve value at a lower price environment. As price goes up, that changes. And that's partly why it matters so much that they paid off so much of their debt, because you had essentially two layers of debt. You had the asset retirement obligation. Then you had the whole kind of capital structure. Now you just have that asset retirement obligation. And then there was a lot of noise around this for a number of years in Alberta. And they finally have like a pretty

good program in place, which is they call it the ABC program area-based closures. And so they just go and spend, they're not liable for shutting in all of their wells all at once or anything like that. They spend a certain amount of money every year, which is factored into their cash flow and factored into, you know, like any sort of forecast or whatever. And so they're spending, I think, like three or four million dollars a year shutting in old wells that are no longer producing, and that mitigates, let's say, $200 million end-of-life liability that's going to come in in, like, 30 years. So that's something that people don't really understand. It sounds really ugly and messy, but there's a regulatory framework in place that's working for both sides,

producers and for the regulators and for their state. And frankly, like, the U.S. needs more of this stuff. Like, this is actually a really rational way to approach long-life liabilities with small producers, and they're amortizing it, right, slowly over time. As they spend money, they're generally getting more than one for one. So they spent, I don't actually remember the number, but they spent X number of millions of dollars last year, and they got 2x or something of their liabilities removed because, you know, they spent it effectively and they added some value in that process. And then if you look at their moving reserve value and they're moving just total asset value because oil, every dollar oil goes higher, there's more than one-to-one improvement in

value because of the effect of those liabilities. Just to make sure I'm understanding, so there's a regulatory framework in place. And when they spend, you mentioned three or four million dollars per year shutting in old wells and everything, that's basically the cap. So, you know, three years from now, they can't, somebody can't, assuming there wasn't like, you know, fraud or gross negligence or something, three years from now a government can't comes to them and say, hey, you shut in this well, but we've decided, like, the area around it needs more environmental remediation or something. It's effectively capped. It's done. It's over

with. There's no going back on that. Yeah, I mean, subject to not causing additional environmental damage. Yeah. Yeah. So once you get it, I mean, you have to go through a clearing process, but if you behave in the manner that is appropriate, the regulators are behaving in a manner that's appropriate as well. And so it does seem to be working. There was some extra government money, which I think Journey and many of their competitors got and spent. And so that was like nice to see as well that there was even more activity and that kind of cleared through the regulatory process. But yeah, I think it, I think just the general idea is that the province

and the people in the province don't want there to be a bunch of abandoned old wells or there's been news recently of this like giant like water, like salt water, like poisonous well in West Texas. They don't really want that sort of thing. And they don't have it at all. And instead, what they have is a very active effort by producers to shut in potential environmental problems way ahead of when they might have. And in exchange for doing that on a kind of systematic basis, you end up with the equivalent of an extremely long-dated loan with very small amounts

of amortization on a yearly basis. No, it makes total sense to me. I was just wondering because I'm sure you know as well as I do every now and then you'll come on a company and they'll say, hey, you know, we've got this one old problem well. We've reserved it, $50 million to take care of it. And then four years later, you come and they say, oh, we've got this one old problem well. So far, we spend a hundred million. We think another hundred million over the next four years is going to take care of it or something. I'm exaggerating a little bit, but that type of stuff certainly does happen. Any last thoughts and journey that we should be talking about? Yeah, I think just the one thing

to think about is right now they're in growth and debt paydown mode. And people often don't appreciate that, partly because Bloomberg and others might not even show the huge debt paydown that they're accomplishing. I think quant funds kind of get it. And so you end up seeing quants owning more of these things as they pay down more of their debt. But I think fundamental investors often just don't even screen for it, don't really understand it. It's not showing up on their screens, et cetera. I think once that debt paydown is done, it's very interesting for Journey and others that are similar, where you could, like I was saying, potentially see a 20% type dividend in addition to production growth, or you could see them just stop growing at some point

and decide to pay like a 35% type dividend and or share repurchase or whatever, that given their low decline rate and their fairly mature assets, they could in theory be able to sustain for a very long time. So there's kind of this like, I think people are rewarding companies that are paying out dividends now, but I think companies like Journey can actually potentially pay out a lot more, but in a year or two years, something like that. So I think that's something that's like kind of missed. And I think being patient with that sort of thing can end up being very rewarding, especially if you end up with a situation where like with Journey, if oil is at 40 can be really problematic relative to oil at 80 or 100 or whatever. If they don't have any

debt, you lose or dramatically reduce the ability of those keys to get taken away from you. So it really changes kind of how the equity prices. And then it also changes the value of receiving a dividend. So your dividend is worth a lot more if it's going to keep coming, even if it's less or more, versus if the whole thing can get taken away from you. So I think there's like that that's a dynamic. I think people aren't appreciating and don't seem to be pricing it. Last question here, they did a small, a small Baltimore, but you know, it was a reasonable size of, I think they just called it Private Co. It was 3.5 million journey shares plus 2.9 million in cash. And I just flagged it when I was looking through this because 3.5 million shares, it's, it's not

quite 10% of the company, but, you know, it was more than 5%. So that's a decent amount of dilution. And my first thought when I saw that was, oh, Josh is on here. He's very bullish on the company. It seems weird that they would issue shares down there. But then my second thought, as we've kind of discussed, especially the CEO's history of acquisition was like, I bet he probably got a pretty good deal. So I just want to use the little bolt on to talk about both that vault on acquisition and a little bit more on M&A going forward if you think there's like some pretty accretive bolt-ons that they can keep doing. Yeah. So I love that they bought an asset of that size. Most public companies have you talked to them, even of like a similar sort of total

production size to Journey, they don't spend time on 400 or 600 or whatever barrel a day acquisitions. They spend time on 2,000 or 5,000 or they like need to merge or whatever. So I really like, I think this is evidence of their willingness to like deal with a bunch of obnoxious stuff in order to improve their company. The company is actually, it was formerly a publicly traded company. I happened to own a little stock in. It was called Bricko. And long story, but I owned a little stock in it. I saw what happened. And I ended up buying a lot of that stock. So that came back into the market. And I'm very happy that that happened, partly because I was able to go buy a bunch more of it at a price that I don't think it would have been available for otherwise. And when you

look at the financial metrics, Journey at the time, it looks like bought the assets at almost a 30% discount rate to the existing production, like an equivalent of the industry metrics, a PDP, PV, let's say, 25. And you can't really buy much for that sort of metric. And there was a lot of low-hanging fruit associated with that. So there were a lot of opportunities to spend very small amounts of money to increase that value substantially. And we've seen them do a little bit of that.

And they also got, I think it was over 100,000 acres. It might have been 200,000 acres of land that was held by, production. It came with infrastructure. It came with like all kinds of other stuff. I mean, there is a lot there. And even with the stock having run quite a bit, I think if they could have bought that asset today for the same number of shares and the same amount of cash, that would have been substantially accretive. And it's just brilliant, right? You have this like small company the depressed share price and a really motivated team. And they go and do this like complicated, whatever thing in order to bring in this very valuable asset. And I think people just didn't get

it. And so they were selling the stock and okay, cool. Like you don't get it. I can do the math and kind of figure out where this is going. And so I think it's a great point. I think it's very likely they do more of these things. I'm not betting on it. I'm not counting on it. But like it seems likely. And as they do massively accretive tack on acquisitions, they're still small enough where if they get, if they're supposed to be at like 9,000, and really they're probably sandbagging so they get to like 9,500 barrels a day or something at the end of this year, if they get to 10,000 or 10,500 by buying another 500 or 1,000 barrels a day of production, that really adds up over time if they do that this year and next year and so on. So I like it. I just, that was a

great answer. The one thing that jumped out to me there was you said, hey, they announced the deal and the stock traded down and you were buying more of it. And it's one of the, not that markets are crazy inefficient or crazy efficient or anything, but one of the big inefficiencies I've seen is smaller companies that announce acquisitions. The stock price can be very strange in the day or two after the acquisition. And if you have a real view, like a lot of the time I kick myself because I've seen acquisitions that I thought were awful and the stock traded up on it. And I was like, oh, well, I guess the market's smarter than me. I guess I can hold this. I guess it was a good deal. And like, three months later, I'm like, oh, God, that was a disaster.

Or they announce a deal that I think is a screaming home run and the stock trades down 10% because everybody says, oh, MNA destroys value, and then nine months later, the stock is up 70% because people realize, oh, it was a great deal. And that doesn't happen. It can happen in large companies, but this is really more in the very small company range. I think the reaction around M&A, if you can get a quick view, you can get a lot of alpha. We're running very long, but quick closing thoughts. Anything else you want to leave listeners with? Well, also, there was a tell there. I think the chairman of the board bought some stock around when I was buying it. And it was a little frustrating because then the stock started ticking up. So like, you know, I kind of ran out of

time and I'd like be a little more aggressive as I was buying it. As I was trying to sock up the former Bricko shareholders' shares that they were dumping into the market. But yeah, I completely agree. I think it's just it's so important. None of this is advice. And like, I think it's really easy to say because just do your own work, right? Like the market was wrong there. It was people were selling indiscriminately. And it was this great opportunity to do the work on the assets. And, you know, I had a head start because I owned some of that asset previously, but you know, you could find it. It was in the announcements. There were press releases about it. It wasn't, it wasn't private or non-public. You could find it. You could diligence it. And having diligence it, it became obvious.

Like, Journey was back in business and like it was going to get really interesting. And so, yeah, I mean, that was a, I'm glad you caught that. I wasn't really planning on talking about it. But like, that was an amazing entry point. And, you know, I think like, it's, it's the sort of thing you should look for, right? Do your own work and like don't believe whatever the stock price moves or someone says it's good or bad. Like that doesn't matter. Like, you know, figure it out for yourself. And over time, I think that gives a lot of rewards. Perfect. Well, let's wrap it up on that. I think that was a great closing thought. Josh Young, I'll be sure to include a link to his Twitter profile. He's super famous now. So I'm sure everybody can find him anyway. But I'll include

a link to his Twitter profile so everybody can go, give him a follow. Make sure they can catch up with them and everything there. And Josh, this has been fantastic, man. really appreciate you, enjoy this and appreciate you coming on, and we'll have to do this in the new year, maybe when oil's at 150, who knows? Hope so. Cool. Thanks a lot. Talk to you, buddy. Okay.

Whoops. For some reason, we're not stopping.