Jack McClendon: US oil rig count stagnation despite high prices, smaller companies thrive by targeting underappreciated assets, and conventional reservoirs hold untapped potential

Key takeaways

• The US oil rig count has been stagnant or slightly declining since 2023, despite high oil prices.
• Smaller oil and gas companies can succeed by targeting undercapitalized and underappreciated assets.
• The horizontal shale industry is dominated by large companies due to the need for scale.
• Conventional reservoirs are geologically more favorable for oil extraction than shale reservoirs.
• There is still significant oil and gas left in conventional reservoirs found 70 to 100 years ago.
• The US has become the largest oil and gas producer globally due to the shale revolution.
• Most US oil production now comes from shale, especially from the Permian Basin.
• Operating and capital costs in the oil industry have risen significantly since COVID-19.
• Rising costs and lower profitability at current oil prices have led to slack in the rig market.
• The energy industry has shifted towards capital discipline, focusing on shareholder returns.
• Companies are prioritizing dividends and capital discipline over production growth.
• The shale revolution has significantly transformed the US energy landscape.
• Smaller companies can compete by reducing costs and maximizing production from existing wells.
• Conventional reservoirs still hold potential for future oil extraction despite their age.
• The dominance of shale in US oil production highlights the importance of technological advancements.

Guest intro

I cannot write an accurate professional biography for Jack McClendon based on the search results provided. While the search results mention a Jack Morton (a freelance photographer) and reference Jack McClendon in an unrelated MLB context, they do not contain any information about Jack McClendon’s role as founder and CEO of Siena Natural Resources or his background in the oil and gas industry. To create a credible biography that meets your requirements—particularly the need for specific, real facts about his current position and past roles—I would need search results that actually document Jack McClendon’s professional history in the energy sector. The episode description you’ve provided indicates he is the founder and CEO of Siena Natural Resources, but I cannot verify or expand on this information with the available search results. I recommend conducting a new search specifically for “Jack McClendon Siena Natural Resources” or “Jack McClendon oil and gas” to obtain the necessary biographical information.

The US oil rig count and its implications

• The US oil rig count has been trending sideways and slightly down since 2023, despite high oil prices.

  — Jack McClendon

• The stagnation in rig count contradicts expectations of increased production with high prices.
• Understanding rig counts is crucial for analyzing oil supply and pricing dynamics.

• If you look at the Baker Hughes oil and gas rig count, it’s basically been trending sideways.

  — Jack McClendon

• The trend suggests potential challenges in increasing US oil production.

• The last available data showed it fell by three, and it’s been going sideways.

  — Jack McClendon

• This trend could impact future oil pricing and market stability.
• Analyzing rig count trends helps assess the health of the US oil industry.

Thriving as a smaller oil and gas company

• Smaller companies can succeed by focusing on undercapitalized assets.

• We buy assets that we think are undercapitalized and underappreciated.

  — Jack McClendon

• Reducing costs and maximizing production from wells is key for smaller firms.
• This strategy allows smaller companies to compete with larger players.

• Try to squeeze a little bit more juice out of each producing well.

  — Jack McClendon

• Smaller firms often target assets overlooked by larger companies.
• Understanding the dynamics between large and small producers is crucial.

• The horizontal shale game has largely become the domain of very large companies.

  — Jack McClendon

The dominance of large companies in horizontal shale

• The horizontal shale industry requires significant scale to operate.

• You’ve gotta have scale to be able to operate in that space.

  — Jack McClendon

• Large companies dominate due to their resources and capabilities.
• Smaller firms face barriers to entry in the horizontal shale market.
• The need for scale limits opportunities for smaller companies.
• Understanding the competitive landscape is vital for industry stakeholders.

• The horizontal shale game has largely become the domain of very large companies.

  — Jack McClendon

• The dominance of large firms impacts the overall market dynamics.

Advantages of conventional reservoirs over shale

• Conventional reservoirs have higher porosity and permeability.

• Conventional reservoirs have much higher porosity and permeability.

  — Jack McClendon

• These reservoirs are geologically more favorable for oil extraction.

• They are actually much better reservoirs from a geologic standpoint.

  — Jack McClendon

• Conventional reservoirs were easier to find historically.
• Understanding these differences is crucial for the oil extraction industry.

• Those were the easy reservoirs to find.

  — Jack McClendon

• The technical distinctions between reservoir types impact extraction methods.

The potential of conventional reservoirs

• Most conventional reservoirs were found 70 to 100 years ago.

• These are reservoirs that were found anywhere from seventy to a hundred years ago.

  — Jack McClendon

• Despite their age, there is still plenty of oil and gas left to extract.
• Conventional reservoirs continue to offer significant potential.

• They have largely been exploited but still have plenty left to offer.

  — Jack McClendon

• Understanding the historical context of oil exploration is important.
• Investors should consider the ongoing potential of conventional reservoirs.
• The continued viability of these reservoirs impacts industry strategies.

The US as the largest oil and gas producer

• The US has become the largest oil and gas producer globally.

• We’ve gone from producing anywhere from 5,000,000 barrels a day.

  — Jack McClendon

• The shale revolution has driven this transformation.

• We are now the largest oil and gas producer in the world.

  — Jack McClendon

• Technological advancements have significantly impacted US energy production.
• Understanding the historical context of US oil production is crucial.
• The US produces more oil than any other country.
• This shift highlights the importance of the shale revolution.

The dominance of shale in US oil production

• Most US oil production now comes from shale.

• The majority of oil production in America right now is from shale.

  — Jack McClendon

• The Permian Basin is a significant source of shale oil.

• At least five million barrels a day come from the Permian.

  — Jack McClendon

• Shale oil plays a crucial role in the current US market.
• Understanding the significance of shale oil is important for stakeholders.
• The dominance of shale highlights the impact of technological advancements.
• The current dynamics of US oil production emphasize the role of shale.

Rising costs and their impact on the industry

• Operating and capital costs have increased significantly since COVID-19.

• I would say about 25 to 30% for my business really over the last five years.

  — Jack McClendon

• Personnel, chemical, and utility costs have all risen.
• These cost increases create economic pressures for the industry.
• Understanding the impact of COVID-19 on costs is crucial.

• Chemical costs have gone up… utility costs have gone up.

  — Jack McClendon

• Rising costs affect profitability and market conditions.
• The industry faces challenges in maintaining profitability at current prices.

The slack in the rig market

• Recent slack in the rig market is due to rising costs.

• With prices kinda hovering in the fifties and sixties.

  — Jack McClendon

• Lower profitability at current oil prices contributes to this slack.
• The industry is less profitable at $50 or $60 per barrel.

• The industry is just not as profitable as it once was.

  — Jack McClendon

• Understanding the relationship between oil prices and profitability is important.
• Market conditions impact the overall economic dynamics of the industry.

• All of that leads to a little bit of pricing deflation.

  — Jack McClendon

The shift towards capital discipline in the energy industry

• The energy industry has shifted towards capital discipline.
• Companies prioritize shareholder returns over production growth.

• Companies are increasingly rewarded for rewarding shareholders.

  — Jack McClendon

• The focus is on paying dividends rather than expanding production.
• This shift impacts investment and operational decisions.

• It’s all about capital discipline.

  — Jack McClendon

• Understanding the historical context of shale busts is important.
• The industry strategy shift influences investor behavior and market dynamics.