Headlines: Pro Green Agency Calls For More Oil & Gas Drilling

You basically have a chance to maximize returns and get in the higher end of the return spectrum. Doesn't change anything. You still got to de-risk. You've still got to do your due diligence. You've still got to do everything. And just to reiterate, I think it's a good time to place capital in oil and gas. I mean, it's a once-in-a-generation opportunity to earn crazy, crazy returns. I think we're seeing a fantastic opportunity in industrial. There's a megatrend that is right in front of us, and we have an opportunity to catch that wave.

Welcome back, future billionaires, to another episode of the Invest Like a Billionaire show. I am your moderator today, Ellis Hammond, Vice President of Capital here at Aspen Funds, and joined with the best-selling authors of Invest Like a Billionaire book, host of the podcast show, Ben Fraser and Bob Fraser. What's up, guys?

Hey, hello.

Hey, I will just say, like, as someone who spends a lot of time with investors here at Aspen Funds, we've gotten incredible feedback on this book right here. I mean, it's one thing to hit bestseller, it's another thing for people to say, hey, this is a staple in the industry. I just want to say job well done, guys. This has been a great asset for a lot of people.

It's exciting. If you haven't got your copy, go get it anywhere books are sold. Invest Like a Billionaire.

So this is a headliner episode. We got a lot of great feedback, Bob, on the one we did after the Fed rose interest rates and our conversation there. And so I want to continue to do a format like this where we get both of your opinions and insights on what's happening in the world of alternative investing and how that really applies to investors and their allocation, their portfolio. And oil and gas energy continues to make headlines this year. So I want to talk about that. And, you know, if we have time, There's also another recent study from CRE Daily about the Fear and Greed Index and kind of measures appetite for commercial real estate assets and investors in their portfolio. And so I want to jump in both of those today. And there is an article that the Organization of the Petroleum Exporting Countries, or OPEC, put out and thought this was going to be really interesting for us to talk about. There's an organization called the IEA. And let me start with you, Bob, and the headline is, "The IEA Just Flipped the Script on Oil: What Investors Need to Know." And can we start with the basics on who is the IEA and who is OPEC? And I want to talk about this headline that came out with kind of their thesis on, do we need more investment or do we not? Talk us through both of those organizations first.

Yeah, well, they're both data-producing organizations. So the IEA is based in Paris. It's a European-based organization. And They do, I think it's 25 nations, and they do forecast of energy demand and energy supply. They're extremely focused on green energy and basically debunking the idea that we need fossil fuels. You know, I actually quoted them in my book recently. They said that by 2030, fossil fuel demand globally will drop by 25%, by 2030. So that's just 5 years from now. And 80% by 2050, which is pretty much insane. I mean, are you going to drive less? Are we going to plug in your air conditioner less? 25% less? It's just insane. And then that, that's just the United States. Well, what if, you know, India continues to grow and China continues to grow? So on one side you've got the IEA that's extremely focused on net zero and green energy. And then the other side you've got OPEC, which is the Organization of Petroleum Exporting Countries. And you all know about OPEC. These are the guys, this is Saudi Arabia, Venezuela, these big oil-rich nations that he had for years, energy, you know, oil cartel until the US broke the back of that cartel with the shale revolution in around 2000. So you've got on one end is the IEA and they're extremely aggressive on net zero and saying, "We don't need oil." And then you've got the OPEC that's on the other side, "We're gonna need lots of oil." OPEC has been a lot more accurate than the IEA.

In 2021, the director of the IEA, you know, says, quote, no new oil and gas is going to be needed to reach the net zero goal. Now in 2025, and this is directly from OPEC, the headline is from their article, The Implication of Oil and Gas Field Decline Rates, that states if current levels of production are to be maintained, this is from the IEA, over 45 million barrels per day of oil and around 2,000 billion cubic meters or metros of natural gas would be needed in 2050 from new conventional fields. So it's confusing. So are they now saying that more investment is needed? And if so, what has changed?

Yeah, well, obviously nothing has changed. It's just these organizations that, you know, have their agendas and are basically making the data to say what they want to say. I don't know if you've also seen, there's a lot of angst like in New Jersey, Baltimore, these places where they've basically, the states have passed net zero laws. And what's happening is they've invested so many billions and billions in this, in green energy production. And now their energy prices, they're paying basically double what everybody else is paying for energy. But the problem with renewables is that they're unreliable. That's the problem, right? So you've got a wind farm. Well, that's great, but what if the wind doesn't blow? Right? Then what do you do? And so, you know, all renewables have to have backup energy production. And mostly that's natural gas turbines, which are extremely efficient and very, very cheap. And you've got a lot of really crazy production. I mean, you see places in Seattle where they're building solar farms. Well, who the heck in their right mind would build a solar farm in Seattle? It's all about narrative and capturing subsidies and all this. And now that the subsidies are going away, you know, that's really changing kind of the economics of net zero because these wind turbines, these renewables are extremely expensive. They only really make sense in a subsidized world. I did the research years ago, but you look at a wind turbine and it's made of steel. So they're forging these giant blades, forged powered by coal, right? And then they're shipping them by trucks that run diesel fuel, and they're erecting them with cranes run by diesel fuel. And then they're maintaining them with pickup trucks run by diesel fuel and gasoline. They use 80 gallons of oil a year, each one, for lubrication. This is renewable energy. I mean, it's kind of nuts. And I'm not pro-fossil fuel, right? I'm just a realist. I'm a pragmatist. I'm a freaking engineer, right? And don't tell me this is all going to work perfectly, right? It's like, no, no, no, no, no. Let's, let's count all this stuff. And So what's happened is the world is— you've got your narratives and it's ideological-based science. And I'm sorry, I'm just a science-based scientist, right? Let's get real.

Ben, in this report they talk about— I mean, part of the reason why they've had to change their narrative is something called accelerated field decline. For maybe someone who doesn't study this a lot, explain what that means, why they thought maybe we'd have enough, but as they look at the data more, realize like, oh, maybe we need more supply. What's happening?

Well, I was just going to say, I think it's funny to read the article and to see how they're presenting the information because they're saying, "Hey, we reiterate that we think peak oil demand was in 2021. We don't really need any more oil or gas." But then as they go through this report, they're basically saying, "We need more oil. We underestimated the long tail of this 2050 timeframe." And part of what's driving that is accelerated decline curves. And so in oil and gas, right, there's a thing called decline curve depletion. It's a finite resource that you're pumping out of the ground every day, and there's less of it in your reserves every day you pump out. And so on average, historically, we've depleted between 2 to 5% of global production from existing fields and need to drill new wells, even just maintain consistent supply. Well, what's interesting is as we've had the shale revolution, especially here in the US, and really what's called unconventional drilling methods, the decline curves we're seeing are actually steeper than conventional. So one of the things we're pointing out here is as we're doing more unconventional drilling, we're actually going to have steeper decline curves. So some of our original estimates are probably a little bit undershooting what we actually need. And so we actually do need to do more drilling, but not too much more. So it's just kind of weird narrative that they're pushing out.

Well, let me just make a point that I've never heard these articles talk about all these net-zero advocates. So right now and in the book, I have a chart that shows that energy usage today is 81% fossil fuel based. Okay. 81%. But in transportation, it's 91%. Okay. Transportation. Think about planes. Trains, automobiles, trucks, ships. Okay, are we going to have electric ships anytime soon? Uh, no. Yeah, you didn't think about a battery that would power an oil tanker. Okay, okay. Are we gonna have electric airplanes anytime soon? We're not even close.

And let's talk about too, like, just the opportunity, because even with the rise of AI and the energy required to sustain that over the next decade? I mean, it feels like we need way more energy, not less.

And that's the problem with all these models is they're all static, right? They don't count on what's coming next because no one really knows what's coming next, but there's always something coming next. I mean, fossil fuels have accelerated since the Industrial Revolution, have produced enormous growth in GDP and enormous wealth. And then you've got all these third world countries. Let's talk about, you know, China, which has emerged from third world, but you've got India, you've got Southeast Asia, Africa. These countries also want to participate in the global wealth revolution and they're going to need energy to do it. So energy demand is just not going to stop. Anybody who says otherwise, I've just not seen data that I believe, let me just put it that way, that I believe is believable. Ben, why don't you pull up that chart from our partners, Mark Mahadra Energy Advisors, which I think is incredible. and it shows fossil fuel demand relative to GDP growth. It's based on fossil fuel. So this chart, oil intensity of global real GDP. So this shows the amount of oil, the barrels of oil per $1,000 of GDP growth. And look at the correlation. It's a 99% correlation. So energy demand, and this goes all the way back to 1965, and you can see oil technology in the '60s and '70s was rapidly changing, and then everything stabilized. And now We've got a very clear correlation here. If you want economic growth, it's going to take oil. And we've not seen this correlation break. So I obviously love this chart. Right.

Because I think the other piece here is there's been an average over that same time period, about 3% of annual GDP growth globally. And this is through different economic cycles. This is ups and downs, but on average, about 3%. And so, you have this correlation, and obviously, there's a slight decline from just technological efficiency over time, but it's still very, very tight. And if you look at what do we need over the next 30 years, if we just assume a 3% GDP growth, which is what we've had for the past 50 years, assuming that this correlation maintains very high efficiency anywhere from 50 million barrels per day increase up to 100 million barrels per day increase. When over the past really 50 years we've been investing in renewable energy, and as of today it's only about 20% of our global energy usage.

After 50 years of trying to go global, I mean, I remember the Arab oil embargo in the 1970s and waiting in a line for 3 hours to fuel your automobile. And ever since then, it's been conservation efforts and renewable efforts. And there's just fossil fuels are just very, very difficult to replace, very difficult. So according to this chart, it's 100 million barrels is really where we're at right now. And we're looking at another 40 million-ish by 2050 if we have 3% GDP growth. Now that's unless that whole correlation breaks down, right? And there's no sign of it breaking down. And so assuming that chart holds true, we're going to need another 40 million barrels a day, which is a 40% increase from where we are now.

And I appreciate your take, Bob, earlier, like, hey, I'm pro-green, you want the best for the world and the environment. I think it's like, yeah, who wants to burn fossil fuels? Right? But what we are, we are investors, right? In the sense of just like the same way we talked about inflation, you can't do anything about inflation as, as an individual, but you could figure out how to get on the right side of it. And I think that's, that's ultimately the point of this conversation, is how do we as investors get on the right side of where the economy is going, regardless if we like it or not? And so that brings me to my next question for you guys, is there are multiple types of oil and gas investing we could do. What do you believe are the most attractive right now in this macro environment?

Yeah.

Well, it's really interesting because I think why is it so important to talk about is we are sitting in a lower price environment for commodity prices, right? Oil, as we're seeing today, is trading in the low 60s. Natural gas is also trading in a lower price band. If you look at the futures pricing for the next 10 years, it's reflecting a similar sentiment. So the market is really pricing in this narrative. That we've hit peak oil demand, we don't need the same investment to meet demand, and that's likely going to keep oil prices lower. But from my perspective, as I've put the investor hat on, this is an excellent time to go and be investing in oil and gas. Because if you believe this long-term thesis that we've talked a little bit about here, where demand will likely not deteriorate as much as these agencies are saying, We know what supply's doing. We didn't talk much about that, but we're on a pretty significant decline curve without new reinvestment. I think it's a great time to be now investing in a market that is discounting the reality that we're going to be seeing over the next couple of years. What we're seeing is the ability to pick up existing, proven, developing wells at a really good value. So we're picking them up anywhere from a 15 to 20% cap rate, and that's with existing production at existing oil prices. So you're not having to pay for this big expectation of oil prices going up. Yeah.

In the book, I highlight this, and even David Swensen's number one purchase, and I remember this, Ben, number one recommendation in oil and gas was PDP. He said, "So PDP is—" Proven, developed, producing. Proven, developed, producing. And the idea is these are wells that have been drilled and they're producing. So you've eliminated your geologic risk. You only have commodity price risk and a little bit of operating risk, but there's, it's very de-risked. And we're able to buy this at a 15 to 20% return. And we're getting right now, we're getting the, the land, the proven undeveloped reserve. So these are, this is land that is proven to have oil, but it's undeveloped. There's nothing that's been drilled. But the reservoir is mathematically defined for free. And we're getting a 15 to 20% return at $60 oil, right? So that's that $60 oil. We're getting a 10-year return, an IRR of 15 to 20%. Well, to me, this is a no-brainer way to invest, right? Because, okay, so let's say we're wrong. We'll be proven a couple of idiots here that predicted exploding oil prices. Well, great. So if oil prices are flat, for the next 10 years, we're going to make 15% to 20% returns on these oil wells, right? So it's kind of one of these perfect situations where if we're wrong, we're going to do fine, we're going to do great. And if we're right, it's lights out, right? So those are the kind of deals I like to play.

And that brings up maybe a last question on this topic is in terms of an investment portfolio, I know you talk about kind of allocation, how the billionaires allocate in your book, Bob. I mean, where does oil and gas, where does energy fit in alternative portfolio?

Yeah, we have all in the book an alternative investments continuum, which kind of recommends based on your portfolio size of how you allocate to kind of mimic the billionaires' models. And, you know, I think it's a 5 to 10% should be in natural resources. And the largest natural resources play is energy. It has the advantage of being highly uncorrelated to the stock market. If you've got a $1 million portfolio, I'm recommending 5% in natural resources, a $10 million portfolio, 10% in natural resources, and $100 billion portfolio, 15% in natural resources.

So give people a good idea there. Cool. Well, I want to move on from oil and gas. There was another really great article or study that I found this week called the Fear and Greed Index. And this is something that I've read before. They produce a quarterly report and not just for folks who may be new to this and kind of refresh everybody's memory. What this index measures is it gauges sentiment. What is their sentiment in the US commercial real estate market by assessing whether investors are expanding meaning they're greedy, or contracting, they're fearful in their activity. And so it's more of a— it kind of measures behavior, capital access, the overall outlook across kind of the 4 major sectors: multifamily, industrial, retail, and office. And I don't know if you guys saw this, but you know what is leading from a greed standpoint in Q3? Any guesses? Industrial real estate. Yeah, industrial real estate. Absolutely it is. And it's leading pack, and multifamily is just behind that. So here's what's interesting, because I've seen a couple things I want to Maybe you guys can talk about the distinction here. So clearly people are more bullish and more greedy towards industrial real estate right now, but at the same time, I've seen reports where industrial construction in 2025, or at least in construction starts, are at the lowest level in a decade. So what is the disconnect there? What is the difference?

Well, I think, and I'll let Ben comment on this too, but we saw a construction boom in industrial real estate in some markets, primary markets like Dallas, other places the boom really hit. And then when we saw the interest rates increase in 2023, everybody put their pencils down. When you have Trump being elected and the tariff uncertainties, I think everybody just froze and stopped and they said, hey, let's let this absorption continue. And we did see a few markets that were overbuilt, a few primary markets. And so again, we're at this inflection point where it's a very good opportunity where we're seeing kind of lights out, demand growth for the next 10, 20, 30 years and a pretty big shortfall in supply. So we're going to see these things just go on a tear value-wise, in my opinion. Yeah, I would agree.

I mean, industrial real estate was very similar to multifamily, though I think not as dramatic as far as the development boom. And then since then, since interest rates have risen substantially, a big kind of gap in development in the market. And so this kind of spells for a future supply crunch, and we're seeing Very strong absorption nationwide, and even multifamily, I think, has surprised a lot of investors with even in oversaturated markets, absorption is still very positive. Now, there's still a lot of vacancy, especially in these high-growth, high-supply markets, but if you forecast out the next 18, 24 months, the picture becomes a lot clearer. There's not really any new supply getting online right now, very little, and there continues to be expected strong rental growth. The interesting thing is I look at this report from CRE Daily, which is really, really cool to look at. It's just kind of switched recently over the past few quarters from predominantly fear, which is sentiment being negative, to this side of the greed. And even still right now, even though sentiment has kind of started to shift toward the positive side, access to capital is very low. And I think this is what's so interesting in this market is a lot of investors are starting to see the opportunity, but you don't have the capital to go get it done, right? Because banks have still—

And you're a banker, right? By background. So, you know how bankers work, right? And some guy described bankers as umbrella salesmen who disappear whenever it starts to rain. So the capital is just not there right now.

Well, it's— you're exactly right, because you think about from a banker standpoint, one, they're all risk-focused. They don't really care about the upside because they don't participate.

So because they don't have upside, they don't have upside.

So they care about my downside. Well, the challenge with a lot of banks is their current portfolios are struggling.

It's so sucky. They don't have capital to deploy because they're dealing with the issues.

Yeah. And so honestly, I think now is a great time to be in the market. We're actually developing industrial right now. We've been doing it for the past couple of years, kind of going counter the trend, because we're able to find deals that do make sense in this market. And our competitors have not been developing as much. And so we're seeing very strong activity, and there's just not a lot of competition. I think multifamily is going to be very similar story for the next few years. And those that can have access to capital, that can get deals done over the next really 18 to 24 months, I believe are going to be the winners of the next cycle. So, I'm pretty excited.

Let's talk about big picture demand. So, if you look at trade as a percent of global GDP, so trade, how much does trade contribute to the global economic growth, right? It peaked in 2010, trade. It's been going down ever since. And what happened is the world had realized that it had over-globalized. But what happened in 2020, 2019 and 2020 with COVID it exposed supply chain risk. And as Ben, I love the phrase you said that the world had underpriced the supply chain risks. It was underpriced. And now there was a big repricing. And so now when they're repricing it, all of a sudden, It makes a whole lot more sense to manufacture nearer to the United States. Let's think Mexico, let's think— and even onshore. And that was all pre-Trump. This is not Trump's idea. Now add Trump, who's kind of an economic nationalist. He wants America to be a manufacturing powerhouse. And with tariffs, with robotics, with supply chain risk being repriced, you have a lot of things that make a lot more economic sense. Adding to the fact, you know, with the new tax bill that was just passed, there's huge incentives like the, I think it was the 106N, you know, tax deduction for anybody who breaks ground on new manufacturing facilities. They can write off the entire cost of the building. I mean, millions and millions of dollars in tax deductions day one. It's like, holy smokes.

Bob, I remember one of the things you told me early in my career in talking with you is you want to be investing with the tide. And I do think the important part of this episode is the tide is not the same for every asset class. And so it's important to kind of take a step back and say, well, where is the tide rising, right? Because we want to be with that, not against that.

Yeah, you basically have a chance to maximize returns and get in the higher end of the return spectrum. Doesn't change anything. You still got to de-risk, you've still got to do your due diligence, you've still got to do everything, but it just is the opportunity for enhanced returns and lower risks. And just to reiterate, I think it's a good time to place capital in oil and gas. It's a once-in-a-generation opportunity to earn crazy, crazy returns, just like we did in the distressed debt space in the post-Great Financial Crisis. I think we're seeing a fantastic opportunity in industrial. And I think, as Ben says, I think multifamily is also time to start sticking in the fork. But that said, it's being selective, being very deal selective. But I think that's also going to be a huge win in the next few years.

Thanks everyone. Guys, go to investlikeabillionaire.org for more resources. We are in the process of building an online community for our podcast listeners. So go to investlikeabillionaire.org to get on the waitlist for when that launches. We'll see everybody next week. Thanks guys.