All of the above on energy - Chace Daley

Paul Yeager: Well Hey everybody, it's your friend Paul Yeager here at the MTM Show Podcast studio of Iowa PBS in the Market to Market TV show. Today we are going to dive back into energy Chase Daley is the Senior Vice President of Farmer's National Company. He's their SVP of Energy, I guess I should say, should complete his title before we move on. He is not new to energy nor Tulsa, Oklahoma, he moved to the region in 2008. Do you remember 2008 recession anyone? We talk about what the region was like then the bumps that have happened along the way and whether we are in a up down or sideways cycle right now, as we talk about energy, that is what is going to be on this week's M to M Show podcast. We also will be talking about the investments and all of the above approach when it comes to energy investments and also talk about a bundle of sticks. Yes, a bundle of sticks if you have feedback for me, send it to me at Paul Yeager. That's Paul.Yeager@IowaPBS.org. Now. Here's Chase. 

I've always found Tulsa to be an intriguing town are you a native of of Tulsa?

Chace Daley: So I'm originally from outside of Kansas City. So I'm from Missouri. But I've lived in Tulsa since 2008. and fell in love with it. I met my wife here. We both worked at a law firm here in Tulsa. And Tulsa is a unique town. You know for its size. It has a lot of unique offerings. So it's it's somewhat similar to Omaha, which is where Farmers is is headquartered. But we have a ballet, we have a PAC. We have a minor league baseball team. So we have a lot of art. We have a great music scene, fame famous concert venue called Cain's Ballroom. We've got great food, great entertainment. So and we have we have one of the best parks in the world. We have a park called the Gathering Place. That was one of the large benefactor was an oil and gas tycoon tycoon George Kaiser, and it's one of the best parks in the world. And it truly is a place where people gather from from all over the country. So yeah, I love it here.

Paul Yeager: I'm sorry, Chace, I mistook you, I didn't realize you're with the Chamber of Commerce. Tulsa, 2008, I'm gonna go to the very first thing that you just said. What was the oil industry and energy like in 2008? I know you weren't quite working in the industry yet, then. But everybody who was in town knew what was going on recession wise. 

Chace Daley: Yeah, no, it was very difficult. And at that time, I was I was in the legal profession. And that profession also changed. With the energy industry as well, we got into a kind of a slow period there. And when I came to Tulsa, if you work downtown, you really didn't want to be there after five o'clock. And the the city itself has really been revitalized. But the energy industry has had tremendous volatility. And, you know, we've had a lot of talent leave the industry through each crash. The industry has always been very resilient. So after 2008, after 2014, 2015, and after 2017, it seemed that there was always startups, there was always investment, there was always excitement, because the oil patch is just an exciting business to be a part of. It is a high risk, high capital industry, but it is one that is truly American and, and truly fun to be a part of. We are kind of in a different different mindset. Now as far as investment in oil and gas. So this time is different. You know, you don't always you never want to be the person who says that. But certainly 2008 It was it was a hard time and then and then there was more hard times to come. And I personally experienced quite a quite a bit of that. And you learn a lot. You learn a lot through those ups and downs. And you end up like I said, you the industry loses talent. And so, you know, American Enterprise, I mean, it's important we have people who can drill wells safely and complete wells safely run that we all oil field services safely. There's some disciplines out there that are truly complex, very unique, and we need to keep those disciplines as a strength of our country. So um, you know, it's a resilient energy. The industry is very resilient. We innovate. It's hard to hard to knock Because down, but we've been knocked down a lot we get out. But we've been knocked down a lot in the past 10 or 20 years.

Paul Yeager: Is oil different? Is the industry different? Do you consider Oklahoma and Texas the same oil industry? Take out North Dakota and fracking. But how similar are Texas and Oklahoma when it comes to oil?

Chace Daley: Well, I would say we're similar in that it's everywhere. So if you grow up in Oklahoma or Texas, you're going to have a familiarity with oil and gas, that, you know, some parts of the country won't have. As an oil and gas lawyer, I will tell you, they are very different. And their laws are very different. Texas, I would say is more of a kind of a legally pure oil and gas state. Very, very laissez faire, laws regarding oil and gas, still heavily regulated, very sophisticated rules. But pretty hands off when it comes to how the property interests interact. And Oklahoma is very different. We have more of these concepts of force pooling, which is where to avoid waste, you want to combine mineral interests. So you're not you know, you see those pictures from the early 1900s, where people were drilling wells right next to each other, trying to drink each other's milkshake. We don't do that anymore. And that's because you know, we've we've gotten a lot smarter, but each state has a different approach to how they do that. And Oklahoma and Texas are quite a bit different on that. So they're, they're similar in that it's just part of our way of life. And it's a big part of our economy. But there's definitely a lot of differences.

Paul Yeager: You mentioned a number of years, we started with oh, wait, and then you, you know, said '14 and '15, let's go to '20. When oil went negative today, what's the difference between 2020 and today in the oil industry?

Chace Daley: Well, there's a lot, certainly, the supply side is different. There's a number of factors for that one, oil and gas companies. Now, for the longest time, we're in the mindset of growth, you drill and get as many reserves out of the ground as fast as you can. Unfortunately, through that strategy, we we burned a lot of capital, and we didn't return return a lot of capital to investors. So the industry has learned and so now there's a focus on cash flow and returning money to investors, completely foreign concept for us. And as a result of that, you are going to drill less drilling is an incredibly capital intensive, takes a lot of lead time planning takes a lot of third party service providers who need to have the equipment which is expensive, expensive talent. And so this all really bleeds through to the entire industry. So when capital budgets so right now, I think the price of WTI is increased, you know, over the past year, you know, upwards of 70% but capex budgets have gone up somewhere around 15% to 20%. So, so lagging well behind. So the supply side is different. We do have, you know, the ESG focus from investors. So, you know, banks are less inclined to loan to fossil fuel investments compared to 10 years ago. Large endowments large investors are laser focused on ESG.

Paul Yeager: And ESG. I'm sorry, define ESG for me,

Chace Daley: Well, it's it's it's its governance. It's,

Paul Yeager: And I know when you start talking about all these crazy things, and we say, and I know I've heard ESG but I just wanted to make sure we define it properly. For the audience.

Chace Daley: Yes. So it's it stands for Environmental, Social and Governance. Yeah. So, what you have is, you know, environmental has been a part of the oil and gas industry for a long time. And in fact, every oil and gas company for decades, has had an has had a department which we call eh, and S which stands for environmental health and safety. So environmental has always been at the environmental protection and stewardship has been at the forefront of oil and gas for a long time and in some of the oil and gas participants were outdoorsman where we love the we love the environment. And then we've focused on health and safety because we do high risk operations. Well, ESG is a little different. It does, it's concerned about the environment, but then it also is concerned about the social costs are the social interaction with your community, with your stakeholders, and then governance and governance is an important issue. So how is your board comprised? How is your compensation, incentivized with your management, all those kinds of things, and we've certainly throughout our time, in the oil and gas industry, we've had, we've had times where, where, you know, we didn't live up to the governance standards, we probably needed to. And same with the social contract. So it's, it's a good emphasis, but like anything, you know, it has to be moderated. And at some point, the ESG emphasis has starved capital for fossil fuel investments. And these are investments that require business certainty. They require a lot of capital. And so we, we have a different supply story than we did, frankly, in 2020. And then, on the demand side, well, the demand cratered, obviously, in 2020, because people weren't going to be driving around, they weren't gonna be using transportation, they weren't gonna be flying. And so the price reflected that we're back to where folks are, you know, going on vacations, they're, they're driving around. So the demand story is back to, I'd say more of a normal equilibrium. But it's important to keep in mind that there's still some demand overhang, such as China, China has, it still has a COVID Zero policy. And if China were to open up all its cities tomorrow, we would see increased demand, and one would think increased pricing pressure.

Paul Yeager: And you're not even mentioning Russia, and the impact that's having on the global market. So, what impact is Russia having on the global market?

Chace Daley: Well, they're having an immense impact it because they are the they were the primary provider of natural gas to Europe. And people need natural gas for feedstock, but they also need it for heating their homes. You know, a lot of the prosperity we've experienced is through natural gas. And so it that obviously gave Russia a lot of influence in the region. And you can see that Europe, European commodity prices are have skyrocketed. They're paying multiples of what we pay here. And that's the reason. You know, some, some of these things were probably foreseeable. And it is what can occur if you outsource, you know, your energy, which is required for prosperity. You're baseload power. If you if you outsource that to a third party, then then that is a security risk. And I think I think this has been an eye opening experience for certainly Europe. And hopefully, it's an eye opening experience for us as well. Now, we've been able to help bridge the gap. You know, LNG, liquefied natural gas, has really made natural gas a global commodity, just like oil. So that's very exciting for us producers. In fact, there was a, there's a LNG terminal called Freeport that went offline in the natural gas price immediately went down more than $1. And I thought that was that was really interesting, because that means that the demand story for natural gas is now a global one. And so as LNG terminals come online, that will result in increased demand of us natural gas. And if you see those LNG terminals close or go offline, you'll see lower prices because the demand goes down. 

Paul Yeager: Which is something we sometimes see in say, a weather event or hurricane or something right? Just like we see they pull people out, they pull the workers out of the Gulf, they pull them out of offshore here or there. It's Is it similar? You're shaking your head like I might have it right.

Chace Daley: Yes, no, it is similar. So if those terminals if those terminals go down for a weather event or or just as a precaution, then that is a direct impact on supply or On Demand. At that time, so that's kind of a new, that's kind of a new frontier for us, in the natural gas world to have that be a globalized commodity and, and it's been a real blessing, I think, to parts of the world that were reliant on Russia, to have that. And immense resource available now. It's highly sought after. So I've heard stories of, you know, the natural gas tankers, you could watch them on the seas, and they take a left, and then all sudden they turn around, and it's almost as if they're negotiating, while while driving out there.

Paul Yeager: It's like the dad in the front, right? I'll turn this thing around, if I get a better deal. That's legit, right?

Chace Daley: That's legit. And so that's how important natural gas is to to our daily life. And so, again, you know, hopefully, we'll continue to see more investment, but investment is critical. And it's all these things are tied together. And without investment and business certainty, it's very hard to invest in an LNG terminal or long pipeline, or a large infrastructure project for oil and gas at this time.

Paul Yeager: Well, I'll come back to Germany, but let's stick with investment for a minute. We've not built correct me if I'm wrong, a new refinery in the United States in 50 years, there's no plans on the books for anybody to build a new refinery in the United States. Is that correct?

Chace Daley: No plans that I'm aware of.

Paul Yeager: And why would anybody put their neck out right now? I had an energy person tell me a couple of weeks ago, why would anybody stick out billions and billions of dollars and years and years of work for something that may or may not be needed? In long term? Is that the reason why we haven't seen a new refinery in 50 years? Or is it some of that environmental discussions and consciousness that you were speaking to earlier?

Chace Daley: I think we're confident that it will be needed. I think it's more that business certainty. And if, you know, if you're starved for capital or investment in youth, or you find yourself on the on the wrong end of a policy, that investment could could end up being a poor one. So I are refining capacity is far, far lower than than we need. So I'm confident there's a use case there, there's a business case. The other thing, which is interesting, and we really have the same problem with nuclear. But when you don't build something for 50 years, you don't get better at it. And so you get you have to find the people who have the expertise to do it. Another part of this is regulatory rules. You know, we haven't scaled back regulatory rules much. We generally just pile more on. And so it gets more difficult. And some of that's correct. I mean, some of it's justifiable, but you don't want to go overkill. And so, you know, I think it's very daunting for someone to look at the regulatory framework, they'd have to go through to do some of these very interesting projects, like a refinery like a nuclear power plant, like CO2 sequestration, these things the amount of permitting in meetings you'd have to have with government officials are immense, before you've really moved any dirt.

Paul Yeager: And you can be two years in and Congress changes color. And you might be set back those two years that you did work. That's right.

Chace Daley: Yeah. That's that business certainty that you need for these projects, these projects that really moved the needle. I mean, these are five to 10 year projects. Right.

Paul Yeager: Right. And that was what the guy a couple of weeks ago had said to us. And also do you run into a little bit of a NIMBY case where nobody really wants to build that in their backyard?

Chace Daley: Yes, the NIMBY effect is an interesting one. You know, that's, that's true. And I think generally when wind turbines have the largest NIMBY effect, but, but the NIMBY effect is really just one trait of the concept of trade offs. And so, all of these power sources have trade offs. Some of them use immense pieces of surface of land, beautiful land is used. Some have you know, risk of spills or or you know, remediation requirements for surface. Some require truck traffic, some require expensive pipeline installations. power you have to think through transmission and access. So every power source has trade offs. You want to talk about how durable they are, how much maintenance they require, because I think sometimes that's misleading. And then, you know, fossil fuels is really a part of any power source if you look at it. But, but renewables are important, there are intermittent power that we need to continue to invest in, that can really lighten the load. But today, they're not baseload power. And so these concepts of intermittent power and baseload power, I would say are more important for people to understand in the concept of renewable and fossil fuel. Until, until renewables can, can form baseload power for our prosperity, we need to continue to invest in natural gas and oil and do it safely. Because we've gotten really good at it here. We can do it safely. We've got the best technology in the world, we've got the best people in the world.

Paul Yeager: Well, I guess the follow up to what you're saying does go back to what I wanted to discuss a tiny little bit, Germany was heavily, solely dependent on Russia for a lot of their oil, we in this country have become very dependent on on on oil for for a lot of things here. Is it take a pandemic, or country a world power invading another one to really accelerate this discussion of finding alternate sources of power? Is that really accelerated this discussion? Or where we already had it here? Just because it was politically popular?

Chace Daley: Yeah, that's a good question. I don't think that pandemic probably drove that conversation. I do think we were always going to get to this point, where? How do I say this? You know, it's almost like we've had so much energy, that it's all around us. And we didn't have to think about where it came from. And so now, we're really having to have those discussions. And it is not an intuitive thing to understand, you really have to put some time into it. And I think you want to see that same knowledge and competence from your leaders who create policies, because we really can't afford to get some of these policies wrong. Because they, they impact human lives, they impact our life expectancy. And, you know, in developed countries, we have luxuries that that elsewhere they do not. So it's always good to keep in mind too, you know, we've got a lot of the world that's still using coal or wood to heat their homes on the ground or to to cook food. So there's a lot of prosperity left to share with the world, I think, is the Russia invasion, has certainly driven a healthy discussion as to alternatives. And it makes the trade offs more clear for people to say, you know, if this is what it takes, for us to lessen our use of fossil fuels. Well, what is that cost? And is that a cost that you're comfortable with? And I think, I think a lot of people look at that cost. And that cost is human lives. And it's it's one, we really need to talk about it. And we can't treat flippantly. So I think there's been a lot of good dialogue that's come from this, but I do, you know, I want people to have heat in their homes, and I want as many humans on the earth as possible. prospering, and

Paul Yeager: I don't, I don't think Americans realize that it might not. I mean, we're very accustomed to flipping the switch and something happening right away. That's not the case around the world in many places. So that has changed. Maybe this invasion of Ukraine has maybe allowed us to understand that this could go away quicker than we maybe realized.

Chace Daley: While and you see it in other things. I mean, right now we have inflation, and we haven't had inflation for for multiple decades, probably beyond that. So you know, there's a lot of probably conversations that we haven't had had for a long time, but that are healthy. You know, right now, we're talking about money supply and fiscal spending. And there were certainly people who wanted to talk about that over the past 15 years, but oftentimes, they were tuned out because, well, inflation was low, you know, what, what was the problem? And same with oil and gas, you know, false energy was cheap. Things were good. So these topics, were you know, you may have people concerned about up long term supply. But it's it's hard to visualize that when when things are going so well. So I think we're seeing a lot of conversations that were long overdue.

Paul Yeager: You have started with Farmers National, the first word in it is farmers. Farmers have embraced renewables when it comes to ethanol. Biodiesel. You mentioned the when we're seeing solar. Your perspective, though, from the Oklahoma region? How do you balance some of your background with the new footprint of the company you work for? And, and a lot of farmers have gone to an all of the above approach to energy.

Chace Daley: Yeah, and I'm, personally, I agree with an all of the above approach. I think, you know, there needs to be a business case. And so when you're talking about land use, the land use needs to make sense for the property owner, in any case, makes sense for the project operator. That's, that's just the normal course of business, right? So certainly, our renewables practice is is something we take very seriously. We negotiate renewable projects for our landowners, we have expertise in that area. And we have, you know, for instance, a GIS mapping system. So we can see the solar potential or the the wind potential of a property owners land, we have resources whereby we can look at, you know, comparative compensation in different areas based on use. So, we we take renewables very seriously. It's something we're very excited about. It's good news, you know, we talk about when we talk about property ownership, we talked about the bundle of sticks. Well, it's always great when you find a new stick, you know, and so we welcome renewables, and we are always looking to maximize or optimize the use of our customers land, and if renewables make sense, and it's good for the country, which which more power is good. And, and we look at, we look at transmission, we look at how close you are, to two power hubs, we, we take a discerning eye when we look at renewable projects, because I think there are some stories of projects that have gone gone poorly. And, and we also, you know, the oil and gas background is helpful, because we have an eye towards remediation. So these wind turbines aren't gonna be there forever. Neither are the solar panels. So as we represent property owners, fiduciaries, and so we want to make sure that not only does it make economic sense that the front end of the project, but that the property owner is taken care of at the end of the project, which, you know, renewables is still a new, a new space. And so there's still some of this that's evolving. And so it's helpful to have advocates that one have their pulse, you know, to have their their finger on the pulse of the industry, in in renewable space. But to that have the background and know what, what you should be looking for, from oil and gas. So we have that experience. And we're glad to offer that to our clients. You know, oil and gas. You know, it's what I love oil and gas. America is one of the only well it's really the only country that you can own the minerals under your feet as a free person. And so it's something that that I take great pride in and I think we all should. But our our ability to innovate is also what's what makes us special. And renewables is a big part of that. So it's something we certainly embrace. We look for opportunities and we help our owners.

Paul Yeager: Alright, Chase, I appreciate your time. Chase Daly is the Senior Vice President for Energy at farmer's national company. I appreciate your time today. Thank you, sir.

Chace Daley: Thank you, Paul. Appreciate it.

Paul Yeager: My thanks to Chase Daley, the Senior Vice President of Energy for Farmer's National Company. If you have feedback for the program, send it in an email MarkettoMarket@IowaPBS.org. New episodes come out each and every Tuesday. If you want to see the video version, subscribe to YouTube. If you want the audio, go where you get your podcasts and will be in your feed each Tuesday. Bye bye.