Title:   Why Energy Stocks Are Down When They Should Be Up with Bob Brackett (The Real Eisman Playbook Ep 60)
Show:    The Real Eisman Playbook (host Steve Eisman)
Guest:   Bob Brackett (senior energy & mining analyst, Bernstein; PhD geology)
Date:    2026-MAY-18
URL:     https://www.youtube.com/watch?v=dFGIXqpyVzA
Length:  ~83 min
Note:    Auto-transcript, timestamps mm:ss / h:mm:ss. Saved for personal study. Video feed was lost ~45-min mark (audio continues).
         A sector-education interview — cyclical oil/gas/mining; buy at bottom of cycle, sell at top. Auto-transcript garbles
         tickers ("E X E"=EXE/Expand Energy, "Fang"=FANG/Diamondback, "Conoco"=ConocoPhillips, "Concho"=Concho Resources).

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(00:05) Hi, Steve Eisman here. You're about to watch an interview I did with Bob Brackett, the oil and mining analyst at Bernstein. There is a lot going on in his sector, so I think you will learn a lot. But one caveat, the interview was long, over 1 hour, and unfortunately, at the 45-minute mark, we had some technical difficulties and lost the video feed.
(00:27)  The audio is fine, so please keep listening till the end. I am excited to share that today, The Real Eisman Playbook Premium goes live.
(02:34)  How they were built, who bought them, why the people building them thought they could get away with it, and exactly how and why it all collapsed. >> Hi, this is Steve Eisman and welcome to another episode of The Real Eisman Playbook.
(03:04)  And today we're going to talk oil, gas, mining. And we're going to talk about it with Bob Brackett, who is the energy and mining analyst at Bernstein. Bob, welcome. Great, thanks for having me, Steve. So, before we get into you covered incredibly eclectic group of companies. Um, just quickly give us your background. So, the the commonality of everything I cover is you take it out of the ground.
(03:31)  So, if you kind of take it out of the ground and try to make money, sometimes you do, I'll cover it. I have a PhD in geology. I've been at Bernstein more than 15 years, I think 17. And before that I was an executive at Hess. I've been a management consultant. I've been an oil and gas practitioner.
(05:07) Okay, so let's imagine we're somewhere in the middle. So, where we are today, if I just think about the energy space, we know something that we didn't know at the start of the year, which is Iran can close the Strait of Hormuz and capture, block 20% of the world's oil flows, 20% of the world's natural gas flows, half of the seaborne sulfur flows, 7% of the world's aluminum flows.
(05:36)  We know they can do it. And so, what that means is we have this massive shock that hits the energy complex. We are extrapolating here. We are extending our forecast between anything we've ever seen before.
(09:06)  Uh and it's And the markets can sort of afford to believe that for now, cuz people look at energy as a fraction of the S&P. It's like 4% exactly. So, the fact that the energy sector is small, the energy sector today is only 4% of the S&P. So, from a perspective of a portfolio manager who runs big money, they could just buy Exxon and forget about it. And in fact, that's sort of how we started the year. Exxon outperformed Jan and Feb, and it's down since the invasion.
(10:12) And I kind of know oil's at $60 a barrel, and it doesn't seem to want to go much lower. And so, I'm going to get positive revisions by owning something big and oily like Exxon, and I'm going to worry about owning a software stock. And so, there's this beautiful anti-correlation between Microsoft and ExxonMobil. You can almost just see people saying, "Microsoft's going to go down 1%. Let me move into Exxon."
(11:18)  mechanically what we're seeing is we're starting to see We're certainly seeing positive revisions for numbers, 2026 numbers. We're seeing these very strong EBITDA revisions for this year, cuz expectations at the start of the year would have been around $60 to $70 oil driving that EBITDA. Now, mathematically, you're probably going to end up this year at 90.
(12:10)  And so if you're moving oil from 60 to 90, if you're moving that revenue up 50% and you got 50% EBITDA the EBITDA's going to go up 100%, right? That's the flex.
(15:46) >> Explain to many of you who do not know what the forward curve is. So um think about agriculture, right? I'm growing crop. I want to lock in my price. And so you've got forward curves for all of the commodities where you can look out and say, "Where is the price of Brent trading today on the spot market?"
(16:50)  That forward curve effectively is falling from the triple digits today back toward maybe 70 as we go out into next year. So in other words, the price of oil 1 year out today is called $75. With the caveat that the forward curve is was never built to be a predictor of oil price.
(17:44) >> So the forward curve is in backwardation, which means each month out contract is lower and lower and lower. And I'll give you the example of gold. Gold is physically about the easiest thing to store, and so the gold forward curve is always kind of in contango. Things like iron ore and oil are expensive to store, bulky to store, and they're almost always in a normal market in backwardation.
(18:47)  At the highest level, that's the conundrum that when the price of oil is falling, people assume negative revisions and that the stocks go down.
(19:10)  So, we talk about energy being 4% of the S&P. If you split that between growth investors and value investors, value investors can ignore my sector. S&P growth has no energy weighting to speak of. A value investor looks comes in and says, "Price of oil is below mid-cycle price." If you look back over the 21st century, starting in 2000, in real terms, Brent has been around 75.
(20:10) And so, if you're a value investor and you see oil is at $60, you figure chances are oil prices are going to go up, so I'll make some money in Exxon.
(21:12) >> Let's flip gears just on political. OPEC's been OPEC for a very long time. And this year something dramatic has happened. The UAE has dropped out of OPEC.
(26:03)  rationally, if you have a cartel that's trying to control price, and one of the important members leaves, you got to believe that's got to be a little worse for oil price. Now, is it cataclysmic? No. Qatar is a great example. They exited OPEC years ago, and they didn't just press the gas pedal to the metal and flood the market. The UAE has these onshore fields, they're very prolific, they want to grow, it's economic to grow.
(28:26)  All right, so we did oil. Is there a story in gas that's separate from oil? So, natural gas, methane. The dominant use of that is into power generation. So, natural gas competes with coal, wind, solar, nuclear, hydro. Oil demand's growing anemically like 1% a year, electricity demand around the world is growing faster than GDP.
(29:34)  And then throw in AI, robotics. Power demand in the US is growing like 3 or 4% per year. We've watched power demand in the US be flat for 15 years. And then finally, we're getting a GDP type growth.
(30:13)  it is literally 3% off of the electrical base is literally the equivalent of like the amount of electricity New York City consumes a year. The other anecdote is when you go out and build a 1 gigawatt data center, that is the energy demand of a city of a million people. And we barely have 15 or 20 of those in the US.
(30:48) >> So, what you're saying is natural gas demand should be increasing. How do you supply electricity? Wind and solar can only get you so far. Gas turbines get you most of the way. Nuclear gets you some of the way but with long cycle times. And the coal we are retiring. So, the answer is the thing in the short term that can fill that gap is first running today's natural gas fleet (the CCGTs) at higher utilization rates. And then eventually we need new ones. So, that's the call on more electricity is really a call on gas.
(31:36)  >> So I come to you. All of a sudden my ears perk up because GEV, GE Vernova is a stock that's gone insane because there's only three companies in the world that make gas turbines and you're telling me as part of that story there's a gas story.
(32:02) >> So, the big story, right, is long whatever AI needs, short whatever AI can do. Go long whatever AI needs, whether it's turbines, whether it's gas to run the turbines, whether it's copper to move the electricity. Then, what can AI do? I don't know and I'm skeptical. If you think AI can do software, don't own software stocks.
(33:07) >> So within my coverage, my most read note last year was around natural gas. The AI momentum folks have kind of gone away to other technologies. Nuclear uranium stocks have absolutely ripped in the last year because one of the things that the data centers want is 24/7 zero CO2. And some of the hyperscalers said, "We're going to do this green."
(34:07) >> So, you want somebody that benefits from rising gas price. So, a gas E&P, great example. Second, you want it to be clean. >> Define for people the term upstream and downstream. So think of that supply chain as they're the companies that go out there and find that below ground resource. They explore for it, they hire contractors to drill for it, they produce it, they sell it into the midstream. That's upstream.
(34:53)  Midstream is lots of steel in the ground. They're kind of toll booth models. They trade at high multiples. And then you got the downstream. On oil, it's the refiners, the guys that buy the barrels, convert them to gasoline, diesel, jet. And then you've got the integrateds that will cover multiple sectors.
(35:32) >> So in your coverage of the E&Ps, who benefits the most here? Give me one that's dominantly gas, as pure play as possible. And so within that large cap space, you end up with two that kind of rise to the top, EQT and EXE are the tickers. So EQT Energy and EXE, EXPAN Energy. They're both drillers and producers. EXPAN Energy produces more gas in the US than anybody, more than Exxon, Chevron and the like. And EQT is one notch, two notches behind. So these are dedicated dry gas.
(36:38)  So we have cheap energy. We're sitting here in the US with $3 natural gas. We are blessed with electricity prices in the US that are half plus of Europe because we have flooded the market with natural gas.
(37:03)  Where they are flooding the market is really three places. One is the guys out in the Permian drilling for oil. They're drilling for oil, and their economics are oil driven, but these oil wells come with associated gas. Right now, the price of natural gas in West Texas in the Permian is negative. It's a waste product.
(39:48)  The price of any commodity is set where that marginal cost of supply meets the marginal demand. The guys that are setting the price of natural gas are two places in the US. One is the Haynesville, and the other is this big strip of Appalachia, which crosses West Virginia, Pennsylvania, and Ohio. That industry has been beaten up by institutional investors to the point of discipline. And that level of discipline allows you to finally earn a reasonable through cycle return on natural gas. And that would be like an EQT.
(41:39) >> Let's go to miners. Is there a miner story? So, we're in cyclical land. These are mean reverting stocks. The way to think about how do I know where am I in the cycle? We look at EBITDA margins for the miners. If I'm earning a zero EBITDA margin, that's the bottom of the cycle. When I'm starting to get astronomic levels of margins, I know it's too good to be true.
(42:43) >> If you're gutsy enough to buy the miners at the bottom of the cycle. So COVID, the GFC, you get great forward returns. >> Is there a story here though, an AI-related story that you need copper? I'm in a minority of folks that has loved copper. Today we are mining and recycling 30 million tons of copper a year. And the copper mines we have decline a million tons plus a year. So there's this wedge of mines we have to replace.
(43:56)  There is no equivalent technology and you can't frack for copper. So copper, the supply gets tougher every year. And that demand is driven by EVs. If you have two EVs in your garage, you've got as much copper in your garage as you do in your entire house. Wind and solar are copper hungry. The grid is copper hungry.
(45:05)  In the last year, we've had, because of tariffs, a distortion to copper markets. We've artificially tightened the copper market in the US. A year ago, there was a 50% tariff put on steel, 50% on aluminum, threats of 50% on copper. As a result, the US is hoarding, stockpiling copper. If you think those tariffs don't show up, the price of copper ain't going to go up. And so, I'm a bit of a lone voice in the wilderness on that.
(46:15)  Well, if I was positive on copper, what stock would I buy? So, in large cap land in the US, the America's copper champion, not my words, theirs, is Freeport. They operate the world's second largest copper mine in Indonesia. They've got a host of copper resources sitting here in the US. They've got a bit of an option on tariffs from that. So, part of my job is not identifying great companies. It's identifying great entry points.
(46:58) >> Let's talk about lithium for a second. So what do we use lithium for? EV batteries. The dominant chemistry for batteries is some form of lithium. Lithium's a tiny market. As a result, lithium price discovery is super volatile.
(50:39)  So, for a while we've had the mines and the brines. Exxon, Equinor, some of the oil companies are like, "Well, I can drill for these lithium brines. I'll drill an oil well, pump out this brine, extract the lithium and compete with the lakes up in the Atacama." And so, then you get to Appalachia. And suddenly we might have a low cost high volume source of lithium that should scare lithium investors.
(52:38) >> So if I had to divide up your group into its component parts. You've got the majors Exxon, Chevron. You've got the frackers, some of which are gas, some of which are oil and gas like a Devon. You've got LNG. And then you've got miners. >> first cyclical commodities. Which commodities are trading above mid cycle, which are below mid cycle. If they're below mid cycle, I want some beta to that.
(54:39)  if you look across and you do a TAM, only four of them are hundred billion dollar a year markets. It's iron ore, copper, gold, and aluminum. Things like lithium are just rounding errors.
(55:15) >> let's just talk about the majors first. These are complicated companies, Exxon, drills it, pipes it, refines it, sells it. How does anybody analyze it? And I'll say it's almost a force for good. The contra is when you got a bunch of E&Ps that go out and drill shale wells, the frackers. In the US and in Canada, every well that is drilled is a public record. So if you're a long short hedge fund, you have teams looking at every well that Devon drills, that EOG drills. They're building a DCF off of that.
(56:45)  You get to ExxonMobil, that's a level playing field cuz ain't nobody has the time or the data cuz Exxon's mostly global. And so how do you get an edge? You get an edge by spending time with leadership, thinking about what have they promised, what have they delivered on. Same as with Chevron.
(57:35) >> Majors well-run? Majors are extremely well-run. I used to consult for Saudi Arabian oil company. The oil company is so good at project management that when the kingdom needs a new hospital, it's like, let's let the oil company build it. Nobody on Earth outside of maybe NASA, now the hyperscalers, who in the world can deploy $25 billion a year of capital in projects around the world and deliver it on time and on budget.
(58:56)  So, like, what's the average return that an Exxon or a Chevron generates over a cycle? Returns on capital employed are mid-teens. And how do you buy them? The other thing they do is they deliver cash back to shareholders at the scale of, call it 3%ish dividends. The other way you know that they're well-run is those dividends are untouchable. They will pay those dividends no matter what.
(59:40)  If you go to COVID, the price of oil went negative. Exxon, Chevron, ConocoPhillips, and even the high-quality large-cap E&Ps paid that dividend. The Europeans integrateds, they weren't built for it. >> What do you mean? So, think about Shell, BP, Total, Repsol, Eni. They cut dividends during COVID. >> not as well-run as the Americans.
(1:00:34)  if you get that 3% dividend, somebody like an Exxon, call it round numbers $20 billion a year coming out as a dividend, they're putting an equivalent amount, 20-25 billion as share buybacks. So, they're able to return, whether it's Chevron or Exxon, 30 40 50 billion dollars a year. And I'll make another point. Don't compare the yields you get from a commodity company to government yields. Compare them to TIPS. These are inflation-protected.
(1:01:47) >> let's turn to the drillers cuz I had some experience with them until maybe 2016-17. I thought they were run by lunatics. They took drill baby drill to the ultimate level. So, why don't you walk us through what happened cuz these are different companies now? We have the GFC. We recapitalized the banks. The oil companies took all of that capital and used it to drill shale wells in order to flood the world with oil and collapse the price of oil.
(1:03:53)  The best performing stocks up until 2014, 15 correlate with the guys that could grow the fastest. Not profitably. >> So shareholders back then were on board with drill, baby, drill. >> A technology revolution that collapsed the cost curve. We took projects that used to be a five-year project, shale wells you can drill in a week. So you had a short cycle instead of long cycle, technology revolution, infinite capital.
(1:05:45)  the worst month to be an oil executive was Jan or Feb of 2016. Here's a funny anecdote. What did the rating agencies do at the beginning of 2016? They cut the oil price forecast they used. As a result, debt markets locked up. Suddenly, couldn't access debt markets. And so you had all these oil companies slashing dividends, raising equity, huge dilution just to survive.
(1:07:06)  So, today, how are these companies run differently? Today, the mantra is almost a dollar to reinvest, a dollar back to you. These are companies that trade anywhere from the highest quality ones, maybe a 6-7% free cash flow yield. The ones with a little more debt in the low teens. They've displaced tobaccos and some REITs in terms of the best dividend yields. So, these are high-quality, well-behaved managements. Well-behaved is the compliment and kind of boring.
(1:07:49) >> Which of the majors and the E&P companies do you like? So currently, I've been recommending ExxonMobil. If you compare them to a Chevron or a ConocoPhillips, they're along the same vein. ExxonMobil just has more of the downstream, more of that refining. Through the cycle, it'll give you a lower beta, a little more defensive. The reason it's good now is normally, when oil price falls, the price of the refined products falls slower, and therefore the refining margins expand.
(1:09:03)  on the upstream side, if I'm a depletion-based company, I drill a well, it starts going down on day one. I got to go replace that well. I can do that in the US. I can go find more shale. Or I got to go out to the deep water. Or I got to go to OPEC producers. The problem with shale today is shale's mature. It's not really growing much on the shale oil side. And we've eaten through the best of the inventory.
(1:10:21) >> of the E&P stocks do you like and why? E&P So, I like Diamondback. Diamondback Fang. >> Fang. So, Diamondback is a rattlesnake. A Diamondback rattler has fangs. Diamondback has a mineral interest company attached to it called Venom. They in 25, 24, 23, they consolidated one basin, the Midland Basin, part of the Permian. They are the last. They became a basin master.
(1:11:24)  When those guys get big enough, they're all gone. Pioneer learned how to drill in Midland, single basin, grew amazingly, Exxon says, "I want you." And they bought them out. Hess, brilliant company, found the Guyana deepwater oil. Grows, Chevron says, "I want you." Concho, another one, ConocoPhillips says, "I want you." So, those big integrateds, someday, they're going to say I need to grow, and I'm smarter than these little guys.
(1:12:26)  In the meantime, they have Texas wells moving through Texas pipeline to Texas customers. If you want to have the lowest geopolitical risk in oil, go to Texas. So, they've got no exploration risk, no geopolitical risk. >> Can we talk about EOG as I recall has the reputation of being the best of the E&P companies. Would you agree with that? And if that's the case, why haven't they been bought out?
(1:12:49)  Yeah, so EOG. If you went back to the early 2000s, you had a company called Mitchell Energy. Mitchell Energy, now Devon Energy, figured out how to frack gas. They were the first. By 2009, EOG looked around and said, "Everybody can frack gas. We think we can frack oil." And they were an early mover into fracking oil, dominated places like the Eagle Ford. They're fantastic. EOG is a great company. It is so great and almost so transparently great that it's typically an expensive stock.
(1:13:58)  So, I would say Fang, because Fang levered up a bit to do all these acquisitions, and because Fang doesn't have that 2009 beyond track record, I think it's attractive. >> don't think EOG is a takeover candidate? ExxonMobil made a bad acquisition. They acquired XTO Energy, which would remind you exactly like an EOG. The thing about EOG is they're decentralized and they're drilling in like 12 different places. The problem with the big integrateds, one of their strengths is command and control. They don't do nimble multi-basins very well.
(1:15:02) >> let's just finish up with miners. How do you think about miners as just companies? The minors are also going down. This path of punishment where the market told the oil and gas companies to stop overspending, did the same thing to the minors. So as a result, these are mature, legitimate businesses distributing oodles of cash flow back to shareholders. Less free cash flow yields through the cycle than the oil companies.
(1:16:26)  a well-run miner, high quality, two, three percent dividend, two, three percent free share buybacks. >> Last company to talk about, LNG. Tell the LNG story cuz it may be the only kind of growth story in your coverage. So, I covered two of these midstream gas companies Cheniere and Venture Global. Cheniere was first. What does Cheniere do? Cheniere has two facilities, a few square miles each. They're the world's largest refrigerators. One sits in Louisiana, one down in Corpus Christi, Texas.
(1:17:53) >> what they do is they go out around the world and they contract LNG. They will go to a German utility, a Japanese trading house, they'll go to Shell, and they will say, "Look, we'll promise this many cargoes of LNG at this fee." So, the business model is a toll booth model. They will contract 95% of that to third party. For on average typically 20-year contracts, but like a blended 17 year. It's a take or pay. Regardless. And what Cheniere then does is they buy gas from the US grid, liquefy it, put it on an LNG vessel.
(1:19:53)  And so what do you think of the company in terms of a stock and a long-term story? So the midstream model is a safer model. Cheniere has qualified to enter the S&P 500. I'm convinced they'll get in this year. Generally gas midstream companies in the S&P 500 can trade down to a 5% free cash flow yield. And right now Cheniere's probably trading closer to an 8%. You're not taking geopolitical risk, you're not taking price risk, it's a pass-through model. On a risk-adjusted basis, it's always been like just the safest risk-adjusted return.
(1:20:55) >> Bob, that was great. Thank you. Well, that was a fascinating interview. Couple of thoughts. First of all, these are very, very cyclical companies. Growth stock investors generally don't traffic in them. They're value companies. And generally, when do you buy these stocks? You buy these stocks when they are suffering, when the commodity prices have collapsed. That's when you buy these stocks, and you sell these stocks when everybody's interested.
(1:21:36)  In terms of what's going on in the world, the closing of the strait has taken 20% of all oil production out of the market. It's actually somewhat surprising that oil prices aren't higher. And the reason is because people are very hopeful that the war is going to end soon. Bob tends to like Exxon. He likes a couple of the drillers. He likes one or two of the miners. But as I said, these are very cyclical companies. They're more trading vehicles than long-term growth stocks.