Title: Did the Venezuela Raid Screw Canada? | In the Money with Amber Kanwar
Show: In the Money with Amber Kanwar (YouTube podcast) — two-guest episode: Frances Horodelski (segment 1), Cole Smead (segment 2, from ~23:49)
Guest: Cole Smead — CEO & portfolio manager, Smead Capital Management (plus Frances Horodelski, financial journalist — segment 1 context, not the tracked pundit)
Date: 2026-01-08
URL: https://youtu.be/sMamDcN1Ivw
Length: 1:07:16
Note: YouTube auto-transcript as pasted; (mm:ss)/(h:mm:ss) cues verbatim. Aired days after the US raid on Venezuela (Maduro seized). Cole's segment starts (23:49). Garbles: "Cole Sme"=Cole Smead, "Francis Wardellski/Hordellski/Hardellski"=Frances Horodelski, "KICO/kico"=ConocoPhillips, "Senovas/Sovas/SNOVA/Sova"=Cenovus, "Strath Kona/Streth Kona"=Strathcona, "Iona"=(Scotiabank chart reference, garbled), "aabaska"=Athabasca, "turmoline"=Tourmaline, "Birch Cliff"=Birchcliff, "Hussein Aladina"=(TD head of commodities, name garbled), "Mugger/Munger"=Charlie Munger, "Adam Wattress/Waters"=Adam Waterous, "Tamarak"=Tamarack Valley (TVE.TO), "Headwater"=Headwater Exploration (HWX.TO), "Spartan Delta"=Spartan Delta (SDE.TO), "Duivere"=Duvernay, "naroterrorism"=narco-terrorism.

(00:00) If I am a degenerate retail trader and I'm like, "Cool, that's going to be really beneficial for Chevron or KICO. I'm just going to yolo my little bed in today." Whether you like him or not, he's a consequential individual. Venezuela alone, in 2 weeks, it'll be on page 10. On today's show, we're focusing on the fallout from Venezuela.
(00:19) We've got Francis Wardellski, who's been a financial journalist for over a decade, and before that had a career in finance that spanned over 30 years. And then to talk about the investment implications, we've got Cole Sme. He's a US investor, but his biggest non US position happens to be a Canadian energy stock.
(00:38) Are we selling all our Canadian energy stocks? How much did the Venezuelan invasion screw Canada's bargaining power? The information provided in this podcast is forformational purposes only and does not constitute financial investment or professional advice. The views expressed by the host and the guest are their own and do not necessarily reflect the opinions of any organization or company.
(01:07) The host and guest may maintain positions in any securities discussed on the podcast. Always consult a qualified financial adviser or professional before making any investment decisions. When you choose a Raymond James adviser, you're getting more than independent financial management. You're getting access to complete financial guidance under one roof.
(01:30) From tax and estate planning to trust services for generational wealth, and strategies for life's key milestones like buying a home, funding your children's education, or preparing for retirement. They bring it together in one financial plan. What also makes Raymond James Advisors unique is their complete independence.
(01:47) With no proprietary product to promote, you will benefit from personalized services, all backed by the strength and resources of Raymond James, a powerhouse with a 100red billion in assets and over 520 adviserss nationwide. Discover how Raymond James can help you live a life well planned. Visit raymanjames.ca. Hey everyone, it is a brand new episode of In the Money with Amber Canoir.
(02:13) A week earlier than anticipated, we thought we could just come back fresh and relaxed next week um and deliver you fast-paced insights. But um the news cycle had something different in mind. Of course, we all woke up over the weekend to um a US invasion of Venezuela, kidnapping of the president Nicholas Maduro and his wife being brought and charged in the United States under um the guise, I guess I would say, of narotism.
(02:45) But as the week has unfolded, um it's also become very explicitly clear that it is about oil. And investors felt that way too. Investors are particularly concerned that this is negative for the Canadian oil sector. And the reason is because in terms of the kind of crude that Venezuela has, it's thought to be very similar to the kind of crude that Canada has.
(03:14) So now if all of a sudden um the US can get it from Venezuela, maybe they don't need it from Canada. There's all kinds of issues with that thinking. you know, this doesn't just turn on. It's not a light switch. Um, Venezuela's energy sector has been neglected for years. It's going to take years and billions and billions to get it up to anywhere to what Canada can produce.
(03:35) But still, it was a shock moment for investors. And so, we want to know what do you do with that shock moment? Um, do you lean in? Do you take pause? Do you take profits if you have them? to discuss that. We got to go to Francis Hordellski. She um is my oracle on many things, but she's got this great way of kind of sober second thought.
(03:59) And then we're going to talk to somebody you should know by now, Cole Sme. He's a US investor, tends to buy a lot of Canadian energy stocks. So, he's going to tell us whether he's leaning in or leaning out. As always, let's get into it. Francis, thank you so much for joining us on the show. >> Happy New Year. >> Happy New Year indeed.
(04:26) What a way to start. Um we we're coming back early cuz this just felt like a topic we had to tackle. But I was actually You're my sounding board for a lot of things. And so this happened and we were texting each other. And you know, I struggle with geopolitics cuz it seems like a really big deal. And then, you know, eventually the market just kind of gets over it.
(04:49) And so, I think I asked you that. I'm like, is this a big deal or is this something we're just going to get over? So, I think that is all of this stuff is a big deal uh in some respects because it is a tower of big deals I think when it comes to the administration of the US. So, you know, whether it's Venezuela or yeah, heaven forbid Canada invasion, you know, these things are kind of being stacked up because it's part of policy.
(05:18) So, everything political seems to be a big deal. >> Uh, but I wanted to step back a little bit if I could just about where we were coming in. And we'll start with the energy patch because that's what, you know, that's where all the drama Yeah. uh, occurred over the last few days. So, I actually went back and looked at and I was a bit surprised uh I was surprised at the selloff uh cuz I thought it was silly uh in terms of how aggressive uh traders were in selling off Canada.
(05:48) But it it's interesting that Canadian energy stocks have been pretty uh cheaply valued, let's call it cheaply valued uh in the middle of last year. And in terms of performance, energy stocks in Canada doubled the performance of energy stocks in the US. And um so the valuations as well has come right in.
(06:13) So where they were cheap relative to US and European energy stocks, they aren't anymore. So you know that was kind of the backdrop into which we arrived after uh this uh this you know incident. Let's call it an incident in Venezuela. >> Casual kidnapping of the president. >> Yeah. Um so, so I think that's how we came in.
(06:39) Um and now we're kind of, you know, moving back to slightly undervalued depending on a lot of things that happened. So that's the first thing I wanted to talk about. The second thing I wanted to talk about was everybody's all in a a state of flux today because 30 to 50 million barrels of oil is making its way uh to the Gulf Coast to US refineries.
(07:00) Well, just by the way, that isn't a lot of oil. It sounds like a lot of oil. It's not a lot of oil. You know, the calculation is 80 to 130,000 barrels of oil a day. America uses 20 million barrels of oil per day. So, you know, that's the context. Canada ships 4 million barrels of oil a day to the United States. So, you know, that all those numbers you're hearing over the last few days sound like a lot.
(07:31) They aren't a lot. Certainly, the refiners in the Gulf Coast are going to benefit and you see Valero uh and some of these names bouncing a lot over the past couple of days. or US refiners, but you know in the scheme of things so far uh it's not a lot of oil. And the third thing and everybody's talking about this and it seems to be the consensus is that the amount of oil that eventually comes out of Venezuela uh is going to take a long time to come out because of you know from um poorly maintained infrastructure right through corruption.
(08:05) So, uh, you know, come going from a million barrels of oil a day in production to three all into the United States going to take some time and a at a price because, you know, most of the big oil companies don't want to be producing oil if it's only going to be sold at $50 a barrel or $55 a barrel. They would, you know, obviously like something higher.
(08:30) So, there's going to be that battle between the cost and the price they receive. So Canada, somebody said we're low cost and still low risk. And you know, it's not a monolithic group in Canada. You got to look at, you know, the various players and where they sit in terms of heavy oil production, uh, natural gas production.
(08:53) So, you know, people aren't going to be able to just buy the ETF anymore. They're gonna have to do their homework. >> This is why I love you. This is why we love her because you just distilled it so perfectly. like explained why we had such a knee-jerk reaction. You know, we we had run up, oil was down, and Canadian oil was such a such a strong performing sector.
(09:14) So, it made it kind of an easy sell. The long-term analysis, you know, the five days that we've had to sit with it is, yeah, this is probably maybe negative for supply, but it's a slow burn. I guess maybe, you know, I love to get into the weeds with you, but at a 30,000 ft view, how much did the Venezuelan invasion screw Canada's bargaining power when it comes to dealing with the US, right? Like, you know, outside of just those energy stocks, we're supposed to deal, you know, we've got this renegotiation of NAFTA 2.0.
(09:47) >> Um, and and now all of a sudden, we had the we have all these barrels that we provide them. he can just turn around and say, "Yeah, I've found another supplier." >> Yeah. So, um, and you know, and that comes down to the politics of it. Uh, you know, the rant, you may have heard the rant on CNN by Stephen Miller, uh, who's I like to call him Trump Trump's President Trump's Swengali.
(10:14) Uh, you look it up. It's not a nice person. uh you know his view is that anybody in the western hemisphere that does anything that is not in American America's best interests we have the right to do whatever we want. So that's where Greenland comes in. That's where Venezuela, Colombia, you name it. And that's probably where Canada comes in.
(10:37) and and we certainly aren't going to be in the greatest bargaining uh position, but I don't think we're in a great bargaining position anyway going into uh into the um USMCA negotiations. Just by the way, uh PM Carney is going to China next week. I mean, I think it's next week. >> You know, all of it's very very very muddy.
(11:02) I'm surprised in all of that muddiness that the Canadian dollar really hasn't, you know, fallen out of bed. I mean, it's not been great, but it hasn't collapsed. So, that's something to keep in mind. Uh, I think the Bank of Canada has a lot of powder that they have dry to do something in the event that the wheels fall off the bus. You know, I I guess I just don't know when the administration in the US then returns to its domestic focus.
(11:32) In fact, today they are. Uh uh Mr. Trump's talking about housing. He's talking about defense companies and how he wants to cap CEO compensation. I mean, so it's pretty erratic and that's why you have to >> let let me let me counter that. Like I I I think you can easily sell Venezuela as a domestic um issue because it's to for lower oil prices.
(11:58) I mean gone are the days where we used to pretend that these invasions were to liberate and spread democracy. >> There's no pretense. >> No, he's just saying I want the oil. I like that oil. I mean, you know, there's also the naroterrorism, which is um you know, that's that's thin um and hardly a reason to go in and take take a husband and wife cuz there's a bunch of other countries that you could go and uh to deal with that.
(12:23) It's pretty overt saying, "Yeah, we went there and we hey everybody, and we got you this uh oil. It's coming down a ship." Uh, it's certainly a point, but it comes back to my other fundamental point is that if you're going to quote unquote um I'm going to use the word steel, maybe that's not the right word, but a lot of this oil to dump into the US to bring down prices, if you want companies to be aggressive in uh reestablishing Venezuela's production, you don't want $45 oil. You don't want $50 oil.
(12:57) they probably want $60 or $65 oil. So, is it a domestic and is it a short-term improvement in the price of gasoline? Um, you know, there's lots of things that that go into that equation. >> So, there's a bunch of touch points like we've t we've talked about energy, we've talked about trade with the renegotiation of NAFTA, the Bank of Canada maybe having some dry powder.
(13:18) What else besides, you know, these things um is on your mind? You know, I know we got a lot of questions and I've been thinking about, you know, a bank like Scotia, for example, which isn't in Venezuela, um, but is in Colombia and does have exposure definitely to Latin America, which I don't know what does that look like if it's, um, you know, Trump's trumps Latin America.
(13:45) >> Yeah. I don't know. You know, in fact, the uh Scott Thompson was talking about that at one of the bank um uh conferences yesterday. I guess I think he saw it as an opportunity. >> Yeah. Yeah. I mean, the problem is that for our banks, generally speaking, uh they aren't as cheap as they used to be, uh again. and there's opportunity.
(14:11) But I I tell you, if we go into some rip roaring uh economic malaise here, and I like Scotia, just by the way, I mean, it's Iona is finally breaking out after years of misery. Um, and it seemed the other day that uh the Americans woke up to it because it was the best volume in on the New York exchange in like a year.
(14:34) has only been uh you know greater than what was traded on um I believe it was Monday in New York only three other times. So they're they're rushing to Bank of Nova Scotia. Maybe a gold play too because they're getting back into the commodities business. But the bottom line is the banks aren't cheap uh right now and if we go into some rip roaring it's not rip roaring falling out of bad recession you know the banks shouldn't fare very well in terms of worries about loan losses and the like.
(15:03) So everything seems to in Canada actually the things that we love to own in 2025 seem to be ahead of themselves. The banks uh the golds, the coppers and they all have strong fundamental stories. Uh but they just feel as I said ahead of themselves. >> You know gold is interesting. Um, gold popped um on on Monday and Tuesday, gave back a little bit uh on Wednesday.
(15:31) And I just wonder um actually let me just fact check that cuz I was looking at the minors. That's true. That is true. Yeah, the miners definitely popped. Yes. And and bullion popped as well. like um we had this guest on TD uh from TD Hussein Aladina who's the head of commodities research and he said you know everybody has their own reasons for owning gold but he says it's really been driven by these central bank purchases emerging market purchases in particular and he actually referenced um when the US left Afghanistan and how they
(16:06) took their reserves and how nobody really paid attention to that. But then when Russia Ukraine and they took reserves then people paid attention to that particularly these emerging markets and just the risk of holding paper. I mean, nobody talks about the fact that no matter how much gold you have, it's not going to cover, it's not going to pay the bills, but but just like as we get more of these events that it's just like, oh, this is another reason to own to buy gold >> and the quote unquote debasement of the
(16:38) US dollar, which had a horrible year last year. I'm not saying that I don't want to have my whatever 3 to 5% of my portfolio in gold. I just think that, you know, you look at the flows into gold ETFs which are just soared and off the map. You look at the the reserves around the world in terms of the emerging market uh central bank buying of gold, China buying of gold.
(17:06) I mean, it all feels a little uh too much too fast. Uh I'm not an expert. Uh, you know, I think people have 5,000 for bullion, they have 10,000 for bullion. Uh, I just be a little bit more circumspect over the short term in terms of what I do. And if you're really lucky last year, uh, you know, you might want to take your cost out if you own some of these minors. That's what I did.
(17:34) >> Think about think about those minors. Best year ever, um, in terms of the gains. So, yes, it was it was >> huge. And if you take your cost out, at least you're you're running uh you know with somebody else's money. So I think that's I think that's wise that the and you're seeing that a little bit in in uh redeployment uh into some of the lagards.
(17:58) I think the utilities which you know had to run and are kind of Canadian utilities I'm going to talk about had to run and are kind of holding in uh I think there's a place to maybe hide a little bit >> healthare by the way US healthcare sector it's only a couple days but a second best performing sector in the US >> it's been doing so you've got you've got health care you got some of the defensives just to protect yourself I'm I'm a little bit more defensive could be all wrong I can't get my head around software stocks, although they seem
(18:30) cheap both in the United States and in Canada. Uh there's been some reports that that's where some of this money might rotate to. >> So, you know, it's u her hor horrible phrase. It's a stock pickers market. So um just to go back to Venezuela, are there other areas and commodities that you're focused on like lesser focus but more punishing was like natural gas was under pressure and uh rare earths concerns about rare earths.
(19:03) >> Rare earths I mean I don't even know how you play it. I mean there are a bunch of companies that and you've seen them move. I I just don't know how to play it. maybe buy Ontario, you know, cuz one day we'll the ring of fire be a thing. Um but um um you know, palladium and platinum have been the big big winners here recently.
(19:28) Again, they just look way stretched to me. um natural gas doesn't there's a bunch of seasonality issues uh with the commodity that uh you know these aren't the best months for natural gas but the companies themselves you're going to be seeing uh reserve reports over the next couple of uh weeks maybe into February where they're in really good shape Canadian uh natural gas companies so that may be where the energy trade shifts Because if you're worried about uh you know heavy oil, aabaska, I don't know, do I throw a name out? Uh you may want
(20:07) to buy uh you know turmoline which I know you own. I own it. I also own uh Birch Cliff. So you know maybe there's some some opportunity. I I that's one place uh I would go. And what happens with the energy space is that you know it it's a uh dog and tail or wagging the dog tail thing is that when everybody runs out of the energy space everything kind of gets thrown out and then you know even though not actually affected by what's going on.
(20:41) The only other thing I'll say is that and this is the politics of everything is I had no idea how all this unfolds with China with you know uh the Russia you've divided the world up into three autotocracies and um what does that mean I don't know or for my uh country >> do I do eyes um I know Ukraine uh do eyes move to Iran you know just by the way >> of course Iran situ situation.
(21:12) >> Yeah. >> Well, I was just going to say two weeks of, you know, unrest there. Um, is that the next area of regime change? >> But the Saudis and UAE aren't happy with one another either in Yemen. So, I mean, that area of the world is always an issue. So, I mean, you could go through hotspots all day long. All day long.
(21:33) This is why I originally texted you because you've been in the markets for whatever in some ways 30, 40 years. And so you've seen all these crisises that people like me, we can run around like chickens with our head cut off and get get worked up and excited and get, you know, get in the weeds um on all these little countries uh around the world.
(21:54) And ultimately, that's not always how you make money. I don't think geopolitics has been a successful strategy for making money. Um, where does this rank for you? >> Well, I think I started by saying that because somebody keeps saying to me, the world changes when consequential people are in power. And whether you like him or not, he's a consequential individual.
(22:28) I'm talking about the president. So ordinarily I used to always say elections and you know government initiatives really in the end don't change the pattern of things but he is consequential in the things that he's done and is doing. So it probably ranks up there pretty highly. Having said that, Venezuela alone in two weeks, it'll be on page 10 and then uh you know, we'll be bringing our hands about something else.
(23:02) >> All right. And maybe I'll bring you back on when we are. Francis, thank you so much as always. I appreciate uh your sober analysis. That's Francis Hardellski joining me. We're going to talk about how to put this all into practice in the portfolio. Cole Sme is joining us. Thank you to our partners at ATB Financial.
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(23:49) Coleme, thank you so much for joining us on the podcast. Um, as I said, you're in a really unique position because you're a US investor. You could go anywhere in the world. You often look at Canadian energy producers. And I think post Venezuela, the number one question has been, "So, are we selling all our Canadian energy stocks here?" >> Yeah, it's a it's a great question.
(24:14) Thanks for having me, Amber. Um, let's go back to the last time we saw this oil price, you know, broadly speaking during the last 12 months. Um, that was April and there was this big headline, Amber, tariffs, super scary, super worrisome. And what it did is it drove investors to sell those stocks.
(24:35) The the Canadian ENTPs were sold heavily as also American ENTPs were sold as well. Now, fast forward to our conversation right now here at the beginning of 26. How good was that to follow those headlines and make any decisions off it? Uh, you lost a lot of money doing that. Okay. And so, I just say that because I contextually think of it like that.
(24:56) It's big and scary, kind of like tariffs were in April. Fade this. Fade these fears and worries because this too will pass. And it it just there's not much that can happen overnight. something can happen over time on this and I'm sure we'll talk more about that. But I I think this is, you know, there's nothing overnight to this.
(25:14) >> Let's talk about that because tariffs, they were scary. The reason the market rallied is because they backed off on a lot of them and a lot of them aren't implemented and things got friendlier. So, cut to 5 days ago. um the US goes into another country, removes its leader, arrests it, and says, um, we're going to restart oil production there, >> and we're taking barrels now.
(25:46) But, you know, 50 million barrels. Now, if you're to use the tariff analogy, like doesn't some of that have to go away for this not to be a scary situation for um the energy sector, for the Canadian energy sector? And we'll obviously talk about what this means for us. But that feels like comparing apples to oranges. >> Well, so uh here here's what I'd say first.
(26:11) Okay, so just use the terror situation. Um how much of that has actually manifested? Well, to your point, not that much. Now, does it mean there's not pressure and pinch points and, you know, does the United States and Canada have different feelings and sentiments and relationships with each other and, you know, they have to, you know, interact in different ways? That that's all true, but it really hasn't changed very much.
(26:32) Now, I say that because um there's a lot of economics that's kind of like physics. Newton's third law of physics is for every action, there's an equal and an opposite reaction. Okay. So this announcement comes out. So the natural positive reaction towards that is when I say positive is the the um the reinforcing uh it to that is oh hey heavy oil in Canada is going to be under pressure.
(26:57) Okay that's you know that's the equal part of the reaction. The opposite reaction though is that ultimately who that puts pressure on is the carne government to deliver on what they've said. You know, you were there. You were interviewing Carney at the Canadian Club in Toronto and you said, "What about pipelines?" And he said, "I don't want to talk about pipelines.
(27:21) We're going to get it done." Well, if it's I'm talking with Amber, we're going to get it done. The next time the president calls me and says, "Hey, you're a great ally to us. You're a strategic security partner. And by the way, I'm not just talking about pipelines. When can we get one ran across in the next four years?" because it puts pressure on them to say, "We don't want to compete with Venezuela to get to the global oil markets.
(27:42) We want to provide more to the global oil markets to stifle investment there." Now, that's on the Canadian side. As I think about it from the US perspective, um to your point, 50 million barrels tisia flesh, I mean, that is such a joke. That's a great headline. If I am someone who doesn't owe this market at all, I think, wow, 50 million barrels, that's my president. That's so cool.
(28:03) Okay. The only problem is that doesn't do much on the blip of a day in the oil market. Okay. Um we're talking about $2.8 billion dollars of oil. Um as they were announcing today, they said, "Hey, this is going to be marketed." Great. So, it's being sold in the open market. Um why can't it be sold necessarily United States? Well, most of the heavy oil refineries are sitting on the Canadian border or in the Midwest.
(28:24) Um therefore, we have trouble processing heavy crude um in in the southern United States because we tend to process light sweet crude. most of the heavy oil gets on a tanker and goes to other parts of the world. And so there's just real logical issues with this idea. Now, in the first couple days, as people are placing their bets, um stock markets can unequivocally be popularity contests in the near term, but in the long term, they're never a voting contest like that. They're a weighing machine.
(28:50) You know, you weigh two things ultimately, time and money. And that's the real conspicuous issue with a lot of this is that let's say Venezuela has the reserves that they say they have. Okay, some would debate that, but let's just say it's big. One of the three largest reserves in the world. How do you get there? Well, Canada has one of the large three largest uh reserves in the world as well.
(29:11) How did they get there? Time and money. And by the way, a lot of lost money, might I add, and a lot of wasted time. Okay. And so when people add that up, let's say that Venezuela is going to go from doing over a million barrels a day today to 4 million barrels in 10 years. Okay. Um and someone says, "Well, what's the rough math?" about two and a half million more barrels that go into the market every day from Venezuela say 10 years out.
(29:33) >> And just to be clear, this is a 100 million barrel per day environment plus that that we currently >> 110 110. Yes. Yes. Yeah. Don't forget. >> And let's add to that that the the year-over-year growth in the per uh day demand is running about 1.4 to 1.5 million barrels. That's estimated, but we'll probably find something along those lines.
(29:58) So, as we move 10 years forward, let's just say on average, right, cuz as economies grow and people get wealthier, which is the prosperity uh and progress of humanity in the long run, let's just say that's an average number. Or we could even be a little more bearish and say, "Oh, it's going to be 12 million more barrels we're going to need in 10 years per day." Okay.
(30:16) Um well, that great 2.5 million, that does about 20% of that based on my rough math. And so where are we going to get the other 10ish or just shy of 10 million barrels? So you know and and given like physics. So Venezuela is and somehow having less dictatorship control. We could debate that but let's just say it is.
(30:36) And let's say the economy is going to grow and flourish. I talked to my cousin who lives in South Florida. His wife is Venezuelan. I said how does she feel about this? She said tears of joy. So it's like wonderful. This is awesome. Um do I think the Venezuelan economy will pick up? Yes. So what has no one said? What will be the natural growth in demand just in Venezuela from the economy picking up because it has more freedoms? That is a very natural thing that comes with freedom and wealth.
(31:04) You always cause higher demand for energy. And so it it it's really bizarre to hear these arguments where it's like, oh man, the supply issue is going to be this massive overhang. And it's like, but the future's always bright. The demand is going to grow not only in Venezuela at probably a higher rate, but it's going to grow in the world.
(31:21) And so time and money is how those things are a bridged. >> So you're you're not being scared off of Canadian energy. How does this apply to the US? Because there was that pop in US producers. And you know, love him or hate him, but when US President Donald Trump wants to do something, he wants to do something and he's going to find a way to do it.
(31:45) and he's bringing these executives in the US along with him to figure out how do we get this heavy um difficult crude into something that is usable. He explicitly said so that we can keep oil prices down for Americans. I mean that, you know, you can be dismissive of of how bearish it is for Canadians, but can you then be optimistic about what this means as a growth opportunity for US producers? >> Sure.
(32:19) So, let's just So, obviously, Chevron already produces in Venezuela. Kico used to produce there up until they had their operations taken away from them. Okay. And so, um, if I am a degenerate retail trader out on Reddit or X and I'm like, cool, that's going to be really beneficial for Chevron or KICO. I'm just going to yolo my little bet in today because you know what? I got bored with Bitcoin overnight, okay? And I'm going to go make that bet.
(32:44) Well, what is not being said in a lot of this is because investment hasn't been there, because the risks have been so high in Venezuela. If KICO came back into the country today and said, "Hey, we're going to come back and come back to our old investments and just start doing what we're doing overnight.
(32:58) " That's not how it works. If you talk to businesses where the government, typically the military took over the business, you'll find that the capital assets either got ruined or they're not even there because they've been sold off to other people. Okay. And so just the practical implications of this are different.
(33:13) Now, to your point on the on on the on the current administration, here's what's likely to happen. they will have to back step backs stop losses through subsidy. Okay. Now are why why do I say that? What do we know of commodity markets? Commodity markets at low prices people don't want to supply the market.
(33:33) At high prices they want to supply the market. So it's like if you go ask a gold or silver miner, hey, are you ready to pull gold or silver out of your mines? They're like, yeah, there's never been a better time to do it. Okay. Um if you ask an an oil business, not necessarily. they're not very excited about pulling the commodity out at these prices.
(33:53) And so if I have to go to a higher risk place like a Venezuela where I historically have to pay bribes and do corruption and do stuff like that, we'll call it, you know, what some would call in some cases, depending on parts of the world you're in, you know, there's others like Glen Core that have had to deal in high-risisk markets like this historically speaking.
(34:12) Um, you know, if you take more risk, you have to be compensated more. So they're not going to go out and be like, "What's it like to invest in Canada or the United States?" They're going to take a margin above and beyond that to get the internal rate of return that they expect. And when you do that, and the government wants you to do that, that's called subsidy.
(34:29) They will pay you or reduce your losses to be in that market because technically there's been a market failure in the government's mind. So this is all great because again we our our biggest problem I I this is not a negative is what I'm trying to get at. If the US government wants to backs stop losses or provide subsidy to US producers to go in those markets in the long run that's not a problem because ultimately one of the biggest things that can be seen is we are going to have more than 10 million barrels needed in 10 years and it is very hard at $55 to $60 WTI to
(35:01) see where those barrels are going to come from. I mean OPEC brought back a lot of their excess capacity with Saudi Arabia being the only one really left with any excess capacity. um if they've brought their excess capacity, who else is going to bring it back? >> So, what does that mean for what it looks like in your portfolio right now? Because you are I mean, you're an everything investor, but I want to stay focused on on energy.
(35:27) You you you do invest in Canada, you do invest in US. Like, what what looks like the ideal kind of tilt right now? >> Yeah. I I if if you don't have to dream at all, you're not finding a good enough investment. Okay? And here's why I say that. Okay? Use use the reaction from this. Okay? People that went out and bought Chevron on Monday or bought KICO on Monday, which we own Kico, you know, there was a big pop in those stocks on Monday.
(36:00) And then what happened Tuesday? Pretty much whatever they gained on Tuesday or g gained on Monday, they lost Tuesday. And look at today, it's all gone. Okay. And so I say that because did it did you have to dream at all to think that Chevron was going to produce maybe some more oil in Venezuela? No. Like no, everybody with a cell phone could have told you that. Okay.
(36:20) But two days later, it didn't matter. Okay. Versus saying, "Okay, let's dream for a second. Let's let me give you my dream scenario." And like we just started buying a newer heavy oil business in our portfolios. And I'll I'll kind of give you the context to dreaming. Okay. I turned to our team and and and I and we got we got great people here.
(36:38) So I turned to our team and I said, "These are the times that you want to go out and dream because no one else can." In other words, they don't have the ability or they don't have the mental freedom to for one reason or another. Okay? And so I said, "Why do I want to dream?" Because at $55 to $60 WT, no one's dreaming.
(36:57) They're not thinking about how good could this business be if the right circumstances play out because everyone's looking and saying, "Oh, look at the bad circumstances that have played out." Which by the way aren't that bad, but it's like it's it just shows you the the the human psychology and as Mugger once said, the psychology of of human mismanagement.
(37:15) Okay? And that's going on right now. So, I want to sit down and say, "Okay, I know the economics of this business have never been better on a capital structure. I know these business have never been more efficient. I know that they're going to continue to consolidate and that's something we could talk about too as we've seen here more recently and they'll continue to do that and what that's driving is producing uh operational efficiencies, return on capital increases and ultimately higher valuations because liquidity adds value.
(37:38) And I want to dream about what's going to go on in the industry off of all those good things going on when to your point the world doesn't have enough oil. Now, Venezuela can help the world with its oil problem, but again, like I said earlier, it's going to require a lot of capital and time, which has really been a tough thing over the years in this industry.
(37:59) And it's interesting to think about the capital. I mean, look how scarce this is in markets. I mean, the S&P 500 is less than 3% in the energy industry or energy sector right now. That's both servicesers and producers. So, think of how crazy it is to think, oh, you know, there's just going to be hundred billion dollars of institutional capital that's going to wake up tomorrow and want to capitalize Venezuela.
(38:18) I mean, that is fantastical. That's I'd rather bet that are real to dream. So, that's what I'm trying to understand. You know, use the word dream like that seems like we need something more concrete than that. And I assume it's more than a dream. You're I mean you're telling us I think for regulatory reasons you can't name the the the company name but I I'll give you a tangible example if you want.
(38:40) >> But but to just to be clear you are running toward a Canadian heavy heavy oil producer right now. >> Yeah. Someone who's got a green field project. Okay. Like literally creating an asset today. Okay. So so track with me here. Um we were talking to the folks at Strath Kona. Okay. And you know, we were t, you know, obviously the meg thing went down, they got the Saskatchewan asset, that whole saga is over.
(39:09) And so we were saying, we're talking about the kinds of assets that they might be interested going forward, etc. And as they're talking about, you know, we can go out and build uh, you know, new barrels, new flowing barrels at 30,000 uh, per $30,000 per barrel. It's like, if you go out and look at the open market, you can't do that.
(39:29) You cannot go out and buy barrels, flowing barrels that cheaply today. So why do I say that? They're looking and saying, can I buy the barrel cheaper than I can build it myself? And that's marginal growth that they're adding to their production. But I just pointed out because a green field project is just truly creating production out of thin air in a new asset versus adding barrels to existing production.
(39:52) If you can go out and add barrels at $30,000, I'd add barrels. Why? because I want to be at the capacity that in five years or two years or seven years or whatever that number is when people when this near-term tumult passes in the commodity where I am meeting the needs of the world at the demand level it's going to be at and at the production level where I get incredible prices one of the tough things for some companies will be when the prices get better especially in longtail assets like the heavy oil businesses are where there's low
(40:21) declines but it takes you time to get to those structures um who will be ready to meet the demand at higher prices. And you have to actually start that today. Otherwise, by the time those prices are there, everyone's going to want to add barrels then and try to figure out how to do that.
(40:38) You have to actually plan for that now. >> So, the homework you're doing, you know, you use Strath Kona as an example. That's been a punching bag. CNQ Canadian Natural Resources has been a punching bag for some time, but this is yet another excuse. Yeah. Um, Senovus, which I think you own as well, has been a punching bag.
(40:57) Anybody who's a shareholder in those stocks wondering, uh, do I sell because of this Venezuela risk? What's your message? >> I mean, the Monday move in Sovas was obscene. I mean, it was just like you're sitting there like, this makes absolutely no sense. You know, if let's just say let's let's assume for two seconds that Monday was rational or the last few days are rational.
(41:18) Let's just assume that. So as I remember looking at my Bloomberg terminal at that time and looking at the stock prices and it's like okay wait Strath Kona who has no refinery assets whatsoever and is long heavy oil and bullish on heavy oil I might add to their credit is down less than who is refining parts of their asset basin and thus has a hedge on the price because if differentials open up they make more money.
(41:47) I mean that made absolutely no sense. So here's why I say that really important and I know this sounds simple and it sounds cliche. It's just matter of fact and it's true is markets are not there to instruct you. Right? Some people went to the market on Monday said here's what the market's telling me about the future.
(42:07) Okay? Now if that's how you make your money, God bless you. I pray the best for you. Um good luck. Okay. But I'll use me our investors. That's not how they make their money. They let markets serve them. How do they let them serve them? Hey, the market's doing something really perversely bizarre that doesn't actually make economic sense or logical sense in some cases.
(42:33) How do I seek to profit from that? That's the only way to deal with markets. And um I think that's what's really missed. You know, it you know, Buffett's talked a lot about this over the years. He talked about Mr. Market. So you come in on Monday and Mr. market's really worried about the business you own together and it's like, well, if he's worried, I'm a buyer.
(42:50) Okay, there's other times where he walks in, he's like really excited and euphoric. Think of like American Tech these days. And it's like, oh, that guy's a that guy's a buyer, I'm a seller. Okay? And that's how we interact in markets. You you want to take advantage of this. Now, when we talked this last uh April or early in the year 25, I should say, I told you that I think it was maybe February or March, I said this was the second best buying opportunity in the last 25 years in the energy business.
(43:18) >> Mhm. >> Okay. Test that theory. Was it right? It was right. It just was right. Okay. Now, I point that out because look at the stock prices. Look at this near-term tumult. Is it anywhere near what we saw last spring or early in the year in 25? No. No. And that and that that was that was not that big of a deal.
(43:40) And so I look at this as it's headline risk. It's the president saber rattling. It's questions and you know what is the construct of the global world order and 2026 and the correlary to the Monroe doctrine and all this. I mean really fun stuff to talk about. Don't get me wrong. I just don't see much changing in the global energy game because capital and time are needed.
(44:07) Um, you you can't just write code to do this and you can't do it overnight. And why I love that idea plus one other really important thing is this is an industry and a part of the market that most people have lost a lot of money. >> The secret to life is weak competition. And just think I get to compete or our investors get to compete with people who are historically not very good at owning this sector.
(44:36) And why I love that is because I'm going to beat people who are shorter, slower, worse looking than me. You got to be pretty bad at that, by the way. Um, and that's my opportunity in life. I I can't. The old the old saying is, you know, if you want to beat Bobby Fischer in chess, you got to play him in anything but chess.
(44:56) To be a good successful investor, I can't play chess against Bobby Fiser. But I can go play him in the energy business. You know why? Cuz even Bobby Fischer probably lost money in the energy business. >> Well, I wonder um if somebody's going to take that ethos and apply it to M&A. you know, obviously we saw that um you know, chaos with with Strethcon, Magnovas and it all played out the way it played out.
(45:19) You know, now that these prices are under pressure again, you think we're going to see a resurgence um of M& of M&A? >> I we should we should there's no question about that. And I I say we should because you know, as an example, Tamarak and and Headwater should be dancing and mating and doing all the fun stuff that you come together on a on a great marriage. Okay.
(45:41) Um that that they should that should be going on. There should be others like that. Um you know, we don't own them. But like I don't think there's a good reason that Aabaska is developing a Duivere asset that should be sitting in Spartan Delta, for example, which we don't own either. But again, there's a lot of this that's like cool, really quick.
(45:57) The the energy industry has been ran by engineers historically. >> Okay? You go to the executives a lot of these businesses, they're all engineers, okay? Go look at the boards. Okay? if they don't have a lot of the jokers on the boards that this industry has, and there's a lot of jokers and professional boards in the energy business.
(46:16) Um, you're you're welcome for me telling all you that that are on those boards. Um, the engineers dominate those boards, too. Okay. Now, why do I kind of mock and ridicule them? Congratulations. We're exposing people who have been 20 year terrible investors. 20y year terrible investors. So I point that out because ultimately what this industry is going to morph into and and if you disagree with this, I'm sorry, but you're wrong.
(46:50) You can send either Amber or myself some hate mail later and we will delete it. Okay? But I say this because where this industry is going is it has to treat investors incredibly well. It's going to be dominated by people that think about it from a financial investment perspective. So you're going to see the Adam Wattresses of the world dominate the industry.
(47:08) You're going to see uh people that have financial backgrounds that could be sellside that could be accounting etc. They're going to become more the people that lead these businesses longer term. That doesn't mean the people in field aren't terribly valuable. They are. It doesn't mean the engineers aren't terribly valuable. They are.
(47:24) But if you cannot successfully invest in this arena, you will not have a company. And to your point, we're going to get rid of a lot of the bad investors of the past. Let me add one more thing to that if you don't mind. The other thing that I would add that that we should really be seeing that I think we learned from that saga of merging is shareholders should be in control of these businesses.
(47:46) Why did MAG not close so quickly for Senovas? Cuz the shareholders were in control, not the board of MAG, the shareholders. So, if you happen to own a company and they send you a shareholder vote coming up this spring that says you should give up certain voting powers to the board in a poison pill format and the ticker of that stock happens to be TVE, which if you don't know this, it's called Tamarak Valley Energy.
(48:16) You should vote no because that's stupid. You should not give up your right as shareholders. And I don't care whether you have a 100 shares or you have millions of shares and you're high up on the Bloomberg for the holders of the stock. You shouldn't vote for that because ultimately the shareholders are the powerful creatures in this game.
(48:32) They are the ones that have the rights. They're the ones that taking the economic risk and they don't get paid to do anything other than just owners. That's different than a board. And we should not give up our rights. Why else would I add to that? Because as we learn from the Meg saga, under Canadian securities law, for better or for worse, these companies can do whatever the hell they want.
(48:54) Um, one other thing I'll quote your conversation with Mark Carney, you asked him, "Why would foreign investors come to Canada?" And his answer, Amber, was rule of law. Well, what I found out as a foreign investor coming to Canada is those are not rules. Those are merely guidelines that you can choose to accept or not.
(49:12) Okay? And so I point all that out because we already give up a lot just by being minority investors in Canadian securities that are under Canadian securities law. Why would we give the board more power? Cuz ultimately if you're in this space and you're taking these risks, you are the powerful person alongside of your other partners in these companies.
(49:32) And I think you are a better judgment of what the company should do than the boards are in most cases. >> Listen, I'm not going I'm not going to fight you on most of that except I don't delete hate mail. I'm okay with it. You want to send it to me, you go ahead. I'll I'll read it. I'll line up it and I'll delete it. I agree. I see it all.
(49:45) >> Um Okay. But I do want to pick up on your point about um about politics >> because you know, as much as you want to say that that maybe this is a nothing burger for now for the stocks, you still like those Canadian stocks, you're not running as much towards the US energy producers.
(50:05) It does seem like it could catalyze some action, at least that's what everybody thinks around a pipeline. um a do you feel that way? Are you investing like that is um a potential and what happens if it still doesn't catalyze a pipeline? >> It's a good question. Um go look at the WTI WCS spreads. Okay. >> This is the difference between the US um oil price and Canadian oil price.
(50:28) >> Correct. Yeah. So the difference between West Texas Intermediate, which would be a US oil price versus uh Western Canada select um hardesty as they call it also. Um, so if you look at that, the history of that is that under duress, extreme extreme duress, that could open up more than $25 of spread, but as high as $40 in just rare, rare, rare circumstances.
(50:51) So if you look over the last year, a little over a year, you'll see that that's been running anywhere from a low of say $9 to the more recent picture of say, you know, $13 and change. I think it was closed yesterday. Okay. So why is the spread so much tighter than the past? Well, first off, you have like things like TMX have come online, so there's just more pipeline capacity.
(51:15) But ultimately, I think what the market's doing is it's sniffing around and saying, you know what, if Carney says that pipelines are going to get done, why would you say that unless you actually meant it or you thought it was plausible? Now, if I go back and look at the history of the of the spread business, what does it teach me? Well, if I invert the thinking of the spread business, it meant that pipelines have overearned in the past because if you give me $40 spreads or $25 spreads, that's a lot of money to compensate me
(51:44) to get it down to the United States. >> Okay. Um and and also I would say refineries over earned because that spread is something I collect and make money on too. So I think pipelines and refineries have overearned on that in the past from a Western Canada Select perspective. But what it means is that with pipeline access going more ways, they will under earn compared to the past pipelines particularly because ultimately your spread is your margin or your profitability.
(52:12) And if Carney goes out and says great, we're going to subsidize this. We'll get another one done because we want to be a great strategic ally of the United States for whatever reason. And oh, by the way, we don't have to compete with Venezuelan oil and we think that's good for Canada. Um that means the pipeline is going to earn far less than it did in the past to push the oil and so as will the refiners.
(52:29) Um, and so I say that because like what do I think is the most pragmatic and if I'm going to try to make a lot of money in the energy space at large unhedged, I want to be long oil and I want to be as bullish as I'll get out. I think that's the best way to make money versus if I'm in the business of owning refineries, I'm more hedged.
(52:46) I want more spread, things of that nature. And I don't think that's the right view. So the people I admire and respect the most, like, you know, why am I buying a green field company uh right now, someone that's building an asset? Well, because ultimately um they're going to be producing a lot more in 3 years, that sounds terribly bullish on the three-year price out.
(53:04) And if I they're going to be producing a lot more in 3 years, that's a bullish view. Um if someone's like, you know, uh I I like my refineries, I would be selling refineries. To your point on US, we just got to see um Oxy sell their chemical business. Great sale. It's kind of like the refinery business. You can take the byproducts in, you can make your money off that, but it is not you're not as bullish on the energy price, things of that nature.
(53:27) Even US refineries like a Valero which has run nicely. >> It's popped beautifully. I just I don't understand what that changes overnight. Um you know how many refineries on the US South are doing heavy oil? That's a good question for everyone to follow up on. How many pipelines could run that heavy oil in from Venezuela into the Midwest market, let's just say, and what would that pipeline cost? I mean, those are all real questions >> and it's small.
(53:50) >> It it again, everyone can figure that out, but I'm just saying those are questions you should be asking here. Um >> I want I want before our time runs out I want to ask just about um different ways different tentacles kind of you know people think look at the events of Venezuela and they think okay what's next Colombia then they look at a company like Parex resources which does have operations there um even Iran look at unrest in Iran and and the potential for regime change there and what that does um to I mean it does to a lot of
(54:24) things but for this context what it does for the energy markets. How do you think about the tentacles of of this Venezuela action? >> Sure. So, uh, in the long run, the major US oil producers always had to go offshore. And here's why I say that because that's where long-term projects are.
(54:44) If you're not going to go build long life assets in Canada, offshore is a very natural extension. And so, as I think about places like Gana, we just watched Chevron and Hess fight over Gana. Um, you know, we own APA, who has a nice offshore asset coming online over the next few years there, which is a US producer. Perian and offshore. >> Apache, right? >> Yeah.
(55:04) Apache. Yeah. Well, they they just go by APA core now, just technical, but so um so I think about it like this. Perian assets are short twitch muscles like your body has. and Canadian uh you know uh SAGD assets uh oil sands and offshore projects in in Latin America are what I'll call slow twitch muscles like your body has as well or long life assets and sometimes the fast twitch work because if oil prices rip and you want to get a lot more production on market it's easier to do that through fast twitch muscles and if long-term the price of oil is going to be better it's
(55:36) easier to do that in some other cases in long life assets where you don't have to reinvest all the time okay and so I think of them differently for different reasons, but I say that because ultimately I want to be bringing oil to market in the next 10 years. I didn't want to bring oil to market in the last 10 years.
(55:53) And so that's how I think about the construct. When did most investors get excited about this space and want to dream about new projects and build those projects and do all that stuff was in 2014 at its height, but really the 2010s. In the next era, this will be the most attractive and we're really just finishing the last era in some respects.
(56:12) Someone says, "What are we paying attention to?" Rig counts, frat crews, um the production in the US markets. Those are things we're looking at because the question is certain things have already turned south, but when does the actual production number fully go negative, okay, in terms of growth? One thing to add, if I can find an energy company like an Oxy today where they just sold their chemicals business to Bergkshire, and by the way, Oxy owns another business called Western Midstream. WES is the ticker in the US.
(56:38) They own 40% of that business. Well, if you go look at the midstream business right now, their stock prices haven't moved at all. They're doing just fine at multi-year highs, I think, in Western Midstream stock case. But if I have $6.4 billion in a mid-stream business that is doing fine right now, wouldn't I want to sell that midstream business and go out and reinvest that either in my own stock in a buyback or by just reducing my capital structure and returning that to shareholders in some way? I would. And
(57:03) so, you know, as as I'm looking this, it's like on a day like today where the stocks are getting battered, I want to take advantage of Mr. Market. I have to use capital allocation to do that. If I'm an issuer like Oxy, we don't get to decide that they do. But that's how we'd be thinking about capital allocation for companies.
(57:19) And back to your point of consolidation, this is a great time for those marriages and those matrimonies on an all share basis. That way, they all benefit from the upside. But that's it. I don't really look at the border as that big of a deal because yeah, Chevron might benefit because they get some of their losses backs stopped and maybe Conicle can get their assets back, but where we're going is not, you know, oh, it's going to be so bright and rosy.
(57:39) We're going to get back to 60 bucks someday. That's not the way this game's played. The only way people are going to grow production in the long run is high prices because during the 2010s, that's what caused them to, you know, grow production. Well, and I wonder if um you've thought about whether like so much of what has happened recently has been like yes, to your point, producers selling assets, getting laser focused, getting better at capital allocation, taking money, returning to shareholders, which I know you don't love as a US
(58:08) investor, but Canadian investors love that. and and you know getting rid punting sort of extraneous assets that aren't necessarily in Canada but you know let's bring up our friends the engineers which I think you did them a little bit of a disservice but but but they know something about um heavy complex crude right and maybe there's an opportunity for Canadian producers to go to Venezuela because there's expertise similar kind of crude like we look at it as a negative Maybe it's a positive.
(58:44) Do you see a world where Canadian producers, and I don't think this is consensus, I think most people dismiss the idea, but if you're trying to get that stuff out of the ground in an efficient way, why not look to Canadians who know how to do that? >> Sure. And I think they will. I mean, for example, Kico produces in Canada. Yeah.
(59:03) >> So, is it a stretch for them to want to produce heavy oil in Venezuela? No, not at No, but I mean like could a Canadian producer do you think Canadian producers will start expanding again if Latin America if Latin America becomes an opportunity? >> Yeah. No, to your point, Amber, if the government provides you subsidy, people will do anything.
(59:22) >> Okay. Um and and I just that that holds true. So I there's no question about that that if there's subsidy programs, you know, there are very bright intelligent people in Canada. um they might not always be in the seauite and they might not always be in the boardroom but there are intelligent people out there um and they they will always run towards opportunity and that that won't change and so I agree with you if someone says on the margin who are the best heavy oil people in the world uh Canada it's my big idea um so I
(59:50) agree with your view on the engineers by the way real quick for all you engineers out there I freaking love you if you're in the seauite I love you a little less because there's been a lot of stupid things to go on but everyone else outside that. God bless you. You know, I hope you live to 100 and get hellaciously rich in this business cuz you should.
(1:00:08) >> Um, okay. Before I let you go, just top top conviction right now in the energy sector. We you and I are going to be I think you might be our our most frequent guest now because you and I I'm coming to Phoenix um in about a month to MC your investor day and I think you're going to reveal some new Canadian names.
(1:00:27) You're going to have to wait for that. Do you have anything for us today on the energy sector? Any any high conviction ideas? >> Yeah, I mean, we we uh just a um you know, we took our meg shares in shares. Um we did not uh you know, sell any shares off of that deal. Um and what was really disappointing, Amber, is if you look at how Meg wrote their tax laws or their tax, you know, indication for the US holders, we got full capital gains on that transaction.
(1:00:57) We didn't get to roll our gains forward. really disappointing. Um, again, I really didn't like how the board treated us as shareholders in the end with that. Um, if you're a Canadian, you didn't have to deal with that. God bless you. You're more special in this life. Um, so I say that because we we've sat on our entire SNOVA position.
(1:01:11) You know, it sits in our on our non- US portfolio. It sits, you know, over 12% of our fund today. Um, so that's a big position. It's our by far biggest position. Um, so, you know, again, with the Monday's reaction, I don't think anybody understands what's going on at Sonovis. But here's the one thing I will say.
(1:01:28) As I watch refineries rally, the refineries are rallying. What would I do? If I'm John McKenzie, I'm Cam. I go to my board and say, "Guys, Monday's reaction was utterly ridiculous. Let's sell our refineries >> and let's take that capital and let's go buy back our stock cuz they think we're a dead duck." That's what I would do. Now, um that's what our investors would do because they want to get rich.
(1:01:49) That's their point. If you're going to take all these risks and deal with this volatility, you got to get compensated for that. And the way to get compensated is to build a lot of wealth. And so that's what I would be doing. That's what our investors would be doing in that case. Now, do I expect them to do that? No, I don't expect them to do that.
(1:02:04) But I think that would be the best capital allocation right now. As I step down from that, uh Strath Kona just did their $10 special, which had always been talked about. You know, take Adam Wattress at his word. He's an honest guy. You just don't like him because he says what he thinks. That's so unlike a lot of people in this industry where they'd rather be dishonest and say good things and tell you other things with the doors closed. Okay.
(1:02:27) And so I would just say, you know, take him at his word. $10 special. In our case, and in Canadian investors case, it was return on capital. For us, we got treated as a partial capital gain, but not a dividend. So, you know, we got to pay our capital gains on that part of our stock. Treat us very well. I, you know, they're going to go grow grow production. They said 200,000 barrels.
(1:02:45) It's not a green field, but they're going to grow production. and and I very much want we our investors want to grow production to this environment. So those are are two biggest um you know the stock we got involved in the last season of Tumult was Tamarak Valley. >> Um something that we've done a lot of work on and I would throw out to you you know again from a finance perspective um >> go look at DDNA uh depreciation depletion and amortization.
(1:03:10) It's a line item in the income statement. And this is kind of like a master class that um I think I think you know I give a lot of credit to Connor Wattress particularly that he reminded me of this but um and I would also throw out you know there's another founder out there that created a company um it starts with an M.
(1:03:25) It had an E in the middle and had a G at the end who told me he he he said that um he said that the original production facility uh at at Christina Lake was only going to process 60,000 barrels a day. And that same processing facility ended up uh processing 108,000 barrels a day. So when I think about the accounting of a business, all those great engineers, back to our great engineers who are able to pull that off, >> what it means is that when they originally built that asset, the depreciation of it is much lower than it
(1:03:55) should have been in the end because ultimately they didn't need as much capital to process more crude. And why that's valuable is that if you look at DDNA as a percent as as a a portion of a barrel and you put it in dollar terms, you want to find companies that have low DDNA per barrel.
(1:04:14) That's a metric we want to look at a lot and we're really laser focused on. Um depreciation valley screens well. >> Well, here's why. So, um every time they're water flooding right now, by the way, just so you know, water flooding is not a new technology. Um, Saudi Arabia has been water flooding for decades. If you look at their oil fields, this is a 100-y old technology, okay? And so when you water flood, you're putting pressure in the well.
(1:04:39) Not a lot, but you're putting pressure on the well to get more oil out of it. But what you're also finding is that every time they report, they're announcing new or higher reserves. Now, I point that out because when you look at the DDNA, the first part is depreciation. The second part is depletion and amortization.
(1:04:56) Amortization is okay, I bought um, you know, uh, if I buy a company with a million barrels of reserve and I wake up later finding out that I didn't have a million barrel reserve, I had 2 million, it means that every barrel I pulled out for the first million barrels, I showed my amortization at, you know, whatever that was relative to the cost I paid.
(1:05:17) But the second million that I put into my number when I bought, yeah, I I I show a zero for that. And so what does that mean? It shows you that the economic earnings were higher because I didn't pay for those barrels. And so DDNA gets you to two things. It gets you one to the assets you build to process crude. But the amortization tells you how good they how good is the company at buying reserves that end up being way greater.
(1:05:43) Okay? And every time they water flood at Tamarak, they announce, "Oh, by the way, here's how well we're doing on our water flooding, and oh, by the way, our reserves are going up." you they never paid for those when they bought those assets. So I I use that as an example of looking at what we think is going to matter in these businesses.
(1:06:00) You get those reserves for free. >> Great chat. Um great perspective um on a week where investors have a lot of questions about their holdings and I look forward to seeing you at your investor day in Phoenix February 2nd. And there's going to be an opportunity if you're not there um for people to ask questions right over social media.
(1:06:22) Yeah, I think we're going to go out on X and put it up on spaces. Uh to Amber's point, smecap.comasis. And so if you want to start firing in the questions, um it'd be really fun to have, you know, those live at the event. And um it'll be it'd be a lot of fun. Your first time coming, Amber. I can't wait to, you know, host you and have a good time.
(1:06:43) And I know your team will probably have a good time while we're down there. >> Just if there's sun, that's all you need to say cuz we're in a dark cloud over here. Um thanks so much. That's Cole Sme of Smeed Capital joining us. Don't miss our next episode. We've got David Burroughs of Barometer Capital. Um you can get your questions in now.
(1:06:59) Email questions atinthemoneypod.com and we'll see you on the next episode.