Rick Rule — The 2029 Oil Shock Investors Aren't Ready For: sustaining-capex starvation, shale's steeper cliff, and "getting in the way of the money"

1:09 31 years in, the conference finally met the plan

• "We've been putting on the conference now for 31 years… this is the first year that the conference actually lived up to all of my major expectations."
• The lesson he draws: "you work three decades, not one decade, to be an overnight success."

2:49 Long oil and gas two ways — royalties he owns privately, and the stocks

• "I have for my own account for many years bought mineral royalties and rights, and it amuses me and I make money drilling oil wells, or rather participating in the drilling of oil wells" — through a private oil company. "I'm also long the oil stocks."
• He is relaxed about a near-term collapse: "it wouldn't surprise me if we were to see a more permanent resolution in the Gulf crisis to see the oil price decline a lot. But I'm okay with that. I'm not a trader."

3:42 Today's price is a preview of 2029 — the shortage that no armistice can fix

• "The oil price that we see today, which is a function of an artificial shortage and could end with an armistice, gives us a foretaste of the oil price that we're going to see in 2029 and 2030 when we have a structural supply shortage that can't be ended by an armistice."
• He refuses the six-month question outright: "neither I nor the Ayatollah nor Ayatollah Netanyahu or Ayatollah Trump has any sense of what the near-term oil price is going to be. And I don't spend much time trying to figure out something that it's impossible to know the answer to."
• The cause: the industry globally, "including parastatals, has underinvested in sustaining capital to the tune of over $1 billion US a day for a fairly long time" — worsened by the war, where the Gulf producers have other uses for the money "and in addition… they're busy blowing up each other's facilities, adding to the sustaining capital investments that they'll need to make."

5:03 "Investor stupidity" — the market is paying companies to cannibalize themselves

• "Investors are attracted to oil stocks that emphasize returns to shareholders, which is to say dividends and share buybacks. The companies that are doing that to the extent that they are diverting money from new project investment and sustaining capital investment are cannibalizing themselves."
• "The market seems to favour cannibalization. I just, for a whole bunch of reasons, want to take — and am taking — the backside of that trade."

6:30 The counter-intuitive part: shale makes the US more exposed, not less

• "After you've drilled the well and fracked the well, you get a substantial part of the net present value of the production of that well out in the first 18 months. If you don't both recomplete those wells on a timely basis but continue to drill new wells, your production falls even more precipitously in the shale basins than it does in conventional reservoirs."
• Therefore: "the idea that the deferral of sustaining capital investments is going to impact Brazil and Iran and Saudi more than it's going to impact the United States and Canada is wrong" — their conventional wells "actually deplete more slowly than our unconventional wells."
• "Our spending cycle needs to continue very very very high to maintain our current levels of production." US companies that do spend are "many — they're just not as popular as those that don't."

8:16 Why do buyers root for higher prices? The candy-bar test

• "I struggle in interviews like this to understand why listeners who want to buy more of a sector want it to go up in price in the near term… Do you ever see a kid go into a grocery store and ask the manager to increase the price of a candy bar from a buck to a buck and a quarter?"
• The diagnosis: "people need the reinforcement from price signals to justify the value of a narrative. Unfortunately when the price adjusts to validate the narrative, the narrative just became less valuable itself."

10:58 Two lessons that cost him a decade and his net worth

• The 1970s made him rich and certain — "I believed that all the money I made in that bull market was due to my brilliance. Ignoring the fact that the gold price went from 35 bucks to 850." The collapse left him "deservedly humble with a net worth below zero."
• Lesson one: markets work. "The cure for high prices is always high prices. And the cure for low prices is always low prices."
• Lesson two, "just as important": what is inevitable is not necessarily imminent. "Although it has to correct, it doesn't have to correct quickly, despite our preference that it did." Without both, "over your career as an investor, you are going to bleed to death."

12:46 The cage — the only trading signal he ever learned to use

• Running his own brokerage, he watched the back office: "any day where there was a 5:1 preponderance of buy tickets to sell tickets, the next day I'd sell something. And any day that there was a 5:1 preponderance of sell tickets over buy tickets, I'd buy something."
• "These extremes in sentiment are probably the only indicator that I've ever learned how to use… sometimes the markets give you things that you're ill advised to ignore."

13:43 The backside of a hockey stick is as steep as the front

• On selling silver into January's spike: "I did precisely that." When you see hyperbolic up moves — "the Canadians call them hockey stick graphs" — "it's wise to know that the backside of a hockey stick is just as steep as the front, but it's a lot less fun if you're long."
• "There's something about something becoming rapidly more expensive that to an odd class of people makes it more attractive."
• The symmetric buy case: a hyperbolic sell-off you can explain. In small-cap resources "you can have a 15 or 20% share price decline because some institutional investor got redemptions and had to sell into a market that didn't have bidders. Had nothing to do with the company." (Ferris invokes Seth Klarman on forced sellers: "it's a gift, isn't it?")

16:58 "Get in the way of the money" — and his change of heart on ETFs

• Asked whether the passive tide should be faded, his answer is the opposite: "I think you have to use it. I think you need to get in the way of the money."
• His old objection stands on the merits — volume weighting "is not necessarily a measure of value," and paying a fee for GDXJ when "60% of the stocks in the ETF I wouldn't buy with a straight face" seemed odd.
• What changed: "there's a whole bunch of people out there who won't do the work themselves. And if they want to express their preference for a theme, buying an ETF is a lot better than doing nothing." Not all wealth is material — some listeners "spend time with their children and grandchildren. They read books. They garden. They fish."

18:35 Own the manager, not the product — "would you rather pay or be paid?"

• Sprott sponsors roughly 50 exchange-traded products between ETFs and trusts. "Why would you buy four or five of our products and pay us a management fee when you could buy the parent company, own an indirect interest in all 60 of them and get paid a dividend?"
• "This is fairly simple arithmetic. Would you rather pay or be paid? I've decided I would rather be paid" — while disclosing he is still the firm's largest shareholder and "I hate talking against my former firm in a sense."
• The generalisation: passive investors "might want to take the added risk of owning the manager as opposed to the product."

19:37 Front-running index inclusion is "really truly simple" if you'll wait two or three years

• ETF construction makes size itself valuable: "trading liquidity, simple market cap and heft matters, and this has exacerbated an otherwise already in place trend to mergers and acquisitions."
• The arbitrage closes one of two ways: "if there are big valuation lags between small companies and big companies, either the value arbitrageurs arb that away or the big companies take over the little companies. End of discussion."
• Where the re-rating comes from: "a single asset producer in the mining business is viewed as being riskier, which it is, than a multi-asset producer. That discount goes away when the single asset producer gets taken over."

20:25 Two kinds of M&A — strategic (Agnico) and tactical (Equinox/Orla)

• Strategic: "an Agnico Eagle that has a plethora of infrastructure in the Abitibi taking over a company that has an attractive deposit but a deposit that couldn't advertise the construction of a mill… it has a mill within trucking distance and it doesn't have to build a $350 million mill. In other words, a deposit is more valuable to it than it is to the current shareholders."
• Tactical: "the growth of Equinox Resources, the recent takeover of Orla — you combine companies that have absolutely no operating synergy. But… by combining they have an attractive product pipeline and they're producing a million ounces a year. In other words, you construct a new major and that will get index inclusion and it will get passive buying every two weeks."
• "These are trends that while they make you and I laugh are trillion dollar trends… tailoring part of your investment thesis to getting in the way of the money is something that I think all thinking investors have to do."

25:30 Government money is the dumbest money — and he'll take it while saying so

• "From a taxpayer point of view, I'm scandalized. You have an investor that can't deliver the mail, can't educate the kids, and they somehow think that they can control the economy. By the way, with my money."
• "As a shareholder of existing companies, there's nothing industry likes to see quite so much as dumb money. And there's no money in the world dumber than government money." After seven years as a uranium "pariah," the same officials now propose "700 something million dollars with a company that I basically saved from bankruptcy eight years ago… This is bad for America. This is good for Rick."
• "I must say I felt cleaner when I was vilified."

27:21 Resolution — 28 years in permitting, and an 11-year delay is the whole NPV

• His one email to a sitting president made the case that the US doesn't need copper subsidies: Resolution is "one of the largest undeveloped copper deposits in the world. Well over a billion tons, average grade 1 and a half percent, more than three times the average grade of mined copper in the world" — sitting between two copper mines, with highway, rail, power, water and a mining town nearby.
• The arithmetic that should end the argument: "at an 8% discount, an 11-year delay in the start date takes away all of the net present value, 100% of it. This one has been in permitting for 28 years."
• "The government, although I love the fact that they're dumb enough to give me money, doesn't need to. They just need to get out of my way." If the majors believed they'd be permitted to build the Brownsville refinery, "they'd be there like white on rice."

29:12 Bond the wells — make the offender pay, upfront

• "I'm in the oil business. I believe every oil well and gas well drilled in the United States should be bonded. I think that the way that you enforce environmental considerations is that you make the industry pay upfront for any potential damage."
• "I think that would do more than all the sort of save the butterfly mandates in the world rolled into one." And pricing that risk belongs with insurers: "it's better that the private side prices risk than the Department of Education or the post office."

31:30 The trade, by risk appetite — and the one-stock answer is Exxon

• "If you believe, as I believe, that there's going to be a structural shortage in the oil and gas business beginning in 2029, that's a really simple trade. The way you play it really depends on how much risk you're willing to take, how much volatility you're willing to endure, and how much operational risk."
• The floor of the ladder: "buy Exxon. Just relax" — a 30-year capital-allocation record, intelligent political-risk management, still making sustaining capital investments, plus a Guyana discovery "big enough to move the dial on a company the size of Exxon."
• The instruction is dull on purpose: "if it goes lower, buy a little more, enjoy a decent but by oil company standards stingy dividend. And let just wait till their sustaining capital investments relative to their competitors makes you a boatload of money in 2029 or 2030."

32:38 US natural gas — the oversupply flips when the export build-out lands

• "The theme US natural gas is a theme that's done well but has more legs. We're producing too much gas now, but we're building out the infrastructure to export it at the same time that we're building out the infrastructure in the United States to use it. And that imbalance changes."
• Devon/Coterra isn't a scale story: "they had interfingered leases which makes them much more efficient. You can drill three-mile laterals as opposed to one-mile laterals."
• EQT is the franchise version: gas from Ohio to Ohio, Pennsylvania to Pennsylvania, "or if you're really really really fancy, Pennsylvania to Massachusetts. Nice business. It's going to be a much better business 5 years from now."

34:08 Canada is cheaper — because "Carney can count"

• "As cheap as our companies are relative to the cash flows as they'll enjoy in 2029, the Canadian companies are cheaper because there's headline political risk."
• The read on the prime minister: same philosophical predisposition as Trudeau, "the difference is that Carney can count… he understands that his social spending goals require money. And what Canada does well is produce oil and gas. So despite the fact that he's philosophically opposed to them, he's fiscally now in favour of them." Later he adds the Brookfield background — "a guy who may not be a good capital allocator but knows good capital allocators" — and Pierre Trudeau's near-bankrupting of Canada as the lesson Carney learned.
• The bonus: Canadian terrain is "much less drilled than in the United States but has the infrastructure" — cheaper on any metric, "playing catch-up over five years in what is already a good market."

35:38 The Canadian list — two big, five small, hold to 2030

• Big: "Cenovus, not a great company, but stupidly cheap. Canadian Natural Resources, a better company, big company, covers the length and breadth of the Canadian play."
• He prefers smaller: Freehold Royalties ("great company"), Tourmaline ("maybe best return on capital employed of a decent-sized company in the Canadian oil space. Just fantastic operators"), Birchcliff, Peyto, PrairieSky Royalty. ARC Resources, a prior favourite, is gone — "Shell took it over, lock stock and barrel."
• The condition on all of them: "seven or eight names up there that if somebody is willing to hold them till 2030 will by then think that you and I were very good guys for having talked about them now." On ARC he adds a note on judging competitors: "competing with them for 30 years let me know I wanted to be their shareholder… when I say I competed with them, they trounced me."

38:10 The stingy dividend is the good one — and Petrobras is the exception

• "This is a capital intensive business and if you defer your sustaining capital investments, you're not able to pay the dividends four or five years out." Big dividend today, no dividend later.
• The exception, "much riskier": Petrobras pays too much because the Brazilian state "is the largest shareholder and is rapacious" — but has become "so effective, so efficient with the drill bit" that it grows production and reserves on suboptimal capex while still paying "an outrageous dividend." Two years ago the capital drought "was cannibalizing the company."
• The risk is the shareholder itself: "the political class in Brazil looks at this and decides to up the level of theft that's occurring. Now understand this theft benefits you too, to the extent that the government takes more money out by way of dividends. You get more dividends too."

42:05 The peak-demand fallacy: $10 trillion moved hydrocarbons from 83% to 81%

• Why capital left: institutions "control the purse strings" and took their thought leadership from "that noted energy physicist Greta Thunberg and her ilk" — believing peak oil demand arrives in 2030, in which case there is no reason to maintain production. "The difficulty with that is that the markets didn't act that way. I'm 73 years of age. I don't think the peak oil demand will occur in my life… So cash flows that occur post 2030 will still have value."
• The alternatives arithmetic: "we've now spent somewhere around 10 trillion over 45 years in alternative energies… and we've reduced the market share of hydrocarbons from a high 45 years ago of 83% to a low today of 81%."
• And the demand nobody counts: "this isn't all about data centers. This is about making the poorest of the poor less poor worldwide. A billion people on Earth have no access to primary electricity. I think we'll fix that over 20 years… materially substantial lives are energy dense."
• The trade in one line: "I think that supposition is wrong. I think it's easy to bet against."

44:55 The banks are leaving energy credit — "utter delight as a banker"

• "One of the businesses I know well is energy lending. And competitors that over the last 40 years would have trounced me had I gone into their territory — the Bank of Americas, the JP Morgan Chases, the Citicorps, the Wells Fargos — are moving away from energy credits."
• "Capital is becoming less available in that industry. Something which I treat with utter delight as a banker." Aside: "should you ever want to retire, don't start a bank."

47:09 Closing advice — size risk to work, and stop stealing from compounding

• "Take risk that's commensurate with the amount of work you're willing to put in." From ~100,000 graded portfolios in 35 years: "one of the big mistakes that investors make is they don't think, they feel."
• "In finance the most important thing to understand is compounding, and compounding takes time. If you think in two-month or three-month terms, you take away your greatest ally, which is the passage of time."
• "Most people think that their time preferences matter and they don't… if investors began to act in four-year and five-year and six-year terms as opposed to that same metric by week, they would do substantially substantially better." He closes with the standing free offer: list your natural-resource stocks at ruleinvestmentmedia.com and he ranks them (no crypto, tech or pot stocks).