The following interview took place as part of a virtual conference on The Shale Revolution: Profiting from the American Energy Renaissance organized by CCG Investor Relations. To listen to the entire event, click here.
Crocker Coulson: Good day and welcome to our presentation on the Shale Revolution analyst top picks in upstream energy. I'm Crocker Coulson, President on CCG Investor Relations, organizer of today's virtual conference.
With us today, we have Fadel Gheit, who is most respected names in the oil and gas sector on Wall Street. Fadel is the managing director and senior analyst, covering the oil and gas sector at Oppenheimer. He has spent six years with Mobil Oil and five years with Stone and Webster. He's been an energy analyst since 1986, working at Mabon Nugent and JP Morgan prior to landing the position at Oppenheimer. He has been named in the Wall Street Journal All Star Analyst Survey four times, and was the top ranked energy analyst on the Bloomberg Annual Analyst survey for four years. He's on of the most courted analysts on energy issues, and has testified in the US Senate and the US House of Representatives about oil price speculation, and is a frequent guest on TV and radio business programs. Fadel has a B.S. in chemical engineering from Cairo University and an MBA in finance from NYU.
So, Fadel, before we get into shale, I'd just like to hear your read on the events in Egypt in the past last few weeks. Are we about to see an Arab summer of discontent following some of the crushed expectations of the Arab Spring, and what does this mean for energy prices going forward?
Fadel Gheit: Well, the Arab summer of discontent is already underway with the events in Egypt. Obviously Syria has been in civil war for two years, Iraq is not a stable country, and neither is Libya. So the situation in the Middle East does not give me strong hope that things will improve quickly. I'd even say that things could deteriorate further before they get any better. It's not that the world is lacking oil, or demand for oil is so strong, but with oil prices at the current level, it reflects real geopolitical risk. People are worried that the Strait of Hormuz could be shut, that the Suez Canal access could be disrupted, and that's why we have the higher crude oil prices.
Crocker Coulson: Okay, that does sound pretty concerning. On the other hand, looking at the demand side, China has really been the marginal buyer of most commodities, including petroleum over the past 15 years. And many people now think China is on the verge of potentially a very serious credit collapse. What effect would that have on oil prices? We've already seen industrial metal prices crater over the last couple quarters.
Fadel Gheit: Well, China is the largest energy consumer in the world. It is the fastest growing oil importer in the world, second only to the US. So the growth of China has been the engine for global demand for energy, and for oil in particular. Obviously, a slowdown in China's economy or improving energy efficiency will have a negative impact on demand, and therefore could lead to lower prices. But like I said before, most of the traders in the world, they look at the global events, and obviously they want the volatility, because that's how they make money. And so we will continue to see global events drive oil prices, whether economic or otherwise. Global events will remain a key factor in oil prices.
Crocker Coulson: Okay, great. And then, I know that China also has some fairly significant shale resources, but I think most of them are in regions of Western China, where they also have very limited supplies of water, which is required for hydrofracking. When it comes to technology, they're at least a decade behind the curve. Do you think that China eventually will be able to tap into those unconventional resources?
Fadel Gheit: Eventually, China will have to harness all its energy resources, and all its resources period. They're still lacking the experience, they lack the infrastructure, but these are things that they will be able to do very quickly and catch up very quickly. They can use land as they want to, they can move people as they want, they grant permits as they want in order for them to increase their own domestic supply of energy, which they consider to be very vital to their global search for energy as well as to maintain economic growth. So China will remain a key player, and unconventional oil and gas will become important as technology improves and infrastructure and development in the country takes place.
Crocker Coulson: Interesting points. So, let's now talk about a real topic, which is the shale revolution. Can you just give us a kind of broad stroke, a sense of the magnitude of what the development of unconventional oil and gas here in the US has been over the past seven years, and where do you think this is headed over the next ten years?
Fadel Gheit: This has really been a revolution. It is something that I as an engineer, somebody who worked industry for many years, never thought that would happen. Shale has always been there. We knew, all along, 30-40 years ago, that there's plenty of oil that we cannot extract - oil and gas, that cannot be extracted economically. Most of the oil and gas, the conventional oil and gas, they are trapped in reservoirs underground.
Shale is different. Shale is basically - it is a resource trapped in rock, and the trick was, how do I free up the molecule, oil or gas, from the shale, since it is very, very hard rock, and it's great depth, and there was no way that we can do that economically until we came across horizontal drilling, and hydraulic fracturing. Hydraulic fracturing came before horizontal drilling, we had been doing hydraulic fracturing for conventional oil, vertically driven wells, for decades. But then we implemented this technology on horizontal wells, and that's what unlocked energy trapped in the shale, and those oil and gas. Where do we go from here? This is going to have - it's already having huge impact on energy security in the US. We went from net importing natural gas to net exporting natural gas. We were importing more than half of our crude, now we have already cut our imports by 2 million barrels a day. And that will continue.
At the current high oil prices, I think we're going to see more and more oil development in the country, and that will reduce our imports much more than we've seen over the last two years.
Crocker Coulson: So, I'd now like to talk about a little bit of a divergence of the current pay off of this new technology. Despite a big increase in supplies from shale, oil is now trading at very attractive ranges. It's almost $110.00 per barrel today, whereas gas now continues to bounce below $4.00 per thousand cubic feet. What explains that divergence, and how should investors think about playing this when they get into picking stocks?
Fadel Gheit: It's really very simple. We went from feast to famine in the gas side. Gas prices are depressed relative to oil, because the energy content of one dollar of crude oil is equivalent of 6,000 cubic feet of natural gas, so we call it the 6-to-1 ratio. But in reality, oil prices are over $100.00, so the 6-to-1 ratio would suggest that natural gas price should be $16.00-$17.00, not $4.00, but obviously, that's not going to happen. And the basic reason, oil is more versatile than natural gas. We can take oil in a bucket across the street, we can take it in a vessel across the ocean, we can put it in a pipeline, but natural gas is different, and so gas is basically local, oil is basically global.
Crocker Coulson: We hear about more build out coming on LNG infrastructure. Does that eventually even out, or is the whole LNG transportation just too expensive to ever close that gap?
Fadel Gheit: Well, right now, natural gas in Asia is about $15.00-$16.00 per thousand cubic feet, which is four times what we pay here in this country, and in Europe, it's about two and a half times what we pay. Europe has $10.00-$11.00 per thousand cubic feet.
But oil prices are globally set. So the benchmark is global. So I don't believe that this gap will narrow any time soon. LNG infrastructure costs a lot of money, there's many obstacles and approvals to build, and the most companies will not enter into an large expensive project until they have a long-term contract.
Crocker Coulson: So, in shale, we talk about various plays in different parts of the country, where shale gas and shale liquids can be extracted. Can you give us a short overview of how to think about some of these plays? Marcellus, Niobrara, Bakken, Mississippi Lime, and you hear these names, what does it really mean in terms of the asset quality and which companies you want to focus most of your attention on?
Fadel Gheit: At the end of the day, the companies look at the return. The return on investment is not - at the end of the day, what does cost to drill and extract. You want to invest where you can get a return of 15-20 or higher.
Oil is much more profitable than gas. This is the rule of thumb. The Deep Water Oil Projects have the highest return. You're talking about 35-40 percent return, while obviously the onshore, easy to get oil or gas gives you much lower returns, because lower risk too. But it's higher cost. Having said that, how to compare all these places, you look at it right now because of the low gas prices and the high oil prices, most of the companies are focused on liquid-rich properties.
They may have an abundance of natural gas, but they have liquid either oil or propane or butane and all these things, which sell at a 50 percent discount to oil, but because of the lower gas prices, that would be a bonus for a gas to do so say in the Marcellus. If you get into the more liquid content in the Marcellus, it would make the economics very attractive.
Again, the rule of thumb here is that gas is always cheaper to produce and develop than oil, but gas is selling at much lower price, so that's why you have to be one of the lowest cost producer in a gas place, and you have to have high liquid content in order for you to compete with your neighbor, who is predominantly and oil producer. That is what is keeping a differential between oil and gas prices. Now, there are oil places and gas places, but very few dry gas places. The dry gas place, like, we have in east Texas, western lower Louisiana. That used to be the most prolific field 5-6 years ago, when gas prices were at $9.00-$10.00. But obviously, with gas prices at this level, it's not attracting capital, companies are reducing drilling activity significantly, and basically we have what we call held by production. So we don't have to stop altogether, because they're still generating enough cash above the cost, and therefore they will continue. That's why we have a glut of natural gas in this country, and that will remain for a long period of time.
Crocker Coulson: So, are any - we've seen a lot of wild swings over the last decade in this sector. Any E&P company's earnings are going to be pretty highly sensitive to changes in oil and gas prices. As an analyst, when you put together your models and calculating net asset value for different companies, what assumptions are you using in terms of where oil and gas prices are going to go over the next three years? And what type of producers will be the most vulnerable to your drop off in oil prices that might be triggered by, I don't know, the China credit bubble, or now a rerun of Europe's depression scenario. How do you think of the upsides and the downsides?
Fadel Gheit: Well, a couple things. Let me comment first about what we do, or what analysts do to come up with forecasts of earnings and cash flows. Since I've been in this business longer than any other analyst, I have tried everything, and nothing really works. So at the end of the day, what I do, I say, let's be real. I cannot predict where oil prices are going. The traders do, the guys who put in their money or their client's money at trade and submit a bet where oil prices are going.
So I basically - we at Oppenheimer, we link our future oil prices to oil futures. So basically, we just go with the flow. If WTI spikes due to some event then of course we tell investors why oil prices are inflated and why we expect them to remain inflated. But when it comes to forecasting earnings and cash flow for companies, we tell our investors that our assumption is basically reflecting what the futures markets are telling us today. It could change next week, or it could change next month.
Crocker Coulson: And then when you get into that issue of sensitivity, if things were to move down, what types of companies see their earnings and cash flow fall off fastest, and which are more resilient?
Fadel Gheit: Obviously, the smaller the company, the more the volatility. And obviously we go from feast to famine very quickly. A company like Exxon, for example, I use Exxon because it's the largest of them all, it doesn't have this volatility. Actually, when oil prices start going down, most investors that still need to have presence in the energy sphere will go to Exxon, because it becomes slightly a quality issue as well. In a rising oil price people go to the more obviously volatile stocks, the small companies, the high risk company, that will give them the beta that they want. So right now, their prices are moving up, smaller stocks always do better in a rising price and obviously a lot worse in a declining price one.
Crocker Coulson: And so you don't necessarily just look at their cost of extraction and see when they cross over and are losing money?
Fadel Gheit: Oh, absolutely. We have a break-even point for all of these companies. We know when they are going to feel the pinch. And Exxon will have much lower break-even point, but much smaller company. Which obviously have huge expenses, but when you divide that on per-barrel basis, believe it or not, we had one of the lowest unit costs in the industry. That's why the break-even point is one of the lowest.
Crocker Coulson: Interesting. So now let's transition over to picking stocks, and zone in on the area of onshore E &P. If investors are looking to get some exposure to the Shale oil & gas explosion, what are the most important factors they should be consider in evaluating if this is a good or bad stock to own?
Fadel Gheit: It's really location, location, location. You need to be in a place where it has lower operation costs, because that gives you the resilience in the case where oil and gas prices collapse. So high-cost fields are not attractive unless you have much higher oil and gas prices. And we've seen it before, you cannot really relax and expect that the market will reward you for not doing anything by just bidding the commodity straight up.
So we look at basically return and the companies that have higher returns, usually much more efficient than those companies that have lower returns. But at the end of the day, sometimes you'd rather be lucky than smart, you happen to be in an area like the Marcellus region, for example, one of the smallest companies happens to be in the Appalachia for the last 20-30 years, and then the gas revolution or the shale revolution came, they focused on it, and now it is the largest producer in the Marcellus, and this very tiny company that almost tripled in its market value over the last 5-6 years.
Crocker Coulson: So, I want to return now just a second to our international scene we talked about in the beginning. You know, Apache (NYSE:APA) has gotten a little bit hammered recently based on the unrest in Egypt, and is that something overdone, and what's your view on the stock right now?
Fadel Gheit: Well, a couple things. Obviously, I'm very close to the company, since they entered Egypt 16-17 years ago. I traveled with them with some other analysts who are in the operation in Egypt. So far, they have not had any interruption disruption in the operation. Egypt generates one third of their profits, so obviously, it's a very key asset for them. So I saw the writing on the wall, the Egyptian situation is going to get from bad to worse, and I warned the company, and warned investors that I would pull out of Egypt.
And it was reflected in the stock price at one point a few months ago, Apache stock was trading at 6 times earnings. That is the lowest in the whole sector. Stocks don't become cheap all of a sudden, there must be a reason. It was very clear to me that the overhead was the uncertainty about the operation in Egypt. Although the company kept saying, we have no disruption interruption, I said, but that is the perception in investor's mind, that something bad could happen, and I don't want to wait until the last minute.
So two or three months ago, just to send a clear message to investors and the company that I do not think staying in Egypt is the best thing for the shareholders, I downgraded the stock, which is the first time I've done that in many years, downgraded the stock and articulated why I downgraded the stock. The stock was cheap, and actually moved up since then, but basically to highlight the major concern that investors have, which really nobody addressed adequately.
And right now if Apache is to lose this asset, and how is that going to happen? Number one, it could be national-wide confiscated by whatever regime there is, because Egypt is in a dire economic situation. They will take no prisoners, they will finally come to Apache and say, listen guys, you're making so much money, and we desperately need this money, so we will boost the tax rate. Guess what, the UK did that, Norway did that, Algeria did that, every country that produced oil did that. So Venezuela raised the oil tax rate from 30 percent to 80 percent, but the companies are still making much more money today than six years ago, even though they are paying five times the tax rate.
And the reason is because oil prices 10-15 years ago in Venezuela because the low grade of crude was $15.00-$16.00, today it's $100.00. So that is my biggest fear. If something could happen to this asset, which basically the operation in Egypt that either will cut their profit in half, because of higher taxes, or its shale, because of sectarian war in Egypt, that the stronger party could actually hurt the second government by destroying some property, including energy assets, like Apache for example. So this is the fear. I suggested to Apache to sell its operation in Egypt to one of the government owned companies form China that are willing to take risks, since they are backed by the government. So take the money, buy back your stock, reduce the debt, that will increase the multiple, and Apache will be traded for over $100.00.
Crocker Coulson: Sounds like a sound strategy to me. So, let's start with Chesapeake (NYSE:CHK), they have been a hugely aggressive player in gas, but they've come to quite a bit of turmoil in the last couple of years. I believe you now have a fairly positive view on the stock. So are their troubles behind them?
Fadel Gheit: Not yet. They are not out of the woods yet. I think by the end of this year, once they complete their asset sale, and get the balance sheet back in order, I think the stock should deserve a high multiple, and go higher. The stock has done well for a year to date. Again, this is a very highly leveraged company to natural gas prices, and a huge producer of natural gas. They did well for many years, and then things turned in a very ugly way, and the founder and chair obviously left the company. The new CEO is very experienced, very respected, and I think the company is already turning around, I mean, turning the corner. They're getting the balance sheet in order, they are at the very tail end of asset sales, but there is value in stock, upside potential in the stock in my view, significantly greater than the downside risk.
Crocker Coulson: Okay, Andarko (NYSE:ACP) is a big offshore explorer but they also have some very promising unconventional onshore assets here in the US. How should investors think about the stock, and how big really is your shale exposure?
Fadel Gheit: Andarko is the premier exploration company in the entire industry. They have shown they know where to find oil around the world. So people basically have the impression it is an offshore exploration company, which is true, but also as you mentioned, they have formidable position onshore the US. They have something called land grant, which basically is an exemption from federal royalty. And that will have significant impact in the company's future, because that will give them a huge advantage, because the federal royalty is 20 percent. They effectively pay half that. So that is in itself, it will increase their bottom line, return, and so forth. We're talking about - they have a million acres, maybe one of the largest land owners in the country. They are in a very interesting place, they are in the Marcellus, they are in the Eagle Ford, they are in the Niobrara, so they have good assets in the US and they have very good offshore assets. In fact, it is one of the largest lease holders of offshore deep water off of the Gulf of Mexico leases in - so that gives them huge competitive edge than just being onshore US. I like the company, like the stock, I think it will go higher.
Crocker Coulson: Now, turning to of Devon (NYSE:DVN), I think of them as mostly being a natural gas and oil sands asset type company, which I would say is not really the sweet spot right now. And yet I know you like the stock, so tell us why.
Fadel Gheit: A couple things. It's a really well managed company. They get everything right. They have a portfolio that includes offshore assets, West Africa, the Gulf of Mexico, and offshore Brazil, but they decided that this is not at the time, unfortunately for them, gas prices were still much higher.
So 4-5 years ago they decided that, let's focus on one area and be good at it, so let's sell all our offshore assets and focus on onshore US and Canada. Unfortunate - and they use big portion of the proceeds from asset sale to buy back stock and reduce that. Unfortunately, gas prices collapsed, and they are one of the most leveraged to natural gas prices, and that impacted the stock very negatively. Five years ago, the stock was selling at $122.00. Obviously within three years, the stock was trading in the $40.00, now it's trading in the $60.00. So significantly lower than it was before. I do not expect the stock to regain its feet of 5-6 years ago, but I still believe this is one of the cheapest stocks, and strong balance sheet, and hopefully improving drilling results on liquids, is going to get the company to much better valuation and the stock will go higher.
Crocker Coulson: Got it. So let's turn to ConocoPhillips (NYSE:COP), which has been retooling its portfolio with an eye to boosting returns on higher quality assets. Do you like this strategy? Is it working? And where do you think the stock goes?
Fadel Gheit: Yeah, ConocoPhillips used to be a very different company, and split itself into two. One, ConocoPhillips, and the other one, the downstream operations Phillips 66. The original company, ConocoPhillips, is the largest independent oil and gas company in the world. Bigger than Occidental, bigger than Apache. The company has the highest dividend yield among oil and gas companies in the US.
Crocker Coulson: What do they yield?
Fadel Gheit: They yield about four and a half percent. It's by far - it's more than double the industry average. And today actually they announced a four and a half dividend increase, which I was surprised, because they already have the high yield.
But they are sending very clear message to the shareholder, not because we have high dividend yields, we are going to stop growing the dividends. The reason they have dividend yield is we believe our stock is undervalued, and if our stock is properly valued, the yield will decline, because our stock prices are going to go at a much higher level. So I like their strategy, I think they are doing the right thing. They are basically showing a much higher level of confidence in the future of the company than the market is looking at. So in a way, the company has a very level headed management team, but they need to prove themselves. Sooner rather than later, they will regain their credibility if you will with investors and the stock should do well.
Crocker Coulson: Let's talk about another slightly controversial name, Occidental (NYSE:OXY). They've been talking about doing some major restructuring. Is this financial engineering, or are these things going to actually create value for shareholders?
Fadel Gheit: Occidental is a very unique company. It's one of the companies that basically has financial discipline second to none. They aspire that every business unit earns its keep, every business unit has to generally see cash flow So unfortunately over the last two or three years, there was, or what appears to be a disagreement among its top officers, which direction this company should go. And the CEO did not really think that the value of the international operation was fully reflected in the stock price, and he suggested to the chairman at the time that we should monetize this asset, because we're not getting much value for it.
But that is basically was the baby of the chairman, and he refused it, and the board, some supported the CEO, some supported the chairman, finally a few months ago, shareholders basically voted the chairman out, and the CEO now has - he is running the company. This is going to be one of the largest restructuring attempts in the industry's history.
Crocker Coulson: Is it fairly valued, and if not what is the problem?
Fadel Gheit: Well, basically, management and we believe most analysts know that the stock is undervalued. The question is not - it is how much, 50 percent undervalued or 15 percent undervalued? Now, to test that, the company said, we will monetize the largest asset that is not fully reflected in our valuation.
But their international operation is a very difficult asset to sell. They are Libya, they are in Yemen, they are in the Persian Gulf, they are in Iraq, so the only way to do is to basically make an IPO or OXY International, to put all these assets in one basket if you will, and send it to any investors willing to pay the price. And basically, it will have high yield, and a lot of -
Crocker Coulson: Does that again mean the Chinese, or who is going to buy it?
Fadel Gheit: No, they are basically to individual investors. You're going to have a group of new shareholders. One to buy this IPO. They will sell 90 percent of it to the new shareholders, and basically, they want to take the cash, which they estimate they can get at least $20 billion out of the proceeds, and use it to buy back the stock.
Then, the second thing is that they have - they are the largest operators in California, and they have assets that have huge upside potential, but didn't live up to the hype by Wall Street analysts, and so that was a disappointment, because it didn't really reflect positively in the stock price. So the plan B is once you complete the monetization of international operations through IPO, you turn around and you also IPO the California operation as a standalone E&P company with market value between 15 and 20 billion dollars, which is not fully reflected in the current stock price.
And then the third step is to the go to the OXY is the largest operator and leaseholder, and also monetize the assets through an IPO. So we're talking about total restructuring or dismantling of the company, and I remind you, this could easily get the stock price in 30, 40, or even 50 percent in the next 12 months.
Crocker Coulson: Murphy Oil (NYSE:MUR) has some interesting assets in Eagle Ford and Malaysia but has been burning cash. Where are they headed and why do you like it?
Fadel Gheit: Well, I like the stock for a couple reasons. Murphy Oil is the smallest of the stocks that would cover - used to be an integrated company, they are in the final phases of disintegrating the company, they have a refinery in the UK, which will be either sold by the end of the year or turned into a terminal.
So they are out of the refinery and marketing business, and they are going to spin off their marketing operation in the US, which has been very highly profitable, because they had about 1,200 gas stations in the Wal-Mart parking lot, and they are one of the high volumes in the industry, and really very profitable business for them. So they are taking it out of the shareholder, and they are basically - what they're trying to do right now, they bought back a lot of their shares, to make a special dividend, but it always maintains very strong balance sheet.
It is a very highly oily company, and because it's small, any exploration success, which unfortunately they didn't have for a few years, but any exploration success I think will have significant impact on the stock. The stock was maintaining at almost $90.00 a few years ago, traded as low as $50.00 a few months ago.
Crocker Coulson: So you get the optionality on them starting some good hits.
Fadel Gheit: Correct.
Crocker Coulson: Marathon Oil (NYSE:MRO) has been ramping production nicely and sending out a gusher of free cash. Where is the stock headed and why?
Fadel Gheit: They are much higher. Marathon Oil was a company that started the disintegration of the small integrated company, they split themselves into two companies and were rewarded significantly, shareholders like the strategy, and it was followed by ConocoPhillips and now Hess and Murphy, everybody is doing the same thing. So what Marathon is doing or what Marathon is trying to do is they are trying to monetize their Canadian oil sand project, they want to monetize that asset, get the money, buy back the stock. Because now they are really focused on the Eagle Ford, they spent $7 billion on the Eagle Ford, and it's one of the fastest production growth in the industry, and this is one of the most highly prized plays in the US, because it's very close to the refineries as well as it has very high return on investment.
Crocker Coulson: And you mentioned Hess (NYSE:HES). They've had a very nasty proxy fight. How is that going to get resolved, and what does it mean for the stock?
Fadel Gheit: Well, a couple of things. We hosted a dinner for John Hess three months ago after this announcement by Elliot Group that they are taking a position in Hess. You have to give credit to Elliot Group, because they basically were the catalyst to drive up the Hess stock price by 50 percent, but this is only phase one. There is still a phase two and phase three. Hess is on track, in its restructuring program, which basically sells $7.5 billion worth of assets, which is usual amount of money, because the company has a market value of about $24 billion So about one third of the market value of the company. They are basically selling the retail station, the Hess gasoline station will be sold as well as the terminals. And they will be one of the largest operators in the Bakken, and Bakken will start generating cash flow in 2016, and they will finally be the one of largest producers in the whole country. They think their stock is cheap, and they think their stock should be trading between 97 and 126, so the stock is much lower than that now.
Crocker Coulson: Let's talk about another company, Royal Dutch Shell (NYSE:RDS), where the old CEO resigned a little while ago, I think they have a new CEO now in place. Does that hurt investor confidence? Do you think they now have the right guy, or do you have concerns?
Fadel Gheit: Not really, I mean, looking at all these companies, for 27 years from when I work for Mobil, obviously we always looked at, Royal Dutch Shell was the premier integrated company, it was actually bigger than Exxon 20 years ago. It was a company that basically in the last few years got into a lot of troubles, one of them was embellishing their proved reserves, and they gives the company a bad reputation because of that the CEO and the CFO and the head of operations left, so it was a mess.
The most recent CEO Peter Voser basically wants to do something different. He is saying that his mission is done at Royal Dutch Shell, that he did everything that he wanted to do to bring costs down to improve the capital structure, to really point the company in the right direction, and I think he did a wonderful job, but I would say, as he said, because I want to pursue other things, and he basically wants to work for non-profit organizations to basically completely change.
But new CEO Ben van Beurden has been with Shell 30 years. He's not new to Shell; he is very well versed in all the operations, he is Dutch. I was calling for an American CEO for the first time, unfortunately, I didn't win the bet, they picked Dutch, so we'll wait for the next round.
Crocker Coulson: Okay. So the last thing I want to touch on is EOG (NYSE:EOG). They have really transformed themselves from primarily a gas producer to now largely focus on liquids. To me, that was the right move for the stock, but where does the story go from here?
Fadel Gheit: Well, the story can get better, the chairman and CEO is retiring at the end of the year, and obviously he's leaving the company in good shape. The company is the fastest growth in oil through production, and as you mentioned, they did transform themselves from almost 90 percent gas company to now oil is actually generating more revenue and profit for the company than just gas, basically, they are putting it on the back burner, it is not as rewarding for them to spend more money on gas, but they are focused more and more on increasing oil production. And interestingly enough, the liquid production is oil, it's not NGL. NGL is basically between gas and oil. It sells at 60 percent of oil. They are in a very good shape, balance sheets are strong, production growth is unparalleled in the industry, so I think the company is in a very -
Crocker Coulson: You think it might have further to run, sounds like?
Fadel Gheit: Yeah, they are in the two oiliest areas in the shale revolution, if you will.
Crocker Coulson: Alright, well thank you for spending so much time for us. I found this fascinating, and I think you also gave the investors a lot of good ideas in terms of stocks so that at least they can take a very close look at it for benefit from these enormous changes in the changing dynamic in American energy production. So, I really want to give you my sincere thanks, and we hope to get you back again for a future event.
Fadel Gheit: Thank you very much, good luck, bye bye.