Andrew Packer, Grey Swan Investment Fraternity
Weld County, Colorado
It’s late September in Colorado. The voice of Denver’s mayor greets me at the airport, suggesting I take in the fall foliage in the mountains.
But my final destination is in another direction. To the northeast of Denver isn’t the verdant green mountains. It’s the sparse scrubland of the prairie, at this time of year dry and parched. It’s also 93 degrees, warmer than my home in Florida.
Half an hour south of Wyoming, and less than an hour west of Nebraska, this part of Colorado isn’t picturesque enough to make the pages of the travel brochures.
It’s also a part of the state that wants to be anywhere else but Colorado. In 2013, the Weld County commissioners looked at seceding and creating a new state. In 2021, the county proposed that it join Wyoming.
Given that Weld County is home to about 330,000, such a move would increase Wyoming’s population by more than 50%.
Why is this part of the state so restless?
It’s likely because it’s sitting on top of some massive oil and natural gas formations.
Meanwhile, the state of Colorado, which was founded in part from a gold rush in 1858-1859, has created the most stringent environmental regulations in the country when it comes to mineral extraction.
It hasn’t banned oil and natural gas extraction. But it does require that resources are produced free of carbon emissions. The standards are so high that companies operating in Colorado often reach out to counterparts in Norway, which has a similar high level of environmental consideration.
So there’s a quiet transformation taking place in the Mile High State. And you wouldn’t know it driving by some flat, dusty and desolate roads in the prairie that marks the Eastern part of the state.
There’s no obvious candlestick flares like you might see at rigs in West Texas. And no gushers like in the opening of There Will Be Blood.
But it’s a combination of two tech trends unlike any other.
The Tech Trend Keeping Gas Prices Cheap
There’s been a massive boom underway over the past few years. Billions of dollars have been spent on a new technology that can revolutionize the way we look at the world. It’s making early investors fortunes.
That may sound like an elevator pitch for artificial intelligence. But it’s really just as applicable to fracking technology, especially horizontal fracking.
This technology allows oil and gas companies to drill for resources, and extract them over a range of miles.
Fracking technology unfolded in the early 2000s. The other part of the equation, creating the ability to create liquefied natural gas (LNG) for export, occurred in the early 2010s.
Both constituted a tech boom that we’re still benefiting from today. In total dollars it may not rival the AI or internet boom, but it’s keeping energy costs down and rethinking the scarcity mindset that has often prevailed.
The “peak oil” fearmongers, looking at production charts, failed to account for the possibility of a new technology that would render their models obsolete.
Yes, we’ll still have the occasional oil shortage, but for solvable, short-term reasons. But fundamentally, the more oil we’ve pumped out over the decades, the more we’ve found.
These advancements in the energy markets have been largely overlooked. Fracking allows oil fields to remain productive for decades after they would have been exhausted by conventional means. And America is swimming in natural gas, so being able to export it to Europe or Asia where demand (and prices) are higher has been a huge boom.
The site I visited, at (full disclosure) the invitation of Prairie Operating Company (PROP), estimated that the oil field they’re drilling for today will produce crude for 30 years, “at the current level of technology,” according to the site foreman.
Fracking technology has truly been a revolution, and it’s a boom that has a long lead time to play out. But there’s another technology that’s making each part of the process more efficient.
A Skeptic Converted
In June, Goldman Sachs released an Insight named: Gen AI, Too Much Spend, Too Little Impact?
The report raised a lot of concerns that could fall under the Grey Swan purview. Essentially, for all the billions being spent on AI technologies, where were the results?
It’s certainly too early to tell. Internet stocks peaked and crashed before we had streaming video, online banking, shared document drives, and other key tools we use today.
But the article has added to some recent skepticism, including my own.
Traveling over the past few weeks, however, I’ve seen how AI tools are being employed in everything from corporate document management to wealth advisory portfolio structures … and now to the oilfield.
Yes, AI has gotten into some pretty remote parts of the world. Today, AI can use seismographic and topographical data, oil company records dating back decades, and determine not just where to drill, but the best spot to drill to within a few feet.
When you’re tunneling through 6,500 feet of rock to get to oil, precision can lead to far better results than just being approximately right.
And with fracking, one vertical pipeline can split off into multiple horizontal pipelines, for as far as 2-3 miles out.
With AI, energy companies have truly moved past the costly trial-and-error stage of drilling that has ruined many a wildcatter.
And that’s the real power of AI. Not some big “here it is” moment. Or the creation of a single Skynet-like AI that decides humanity is a threat that needs to be eliminated.
Instead, the power of AI is a tool that allows companies to find ways to complete a process 5-10% better. And doing it across as many processes as possible.
There are hundreds of steps that need to happen even before the first hole is drilled. And afterwards, capping the site and restoring the environment to as much of its original state as possible.
Of course, not everything can be automated.
It’s hot work in the 93 degree heat, especially when you’re wearing full overalls, steel-toed boots, and a hard hat. The workers live on site, working 12 hours at a time (6AM to 6PM or vice versa) for 20 days, then get a full 10 days off. Then it happens again.
These are the unsung heroes of America’s energy revolution. But thanks to fracking and AI, America’s struggle with energy independence is won. And energy companies are taking advantage of every tool available to keep it that way.
Technology will keep the oil flowing. And right now, oil looks a little too cheap. It could be poised for an upside move, likely after the election. It may be time to allocate some money to this unloved commodity now. ~~Andrew Packer, Grey Swan Investment Fraternity
