#172: Dane Gregoris (Enverus) – How A.I. is Helping Decisions in the Energy Sector
greetings and welcome back to the podcast this episode we are joined by Mr ding gregorus managing director with embarass intelligence research a subsidiary of embarass an energy software provider with annual revenues of approximately $500 million Mr gorus joined andaris in 2014 with previous work experience at glj petroleum consultants and encana in his role at embarass Mr gorus advises both corporate and institutional clients on on Strategic investment decisions and is frequently coded in major media outlets on North American Energy topics Mr gregorus graduated from Queens University with a degree in geological engineering and is a CFA Charter holder among other things we discuss inventory scarcity the importance of data quality and how AI is helping decisions in the energy sector enjoy this episode is brought to you by galatia Technologies galatia is a software company compy based in Calgary that is focused on helping producers better manage their fluid Logistics galatia enables field operators and truck drivers with the ability to make the optimal decision on every waste water or clean oil load resulting in 20% savings on trucking and Disposal costs the galatia platform makes it easy to create digital truck tickets manifests and shipping documents that automatically flow through the field data capture and finance systems galia’s platform is used by over 50% of Canadian producers 600 trucking companies and hundreds of disposal locations visit gala.com to learn more about how to optimize that last line on your lease op this podcast is sponsored by head rcing canada.com in partnership with four-time Olympian Manny Osborne parody head rcing canada.com is now offering free shipping on European Factory performance ski gear by passing brick and mortar savings on to customers head rcing canada.com offers the lowest pricing available in Canada check out head rcing canada.com for more info and get your new ski gear for the season good afternoon Mr Dan gregorus thank you very much for doing this I appreciate your time I know it is valuable but like I mentioned anyone that Jamie herd recommends is probably a good idea to follow up on yeah it’s a pleasure to be here and yeah Jamie definitely is one of the sharpest folks out there that I know on across our client base as well to start from the top what is embarass for The Listener yeah it’s it’s a great question so embarass today is the largest energy dedicated software as a service provider in the world you know last year we crested $500 million in Revenue in terms of AR or annual recurring Revenue our business is dedicated on the energy industry but pretty diverse in terms of its customer groups so we sell services and products into customers as diverse as solar developers in Europe to oil field service companies in Midland Texas as well as EMP companies in Houston Calgary Denver and even institutional investors in New York City and the the thesis is we have you know about 1,800 people on staff and we’re all building products and services to help our customers run their businesses more efficiently and make better decisions in in the energy space how does embarrassing money so we sell software Products Research products Analytics products so a lot of it looks like a subscription to a platform or service or or research distribution panel almost all of our revenue is is through recurring Revenue so if you were to explain it to your grandma when somebody signs up for the subscription they pay you monthly a fee pretty much yeah that’s effectively how it works every month you pay for the use of the software and you subtract your cost off that and at the end of the day you have profit which is how a software business works exactly I think it’s a little simpler in terms of the p&l than than maybe like a lot of energy companies where it’s it is simply just kind of revenu less costs the great thing about software is it’s a high margin business not as much fixed Capital goes into it so can be lucrative that’s right yeah and it’s you know it’s been a kind of a wonderful place to work it’s been a growing business both organically and inorganically and and certainly our handful of different you know private Equity sponsors that have been involved in the businesses from one way or another have done well do go back in time a little bit how did you get into energy and why yeah so energy uh was something that sort of crossed my mind in in University so I had a Affinity to study sort of Natural Sciences in University uh always sort of just interested in in Natural Sciences and and why the world was the way it is today and you know through that sort of soul searching found that there’s a lot of opportunity in the energy space and and it was certainly an interesting place to marry natural Sciences as well as sort of business Acumen which is another one of my interests and so through growing up in Ontario I didn’t necessarily get a lot of exposure to the energy sector but through University and and through an internship at incana I I was able to really generate a passion for the business and I found it to be a very exciting place to be that’s a rare career path for some out east especially nowadays identifying energy as a space with opportunity did you think of it that way before you came out here yeah I mean I think when I was at school there was definitely different economic Times and and maybe even political times so it was kind of viewed as a pretty Dynamic and and even potentially lucrative place to build a career it’s been certainly rewarding from from a number of different factors you know the Market’s been difficult over the past last 10 years especially if you exclude the last couple but it is just sort of this like ever ever changing landscape and certainly that’s lived up to all all the hype Kary is a great City too it’s affordable a lot of opportunity so absolutely yeah it’s it’s yeah it’s been better than my expectations moving out here for sure well maybe we can touch on the markets to get things going today is April 9th oil is around $86 but maybe do you get your thoughts on oil why has oil been going up yeah I mean I think there’s been pretty interesting trading action in the last couple months you’ve had a lot of of a strong demand data out of the eia kind of weekly reporting so the US demand num has been really strong in terms of fuel consumption I also think the fear around Supply particularly in the US and and globally sort of outpacing demand near term has has really been quelled by data that sort of suggested that it’s tapering off not accelerating so we had sort of accelerating us oil production in the third and fourth quarter of last year and that of change has slowed considerably to more of a flattish number and so that’s certainly a a sigh of relief for the oil Market that we’re not going to see sort of climbing us oil volumes I’d also say OPAC has remained relatively true to its work in terms of cutting production we’ve also even heard of additional cuts out of Russia that also kind of add to the constructive backdrop so couple different factors but but certainly in a better place than we were a few months ago on the flip side natural gas has been it’s been tough under $2 last few months so why has natural gas been weak and although it’s up today what’s the reason from your perspective natural gas has been pretty awful I think for a producers perspective over the last six months or so a lot of that has to do with really strong Supply growth particularly in the US you know there’s a few key infrastructure projects that push Supply higher than folks expectations it’s been a warmer winter on on just a average heating degree day basis and I think you know both those factors have sort of created an over Supply effectively so inventory levels are well above the 5-year average which usually is bearish for price and so we really need to get out of this year start building demand or start having these big LG terminals get into service to um sort of destock the natural gas inventory base and and and we should see higher prices into next year are you expecting higher prices certainly we expect higher natural gas prices in 25 and and and particularly in 26 so we we have a pretty optimistic view on knas here we think it actually gets um in terms of Henry Hub to get close to $4 to5 per m&b so that would be a pretty good trade if you put that on now and so it’s a good time I think to be to be thinking about you know adding exposure to the notas space the trends you’re seeing across North American EMP one of them like we discussed was inventory scarcity how does that impact oil and natural gas and what do you mean by inventory scarcity yeah it’s been a big Trend over the last couple years a big part of the research we do at embis is coming up with kind of quantifying the remaining locations across major basins in North America that’s probably what we’re known best for and so we make a very concerted effort to have a very G A granular answer to these types of questions so it’s probably the number one topic that we we speak to uh from our producer client standpoint as well as our Institutional Investor client standpoint and I would say when we look at us basins particularly the more mature us oil basins today so think like the bachan and the eagle for DJ Basin there is a degree of high quality inventory scarcity in those basins in our calculations we estimate those basins really only have five to 8 years of remaining Reon Source at a today’s sort of capital efficiency so there are locations to drill Beyond 5 to 8 years but it’s just going to look worse so when we look at the break even of those locations we think sub 50 Break Even WTI locations you only have about 5 to 8 years left in those basins so I would call that inventory scarcity you know if your producer levered to those basins you’re starting to look at Acquisitions to backfill inventory and and we see inventory scarcity is driving a lot of the decision making from an andd or m&a side in the space how do you factor in the Undiscovered or the probable how do you think about that when you’re talking to clients or companies how does that discussion unfold I mean I think it’s real for sure you know you can make an assessment of inventory at a given point in time but you don’t know what’s going to change what I would say though is over the last couple years given High inflation across oil field services due to higher commodity prices as well as productivity per foot across major basins across North America starting to decline we don’t have the same lwh Hing fruit to you know ratchet up completions and find new ways to to extract resource you know there’s been a few examples of it I mean the clear water is a great example in Canada where a new design or new methodology to extract oil is more economic but in the US frankly there isn’t really hasn’t been a lot of levers that operators have pulled to prove up tier 2 resource and move it into tier one so most of the time when we’re revising our inventory estimates they actually go lower year-over-year and that’s been the case for the last two basins we’ve looked at this year so because productivity is getting worse it’s harder to make an argument that you know the resource you’re going to discover which you definitely will in some of these basins over the next few years is going to be better than what they’re drilling today it’s probably going to be discovered it’s just going to add to the call it 50 to70 Break Even resource which we think there’s plenty of it’s just not as good as what oper most of the industries drilling today sometimes technology gets better how do you factor in going into old plays and old Wells with better technology is that something that you think about how does that impact your evaluations of a basin the fact that technology is getting better for sure yeah I mean I think the best way we do that today is through and analoges and case studies so we’ll look at a given pad or or what an operator’s done in a in a specific section and see if we can extrapolate that data sort of across a different set of resource or within a reasonable you know range of geologic continuity and we use that to inform a lot of the inventory work that we do across North America however does it account for big step changes in that new technology no so it’s really just at the margin hey we think an operator can do this based on what they’ve done before and based on a new technique they’re employing in this pad so I think we capture maybe that first degree of technological change but the big step changes are certainly um out there and and um possible to surprise our estimates for sure are you seeing more institutional money looking energy nowadays or is it still tough that’s a good question yeah I don’t think we’ve seen the the rise in you know like generalist dollars flowing back in a massive fashion I would say it’s building but from a low base most of and I’m speaking from a relatively kind of narrow set of clients that we speak to on a on a on a regular basis we tend to I mean our products are very technical and sort of EMP Centric and so it tends to find a better kind of product Market fit with alternative asset managers whether those are hedge funds private Equity Funds funds credit funds they tend to want to go deeper than say a mutual fund or um you know a large generalist fund that wants to allocate a a sleeve into into energy so I would say the specialist base has grown over postco and the general space has grown somewhat but it’s still not Tech still is very much the focus for for I think most generalist PMS as it it moves the market just a ton how do you see AI impacting traditional energy that’s a pretty big subject you could I guess start from what andaris offers but what are your thoughts on that yeah we think AI is super exciting um where do you start there’s a lot of different ways you could think about you know employing AI in terms of whether it’s operations whether it’s software Services improving software Services whether it’s you know collaboration you know I think the easiest things that we can point to as a soft Ware provider are just enabling a better client experience so you can imagine if you ever used like enterprise software it tends to be complicated there’s a lot of different use cases with a lot of the software that we generate and so an easy way to make something go from maybe medium userfriendly to very user friendly is adding some sort of textbox feature to allow you to interact with a complex software by asking a question similar to how you’d ask you know chat GPT question so that’s sort of one one thing we’re working on that we’re sort of excited about is you know just enabling better customer experience leveraging large language models and also being able to dig through 20 years of research very quickly using a large language model rather than traditional search functionality so there’s there’s a few kind of easy wins I would say on our side that we’re excited to be working on and and and and to to be enhancing a customer EXP experience and then I think the other thing that that our clients are very focused on whether it’s on the corporate side and investor side is what is the impact of AI on energy demand this has been it was probably like the the real Hot Topic coming out of Sarah week um it’s been building momentum you know year to date and you could even look at you know some of these independent power producer share prices through the US is certainly people are excited about the prospect of Growing Power demand in the US for the first time in a long time and and our estimates is that you will grow power demand based on some assumptions around AI adoption and data center build out ultimately because these data centers need I think what they call Triple redundancy where you actually need power fullon 24/7 um it can’t be only an intermittent resource that you’re using to to power so we think power demand goes up it Al ultimately means better not gas demand towards the end of the the decade and you know in different variables that that get us to where we expect but you know we think it’s around 5 BCF a day of of upside on our original Power demand estimates or power burn estimates for Nat gas in the US by the end of the decade just a quick thank you to one of our sponsors and we’ll be right back to the show this podcast episode is sponsored by conate Water Solutions do you need cost-effective water sourcing options to supply your next drilling or completions program conate Water Solutions is a specialized hydrogeology company focused on water well drilling testing and Water Management Services in western Canada and Texas contact info at conw water.com or check out conw water.com for more details in traditional energy the point is to drill Wells and produce soil and natural gas so with AI how does that help that process is it figure out the best places to drill is it figure out better optimization drill speeds what maybe what’s one example for traditional energy other than what we discussed yeah so something that we’ve been using um a lot of over the years is kind of leveraging AI or machine learning to be able to extrapolate data right so a lot of what AI does is can enable you to throw a bunch of data into a system and it to tell you what causes or what levers and input data has on an output data set right so you could imagine putting in a bu of well data in terms of productivity into a big model and then adding a bunch of completion data as input data into that into that data Lake if you will what we’ve been doing for years is helping clients kind of Leverage those workflows to say okay the model is saying that completion intensity is the most important variable that drives productivity per foot so then you can optimize and you can really dial in how much completion intensity is is going to improve productivity and and you can find that marginal return for a given input of intensity so that’s something that’s an example you know there’s the great part of oil and gases there’s so much data and there’s an insane amount of variables that you can try to quantify and so whether it’s a geological variable completion variable there’s a lot of different ways that you could use some of these higher end analytics programs to ultimately get you a better answer is it working now have you seen results I would say um work yeah I think it does I I think it’s it enables you to get an answer very quickly you know you may have come to that same answer spending tons of man hours and I think what we’ve seen you know particularly postco is that EMP companies specifically to speak on the sector have grown in terms of asset basis they’ve grown in terms of cash flow on the back of both oil prices and gas prices being higher but it ALS so on the back of Acquisitions but they’re running with the same lean teams and it’s incredible the difference in terms of headcount you know per Boe that this industry is running with and so one of the things we point to is they’re all you know being pushed to do more with less and so the you know teams and teams of land people geologist Engineers that these businesses used to have are now being run by very small groups that are leveraging technology and so I think from just a pure like GNA per Boe standpoint it’s been a home run I would say from a Insight standpoint I think you would have gotten to similar answers just with the amount of data you have you just it would just take so much more time to to parse through in simple terms if you go back to school the old saying was garbage in garbage out where if your data isn’t good you won’t get a good output has it been difficult to get quality data to put into the models for sure yeah it’s it’s a big challenge you know a big part of our our organization we sell a lot of data is cleaning up data that’s reported to the regulatory bodies across the provinces and states and North America so it’s it’s an enormous lift and it’s a big part of the effort is to get to a point where you can actually feel good about it to put it in a model and and get outputs that make sense and it’s it’s always a lot of the discussion I would say once you come up with an output Based on data you’re always asking sort of second guess saying well if if we clean it up and and look at it this way it tells a different story story so 100% that’s a big part of the challenge and despite I think the industry just overall getting a lot better with data and more and more data kind of provides you with a little more Comfort right if you’re thinking if you’re making a decision based on one well right the statistics aren’t really in your favor if that Wells data is not very certain but if you have a 100 Wells you know you have one or two Wells that the DAT is wrong it’s less important so the more data I think across industry has sort of helped people sort of De risk that problem and also I would say just the ability to to sanity check stuff very quickly using higher-end models or software it just enables that when when I started in the the research business we were pulling everything from a data platform and doing everything in Excel and now so much of the job is you can you can operate in software just so much faster the idea is that you can come to these same answers or maybe even a better answer with less people and quicker with the software Maybe yeah I think that’s a good way to do it yeah a good good way to frame it advantages disadvantages similarities differences between Canadian and us cmps I guess what are the similarities and differences you know it’s I think it’s a super interesting time there’s more and more crossborder discussions than ever during my career you know doing this I think the differences are pretty Stark to be frank in in terms of resource life so my point earlier on you know the resource life and some of these T basins in the US you know you extend that into the peran with over 50% of the capital in the US going into the peran today you know we think on average that sub 50 resource life sub 50 Break Even resource life in the peran is about 9 to 10 years so it’s better than the eagleford B and DJ but it’s not that much better it’s not an order magnitude you know more deep and I think when you look into Canada you all of a sudden have this you know duration of resource that a lot of us operators can’t compete with so from an apples to Apple’s duration or you know how much inventory a given EMP has in Canada versus the US I would say on average a Canadian operator usually has twice as much inventory in terms of years so the the resource disparity between the two is probably most interesting for the most part they trade at similar multiples so you’re buying an EMP company in Canada buying an us EMP company and obviously there’s differences between the two but I would say on average they trade similarly but the Canadian operators offer you know maybe 2x as much resource life to back stop it so it would argue for crossb m&a at some point and I know a lot of folks are talking about that you know to be frank when we’re in Houston talking about Canada I wouldn’t say it’s top of everybody’s agenda quite yet but when we’re in New York talking to institutions they are certainly bring it out and they want to hear about the can EMP space more so than they’ve again they’ve ever been in for the majority of my career coming from uh an Institutional perspective on Wall Street we’ve talked about the fact there is renewed interest but at the same time do you sense that there is concern over the politics and that it’s just a kind of a risky political environment or do it matter they definitely still view it that way there’s concerns uh there’s definitely concerns from a regulatory and and political landscape whether it’s carbon taxes whether it’s approval of new pipelines right like those are always the biggest questions we get I think if you look at pulling numbers that’s certainly supportive of like lower regulation in the future than current so people look at that and get a little bit more constructive but in general I I do think it’s viewed from that perspective you know negatively versus the US where you know there’s there’s just less barriers you and I could find Capital and start drilling walls in the perian basin in a couple months takes a lot longer from a lead time in Canada and there’s always a question of ultimately getting Market access for your molecules there’s a lot of noise in the markets everyone’s always giving you their opinions on whether oil is going up or down atro gas is going this way that but are there particular sources of signal that help you determine oil prices in natural gas what do you look at we have a team of experts that sort of look at this on a on a daily basis and maintain our price views and you know they look at a lot of fundamental data so whether it’s inventory data that’s put out by put by the eia the Canadian energy regulator Alberta energy regulator so we try to stay in terms of primary data sources and that tends to be from government bodies it still can be noisy don’t get me wrong and that’s when you need to rely on sort of experience in terms of determining the weekly numbers in the eia all of a sudden go wonky you’re not you know changing your view too quickly so I would say those are the data sources we rely on most we also look at flow data in the US pipeline flow data and that sort of enables you to be able to say hey they are shutting in production we’ve seen more than you know abcf a day shut in in the US year to date so there’s been that sort of constructive from a price standpoint folks are doing what they say they’re doing in terms of curtailing volumes so there’s a handful of data points that we look at near term and then longer term it’s it’s really the discipline of maintaining models and tying those models to real data so whether that’s build build an oil demand forecast coming up with sort of demand estimates by country across the world based on reasonable amounts of energy consumption per GDP or on the on the on the gas side of you know understanding the supply and really at what price do producers go back to the drill bit and start drilling Wells our economic model should tell us that effectively when there’s a certain hurdle rate in the industry you know maybe it’s 50 40% you’re going to expect folks are going to put a capital to work and so that’s what we use to inform our our views flip side of that is information overload now SE T would say sometimes people have too much information they end up making the wrong decision how do you prevent that being in a software information business it’s a complex system and you don’t end up with a worst result 100% yeah you know we talk about when we’re coming up with conclusions in our research that it’s very easy to find yourself in a rabbit hole where you’re trying to uncover every Stone and and come up with different ways to to prove or disprove your thesis and with the you know plethora of data out there it’s easier now to do than ever so totally can level with that point I will say like when we think about our business really that’s what our research team is there for so we sell tons of data and software as the majority of our business today with the vast majority of our businesses is on the software side and a lot of times when companies come to us they like the software they like to be dig into their own details but they don’t have the time to answer every question with our software so they rely on a team of folks like ourselves who are who can sort of distill and find signal in in the noise and and distill a lot of data set down to a recommendation or an opinion and that’s that’s our role within embarass today is to really do that problem is mistaking irrelevant knowledge for Essential Knowledge where you’re looking at something it doesn’t matter what would be example of a data point that doesn’t matter it’s interesting yeah um one that I think of that you know does matter on a longer term basis but tends to trip people up in the short run is you know and there’s a good example last year is the the US rig count and so last year we saw the surge in US Supply in the back half of the year and everybody was calling very confused but the rig count is going down how are we adding barrels and and so that’s one where in the short term you know the rig count actually is kind of irrelevant because the Spud to sales or the time lag from drilling a well in the US on average to bringing it on is about 200 days so it doesn’t matter if you drop a rig today that’s going to impact your production next year so the shortterm information in terms of rig count that comes out every week some people focus on that and expect that to impact Supply very quickly and the reality is is you’re looking six to to 12 months forward in terms of the impact and so in the near term it’s it’s fairly irrelevant we focus more on completion data production data to get us a better tell on what the next few months and and maybe the rig count six months ago is a better indicator to the rig count today so that’s an example of it’s an important factor over the long term less important factor over the short term are there two or three data points of signal that you do focus on to try and determine pricing and what not what do you focus on from a hydrocarbon pricing perspective we’re super focused on the supply cost curve and any changes in that and that really helps us inform like the medium to longterm view right so whether that’s on the gas side where you’re trying to figure out which basins are actually going to grow to meet LG demand and at what price will you get enough growth to to meet that demand that’s something we think a lot about and it informs our our price view similarly on the or oil side we can focus on that in North America and to the extent the elasticity of the relationship between activity levels and price and how that’s changing we generally believe in the last 20 years the US has been the marginal molecule of gas or of oil in the world and so getting smart on what the direction of that marginal cost looks like going forward is is helpful from a long-term pricing perspective and we think that marginal cost is going up not down which it did for the last 15 years which is why we’re more optimistic on price this go around and then on the OPEC side you know that’s obviously important they control a lot of the oil supply and trying to understand their policy and behavior tends to move the market the most in the near term are there any non-consensus views that maybe you hold or embarrass has allowed you to discover is there anything that you guys have are thinking about that maybe you’re going against the grain right now yeah I mean I think see a lot of data there’s always a lot of different views that our team you know we’ll put out on a prettyy regular basis and and just for context and we have you know about 30 folks that look at energy transition stuff we about 40 folks that that focus on oil gas so it’s a it’s a big team what might surprise somebody yeah I think the surprising ideas you know certainly from an oil demand standpoint you know we think oil demand doesn’t really Peak even this decade if not into next decade that’s certainly on the bullish end of folks Minds when we look at the oil patch at large across North America we probably see you know assets like CN Q’s mines as some of the highest quality Assets in North America like for like with kind of core Midland Basin returns and and core Delaware Basin returns and that’s that’s sort of I think still not fully digested by the market at this point there’s also you know I think a counter consensus view is in parts of the Delaware Basin in a very I would say say not the entirety of the Basin we think you could stack 50 Wells a section and still make a very economic Wells out of those 50 Wells that’s you know I think if you it would surprise folks in terms of just the density of development that that Basin can host versus a lot of other plays where you’re like four to five Wells section is Max so those are some maybe interesting ones but there’s lots of different views you know the fact that we think gas is going to you know have some time at $5 in 2026 is higher than strip and and would be a big trade for an asset holder or or or an equity holder well that’s oil pricing natural gas pricing inventory scarcity Capital discipline AI US Canadian equities signal versus noise the wrong source of information unconventional views I think that’s a really good sampling of your thoughts and baris’s thoughts uh if you were to leave a listener with a message on maybe embarrass or your thoughts on energy what might you tell them yeah I would say overall we’re really you we’re really excited about the future of both kind of traditional energy and energy transition related Technologies there’s room for both and we need kind of all of the above and we’ve constructed the business around that thesis that it’s it’s not kind of new energy or old energy it’s both particularly in the more recent news of AI taking a lot more power demand and and and a lot more investment we’re we know we continue to be surprised to the upside in terms of how we excited we are about the the energy story in North America and globally well that’s awesome we can end the formal conversation there so thank you thanks Trevor appreciate [Music] it hello listeners out there thanks for checking out the podcast hopefully the episode provided some insights if you enjoyed the show check out t.ca where more episodes are yet to come you can also subscribe to the podcast where your token of support is much appreciated until next time happy coffee drinking
Greetings, & welcome back to the podcast.
This episode we are joined by Dane Gregoris – Managing Director with Enverus Intelligence Research, a subsidiary of Enverus – an energy software provider with annual revenues of approximately $500 million.
Mr. Gregoris joined Enverus in 2014. His previous work experience includes positions at GLJ Petroleum Consultants and Encana.
Dane leads the Oil & Gas Research team, and oversees a group of technical and financial specialists using advanced analytics to provide actionable insights.
In his role he advises both corporate and institutional clients on strategic investment decisions and is frequently quoted in major media outlets on North American energy topics.
Dane graduated from Queen’s University with a degree in geological engineering and is a CFA charter holder.
Among other things we discussed inventory scarcity, data quality & how A.I. is helping decisions in the energy sector.
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