Marathon’s Lee Tillman Talks Iran War And Oil

Marathon’s Lee Tillman Talks Iran War And Oil
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CNBC Exclusive: CNBC Transcripts: CNBC’s Brian Sullivan Speaks with Patterson-UTI COO Andy Hendricks and Marathon Oil CEO Lee Tillman Today

WHEN: Today, Tuesday, January 7, 2020

WHERE: CNBC’s “The Exchange” and CNBC’s “Power Lunch” – Live from Goldman Sachs’ annual energy conference in Miami Beach, FL

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The following are the unofficial transcripts CNBC EXCLUSIVE interviews with Patterson-UTI COO Andy Hendricks and CNBC’s Brian Sullivan on “The Exchange” (M-F 1PM – 2PM) and Marathon Oil CEO Lee Tillman and CNBC’s Brian Sullivan on CNBC’s “Power Lunch” (M-F 2PM – 3PM) today, Tuesday, January 7th.

All references must be sourced by CNBC.

Patterson-UTI Energy CEO Andy Hendricks on 2020 oil prices and oil rig demand

TYLER MATHISEN: Oil prices actually falling today, despite ongoing tensions with Iran. And crude has climbed only 2.5% since the killing of that country’s most fearsome general. For more on this and why the industry appears to be shrugging off geopolitics, at least for now, let’s head to the Goldman Sachs Energy Conference where Brian Sullivan is being joined by one of the big players in energy. Hi Brian.

BRIAN SULLIVAN: Hey, Tyler. Thank you very much. Yeah, I mean, this next guest, Andy Hendricks, President and COO of Patterson-UTI, I think is the most interesting guest at the conference, with all due respect to every other guest, for one reason. You guys make the big drilling rigs that are the beginning of the cycle. You really know what is going to happen. Because if I want to drill a rig, I’ve got to lease one of your big rigs that drills the hole and moves over to the next one. How are you seeing demand right now?

ANDY HENDRICKS: Well, you know, throughout 2019, as you stated, we are a proxy for what happens in drilling because of the rigs that we operate. And we do post the number of rigs that we’re operating in North America every day on our website. But throughout 2019, with the price of oil coming down, we’ve seen the rig count come down. But as we said in the last earnings call, we expect to put up a handful of rigs at the end of Q4 and in early Q1. And as people have noticed, investors who have gone to our website, they have seen that the rig count has actually moved up from what looks like a bottom in December.

BRIAN SULLIVAN: Yeah. So, my good friend and overall ‘smart guy’ Tyler Mathisen had a great question leading in, which is: why isn’t oil higher? You look at what happened on Friday. Ok? You had OPEC tightening a month ago. You have assassination or the killing, whatever you want to call it, of Soleimani. And yet, we’re only up, what, 2.5% from Friday’s open. What’s going on?

ANDY HENDRICKS: Yeah, if you look at the risk premium and WTI and where it trades today, and it’s, you know, it’s come down a little bit today. But there is probably only a dollar left in the risk premium. It was trading at about $61 before what happened in the last few days. You know, it is really a testament to production and efficiencies in U.S. and how much oil we’re producing.

BRIAN SULLIVAN: Is that a testament to oversupply?

ANDY HENDRICKS: I wouldn’t say oversupply. Because you’ve seen oil actually move up. I think most of the budgets of our customers, the MPs across North America, they were looking at $55 oil throughout 2019. We’ve been trading at $61. You know, that is a healthy move from our standpoint.

BRIAN SULLIVAN: Do you think prices will stay above $60?

ANDY HENDRICKS: I think that they will. I think if you look at the fundamentals especially with the rig count coming down so much in 2019, it is eventually going to have an effect on production. It’s not right away. You know, I hear a lot of pundits on TV talking about, ‘Well, the recount came down, but oil prices or production hasn’t moved yet.’ But you’ve got to remember what we do in today’s environment. You know, we’re going to drill a number of wells on a pad, maybe six to eight wells together. And then we’re going to come in with a fracturing operation and do hydraulic fracturing. You know, it’s six months before those wells are in production. So, there is about a six-month lag between what happens with the rig count and then what happens with production in the U.S.

BRIAN SULLIVAN: Well, you’re in this weird spot then, because you want price to go up, because then your customers have more money to spend with you. But at the same time, if prices go up, then there is going to be more drilling activity, which might send prices back down.

ANDY HENDRICKS: It could. You know, we want a healthy oil price.

BRIAN SULLIVAN: Which is what?

ANDY HENDRICKS: You know, I think anything above $55 a barrel is healthy. We’re operating 125 drilling rigs today. We were operating more early in 2019, but oil prices were higher. Now oil prices have gone back up and so, we’ll see what happens. And it is not just the EMPs the typical investor sees on their screen. You know, they’re publicly traded. There are a number of other oil companies out there too. And it is actually the number of operators that are actually drilling with one rig can expand when oil prices move up.

BRIAN SULLIVAN: Maybe the hottest play in oil right now is New Mexico. Do you guys have rigs in New Mexico?

ANDY HENDRICKS: We do. We’re across the Permian in West Texas and New Mexico.

BRIAN SULLIVAN: Well, a lot of drilling in New Mexico is on federal lands. And there are some political candidates that would like to ban fracking or drilling or anything on federal lands.

ANDY HENDRICKS: You know, an interesting report when that came out early September, it was issued by JPMorgan—you know, one of their economists—early in September. And this is not an energy economist. This was a generalist, per say. And it was recognition that 40% of the energy that we use in the United States today comes from wells that are hydraulically fracked. And of course, we know this has been around a long time. It’s been proven to be a safe operation. But if you take out 40% of the energy that’s used by the U.S., that’s going to create other issues in the U.S., with regards to the economy. So, I think, you know, there needs to be careful consideration before something like that comes into play.

BRIAN SULLIVAN: Alright Andy Hendricks, the President and COO of Patterson-UTI. I’ve been on your rigs. We – we look at your rig count. And I might have been one of those pundits that you reference. Or at least it was Tyler Mathisen on the -- I’ll blame it on Tyler—

ANDY HENDRICKS: Blame it on Tyler.

BRIAN SULLIVAN: Who I called a smart guy—


BRIAN SULLIVAN: --which is very nice, because you are.

Marathon Oil CEO Lee Tillman
Image source: CNBC Video Screenshot

Marathon Oil CEO Lee Tillman on the impact of tensions with Iran on crude

TYLER MATHISEN: Alright, meanwhile, let’s go back to Brian at the Goldman Sachs Energy Conference in Miami Beach for another big interview. Hi, Brian.

BRIAN SULLIVAN: Yeah, Tyler. Thank you very much. And it is kind of a big interview because your next guest has not done a television interview in what, five and a half years? Five and a half years.

LEE TILLMAN: About that.

BRIAN SULLIVAN: So, I don’t know where you’ve been, Lee Tillman. CEO, President and Chairman of Marathon Oil. MRO.

LEE TILLMAN: Hard at work.

BRIAN SULLIVAN: Hard at work. But we’re happy to have you here now.

LEE TILLMAN: Good to be here.

BRIAN SULLIVAN: I think it is good timing. You start to feel like the energy markets are turning around. But we heard from Michael Wirth of Chevron earlier, as they just played the soundbite there. But are you surprised that the price of oil did not spike 10% on the news? What would have happened if that happened a decade ago?

LEE TILLMAN: I think we would have seen a much broader response. I think the damping effect you’re referring to, Brian, is really the impact of the U.S. energy renaissance. We make up about 8% of the global supply today. And those are reliable, highly secure barrels that the market is counting on. And I do believe that’s reduced this risk premium from returning back into the market.

BRIAN SULLIVAN: Here’s what I think a lot of people probably struggle to understand. Which is that the U.S. is, as you noted, about 8% of the Goldman market. We have more than doubled our production. We’ve got relatively risk-free oil. In other words, not going to have these geopolitical violent conflicts, or hopefully not random bombings. But yet, investors don’t seem to care at all. I know the stocks have done well the last couple of weeks, Lee. But the last couple of years has been brutal.

LEE TILLMAN: I think you’ve seen in the last decade is that the sector has done a poor job of generating true corporate returns, sustainable free cash flow and getting that back to shareholders. And I think you know you look at the weighting of the energy sector today and the S&P 500.


LEE TILLMAN: It’s at historical lows. And the--


LEE TILLMAN: Right. And the way we reverse that is by getting back to a foundation of judging ourselves on the financial metrics that matter.

BRIAN SULLIVAN: Which are what?

LEE TILLMAN: Well, for us it’s corporate returns first, free cash flow generation at relatively modest oil pricing and then getting that cash flow back to shareholders in the most efficient way possible.

BRIAN SULLIVAN: So, we talked to Scott Sheffield earlier. That’s an interview that’s going to run tomorrow morning on “Worldwide Exchange.” Scott’s one of the smarter guys out there. He’s the CEO of Pioneer. And he said there’s too many oil companies, there’s too many service companies. We need consolidation. You guys have been pretty quiet, with the exception of a couple of bolt on deals. Do you see a wide range of M&A coming, either for you or other players?

LEE TILLMAN: I think the issue is that when you look at optically the oil and gas space today, there are a lot of players out there doing the same things in the same locations.

BRIAN SULLIVAN: It is a commodity.

LEE TILLMAN; It is a commodity. And it’s somewhat of a range bound commodity, as well. But the issue is there’s some pretty strong barriers to consolidation. You have to have to demonstrate financial accretion, balance sheet accretion. You have to have natural industrial logic synergies. And then finally, you have to overcome social issues, as well.

BRIAN SULLIVAN: Yeah. You do. ESG. Environmental. You look at what’s happening in Australia. There’s fires. Climate change. How does the CEO of an oil and gas company, and by the way, people could say oil and gas needs to go away. The IEA, which is hardly pro-oil and gas, they’re predicting decades more. So, let’s just assume they’re correct. How do you manage through that as the CEO of an oil and gas company under this kind of institutional and environmental pressure?

LEE TILLMAN: I think you have to reground everyone back to the dual challenges that we have to meet the world’s growing energy needs. And we have to address the E primarily in ESG, which is climate change. The way we do that is through an all of above energy strategy where oil and gas absolutely has to play a role in an energy transition. We still have a billion people in the world today without electricity. 3 billion in the world that are living in basically energy poverty. So, our work is not done yet.

BRIAN SULLIVAN: Okay. Final question is if you had to bet, and I don’t know if you’re a betting man or not, Lee, we just got to know each other. Will oil prices one year from today be higher or lower than they are right now? WTI?

LEE TILLMAN: I think that today, we certainly are in a much more constructive market. I think the geopolitical tensions that we’re seeing today are likely going to persist for some time in the Middle East. I do think that creates a bit of a floor under oil and gas.

BRIAN SULLIVAN: It sounds like you’re in a very gentlemanly way saying likely higher.

LEE TILLMAN: Likely higher. But we’re not going to plan on that basis. We’re going to take a conservative approach to planning. We’re going to make sure we can operate over a wide range of pricing.

BRIAN SULLIVAN: Lee Tillman. Don’t let it be another five and a half years. Okay?

LEE TILLMAN: Will do, Brian. Thank you very much.

BRIAN SULLIVAN: Lee Tillman. President and CEO of MRO.

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Jacob Wolinsky is the founder of, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at) - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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