OPEC & COVID-19 Pt. 5 – In the Oil Patch Radio Show

Energy New: Texas
David Blackmon In The Oil Patch Featured

Speaker 1: (00:00)
And welcome to In The Oil Patch Radio Show. I’m your host Kim Bloado, and today we have a great show lined up for you. We will be joined by the editor of Shale Magazine, David Blackmon, but before we bring David on, I want to tell you about the latest issue of Shale Magazine, of which the cover feature story is Tracy Bentley, the president of the Permian Basin Strategic Partnership, an amazing organization of some of the largest operators in the Permian Basin that have come together to create a mission that is unlike any other trade association. You really need to read up on what they’re doing out there in that area. For more information and to catch up with David and read his story, visit SHALEMAG.com. Let me tell you also about the fastest growing networking group. Right now as we’re coming out of the Corona virus, everyone is looking for a party, an event, a networking event that you can grow your business.

Speaker 1: (01:03)
You should join Texas Energy Advocates Coalition. They do a lot of mixers and events, and they’re going to start virtual mixers very soon. For more information and to join, go to txenergyadvocates.org. Lastly, I’d like to tell you about our State of Energy that was rescheduled due to the Coronavirus. It is now set for its new date of September 22nd in beautiful Corpus Christi, Texas. It is a luncheon with a networking mixer that evening. For more information or to go buy tickets, please visit shalemag.com and you’ll see the link to purchase your tickets. We’re still looking for sponsorships, but one thing is for sure folks: this will be a sold out event, so you definitely want to get your tickets now. We’ll see you there! And now it’s time to bring on our guest today, David Blackmon, the editor of Shale Magazine. David, welcome to the show.

Speaker 2: (02:06)
Hey, it’s another beautiful day in Texas.

Speaker 1: (02:09)
It is, and by the time we air, guess what will have been lifted?

Speaker 2: (02:15)
No more stay at home order. Yay!

Speaker 1: (02:17)
Yes. But I do hope that people still practice distancing. I would think even though you don’t have to, it might not be a bad idea to use your mask when you go out. I,’ve been trying to work up that.

(02:36)
Mine really improves my looks.

Speaker 1: (02:39)
Oh, there you go. You got the face for a mask. Well, let’s jump into things. There’s a lot going on as always, and it’s kind of hard to keep all these different balls in the air. So there’s been some discussion in DC and of course in the Trump administration about President Trump and minutia jumping in and helping the energy industry with some loans. Can you kind of set up first, what specifically is the government thinking about doing to help the oil industry? And then we want to talk about some of the fallout from some of the energy industries where these groups and these folks are falling at.

Speaker 2: (03:19)
Sure. Yeah. Of course, you know, with the industry, falling into such dire financial straits, there has been a lot of discussion in Washington about ways that they might help to try to keep some of these companies solve them. Um, and you’ve had these stimulus bills that have set up various small business loan programs and other, uh, federally guaranteed loan program. Some are forgivable and some are not. And, and so everybody’s trying to figure out, well, do any of these apply to oil and gas operators? And if so, how much sense do they really make? Uh, secretary Minutian, uh, last week was talking about, uh, having the federal reserve actually establish a program, um, that would provide, uh, low-interest federally guaranteed loans to, to oil and gas operators who, who were in financial trouble. And, um, but none of it’s come about yet. There aren’t any real hard answers at this point. And, uh, I guess what we’ve seen so far this week is, is the various trade associations in Washington, assuming their own positions on the matter.

Speaker 1: (04:31)
Well, and, but then also there’s been some media reports out to, you know, discussing is this, you know, really necessary to do if a lot of these operators might already be in the red and fail anyway. Um, is this really gonna work or not? So some of the things is, yeah, why are you going to just, you know,

Speaker 2: (04:57)
right.

Speaker 1: (04:57)
Throw money somewhere of course.

Speaker 2: (04:59)
Exactly. And of course that applies to really any, any industry sector, but in the oil and gas sector, if you do wonder frankly, how much sense it makes for the government to establish an entirely separate program that would be lending money to companies in the oil and gas business that are already for all intents and purposes on, you know, in bankruptcy. I mean, they’re not, not a declared yet, but it’s kind of inevitable for a lot of companies with, with the price collapse that we’ve seen over the next few months are going to be declaring bankruptcy. Um, and is that really any kind of a solution of, you know, it may delay some of the bankruptcy filings, um, but eventually the loans have to be repaid. And if a company, you know, can’t, can’t repay the debt, it already has assumed from banks or other lenders isn’t really going to be able to repay alone given by the federal reserve board. So, you know, those are all questions that the policymakers have to, to answer right. Then you wonder how many oil and gas companies would even want to take on an additional debt load at this point in time.

Speaker 1: (06:14)
Well,

Speaker 2: (06:15)
and so it just, yeah, it’s, it’s all a really difficult issue to deal with.

Speaker 1: (06:20)
Well, and we’re going to get on to the topic of the Texas railroad commission a little bit later on in the show about what’s the latest status with that. You’ve been writing a lot of articles on Shale and your daily Shale update has been discussing the progress. There are great articles by the way, but you know, API was one that, that, uh, called in when the Texas railroad commission had their hearing and they were opposed to the Texas railroad commission getting involved on any kind of monitoring. I mean, uh, getting involved in sanctions of any way pertaining to the energy industry. Well, once again, American petroleum Institute a better known as API is weighing on this topic as well. And they’re, they’re kind of discussing that they’re against it for the fact that, you know, once you invite the government into your business and, and you know, a lot of these, uh, business owners that have applied for the PPP, PPE, they’re kind of are opening the door to let big government in and you’re gonna have a lot more reporting so they’re not necessarily lining up with, Hey, uh, this is not a good thing.

Speaker 1: (07:25)
What are your thoughts on API first? And then I’m going to go onto the other trade associations as well. Okay.

Speaker 2: (07:31)
Yeah. And there are merits to, to that argument. I mean, I’ve, I honestly have made the same arguments myself, uh, at various points in time on different subjects. And anytime the federal government gets involved in your business, are you borrowing money from them or whatever it is, they’re going to be strings attached. So, and so I understand that point of view from API, that having been said, the companies that API represents are not companies that are going to be a part of any of these programs anyway. That they represent the major integrated oil companies and some very large independent producers, um,

Speaker 1: (08:12)
that could just go to wall street and borrow more money and stuff. Cause they’re publicly traded companies. Correct?

Speaker 2: (08:17)
Yeah. Yeah. And so, I mean, it’s not really their issue.

Speaker 1: (08:20)
Issue shares. Yeah. Yeah. What about IP AA? Where, where are they lining up with that too? I’m sorry, finish on API and then go ahead.

Speaker 2: (08:28)
Well, no, no, that’s, that’s, that’s fine. I’d be AA is a different question, right, because they, they represent independent producers. They have something upwards of six or 7,000 members and most of which are very small companies, you know, sole proprietors, not nom corporation companies. Um, and, and those are the kinds of companies that, that a lending program like secretary nutrient is talking about. Those are the kinds of companies that might actually take advantage of, of a program like that. And, and so I PW Clay’s opinion on this is as much different than API APIs of course, because these are all member driven associations and um, frankly I, you know, I just think IPW is opinion on is much more relevant because it, it has the members who might actually be assisted by a program like this. So, but it’s, you know, it’s the kind of thing we see all the time on myriad issues. Um, in the industry in Washington here in Texas and elsewhere.

Speaker 1: (09:35)
Yeah. It’s usually, you know, the big publicly traded corporations, well, we just saw this with the loans going out and all the banks, I mean lent out the money to their top customers. The big guys, the little guys it was meant to, it didn’t reach. So they got their hand slapped and told, give back that money before we come after you. It’s the same thing kind of in the energy industry with these big, you know, integrated oil companies that are drilling all over the world and they can issue shares. They have many, many different levers they can pull, have access to capital in which the little independence don’t. And um, so, you know, it is, isn’t it, it is an interesting way of looking at these two different areas and why they typically tend to support energy. But in policies they do tend to change, uh, drastically.

Speaker 1: (10:26)
When we get back from break, I want to talk a little bit about also the whole flood of oil that’s coming and there’s been a course articles and Shale Magazine, you know, kind of helping the administration do something. You know, we, we, we are being flooded by Saudi oil and so I want to get an update on that or I want to lose just to get an update and also, you know, want to talk a little bit more about the two large industries that keep weighing and where are they at with this as well. We do have to take a quick break. You’re listening to in the oil patch radio show and we’ll be right back and we’re back. You’re listening to in the oil patch radio show. Our guest today is David Blackmon, the editor of show magazine, and a trusty friend too in the oil patch radio show is a great analyst and expert.

Speaker 1: (11:12)
David, we’ve kind of been discussing the potential opportunity that the Trump administration might be trying to help the energy sector. And I want to stay on this topic, but I want to switch gears a little bit. So president Trump put a lot of pressure on the Saudis to cut oil back, uh, what a couple of weeks ago, them and Russia, which is OPEC plus, and they agreed to, you know, cut, but they also at the same time didn’t cut nearly enough. And as a result, now we’re seeing, what is it, 40 million barrels heading to Texas, uh, ports for, uh, refineries to head. It’s 50 million. Okay. Thank you for the correction. So let’s put this first in context. How much oil did they send the year before altogether?

Speaker 2: (12:08)
You know, they typically, in a typical month, the U S has imported about four to 6 million barrels per day from, from Saudi Arabia, uh, and Russia combined, um, over the past year.

Speaker 1: (12:21)
What I thought I saw was like 25 to 28 million for the whole entire year. So that’s

Speaker 2: (12:28)
I’m sorry. I was going to say four per month. Not lot per day. I said per day. And so you know, this 50 million barrels of oil is cause an awful lot of work.

Speaker 1: (12:39)
It’s like double what they did for the whole entire year last year. This is so, this is not just, Oh oops, you know, we, we, we drilled a little too much or whatever. This is truly designed to do this. So sure we’ll cut the oil but we’re going to flood the United States with, with oil. And you have written a couple of articles discussing, uh, that the thought is if president Trump comes in and sanctions this oil coming in or turns those ships around, what options does he have? And, and tell us why you think they make sense. If you could talk to president Trump, what would you be telling them?

Speaker 2: (13:17)
Well, he could, you know, we have this thing called the defense production act and, and also the president has the authority to declare emergencies in search certain situations.

Speaker 1: (13:30)
This is an emergency

Speaker 2: (13:32)
and he could, he could issue an executive order, uh, denying all those ships. There’s about 20 tankers, uh, with this 50 million barrels of crude headed this way. He could, he could issue an executive order if he decided it was the right thing to do, you know, uh, denying them the right to land at any U S port or had any U S based refinery that would be controversial. But the reality is one of the big problems. And, and, and of course we saw the price for West Texas intermediate actually go into negative territory one day.

Speaker 1: (14:09)
Oh yeah, yeah. That was historic. It had never happened before ever.

Speaker 2: (14:14)
It has never happened before. And the reason it happened is because we’re running out of storage space, recruit all in the United States. Well, if you let 50 million barrels of Saudi crew that was produced during March and April when they were intentionally flooding the market with oil, if you let that crude land in the United States, what’s going to happen? It’s going, most of it’s going to go into storage because we don’t have enough demand for the, for the oil we’re producing here in the United States. And so it’s just going to exacerbate that issue. I have that the president should, uh, order those ships to turn around and, and force them to find some other port to land in some other country to land them. Uh, because we just don’t need that massive bubble of imports suddenly showing up on our shores right now. It’s, it’s as much a national security issues, anything and you know, it would have the effect of delaying the point in time when U S storage is actually become knowing to become full. And then frankly I think the market got ahead of itself with when the proximate negative, if since that time we’ve had two different storage, two additional storage reports, inventory reports and they both been lower than anybody predicted they would be. And so storage is actually filling more slowly than we thought. And to me it just doesn’t make any sense to allow the soil to land here and really exacerbate what is already a bad situation for this industry.

Speaker 1: (15:57)
If they, if president Trump was to do something such as that, uh, declare an emergency and send the ships somewhere else, they go and deliver somewhere else. Does, how much of an impact does it have globally? Because you know, we’re a global commodity. It may not affect the United States right away and filling up the storage capacity, but would it also have an outcome globally flooding the market with 40 million, 50 million barrels?

Speaker 2: (16:26)
Well, I, you know, I think frankly from a global perspective, the markets have already taken that, you know, that additional production that happened during March and April into, you know, it’s already been rolled into prices

Speaker 1: (16:39)
[inaudible]

Speaker 2: (16:40)
but what had hasn’t happened is it hasn’t been rolled into our storage facilities here in the United States. And that to me is what the president ought to be trying to head off at the pass here.

Speaker 1: (16:52)
Very good. Well, you know we’re getting ready to go to break here, but I did want to get, try to get us on the topic of, so past couple of weeks you and I have covered over and over and over again. There’s some really big changes happening here in Texas too with the Texas railroad commission, which just for new listeners, the Texas railroad commission is actually the governing body of three that are elected that basically regulate the whole entire energy industry and they were asked by emergency meeting from two very reputable oil companies, independence, the pioneer natural resources and parsley energy for an emergency meeting to talk about probation and if the Texas railroad commission could get involved in trying to help the city. This very, very dire situation for the energy industry. When we get back, I want you to try to get us up to speed.

Speaker 1: (17:48)
We’ve, you’ve writing a lot in show magazine on this topic and I want to get up to speed on what exactly is happening currently right now, but we’re going to take a break. You’re listening to in the oil patch trader show and we’ll be right back and we’re back. Our guest today is David Blackmon, the editor of Shale Magazine. Um, David, before the break we were talking a lot about current global things that are happening in DC and with the Trump administration trying to help the energy industry. Obviously Texas is the most vulnerable state, if you will, if the energy industry should completely tank. This great state of ours has a lot to lose because of it. And the Texas railroad commission is the regulatory body that actually regulates this energy industry. And there had been some discussion we’ve covered in the past couple of weeks about them possibly getting involved. Do they have anything in their toolkit to try to help stop this bleeding and help independent operators? And it was a hearing that we both listened to, but it was also a very interesting hearing all day. Give me the updates on, you know, what is happening right now. I believe a commissioner Ryan Sitton who does some of our energy minutes here, put out a blog, get us up to speed on what’s happening with the

Speaker 2: (19:07)
yes,

Speaker 1: (19:08)
with the energy industry.

Speaker 2: (19:10)
Yeah. He, he, uh, the commission will, uh, consider a draft, uh, order that commissioner sitting has proposed. It’s posted at the road commission’s website. What, what, uh, mr [inaudible] has proposed would be a, a a proration 80%. He would limit each operator’s total production in Texas to 80% of what it was in October of 2019. So October of last year when production was very high, a 20% reduction in that, and that would be determined on a monthly basis, um, until commissioners sit and says the commission would monitor global demand until it had returned to at least 85 million barrels of oil per day, which, uh, in January on January 1st crude demand was roughly a hundred million barrels per day. Right now it’s probably around 75 million barrels a day or so. So, so it’d be a short term approach. The problem, um, just limiting production in Texas, trying to delay the overfilling of, of storage capacity until demand begins to really return globally.

Speaker 2: (20:31)
Um, I reached out to all the trade associations in Texas and several other organization gesture day, uh, to gauge their reactions to the proposal. If you remember, all the statewide trade associations were against her rationing as a concept, as the April 14th hearing on this matter. Uh, and again, they all told me that they’re still, uh, their positions haven’t changed, uh, in relation to this specific proposal and several of them including car Ingam, you know, who we have on our show regularly at the Texas Alliance, right. To have, you know, stated their belief that really Texas producers have probably already reduced production by that much already. And maybe more than that, just in the normal course of their business reacting to the market conditions. And so they’re opposed to it in principle and they’re, you know, they think that the market has already reduced production by more than that. So it calmly, you know, it would be, uh, kind of irrelevant at this point. Um, so that’s, that’s where they all are. Uh, commissioner Christian, who’s the chairman of the commission, had an op ed and, uh, Wednesdays, Houston Chronicle, uh, in which he said he would oppose this resolution. Uh, commissioner Craddick has it, uh, written off ed, but I understand she has indicated to people that she’s probably going to oppose it as well. And so I think we should anticipate that the commission will take no action when it hears this proposal on a Mayfair.

Speaker 1: (22:16)
Okay. Well there we go. Um, you know, I want to switch gears and talk about all the carnage that we’re getting ready to see. And we knew it was coming. Uh, we knew we had our, our eye on a couple of operators. And, um, so when we get back from break, I want to talk about which operators have filed for bankruptcy at this point, which ones are probably going to, and then, um, let’s talk a little bit about how many do you believe are actually gonna survive of the independence. Um, and then of course we will look at the trade associations to cause without operators. They really don’t have trade associations I’m assuming. But we’ve got to take a quick break. You’re listening to an oil patch radio show and we’ll be right back and we’re back. You’re listening to in the oil patch radio show.

Speaker 1: (23:04)
Our guest today is David Blackmon, the editor of Shale Magazine and one of our resident energy experts. Uh, David, before the break we were talking, you gave us an update on what’s happening at the Texas railroad commission and the hearings that they had had. Now let’s switch gears. Um, we’re starting to see outcomes now of what we knew was coming and it could be an avalanche of them or we could see a trickle, which companies as of right now have filed for bankruptcy is which ones are getting ready to and how many hundreds or how many bankruptcies we’ll be seeing the coming months. You might pull out your crystal ball.

Speaker 2: (23:45)
Yeah, it’s, there will be a lot of bankruptcies. Um,

Speaker 1: (23:49)
like when you say a lot, are you talking about like a hundred? Are you, are we talking about 30?

Speaker 2: (23:54)
If you’re a member in 2015, 2016, we had about 200 upstream companies declare bankruptcy during that bust. I suspect this bust will be that bad or worse. Um, last week we saw diamond offshore drilling company, one of the big offshore drilling companies in the country declared chapter 11. Um,

Speaker 1: (24:19)
so they’re reorganizing,

Speaker 2: (24:20)
just they’re reorganizing due to the crash. Uh, on Thursday morning news broke that just peak energy in Oklahoma city is about to declare bankruptcy.

Speaker 1: (24:32)
Now are they doing an 11 two or are they just going to,

Speaker 2: (24:35)
I assume it will be a chapter 11 reorganization, you know, and that one’s not surprising. Uh, Chesapeake has been teetering on the brink of bankruptcy for several years now. They have, you know, their management team has worked really hard to avoid it. Um, and I had hoped, you know, they had a big of percentage of their all volumes actually heads this year at about $50 a barrel. And I’d hope that would, uh, help them weather the storm. But apparently that’s not going to happen. And so they’re, they’re going to have to go through bankruptcy. And that of course will mean more layoffs at that company. And you know, this is just the tip of the iceberg with prices this low for any extended period of time. Uh, you have so many of these companies that were already, you know, struggling to be profitable that $50 a barrel. And when you’re talking about, I guess today it’s $17 barrel, uh, well, you know, that’s a 75% reduction in profits. It’s also a big reduction in your revenue. So, um, I, you know, I hate to speculate, name any companies that you expect to declare bankruptcy because you hope and pray they can all avoid it, but, uh, you know, many of them won’t be able to. We just have to realize that and it’s going to be a very difficult time for the next several months here, here in the old business.

Speaker 1: (25:59)
And you know, a lot of, I think a lot of people, not of course not our listeners, but a lot of people don’t realize it. So yes. So, Oh, the energy industry, we hate big oil. Anyway. And so what are they get laid off? Maybe they’ll shut their doors and not drill, but then it has this trickle down effect to those people too. And so quickly just tell us what happens when all these people start getting laid off to the state of Texas.

Speaker 2: (26:29)
Well, it, it, you know, obviously it, it creates a real unemployment problem here in Texas. Uh, people who, who can’t work and you don’t have jobs end up losing homes and uh, you know, um, you have a lot of lenders who have loaned money to those folks. They’ll have consumer debt that doesn’t get paid, and bank debt that doesn’t get pays. Car’s getting repossessed, you know, and it, it, it also just devastates the state government. Here in Texas, you’re going to have severe reductions in sales tax collections, uh, in the state of Texas. You can have severe reductions in the state service tax on oil and gas, which funds the state’s rainy day fund, by the way. And it diminishes the ability of the state government to balance its budget without cutting jobs out of this state.

Speaker 1: (27:23)
So now we’re talking about school teachers. And blind riders,

Speaker 2: (27:27)
school teachers, and you know, the state of Texas has to fund Medicaid programs and other health care programs and education programs of various sizes and types. So just did this and, and, and the other thing that gets killed is the local businesses, the cafes and restaurants and clothing stores and convenience stores in these communities that have seen all of this oil and gas activity over the past several years. You know, all that activity is going to really die down very drastically, and that means their revenues are going to go down and they’re going to have to lay people hop in. So it just becomes this, this cascading negative impact throughout our whole Texas economy that is going to create a very difficult business environment

Speaker 1: (28:17)
for everyone, for everyone.

Speaker 2: (28:20)
So it’s never anything to celebrate with any company that goes bankrupt, whether it’s in your business or any other business. And because ultimately it’s going to come back and impact you some way.

Speaker 1: (28:32)
Let’s switch gears and talk about kinder Morgan and, um, Williams. They, uh, uh, another pipeline company. They were trying to merge and it failed. What happened there?

Speaker 2: (28:44)
Oh, no, it wasn’t kinder. Morgan’s energy transfer.

Speaker 1: (28:48)
Oh, I’m sorry. Energy transfer. I don’t know why. Yes.

Speaker 2: (28:51)
Yeah. And uh, yeah, they, so yeah, there’s an interesting story this week, uh, about these two companies, energy transfer and the Williams companies that, you know, had announced the merger plan back in 2016 and then pop, they have an agreement done and then, you know, Williams ended up pulling out of the agreement because it CEO didn’t believe it would add value to the company. And, uh, energy transfer is seeking a billion dollar separation payment from Williams, uh, as a result. And it’s a big lawsuit. It’s an, it’s a very interesting story. Um, that, uh, you know, his book was published by the market Institute and, and I, I just think it, it, it kind of boils down to who do you want believe in this, if this, whether you believe William’s management or energy transfers management as to who was really to blame for breaking up this deal. Um, the market Institute, uh, lays a lot of the blame at the foot of Williams and its management and is highly critical of their management. But you know, um,

Speaker 1: (30:04)
don’t you do that, don’t you do that research beforehand before you start engaging in something? You, you kind of look at that and set those parameters right. It does. Remind me of the Baker Hughes and Halliburton deal. Um, and so it’s, it’s a little different, but it’s similar of a breakup that’s very, very costly, a very, very costly divorce. If you will. We’ll be right back. You’re listening to and the oil patch radio show and we’re back. You’re listening to in the oil patch radio show. Our guest today is David Blackmon, the editor of Shale Magazine. David, let’s switch gears as we close out our last segment and talk about oil prices. Uh, we, I love to talk to the oil price. I’d love to talk to you about all prices because you know, over 30 years in the business you really do have a feel for and a pulse in what’s happening and, um, all prices, they actually were looking fairly positive, um, for late this year. Can you, um, let’s talk about that because there’s also been articles that have come out talking about, uh, USB is predicting that oil prices will spike to 115% by the end of 2020. And that’s of course a dramatic reversal from the current crisis we’re in right now. And of course, you know, I think everybody’s probably on their hands and knees praying for that, this article to be correct, but I want to get your opinion on this. Like how likely is the spike coming?

Speaker 2: (31:34)
Oh, yeah. I think it’s very likely actually. Um, yeah. And, and several, uh, forecasting outfits, uh, Morgan Stanley and Goldman Sachs and others have also projected similar, similar kind of outcome. And when you, when you just do the math, you know, right now, uh, you know, starting in March and, and, and through the end of may, things are very bleak. We’re in this trough where we’re global demand has really fallen off a cliff for crude all because everybody shut down their economies to deal with the coronavirus pandemic, including the United States. But, but you know, China is already pretty much restarted their economy. It’s, it’s up and running. Several European countries are also ahead of us, uh, in restarting their economies. The U S economies in various States are beginning to restart. As you’ve mentioned earlier, BF, you know, we’re getting going in Texas again and then really States all over the country.

Speaker 2: (32:38)
And so as these economies restart the demand for crude all is also going to do, are people going to begin driving more and eating, you know, using more petroleum products to heat their homes and all the myriad ways we use petroleum products so the mayor is going to ramp up fairly rapidly. At the same time though, we’ve had this new OPEC plus agreement where they’re there, they’ve agreed to reduce their own production by 10 million barrels a day. We’re probably going to end up reducing U S production without any intervention by the room commission by upwards of 5 million barrels a day. Just in the United States. Canada’s home production has dropped off by at least a million barrels a day. And so you’re taking an awful lot of crude supply off of the market and at the same time demand is going to begin ramping back up and when you look at the rice, that energy report that was released last week there, they’re projecting it’s going to be back to 85 million barrels a day of demand by August.

Speaker 2: (33:44)
Well the world probably today as of today is only producing maybe 85 million barrels a day and so those that supply and demand curves are going to cost sometime in August or September and suddenly the price is going to begin going back up fairly rapidly. I think by the fourth quarter it’s probably going to be over $40 a barrel and by the first of the year when six to center me, it’s going to probably be right back to $50 a barrel where it was on January 1st of this year. So yeah, we are going to have a pretty significant rebound in prices. And if, if, if you ask production doesn’t ramp up very quickly and I don’t think it will, I think they’re going to see this rig count remain pretty low for the rest of this year frankly. Um, uh, then you could see a real spike in crude prices in the fourth quarter of this year and the first quarter of next year up well over $60 a barrel. So I, I just think, you know, it’s bleak right now. We’re in this terrible situation with very low demand but this is not a longterm thing. This is a phenomenon that’s going to last a few months and then we’re going to go right back up again. And um, so

Speaker 1: (35:12)
cause it was kind of selfish

Speaker 2: (35:15)
companies from having to go through bankruptcy. Unfortunately it’s not going to happen that fast. But you know, if you’re still around and in business come January you can be in a pretty good situation. Again,

Speaker 1: (35:26)
that peaks my interest on the potential possibility in the future. So if this is going to be a very bleak year but here comes 20, 21, it’s come baby do is do we, do you think that the United States once again is going to be back where we are, where we’re continuing to just fill those pipelines up and here we are again. Everybody’s flooding the market again. I mean it, it seems like a never ending cycle and I don’t see a mechanism to stop this. It’s going to occur again

Speaker 2: (35:59)
the mechanism there is a mechanism that could mute it and that is the room condition. Um, taking a longterm, uh, to proration and like pass railroad commissions have done and using proration in their authority to limit or production in Texas to kind of smooth out these boom and bust cycles. Because there are real fundamental issue in the United States is that our Shale business is competing with all of these other countries for market share on the global market. And we have a business model that says, okay, all these other countries are going to keep cutting their own production and their own incomes so that we can drill a bunch more Wells and take more market share here in the target States. And as we saw in March when Russia and Saudi Arabia blew up the OPEC plus deal on March four, eventually those other countries are going to say, no, we’re not going to cut anymore. Right. And so now we’re going to go right back into that same cycle again because none of the States, and it’s not just the railroad commission, state regulators in North Dakota and Oklahoma and New Mexico and Wyoming as I’ve written many times at Shale Magazine have similar authorities that the railroad commission and the state regulators could if they chose to do so, use those authorities to, to smooth out these boom and bust cycles by limiting us production. But you know, that um, doesn’t appear to be anyone really thinking along those lines.

Speaker 1: (37:45)
Yeah. Maybe it’s that no one really seems to have the appetite for it. But looking at it long term, it’s, we’ll be back here again w you know, in the new year we’ll know, we’ll be, we’ll be back here again and we’ll push the Saudis and the Russians patients one more time. Um, and we’ll be back where we were. David, that is all the time we have for this, uh, week show and I thank you so much for coming in and breaking everything down for us cause there is a lot happening. Uh, and we look forward to reading your latest article in which, uh, the cover for show magazine is Tracy Bentley, the president of the Permian basin, uh, strategic partnership. For more information for our listeners, if you want to catch up with David, right David or read his latest article and of course shall magazine’s issue, please visit shale S H a L E M a g.com. Again, that’s shale mag.com. David, thank you once again for being on our show. Thank you for having me.

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