Running On Empty ft. Wil VanLoh
Episode Stats
Words per Minute
184.24966
Summary
Ted Cruz speaks on the global pandemic, the collapse in oil prices, and why we should not be celebrating the temporary dip in gas prices. He also talks about his recent trip to the White House and his recent meeting with the Saudi Ambassador.
Transcript
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And over 17 million Americans have lost their job.
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And global energy markets crushed by collapsing oil prices.
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These are extraordinary times in which we live.
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You're starting us off on a little bit of a downer there.
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I want to focus in on something you said there about the energy markets.
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Because last I checked, oil was trading at something like $22 a barrel.
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And I think for most people, the interaction we have with the oil industry is when we fill up our gas tanks.
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So low oil prices are not necessarily a bad thing when we look at it.
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Well, I think right now we're facing three different crises all at the same time.
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We've got a global pandemic, the coronavirus crisis.
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And we're taking extraordinary steps to try to stop the spread of that virus.
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A disaster, 17 million people in the last three weeks have filed for unemployment.
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We've seen entire industries decimated, and that's producing enormous damage.
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But at the same time, you've got energy markets.
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And in particular, the global price of oil has dropped more than in half.
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And the consequence of that is it potentially risks bankrupting most, if not every, American energy producer.
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And particularly in my home state of Texas, that's devastating.
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But if you end up seeing American energy producers driven out of business, that also has massive implications in terms of you and me paying higher prices at the pump in years to come.
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And also geopolitically, making us dependent on foreign countries in a way that we just now managed to get free and independent from.
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So what you're saying is we shouldn't be celebrating maybe a little dip in the gas prices right now because in the long term financially, that could really hurt us.
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And also it has these national security implications that look pretty bad down the road.
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I just want to point out something you said, Senator.
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You said you flew out and met with the president.
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You met with the president specifically because of this energy crisis.
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On Friday, I got on a plane on a United commercial flight that was practically empty.
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Flew up to D.C., went to the White House, had a two-hour meeting.
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And we're all from states that are big energy producers.
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And we started by writing a letter to the Saudi ambassador.
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Then a couple of weeks ago, we did a conference call with the Saudi ambassador, nine of us.
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I got to tell you, it was the most bare-knuckled, candid conversation.
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I've ever had with a foreign leader in eight years in the Senate.
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Can you give us a little behind the curtains here?
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And so we're on a conference call with the ambassador.
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I said, listen, no state in the union does more business with Saudi Arabia than Texas.
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And right now, you're taking advantage of a global health pandemic to try to screw and
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And the 13 of us who signed on to the letter, as a matter of national security, have consistently
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Iran and the Ayatollah are really dangerous for national security.
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But I said, listen, you know, we've been with you, but you're now trying to bankrupt people
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They sound like the mainstream media for the last three years.
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How about we pull up all our soldiers out of Saudi Arabia?
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We pull our Patriot missiles out there because every time someone screws with you in the Middle
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East, you pick up the phone to call the American military and say, save our asses.
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And I got to tell you, it was interesting that call.
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Now, that is an $18 billion private equity energy fund.
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Quantum is the third largest driller in North America.
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And I got to tell you, Will is someone who knows the energy markets as well, if not better
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And so in the last couple of weeks, as I went up to meet with the president and major energy
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CEOs last week, Will was someone we literally spent probably six, seven hours on the phone
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trying to understand what's happening here and the real threat to jobs and to energy security
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Will, for so many years, we complained about how we're dependent on the Middle East for energy.
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And yet this technology helped to lead us away from that and get us to what I guess we'd call
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energy independence until maybe five minutes ago.
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And I think that is a huge, when you think about, the United States has had more wells
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drilled in it than the rest of the world combined.
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That's a pretty amazing statistic to think about.
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And when it comes to shale, do we have a lot of it here?
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Probably 95% of all shale production in the world is in the United States.
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Now, there's other parts of the world where there's a lot of shale, but those are parts
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of the world that typically have a lot of conventional oil and gas as well.
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And if you don't need to drill, it costs more money to drill wells unconventionally, horizontally,
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So places like in the Middle East, where they have a lot of conventional production, they
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So the last 10 years, we have this technological innovation.
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We discover how to access massive reserves that were there, but we didn't know how to get
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Look, I think a lot of people think of energy, and they think of big oil.
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They think of a couple of giant companies, Exxon and Shell, and these giant companies.
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No, and that's the interesting thing, because so much of the dialogue right now in Washington
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is involving the Exxons and the Chevrons of the world.
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And there are certainly big players in Shell today, but they didn't drive the innovation.
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It was actually the independents that drove that innovation in the United States.
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Well, an independent is basically an oil and gas company that's not a major.
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So the majors are typically integrated companies.
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They're the largest companies in the world in terms of publicly or privately owned, outside
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I mean, some of them, they have GDPs that rival companies.
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Like Exxon, for example, they produce over 4 million barrels a day, right?
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There's only a handful of countries in the world that produce over 4 million barrels a
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But the shale revolution was started and driven by independents.
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And independents, you're talking, you and I both spent a lot of time out in Midland, Texas.
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You're talking sometimes 5, 10, 20 guys in a little office who were raising some money
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and going out and drilling holes and innovating.
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That's what drove this entire revolution and changed the entire geopolitics?
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And to be fair, the technology was probably driven more by the larger public independents.
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Companies like Chesapeake, companies like Pioneer, those types, they drove the technology.
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But the smaller independents were very quick to get in and really take that.
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And they're much more nimble than the public companies.
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So they take the big technology revolutions and then they do a lot of evolutionary changes
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And they get it out there very quick and they're able to access large amounts of land.
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And so the independents, both the public, the larger public independents, as well as
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the thousands of smaller kind of mom and pop independents, they're really the ones that
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have made this independence of energy possible in this country.
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Bill, I don't want to rain on your parade here, but this sounds too good.
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This sounds too good to be true right now because you've got this great energy revolution
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You're empowering so many people, American ingenuity, and then the prices all plummet.
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Prices plummeted from about $60 a barrel at the beginning of the year down to about $20
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But let's not forget before the shale revolution started in 2008, oil was $147 a barrel.
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And through American innovation and ingenuity, we were able to get the cost.
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Initially, these shale wells were very expensive, and you didn't recover a lot of hydrocarbon.
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And through a lot of science, through a lot of just innovation and trial and error, we were
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able to meaningfully perfect, if you will, the way we drilled and completed these wells.
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And we got the cost down to a level where at $50 to $60, the U.S. oil and gas companies
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And the industry for the last four or five years has been chugging along.
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What does that mean in terms of a gallon of gas, a gas pump?
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And understanding a lot of the cost of gas is actually taxes, right?
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So $3 to $4, depending on the state and city you live in, is what $50 to $60 oil transit is.
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So Michael will pay a lot more in California than we will in Texas.
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Although I don't know that you need to fill your electric scooter, Michael, so that may help.
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We actually just run on moonbeams out here, so we don't need any sort of energy.
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So what I'm hearing, though, is you don't want the price of oil to be so expensive that
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But you also don't want the price of oil to be so low that you put all of these companies
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What are the odds that we're going to be able to get back to that before the American
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One was Saudi and Russia have decided they were going to basically launch a market share
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And as Senator Cruz said a minute ago, you know, the U.S. went from being a huge energy
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You know, we imported more than 12 million barrels a day less than a decade ago to literally
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over the last six months or so, we given on any given week, we will export or import
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So we'll be a net exporter or a net importer of maybe 100 or 200,000 barrels, right?
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And so that, if you think about that and you think about the impact on our economy, that's
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depending on the price of oil, but say at $50 oil, that's about $250 billion a year that
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oil and gas industry has created additional revenue, the taxes that come off of that,
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the millions of jobs that were created out of that.
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How does that, whose jobs are we talking about here?
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Well, we're talking about very high paying middle and upper middle class jobs.
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We're talking about engineers, geologists, geophysicists, production engineers.
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We're talking about a lot of jobs out in the field.
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So for both lots of blue collar jobs, but also a lot of white collar jobs.
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So if we lose American energy production, if these companies go bankrupt, we're still
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When the economy comes back, we're still going to drive our cars, we're going to fly airplanes.
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And so if the American companies are bankrupt, where are we going to get our energy?
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And that's from foreign sources like the Middle East, like Russia.
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And that's really, to me, Senator, that the key question the U.S. has to ask itself is,
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And the answer to that question, all policy will flow from whether the answer is yes or no.
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Sorry to interrupt, Will, because most people, I think, want that energy independence.
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That's what we always hear our politicians talking about.
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But what you're describing is the problem here.
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I just assumed it was all the coronavirus that's upsetting all the global markets.
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You're saying there's something else in play, which is this price war between Russia and
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I mean, is that related to the virus or is that a totally separate issue?
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And to be fair, the demand destruction that's associated with coronavirus is a much bigger
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If I understand it globally, the demand for oil in normal times four months ago was between
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As a result of the economy slowing down and grinding to a halt in the U.S. and globally,
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it's dropped to about, what, about 70 million barrels a day?
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There's a lot of different estimates out there, but I'd say they range anywhere from a 20 to as
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much as probably 35 million barrel a day demand destruction.
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So that would say somewhere between 65 and 80 million barrels a day is currently what
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Well, that's everybody's car sitting in their driveways and everyone's airplanes staying parked
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at the hangar and nobody flying and very few people driving.
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And to put that into context, during the great financial crisis, total global demand dropped
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by only about two and a half to three million barrels a day.
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So we're looking at 10 times as much reduction in demand now as during the financial meltdown.
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But then you've got a second component, which is you have the Saudis and the Russians, right
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It's deciding this is a great opportunity to screw the Americans, to bankrupt the American
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And listen, what you're doing, drilling in West Texas shale, the Saudis and Russians have
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hated it because you pass them up with America as the top producer.
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And so they're sitting there, if I understand this right, they're taking this as an opportunity.
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Let's bankrupt them so that when all is said and done, we're the only players left in the
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Senator, if you think back to when the oil shell revolution started and you look at total
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global supply growth since then, so about eight or nine years ago, 80% of total global
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supply growth has come from the United States of America.
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That's a country that today produces about 13, 14%, maybe 15 if you add in all the NGLs and
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But let's see, the U.S. today produces about 15% of global liquid supply, yet we've accounted
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for 80% of total global liquids growth over the last decade.
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And that challenged OPEC supremacy and it challenged Russia supremacy.
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And it also helped, if I understand right, drive the price down quite a bit.
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If, had the U.S. share revolution not happened, think about we were at $147 a barrel and that
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Prices probably would have gone a lot higher from there.
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And so that huge drop in what Russia and Saudi, I actually think that they may not have chosen
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to launch this price war had it not been for coronavirus.
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Because both countries, if you look at their ability to, how long can they go with low oil
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You know, Saudi today is much worse equipped for a long price war than they were back in
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2014 during the last big collapse in prices, right?
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Because they've depleted a lot of their sovereign wealth funds.
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And their break-even cost today is probably $80 a barrel.
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And what I mean by that is they fund their entire government out of their oil revenues.
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Whereas Russia's is only about $40 to $45 a barrel.
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What they're doing used to be what we would call an antitrust law, predatory pricing.
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In that they're, when they flooded the market with oil and they announced they were going
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to do that and drove the prices way down, they were taking a big hit themselves, but
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they were doing it to bankrupt their competitors and then sweep in and dominate the market.
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Let me pause for a second and kind of play devil's advocate.
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You mentioned two technological innovations that helped us access all these massive shale
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One was horizontal drilling, but it was combining that with hydraulic fracturing, fracking.
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Look, fracking, I've heard a lot of scary things on the internet about that.
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You can light the water on fire, that's what they say.
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Should I be worried that fracking makes it dangerous to drink the water?
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You know, there's probably not a bigger set of environmentalists in terms of people that
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like the outdoors, that like the water, that are, you know, really love the earth than
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people, the good people you'll find in the oil and gas business, right?
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And I think there is, you got to remember when we frack a well, these wells are anywhere
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between eight and 15,000 feet below the earth's surface.
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The surface water that people drink is anywhere from 50 feet to maybe three or 400 feet below
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Now that's not that far down, that's the water table.
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That's where the water is that we get our drinking water.
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And 10,000 feet, if my math is right, that's two miles.
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So where you're doing this is two miles away from the water.
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So my daughter, Caroline, you know, Caroline, she's 11.
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And she actually said to me last night, she said, you know, everything that's happened
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in this crisis has been really good for the environment.
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If we have no production, if all human activity stops, that would be good for the environment.
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What happens if all these independent energy producers go out of business, the economy
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gets going again after the crisis, and we're dependent once again on the Middle East for
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You know, it's a great question because I think so many people think, you know, hey,
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let's put the U.S. oil and gas producer out of business because oil and gas is bad for
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But that doesn't mean people are going to stop driving their cars.
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It doesn't mean people are going to stop flying in airplanes.
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It doesn't mean people are going to stop buying iPhones, which, by the way, take hydrocarbon
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Everything we have in our modern life, Senator, revolves around hydrocarbons in some form or
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We will just shift the source of where we secure those from, and we'll go back to where we were
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a decade ago, which is sending hundreds of billions of dollars overseas to people that,
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We will lose significant geopolitical influence.
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And if I remember right, an awful lot of the 9-11 terrorists who attacked us were from
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And so fueling the Middle East with billions of American dollars is not good for keeping
00:20:49.840
If you think about the biggest growth engine in U.S. jobs coming out of the great financial
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And the tens, if not hundreds of billions of dollars in taxes that the energy industry
00:21:01.980
pays every year to school districts, to other municipalities, hospitals, building roads,
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No, there's a number of other places throughout the United States, both.
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You've got the DJ that's in Colorado, the powder that's in Wyoming.
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You've got several plays in the scoop stack in Oklahoma.
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Well, as I say, on the gas side, the largest gas field in the United States, really one
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of the largest, maybe the largest in the world, sits under Pennsylvania, West Virginia,
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But of course, we don't want the industry to go out here.
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I just, I see, Will, your point that this is all over the United States, that we're talking
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about a lot of jobs and a lot of industry all over the place.
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I mean, looking down at this crisis, you've got the markets collapsing, rather.
00:22:15.320
Well, you know, I think we have, again, we have to start with, we got to decide we want
00:22:20.200
to fix it, because that is, part of the issue is obviously the Saudi and Russian, what they've
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done in trying to flood the market with additional barrels to drive down prices.
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But the other, but the much bigger issue in the short term is obviously demand destruction
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They're just revenues will not exceed their, their expenses.
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But the other thing we have to also look at as an industry is.
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And that's just simple math that, that, that, that it costs a U.S.
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And so $20 a barrel, it doesn't work if it costs twice as much as the price to produce,
00:23:04.680
At these prices, there's not probably, you know, less than 5% of all locations in the United
00:23:14.940
That's, well, Michael, you know, one of the things, I mean, you asked, what do we do about
00:23:23.020
We get our economy going again, but there's also a component of it, the foreign policy component.
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I'll tell you, and you and I have talked about this.
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That's something I've been really active in is taking on the Saudis.
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In my office, I brought my national security team in.
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I said, all right, I want a list of steps we can take to ratchet up heat on the Saudis
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We looked at things like sanctions on individual, uh, officials in, in the Saudi government that
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had directly targeted American businesses and said, if you're going to wage economic
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warfare on us, well, well, welcome to the game.
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And, and you better be prepared for the consequences.
00:23:58.680
Rewind to last week, Friday in the Oval Office meeting with the president, the president had
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spoken in the, in the preceding week, both to Putin and MBS, the head of Saudis.
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I talked to the president a couple of weeks ago and his instinct is actually where you
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He was like, well, you know, aren't low, low oil prices good.
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He's a real estate guy from a consumer's perspective until I and others started exploring.
00:24:28.680
Listen, we're looking at millions of jobs that go away.
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And if we destroy America's producing capability, it makes the bad guys who hate us more powerful
00:24:41.820
Well, what the president said is, is that MBS and Putin had agreed to, to, to stop flooding
00:24:51.540
He tweeted out two weeks ago, they were reducing their production 10 million barrels a day.
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That resulted in oil, just that announcement going from 20 bucks a barrel to 27.
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In the white house meeting, what he told us is he said, it's actually going to be more
00:25:10.540
And just today, the news broke that they're talking about 20 million.
00:25:15.180
Now the proof is in the pudding and we'll see if they actually do it.
00:25:19.220
But if they stop flooding the market, if they pull back, that will help.
00:25:24.500
Problem won't get solved until the economy comes back and people are able to drive their
00:25:30.960
But, but, but if Russia and, and the Saudis follow through and, and, and stop flooding
00:25:37.920
In the meantime, before the economy comes back, if they're talking about cutting daily production
00:25:45.640
How much do we need to actually see an impact on the American energy sector?
00:25:51.320
So, you know, going back again, I think there's somewhere between 25 and 40 million barrels
00:25:58.520
And, and so look, is 10 or 15 or 20 million barrels a lot?
00:26:04.440
It's nowhere close to what we need to really balance supply and demand.
00:26:08.820
And the fact is, is prices were cratering long before this, you know, it became apparent
00:26:15.640
of how bad, because most of the price drop happened when people were thinking demand destruction
00:26:22.780
Historically, if a producer, like if OPEC were to flood the market, even with a couple
00:26:27.340
million barrels a day of excess supply, meaning only a million or two million barrels difference
00:26:31.360
in supply and demand, prices would drop in half.
00:26:34.920
So what we're talking about here is it's, it's a number that's really irrelevant.
00:26:39.680
Number one, number two, there's a conditionality on everything Saudi and Russia, Saudi and Russia
00:26:48.380
So for the econ wonks out there, there's, there's high price elasticity.
00:26:54.680
And, and if you, and Saudi and Russia both said, if, if we're going to do these cuts, we
00:27:00.020
want contributions from all the major exporting countries in the world.
00:27:04.420
Including the U S including Norway, including Mexico.
00:27:08.260
So there's all these other countries that they want to participate in this.
00:27:13.500
The U S is not going to deliver a production cut.
00:27:16.360
Now he has talked about, there's going to be natural shut-ins and declines, and that is
00:27:21.940
The question is, is that going to be good enough for the Saudis and for the Russians?
00:27:25.900
The other thing though, to keep in mind is every time OPEC or OPEC plus has said, we're
00:27:32.100
There's generally speaking, not great adherence to those cuts.
00:27:35.600
So they may say they're going to make a cut, but the actual cuts usually are much less.
00:27:40.120
So trust, but verify, and maybe even don't trust.
00:27:44.440
Because it's an important issue to, to, to understand.
00:27:47.500
And, and this is something you and I have talked a lot about, and it was the one deliverable
00:27:51.100
that came out of the white house meeting last week.
00:27:55.280
We talked about pressuring the Saudis and Russians.
00:27:57.840
That seems to have produced some results, but we also talked about access to capital.
00:28:01.900
And, and, and this is a piece where, where I think a lot of people don't understand
00:28:07.520
Wall street, the last couple of years has been cutting off more and more capital to
00:28:13.400
There, there, there's, there's a movement called the ESG movement, which is putting pressure
00:28:16.700
on wall street to say, we're not going to fund American energy producers.
00:28:21.900
And the consequence of that has, has, has been really significant.
00:28:32.160
You're in West Texas, you're in New Mexico, you're in Colorado and you're in Pennsylvania
00:28:46.600
And what would that, how would that impact you?
00:28:49.120
So in any oil and gas business, uh, companies obtain capital from banks and what's called RBLs
00:28:57.160
And those RBLs are redetermined every six months.
00:29:03.200
They go issue debt and it's seven, 10, 15, 20 year debt.
00:29:06.200
They don't have to think about refinancing or having that debt called for a very long
00:29:11.180
The independent producers in this country, the vast majority of them can't access that
00:29:17.920
And so they go to banks and the bank loans, if they get redetermined every six months.
00:29:22.060
So historically it's been a very symbiotic system and the banks understand the importance
00:29:26.380
of the business and they understand, you know, they, they loan companies money and they're
00:29:29.680
not going to change it a lot quickly in terms of the amount they're loaning them.
00:29:32.900
Well, what's happening now because prices have dropped so much and the banks have, have
00:29:38.140
actually had some significant losses on those RBLs.
00:29:41.660
They've made a decision that are going to significantly tighten the amount of credit to the sector,
00:29:46.040
but they had made that decision really before this price drop.
00:29:50.240
They've been getting a lot of pressure from, you know, ESG centric groups.
00:29:57.440
It's, you know, killing the, killing the climate.
00:30:03.000
Here's the fallacy of that Senator is, as we said earlier, unless people are going to
00:30:07.840
quit driving cars and flying in airplanes and buying products, they're going to keep
00:30:16.340
And I want to make an analogy to, to, to say a home mortgage, uh, let's say you've got
00:30:24.840
So, so you get a mortgage, let's say for $350,000, you're paying your mortgage and it's based
00:30:32.460
Now, now drawing that analogy to, if you've got an energy producer, they get a loan based
00:30:37.560
on the value of their reserves, the reserves that they're, they're producing and going to
00:30:42.160
But you said in the energy business, every six months they come redeterminate.
00:30:47.200
So what that would mean, if you think about your home mortgage, you got a $350,000 mortgage
00:30:55.840
Suddenly the bank comes to you six months later and says, Michael, your $400,000 house, we
00:31:09.660
That is literally, we're hearing stories every single day about banks going to companies
00:31:16.020
and saying, you need to put equity in and pay down this loan, or we're going to throw your
00:31:22.520
And, and so in terms of deliverables from the white house meeting, what, what I suggested
00:31:26.440
to the president on Friday, I said, Mr. President, there is a real problem with the banks cutting
00:31:31.900
off capital to these American energy producers and ending American energy production.
00:31:36.280
And, and we need to make sure that, that energy is not discriminated against.
00:31:41.540
And, and so I suggested to him, Mr. President, you should ask the energy secretary, Dan Bruyette,
00:31:47.080
who is a Texan and a good friend, ask him to work with Steven Mnuchin, the treasury secretary,
00:31:52.220
to work with the bank regulators, to make sure that the banks are not discriminating and
00:31:59.080
bankrupting these energy companies in America and causing millions of people to lose their
00:32:05.980
He directed Dan, Dan was sitting in the meeting, make it happen.
00:32:09.340
I can tell you, I've spoken with Dan almost every single day since then, uh, in order to
00:32:16.060
make sure that we just have the capital so these guys can survive.
00:32:19.760
Well, that's great news because it does seem from what I'm hearing, like it's one damn thing
00:32:24.340
after another that the American energy industry has to face.
00:32:30.260
We're running out of time here, but I suspect we're running out of time to solve this problem.
00:32:35.180
Will, do you have any sense of the timeline here before we reach a point at which we can't
00:32:41.140
Well, if you think about the amount of capital that it took to, to basically get the shell
00:32:46.520
revolution to where it is today, it's about a trillion and a half dollars.
00:32:51.040
And that capital, a lot of it was not spent very efficiently and public investors lost
00:32:58.340
a lot of money over the last decade on their investments in the energy space.
00:33:01.980
The problem is today is that magnitude of capital will never come back to our sector again.
00:33:07.720
And so if we lose the momentum, the problem with shell wells is they come on at prolific rates,
00:33:16.020
And so what's going to happen over the next 12 to 18 months is U.S. production will decline
00:33:22.160
probably two to two and a half million barrels a day.
00:33:31.860
And if you shut in those wells, we don't know if you could open up again.
00:33:34.680
Well, you'll open them up, but there's a big chance you've damaged the reservoirs.
00:33:41.140
But the bigger problem is that shale is very expensive to develop.
00:33:49.040
And the more you produce, the faster the treadmill goes.
00:33:52.360
And you've got to keep reinvesting and reinvesting and reinvesting.
00:33:55.600
And as soon as you break that cycle of reinvestment, you can never get back up unless you put
00:34:00.600
a lot of outside capital back into the system again.
00:34:03.980
So for every dollar that came in the door, the energy industry was spending about $1.50.
00:34:09.560
That's how we grew production from 5 million barrels a day in 2010 to 13 million barrels
00:34:18.180
And, but, but now that that cycle has been broken.
00:34:25.320
So you ask the question, how much time do we have?
00:34:27.800
And that's, that really is the critical, critical question.
00:34:30.840
In terms of this crisis that's hitting the energy sector and the American energy producers,
00:34:35.160
I got to tell you, for me, this is very personal and real.
00:34:44.980
When I was a kid, my parents owned a small business and it was in the oil services world.
00:34:52.540
So my parents are both mathematicians, computer programmers.
00:35:12.320
I still remember the Monday where he had to lay off 19 of the 25 employees.
00:35:17.360
He came home, I, it, it, he, I've never seen my father look as unhappy.
00:35:23.740
He looked like he'd been beaten with a stick and he had employees arguing with him going,
00:35:32.280
And he said, look, I don't have the money to pay you.
00:35:44.500
And it's, uh, look, I, I've lived through that firsthand.
00:35:47.820
Well, you know, it, it really shows you that in the price of oil, there is a whole lot
00:35:56.420
There's an entire sector of the American economy that's being destroyed.
00:36:03.120
Unfortunately, we are out of time, but thank you, Will.
00:36:09.760
I mean, it really brings it home on a personal level and we'll see.
00:36:13.040
Thank you, by the way, for your leadership and going to the president, trying to turn
00:36:17.340
We will just have to wait and see in the coming days.
00:36:19.680
Hopefully we turn it around before it's too late.