If you missed our interview with Mark LaCour (Episode 1 of The Global Energy Leaders Podcast), here is a transcription below.
Ryan Ray: Well, Mark, you know, when I started this podcast i was hoping to get on big names, but I felt like bringing you on for the first episode I've almost peaked. Thank you so much for coming on, and it's good to have you on.
Mark LaCour: Yeah. Awesome to be on, Ryan. You know what, Ryan? Hats off to you for pulling this off. This is awesome. I can't wait to see you be successful.
Ryan Ray: Well, I appreciate that. Let's get right into it. This is being recorded just a few days after the US presidential elections. What are your thoughts? There's been a lot of debate on the Trump and Hillary, and we don't have to get into the social side of the things, but just from an oil, and gas, and energy perspective what are the markets telling you right now?
Mark LaCour: It's funny. The Houston Chronicle called me the day after the election to ask me the exact same thing. From an energy point of view this guy's on point. He is opening up federal lands to drilling. He's going to remove the teeth from the EPA. He's going to rescind all the stuff that the current administration has in place that hurts the oil and gas industry. Let me tell you something that's really, really cool that nobody quite gets yet. His interior secretary on his cabinet is going to be Lucas from Lucas Oil. His energy secretary is going to be Hamm, the CEO of Continental Resources. For the first time in over 30 years we're going to have people that are in the driving seats of our national energy policy that actually work in the energy industry. They're not politicians. You know how big that is when you actually have people that work in the energy industry now looking at the rules and regulations? We haven't released our forecast yet for 2017. That's going to happen at the end of this month, but one of the things we think's going to make it is for the first time in the unbelievably long time, since the 70s, we're going to have a government in place, both from an executive leadership and from a house and senate, that is pro oil and gas and pro energy. You're going to see legislation get changed. You're going to see all of the handcuffs that they put on us, you're going to see a lot of them removed, which is going to lower the cost of doing business. In this long term hydrocarbon abundant world it's going to be good. It's going to add margins to everybody's bottom line. You know, just strictly speaking from an energy point of view, this guy is going to make some things happen.
Ryan Ray: Well, you mentioned something there I want to touch on actually. Lowering restrictions to make business more effective. Obviously, anybody who follows the oil and gas sector knows that the industry's in a downturn right now. Prices, I haven't looked at them today, but I'm sure probably mid-40s if I had to guess, and we've been there for awhile. It's been a rough couple of years for the oil sector. Let's kind of go back and look at what happened over the past two years, and how did we get to where we're at?
Mark LaCour: A lot of people don't understand what happened. A lot of people want to blame OPEC. What they don't realize is OPEC did nothing. Nothing. Right? They just didn't cut production. There's a lot of misunderstanding on why they did that. OPEC's very smart. They knew that if they didn't cut production, that prices would fall, so they did it on purpose. The reason they did it is they weren't trying to put the US frackers out of business. No. OPEC uses oil the same way the United States uses battleships and tanks. They use it as a weapon. They have some enemies in the Middle East, and so they wanted to stick a knife in their back, and at the same time they don't like Russia, because Russia supplies the arms for their enemies in the Middle East, so they decided to stick a knife in Russia's back. Both countries are highly dependent on the price of oil to run their government, so OPEC was literally using the price of oil as a weapon. Now you go, “Well, that's not fair. A lot of people lost their jobs.” What a lot of Americans don't understand, that's the whole reason the Soviet Empire fell in the 80s. Ronald Reagan did the same thing, with cooperation of Saudi Arabia, with global oil prices, which caused the fall of the Soviet Union. Using that as a weapon at that time was a good thing to do, and at that downturn a lot of oil and gas people lost their jobs, but they come back. It's the same thing that's going to happen to this one. Now, the only thing that's different is OPEC miscalculated and basically, if you don't know this about OPEC, OPEC has very cheap oil to get out of the ground, but they have this huge social cost. If they can't keep their youth employed, they know the youth will radicalize, and that will overthrow the government. They know that without a fact. They have all these huge construction problems. All these social projects that they fund keep their youth employed. Well, that money typically comes from oil revenue. Saudi Arabia has what's called … Damn. What's it called? It's called a sovereign wealth fund. It's basically their savings account. They knew they would have to dip into their savings account during this low crude price, but they figured once the price rebounded they would put money back in. They miscalculated, so they had to pull money out of their savings account, but they're not going to be able to put it back in, because the prices are going to stay low for an extremely long period of time. What's happening is we predicting that you're seeing the beginning of the destabilization of OPEC. OPEC's going to lose control on its ability to control global crude prices. I honestly think that's a good thing. I think it needs to revert back to where it's more of a free market type of deal.
Ryan Ray: Well, you mentioned two things there I want to hit on. The first is if you look back at the downturn, you have OPEC, who didn't cut drilling, and the US, as the numbers I've read at least it seems to indicate, actually outpaced them in drilling over the past two years.
Mark LaCour: Oh. Of course. The part that nobody understands is the way the contracts are written between the lease holder and the operator is they guarantee production. Basically the lease holder's letting you drill on his minerals, and he wants a guaranteed production so he can make a guaranteed amount of money. That has nothing to do with the price of crude. Even though the price of crude dropped, a lot of countries thought you would see US production drop, but contractually they couldn't. Then some US companies countered the drop in crude by increasing production so they had more volume. No. You didn't see production drop like a lot of countries thought it would. The other thing, Ryan, that a lot of people don't understand is our shale plays are relatively easy to turn on and off. Yeah. It's a little bit more complicated, but we can respond very quickly to crude price fluctuations. I predict that we're actually going to be the next swing country. We're going to be the next OPEC, us, US.
Ryan Ray: Well, that would be interesting to see, and I think there's a lot of validity behind that point. As far as the swing state, as you mentioned, I think like a year and a half ago prices jumped up to maybe $60 a barrel, and all of a sudden, I don't know, was it a couple weeks? They just crashed, because all of a sudden rigs come online, production ramped up again, and boom, just like that it was over.
Mark LaCour: Yeah. There's a lot of variables that go into that. There's a lot. There's a perception variable. If the traders think that the price could go up, they start trading differently, which actually causes the price to go up. The thing to look at is global supply, global demand, and the growth in that global demand. What does that growth number look like? The problem is you can get really good, accurate information out of the US and Europe, and quite frankly, the information that comes out of the Middle East, and Russia, and China are lies, and so it's hard to figure out what those numbers actually are. We're looking at a steady, but slow growth in demand. You and I both have seen this over supply shrink back down. We'll be in the $50-$60 a barrel range for a very, very long time, but it's not all doom and gloom. This downturn, like every other downturn before, drives efficiencies in the field. This time it's actually a lot different, because for the first time in my 20 years in this industry a lot of those efficiencies are being driven by technology and new technology. Technology is going to drive the price of exploration and production to lows that nobody's ever seen before, which means your margins will still be healthy at $50-$60 a barrel.
Ryan Ray: Right. That's good news for everybody. Go back to one thing you said just a minute ago about the future of OPEC. Do you see OPEC, as it stands today, as a viable entity, or do you see those nations saying, “Hey, look. We just can't participate in this anymore,” because over the last year you've seen some countries seem to have taken a bigger beating by being a member of OPEC than others.
Mark LaCour: Yeah. You're absolutely right. What happened is OPEC's strength is its ability for all its fellow member nations to work together. If OPEC as an organization decides to cut production, everybody has to cut production. If they decide to increase production, everybody has to go increase production. The problem is places like Venezuela, where the country's literally getting ready to go through civil war, because they're starving. They can't feed their people. They're trading crude oil for beans and rice to feed their people. Countries like that aren't going to listen to OPEC. Once you have one, two, or three of the countries not listening, well then OPEC starts to foll apart, because their strength is the fact that everybody has to do things together. We think you're seeing the beginning of that happening right now, the destabilization of OPEC.
Ryan Ray: How long do you think that process will take? Do you think that's a one year deal or we're looking at more like a decade before it kind of unravels?
Mark LaCour: Yeah. It's going to be at least five years and probably closer to ten.
Ryan Ray: Okay. One thing else you've touched on is these oil prices, that they spike up and then you see $100 oil for three, four years, and then they go down. From my standpoint it seems that a stable price is better than a spike. I mean, we all make more money when the price spikes, there's no doubt about that, but when the price goes down you see a lot of interesting things happen. Some of it, you've touched on already, is technology. I heard on your podcast the other day, I think it was Schlumberger who's got the self-automated drilling rig coming out. There's a lot of technologies that force the industry to consider or to use, or entrepreneurs that come in say, “Hey. I can make some money here, because these companies can't make money, but if I can save them money, then there's a spot for me. What have you seen that's coming out of this downturn compared to others, apart from technology just in general?
Mark LaCour: Actually there's several things. Everybody thinks I'm crazy. I think this downturn in 20 years is going to make the oil and gas industry look like silicon valley. I think it's going to be fast. It's going to be sexy, a lot of hi-tech, a lot of very flexible workforce, a lot of entrepreneurs and small companies doing really cool stuff. I think the public obsession with the oil and gas industry will finally get straight and they'll understand the prosperity and the benefits we bring. Like I said, everybody thinks I'm crazy, but in 20 years we'll see. What's happening is you have this big knowledge drain that's going on. The senior VP at Exxon that took a package, because it's a downturn, he started 35, 37 years ago out in West Texas on a rig. To this day if they lose control of something he'll go in his closet, and get his hard hat and his boots, and go out there and help them get control of that well, because he's done it. The MBA that's going to replace him, super bright, super smart kid. He's never picked up a pair of tongs or a torque wrench. He has no idea how to do any of that. All of that knowledge, that ancestral, cultural, just unbelievably valuable stuff is leaving the industry. That's happening at the same time that we are in a long term hydrocarbon abundant world, so prices are going to stay low, at the same time that you're seeing politics change globally. Our election's a good example of that. What I think's going to happen is it's going to drive change in the oil and gas industry faster than it's ever happened before, but it's all positive change. It's all good stuff. You know, you think about expensive oil, oil sands, deep water, ultra deep water, high pressure, high temperature, all that's dead right now, right? But it will come back as we develop the technologies to reduce those costs. A lot of your listeners may not know this, but there is more oil and gas on this planet than we know what to do with, and we haven't even found it all. What happens is we're able, with new technologies, to go in … Like the shell plays, the shale plays aren't new. That's where the Rockefellers made their money. That's where Standard Oil was born in the 1900s, right? They had gushers. They'd dig 10, 15 feet in the ground, oil would come out by itself, and it stopped. They go, “Oh. The fields are depleted.” What they didn't realize is that they only got maybe 5% of the oil out of the ground. Fast forward to now, the same place with a combination of an old technology called fracking and a new technology called horizontal drilling, a good operator can get another 13% or 14% of the oil out of the ground. That's 18%. That means 82% of the oil is still there, Ryan, which means in the future, I agree with most experts, that different technology will come out that will allow us to tap more and more of that oil. That's not a US thing. That's the whole world. Think of all the capped wells in the Gulf of Mexico. Halliburton's already went out and fracked a capped well and was able to go into production as a proof of concept. Think about all the capped wells you've got. The hydrocarbons are everywhere. We're not in a shortage of them. That's going to drive change, because the price is going to stay low.
Ryan Ray: Well, I got to do a little shameless plug here. That's the point of this podcast is to get on the best and the brightest, and let's hear about it, because when I was in elementary I remember peak oil. I'm actually working on a little side post to get together about the myth of peak oil and the founding of that.
Mark LaCour: Hubbert. It was Hubbert with Shell. What happened is he was doing the best job he could as a scientist. What he did not have was a crystal ball. He didn't see what the future would bring. Now we've realized that the future is bright for the oil and gas industry, and it's changing, so not just the stuff I just talked about. You may not know this, but here and in Europe we use less crude oil and gas for fuel every year, but we use the same amount. We're turning more of it into products. If anybody out there doesn't know the oil and gas industry, almost everything you touch came from this industry. 85% of everything that's in a hospital emergency room came from the oil and gas industry. The paint on your bicycle, the composites to make the blades for your windmills, the rubber for the tires on your car, all that comes from oil and gas. We're using more and more of it to make products. The demand is still there, but what we use it for is slowly changing.
Ryan Ray: No. That's great. You know, when we look at the world today there still is a bunch of myths about the oil and gas industry. Peak oil is still out there. It kind of surprises me, because just a little bit of research will show, yeah, good intentions maybe, but it's one of those things that's just kind of been used as almost a scare tactic to push us towards other sources of energy.
Mark LaCour: There's also some cultural piece in there. I have this conversation with people often, and I ask them, “Do you ever worry about running out of sand to make glass out of?” They go, “No.” I go, “Do you ever worry about running out of iron to make steel?” They go, “No.” I'm like, “Oil and gas are just another mineral, just like sand.” The way people picture oil and gas is like there's this bucket of it and as you pull it out there's less and less, and eventually you run out, but people don't think that way about sand or iron. I say there is no bucket. There is no bucket for oil and gas. There's no limit. Yeah. It's the way people think about it, and a lot of that has been shaped by the anti-oil and gas marketing efforts. I don't like the anti-oil and gas people, but I will give them hats off for being great marketers.
Ryan Ray: Obviously everyone in the renewable sectors doesn't fall into the category you just described, but the renewable sector is a hot buzz word right now. When oil was at $100 a barrel I felt like the Green Movement, the Renewable Movement, it really had its traction, because oil was $100. People were saying it wasn't a viable option. Now oil's sitting around 45. If the producers can figure out a way to make this long term productive, like you're talking about, then how will renewables play in the future, if oil does stabilize at this 40-50, maybe $65 price range?
Mark LaCour: Yeah. The human species has always used a mix of energy, and it's constantly changing. Think about it. Our very first ancestors used biofuels, right? They burned wood. That progressed to coal. What a lot of people don't understand is that for a short period of time we ran our industrial engines on whale oil, which was a very limited resource. After whale oil we discovered oil and gas. That mix will continue. Wind energy is a great energy source, so is solar, but they have issues. We will always have a mix of energy supply. One of the things I think is really cool is here, and in Europe, and actually starting in China of all places, which is hard to believe, they're switching from coal to generate electricity to natural gas. Just on making that switch it's automatically 60% cleaner for the environment, just by switching the fuel. The renewables have their place. Now, unfortunately, especially in this country, politics gets involved, which is never a good mix. There's something called the Renewable Fuel Standard. Basically, it forces downstream companies to mix ethanol with their gasoline, which ethanol is a competing product. It would be like the government, Ryan, making you mix another podcast that's a competitor with you with your podcast and say you have to by law. Yeah. What people don't understand is the only people that benefit from ethanol are the corn farmers that sell their corn at a government fixed price. Ethanol is not a good fuel for an engine. Gasoline's much better. Ethanol has problems. It pulls water out of the air, so you can't ship it in a pipeline, so it's expensive to move, and the government subsidizes it in the US. If you would quit the subsidy, it wouldn't even be able to function. We need to remove that Renewable Fuel Standard and let the market control that, just like we removed the cap on export. If you let the free market control it, renewables definitely have a spot. The other thing is you also have to worry about energy density. I'm sitting in my house, upstairs in my office. I have a 3,500 square feet house. I would need 35 of 40 kilowatts of energy just to run my house, right? That's a lot, whereas you go to Vietnam, they want just enough energy to light a light bulb and maybe an iPad and internet connectivity. Well, you can do that with a small solar panel. You can solar my house to the point that I get 24/7 support from solar. You also have to worry about energy density in whatever country it is you're talking about. Like I said, renewables have their place, absolutely. You know, we're sitting here in the great state of Texas, which a lot of people don't know is the number one wind generating state in the US, and also the number one solar generating state, and we're an oil and gas state too. See, the mix works.
Ryan Ray: Right. You've got it all covered. Well, look Mark. Thank you so much for coming on. What all do you need to plug? I know you've got a few podcasts. You've got your business. You've got your blog. You're everywhere, at all the places at all times it seems like. Go ahead and plug it, and we will also list it in the show notes, but just get it out there for the audience, so they know where to find you. Let me just say, if you don't know Mark, I highly suggest you reach out and try to meet him. He's one of the best guys in the business, one of the nicest guys in the business. I'm actually jealous, because everyone that I know that knows you says that you're the nicest guy in the business, and no one has ever said I'm the nicest guy in anything. I'm a little bit envious of you there. I've never been accused of being the nicest in any group I've ever been in, period. Go ahead and plug what you need to plug, and we'll list it in the show notes so people can find you as well.
Mark LaCour: I'd like if you're listening to this podcast and you'd like to listen to some other oil and gas specific podcasts, go check us out. We have Oil and Gas This Week, which is the number one podcast in oil and gas, Oil and Gas HSE, and coming soon we're going to have Oil and Gas Leaders in the Industry and Oil and Gas Technology Podcasts. You can find all of that at the Global Oil and Gas Network, which is our new media hub for the oil and gas industry. If anybody wants to reach out to me, the best way is hit me up on Twitter. Ryan, if you could just stick my Twitter handle in the show notes, they can find me. It's been a pleasure being on the show, and good luck to you. This was really fun.
Ryan Ray: Well, thanks again, Mark. Good to have you on, and hope to see you soon.
Mark LaCour: Yup. You will. Take care. See yeah.