From plummeting oil prices to the EPA finding fraccing doesn’t pollute drinking water to the Iran nuclear deal, 2015 was another wild year in oil and gas. Here are the 14 top oil and gas stories of 2015.
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#043: The 14 Top Oil and Gas Stories of 2015
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The 14 Top Oil and Gas Stories of 2015
- US overtakes Russia as top oil and gas producer, report says
- EPA Finds No Widespread Drinking Water Pollution From Fracking
- US clears £47bn mega merger between Shell and BG Group
- One-in-four oil, gas jobs could be lost in 2015: study
- Schlumberger to Buy Cameron in $14.8 Billion Oil Services Deal
- Upstream Bust Meets Downstream Boom In Houston: The East Side Earns Some Respect
- Everything you want to know about the Iranian nuclear deal
- UK to create 8,000 oil and gas jobs
- Gas prices could keep falling as oil prices reach lowest levels since the recession
- Mexico Energy Bill to End Pemex’s Monopoly on Oil
- In Mexico Oil Market, Mood Moves From Excited to Anxious
- Global fossil-fuel emissions predicted to decline for 2015
- Shell ready to begin drilling for oil in the Arctic
- UPDATE 2-Oil bosses to meet in latest climate change offensive
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#043: The 14 Top Oil and Gas Stories of 2015
Transcripts Courtesy Of
James: I’m James Hahn II.
Mark: And I’m Mark LaCour.
James: And you’re listening to This Week in Oil & Gas brought to you by Red Wing, Episode 43. Merry Christmas, Mr. LaCour.
Mark: Yeah, Merry Christmas to you James and Merry Christmas to everybody out there listening to us.
James: Everyone out there listening to us in the future.
Mark: Yes, in the future because we’re recording this one early.
James: We had to record this one early because I am on the road. I’m talking to myself from the future as well. I’m on the road in Michigan and so we’re recording this one a little bit early.
Let me throw in the intro. I’m James Hahn II from triberocket.com. We are a sales-driven marketing firm. We help people tell the right story to the right people at the right time in a marketplace addressing real problems in your messaging so that you can connect in the marketplace.
What about you, Mr. LaCour?
Mark: Yeah, I’m Mark with modalpoint.com. We’re an oil and gas market research company. We basically figure out who wants to buy your stuff and why they would buy it.
James: We have to give props to Mr. LaCour on this one though because this is the top 14 stories of 2015 Oil and Gas. There is nothing like this out there, is there, Mark?
Mark: No. This was actually a lot of work to compile because there are so many stories of last year of 2015. To figure out the top 14 was some work.
And the interesting thing is, James, you and I are the first people to do this. There’s nobody else out there doing this.
James: Find the hole in the market and fill it. That’s all I’m saying.
Mark: Well, a tip for everybody.
James: Even with content, you can — I don’t know, let’s see. Let’s see if we can get some SEO juice, a little Google juice going.
But let’s talk about the stories because 2015 was a roller coaster ride, and some people might think it was more like the Demon Drop, we used to call it back at Cedar Point, if anybody’s been up there, America’s roller coast where things just drop off the face of the earth.
We preach a lot about how that’s one only sector. But a lot happened and why don’t you just give us a little recap before we jump into the stories? What are your thoughts as we round out the year?
Mark: Yes, 2015 was an interesting year. We entered the year in a low crude price market. We had a lot of political marketing type changes, for the first time in the history in the oil and gas industry.
We have invasion of technology where we’ve never seen it before. We have some of the independents actually do it unbelievably well. We thought we were going to have an enormous M&A activity cease of 2015. It did not happen although we had some very notable acquisitions.
And then we’re leaving 2015, entering 2016 very optimistic. One of the things that’s unique is that for the first time in my lifetime and probably for the first time in recorded history, we are entering a long-term sustainable hydrocarbon abundant world. This is like some life-changing stuff going on right now in our lifetime.
James: All right, let’s kick it off.
Number one, US over — or is it one that — well, let’s just go in no particular order; in no particular order.
All right, US overtakes Russia as top oil and gas producer, report says.
Mark: Who would have ever thought we’re out-producing Russia?
James: That is such — I didn’t even think about that. Yeah.
Mark: Hats off to our independent frackers for kicking butt. We’re producing a lot of liquids, a lot of crudes. We’re producing a lot of gas. There’s no shortage to that. Even this low crude price environment, we have overtaken Russia as one of the top producers on the planet, which we haven’t had that distinction since I think the early ’70s or late ’60s.
And we’re going to be there for a long time. Think how cool that is. We have abundant, cheap energy. We can export it. Because of the cheap energy, we could bring manufacturing jobs back here in the US. Look at the prosperity that’s brought. Look at the impacts to the environment. We’re switching from coal to natural gas. It’s a wonderful thing.
So nothing against that. I have some really good friends in Russia. But take that, Russia.
James: Take it.
It came out on June 10th, only two days before my birthday. So that was a pretty good birthday present. US production rose to a record 1.6 million barrels a day last year.
Did Russia stop? What’s another angle that you could look at? Did they pull back? What’s going on here?
Mark: Think about an Indy car race. Think about the very last Indianapolis — very last lap of 500, and you always have that one guy that’s been in the top three or four that has saved his engine in tires and fuel, and he kicks butt. He passed everybody up.
That’s what we did. We kicked butt. We passed everybody up. They didn’t decrease production. We overtook them and passed them.
James: America wins. America wins. That’s the story for right there.
Mark: Yeah. I try not to talk politics so I’m going to try to stay away from politics here. But basically, in the last tenure, the EPA had a very left leaning, not very pro oil and gas.
They went out, did a lot of research, spent a lot of taxpayer money to come back and say, “You know what, you’re right. Fracking doesn’t contaminate drinking water.” They couldn’t prove it anywhere in North America or anywhere in the US.
Of course the environmental activists jumped on this and said it was wrong. Sorry, no. it’s right. Fracking is a very safe, very efficient way to stimulate a well. And it does not cause water pollution. So get off of it.
James: Including over 950 sources of information, published papers, numerous technical reports, information from stakeholders and peer-reviewed EPA scientific reports.
Mark: Yeah. It’s done, folks, right. It does not pollute groundwater. Quit spreading that myth. Quit trying to scare people and be okay with the fact that we are introducing prosperity because we’ve invented a new technology. That’s it.
James: Let’s pause for a second because we know that there could be plenty of people listening to this show for the first time right now. If they are listening to the show for the first time right now and they have heard about this Fracking thing and this is the first time they’re hearing that it doesn’t, why doesn’t it and how does that work?
Mark: Yeah. So the way I explain it, you and I live in Houston, Texas, right? Everybody, think about if you live in Houston, Texas. Sincerely, do you worry about water pollution in Miami, Florida? Do you, James?
Mark: Why not?
James: Why don’t I worry about Miami?
James: Because it’s over there and I’m over here.
Mark: Right. It’s so far away that even if they had water pollution there, it wouldn’t affect your water, right?
Mark: So now you’re thinking about that distance horizontally. Flip that same distance vertically.
Fracking takes place so deep, so far away from the groundwater that it cannot contaminate groundwater. That’s what people don’t get. They think that you’re fracking at the same level of groundwater. Groundwater is usually within the first couple of hundred feet. Fracking takes place at least a mile. You have a mile of rock between you and groundwater. The distance is so far that it physically just can’t contaminate.
Now, if there’s a problem with the casing that goes through the groundwater, then yeah, you can have an issue. But technology’s come so far, so long. So that’s why it doesn’t contaminate. Fracking and groundwater are not at the same geologic level.
James: Right, and that’s a really good point, just to stress for anyone that hasn’t heard this before. It’s not the active fracking that actually creates the problem. It’s going to be either a casing problem or it’s going to be moving frack fluid at the surface level.
Mark: Yeah, on the surface. If you think about water contamination in US, let me give you some statistics. For 2014, because the numbers aren’t here yet for 2015, but for 2014, there was zero — let me repeat that, zero, Easter egg — zero proven cases of fracking-contaminated drinking water in the U.S.
During that same time period, there was 1,719 reported cases of agriculture-contaminated drinking water. So if you’re really concerned about contaminated drinking water, go talk to the farmers and the ranchers, not the frackers.
James: Well said, well said. I don’t want to start with the farmers, though. Although Allen Gilmer did write a pretty great article back in the day about how “big oil” or how the oil business — no, actually, to flip that around, he didn’t use the word big well. He said how the oil industry can learn from big agriculture’s marketing tactics.
And the main point being that, when you see farming sort of marketed and advertised, even when you hear the word farm, you will think of some grandfatherly figure on a red truck with a red barn and the tractor and all of that when the truth is that they are major, major corporations.
Mark: They’re factories. They’re factories, right? And I’m not beating up on farmers. Our ability to feed our people is better than anybody on the planet. We can do it cheaper and more effectively than anybody because we’ve looked at farming as a factory and we realized the benefit. And that’s what needs to happen to fracking. We need to look at the benefit and it’s already moving down the road to be a factory.
James: Well, to continue the point though, to flip that around is the point that 90% of oil and gas that’s produced in America is actually produced by small independents.
James: Versus the inverse of the factory farms. So maybe you and I can work on that a little bit in 2016 in terms of helping people realize how many small businesses are affected, including yours and mine.
All right, number three, US clears $70 billion merger between Royal Dutch Shell and BG Group, British rival BG Group.
Mark: Yes, so first thing that’s 47 billion pounds because we grab the UK article which is about $70 billion. So this is a major merger. Shell, this is not new, Shell has brought the BG merger from its board at least four times that I’m aware of. This was the right time for Shell to do it.
BG was devalued. Shell ceased the global growth in gas. By this acquisition, Shell basically has turned itself from an oil and gas company to a gas company and has opened up markets in the Asia-Pacific that it didn’t have not access to. This is a very shrewd, very strategic acquisition by Shell that just could benefit everybody.
James: I got to be honest I really didn’t know anything about BG before this happened. So can you give me a little background on BG?
Mark: Yes. So British Gas, their US headquarters is right down the street from where you live, right in The Galleria.
Mark: Yes, great company. It started off in the UK. They are a gas company. They’ve always been a gas company. They’ve dabbled in liquids and oil before, but they’ve grown a very large production of gas globally but also market consumption especially Asia-Pacific where there’s a huge and growing demand for natural gas.
So Shell had trouble entering in Asia-Pacific, especially with gas. Shell also saw that in the future, gas could be a fuel that everybody has a high demand for, which is true. So Shell made a decision to go ahead and pull the trigger and acquire BG so that it could acquire not only their gas production but their gas liquefaction, the gas transport, but also their markets around the world. So this is a great move by Shell.
James: I want to ask you a question about the other side of the acquisition and I could probably put the dots together pretty easily if this was a tech company or something like that. Well, let me just put it in terms that I understand and maybe you can help me understand it a little bit better.
But if I was a tech startup and I got acquired by Google for instance, a really good example would be Instagram. Instagram was bought by Facebook for a billion dollars, and they had 37 employees that they want obviously in that case because 37 people and a billion dollars is pretty good. What’s the benefit to BG in being acquired?
Mark: So BG, even though it is a large gas company, was not a super major. Now BG has access to all of Shell’s portfolio, right? So all of Shell’s gas production, all of Shell’s market, especially Europe which BG had a small piece of, Shell had a majority here than US, the advantages are a lot but BG agreed to be acquired by Shell because BG realized that unless they agree to this the odds of them having long-term high shareholder value was small.
So basically a shareholder said, you know what, what we’ll trade BG stock for Shell stock because that’s a better stock to have in our portfolio.
James: Got it, so it was a strategic move on their part in terms of you know what, if we try to go toe to toe with them, our stock price is going to drop?
Mark: Yes. In fact, some analysts out there said Shell pay too much. I don’t agree, I think Shell pay to — I think there’s a very strategic use of Shell’s capital to acquire somebody that had a market that Shell just would have spent a fortune in trying to penetrate.
James: Interesting. All right, number four, one in four oil gas jobs could be lost in 2015.
Mark: Yes. Let me do a preface back here. This is an article written by the Canadian press, and what they’re really talking about is Canada, Alberta, that whole area. That’s the oil scene, right?
So there are a lot of jobs that have been lost up there. This is the end of 2015 and it probably is one in four jobs. Globally, if you look at upstream of service companies, that number is probably more like one in every seven, seven and a half, or something like that. I think the blood bath is over, except for the subsidy manufacturers.
I think 2016 is just going to be horrible for them. I don’t think they’re going to climb back out the hole probably in 2018. But from an employment point of view, the Camerons and the Akers and oil and gas, the FMC. They’re not huge employers.
But Canada is really hurting because their oil is expensive. It’s expensive to get on the ground. It’s probably the second most expensive. This is a good article showing the impact of these low crude prices on a business that was built upon $100 a barrel of oil.
James: Interesting that you brought out the Canadian source because of the fact that we talk so much about how there are four segments and you go where the money is.
And you and I talked briefly about a back and forth I have with a man on LinkedIn, with one of our listeners on LinkedIn, and he’s in Norway and so I asked him that question and they don’t have refineries in Norway that they can go and go in working. So what does that look like internationally? You just got to go find another industry to work in for a while?
Mark: Unfortunately, the US is one of the few places where all four segments are more or less equally represented. The North Sea, Norway especially, for years all it did were upstream. They were able to get that crude out the ground so their whole world is built around that upstream part. They basically import refined goods or refined fuels.
They never built the infrastructure, the refineries and the pipelines, because there was no need to. It was a mistake long-term wise. You and I talk about this all the time that regardless of what you do in the oil and gas industry, you need to be aware of all four segments because if something is going to happen that’s going to drive one or two of the segments down, but then the other two benefits.
And there’s countries out there like that. Look at the Middle East. The Middle East is an upstream-centric world. They’re trying to correct it frantically, but they have no refineries to speak of, right? They have no infrastructure in place other than the way they export the crude. So this is what happens when you build your industry around one segment.
If you build your economy around one segment of the industry, well, if that segment collapses, so does your economy. You’re much better off to have some diversity in place.
You’re looking at China and the Middle East right now. They’re frantically building refineries knowing that that would help in the future in this low crude price farm.
James: I was going to follow up with the question and saying, practically speaking, how what do you do? But whatever skills you have in the oil field, especially when it comes to engineering, are very transferable.
Mark: Yeah. And like these Canadian oil workers, they’re actually the roughnecks. They could easily transfer those skills. There’s a lot of pipeline growth in the north part of the US, close to the Canadian border. They could easily transfer their skill sets into being pipeline technicians. It’s still the same joining pipe together, you know, making sure nothing is leaking, doing work safely. They just have to change their mentality, quit looking for work in upstream and looking for midstream guys.
James: Right. And then if you’re in one of those economies that’s based around only one segment, I guess you’re not stuck either though because you just have to brought new horizon even more and say what skill set do I have.
Mark: Yes. And Canada is actually popping a lot of money right now in export terminals with LNG crude. So your skill sets in the upstream side are transferable to that too. That’s an area in Canada that’s growing.
James: Well, I’m not only thinking of Canada, because we have listeners in over 110 countries around the world, right?
James: And so I’m just trying to think in terms of across Europe, Africa, anywhere where there’s really oil and gas. I don’t know. This is sort of hitting me all at once right now that we’ve spent a lot of time in 2015 talking about the course segments and you go where the money is, but not everybody lives in a country that listens, lives in a country where you can make that transition that smoothly, but they could by changing the philosophy or just seeing the skill set that they have find something that is applicable to them.
Mark: Yes. Unfortunately, depending on the government, the actual employees, the workers might not have a choice. If the government has decided not to put money into pipeline or to refineries, then they just don’t exist.
In Africa, you see countries out there that have zero refineries, and then you see other countries like Nigeria whose refineries are sort of down for years and then new presence like, you know what, we need to diversify, we need to fix this, and yes, those refineries are up and operating now.
James: Interesting. Okay, all right, well, we’ve spent a lot of time on that one and we’ve got a lot more to go, so let’s get to this over here. Schlumberger to buy Cameron in 14.8 billion oil services deal. We talked about this a couple of episodes ago by now, but this is a big story of 2015.
Mark: Yup, this is one of the top stories of 2015, Schlumberger made a smooth move. They did a very good job of keeping it quiet.
I had no inkling and I should have because they did a joint venture with Cameron called OneSubsea a couple of years ago. Just brilliant by Schlumberger, right? They’re in the service business. They realized a few years ago that subsea services is something that was a growing market, so they got into that by doing the joint venture.
Now, by buying Cameron, they actually are now a manufacturer, so they’re making trees and blowout from vendors and wellheads and chokes, manifolds, pipelines, all that stuff that actually goes in production.
So Schlumberger is diversifying its portfolio. It’s just a brilliant idea and it’s not cannibalized anything in their business. They’re basically buying a market that they don’t have right now.
Cameron is going to benefit too because Cameron has grown a lot lately, but Cameron has a need for some efficiencies in their business. They’ve grown but there’s still a bunch of political silos, there’s still a bunch of huge inefficiencies. I mean I could tell you some stuff that would say no way.
Schlumberger is going to come in. Schlumberger prides itself on being a technology leader in oil and gas and they’re going to clean a lot of that stuff up, and they’re going to streamline it. So when the merger is done and when everything is integrated, this is going to be a really rock and rolling company.
James: And I have to bring out one line right here because this is something that you say often on the show about modalpoint believes that it’s the bottom and apparently you’re in good company there. This is a sign that Schlumberger sees a market bottom.
Mark: Yes, of course. If they didn’t, they would have waited until we hit rock bottom.
James: Yes, so that didn’t really — do you think that’s going to spread rapidly at the beginning of 2016?
Mark: Do I think?
James: The rock bottom mentality?
Mark: We’re recording this in the end of 2015. We’re headed into 2016. I predicted in 2014 that 2015 was to be a major merger and acquisition year, the biggest one ever, and it didn’t happen, and I think that perfect storm of devaluation, companies that had a lot of cash, I think it’s just going to pass. It didn’t come to fruition. And I think a lot of it didn’t come to fruition not based on facts but based on perception by the investors because the money is there. It’s sitting on the sidelines.
So I think we’re going to continue to have mergers and acquisitions like has always happened in oil and gas since the beginning. Do I think in 2016 we’re going to have this huge rush? No, we missed that in 2015. So I think we have a normal amount of M&A activity, maybe a little bit higher than normal but nothing stupendous.
James: And they paid 56% premium. Is that a good amount, too much, too little?
Mark: It depends on who you talk too. So if you’re a Schlumberger shareholder, you’d say yeah, because your stock devalued because of that premium.
Mark: If you’re a Cameron shareholder, you’ll go no, because your stock increased in value because of that premium. It was a good number, right? That has to be negotiated. Both the companies have to look at things like internal cost of capital, shareholder value, rate of return, all that sort of stuff. So for some reasons, Schlumberger and Cameron did include me on their financials on this, but I don’t know why. But from the outside looking in, I think that’s a fair number.
James: Up next, number six, upstream bust meets downstream boom in Houston. The east side earns some respect.
Mark: Yes, we’ve talked about this a bunch how Houston has an upstream-centric economy. If you come here right now and talk to people about oil and gas they could tell you how horrible it is, everybody is laying off, and that the industry is in a massive downhill, and it’s not true.
Part of the industry is, but downstream is on fire, and that’s what this article is about that a lot of cities have a — North America has basically an east side-west side mentality. And in Houston, part of the city that you split along which is called Highway 59 was basically the energy cord of The Galleria area is all white color people that worked in upstream, and so they’re talking all doom and gloom.
But on the west side which is west side and south of Houston, which is where all the refineries and petrochemicals plants are, they’re loving this. They can’t hire people quick enough, there’s money everywhere, their markets are growing, but you don’t hear that in the news and you definitely don’t see it in the culture of Houston, but it’s here. It’s only part of the industry is hurting. One of the big stories of 2015 is the fact that downstream is in the boom right now.
James: The downstream refining and chemical plants in East Houston are enjoying a massive and unprecedented $50 billion construction boom.
Mark: Yes, that’s not chump change, $50 billion, and that’s just here in Houston.
James: Yes. And there are so many more plants going – well, you think about the Gulf Coast, you think about what’s the different – you give me ethane crackers, right?
Mark: Ethylene crackers like in Virginias, in Ohio, are crazy.
James: Yes, that’s what I’m talking about, yes, exactly. So yeah, this is just going to continue growing. Well, let me not put an analysis into your mind because I could be way wrong, but in 2016…
Well, let’s flip this around. This is an interesting thought because we keep talking about how oil prices are going to rebound, and one of the reasons that downstream has been in such a boom is because of the lower oil prices, because as you’ve explained to me and I explained to other people at that time, if you manufacture widgets and the cost of making widget goes down 50%, what does that do for you profits? Will that slow any of the boom when oil prices start to recover?
Mark: Yeah, of course, but it will continue because the world of $60 to $65 a barrel of oil is still extremely profitable for downstream. What was killing that is one of these $80, $85, $90, $100 a barrel. $65 a barrel, they’re still making great money.
And the nice thing is because they’re making a ton of money now with this low crude price, they’re investing in infrastructure. And these new refineries and these new petrochemical plants are much more efficient than what they had before. So they’re setting themselves up for long-term future success.
James: So they’re thinking in terms of the cyclical nature and they’re saying, “All right, well, we know this isn’t going to last, so let’s go ahead and invest in things that will make us profitable at $65 and $75.”
Mark: Yes, absolutely.
James: The Economist explains everything you want to know about the Iranian nuclear deal, hot button subject, something that we’ve got some pushback about on some things that we talked about this year, but let’s unpack it one more time.
Mark: Yeah. Regardless of how you’re feeling this politically, this is one of the major new stories of 2015 is the sanctions that were placed on Iran because of their nuclear weapons program are in the process of being lifted, and that will allow their oil to enter the global market. There’s a bunch of things around that.
So people that are in upstream that don’t understand the numbers go, “Oh, my God, this is going to make prices even lower.” It’s not enough to even tip the scale, not yet. They have the potential because they have some great conventional reservoirs, but they don’t have the technology or the money to tap into that. And because they’re in a war-torn country, the infrastructure is gone.
They have no pipeline, no turners, this stuff has just been blown up. So a bunch of American and European companies, I think Shell and Exxon and BP, are waiting for the sanctions to be lifted to go in and start helping.
When I say help, they’re not doing it to be nice, although they are in some ways. They’re also going to make money. We’re just thinking about all the employees of these companies globally are going to now continue to have jobs, continue to make money to help build this infrastructure, help get these reservoirs online.
The crude they produce is a heavy crude. Once again, that’s a market predominantly in the Europe and in the US. The reservoir likes the sweet crude. What I’m hoping is as their production goes online we lift the crude export ban, and that will allow us to sell our sweet crude to the refineries in central South America. We can then buy their heavy crude and everybody is happy.
James: Speaking of jobs, number eight, UK to create 8000 oil and gas jobs.
Mark: Yes. So all the doom and gloom about all the layoffs, you don’t hear in the news. This is one of the major news articles in 2015 is that there’s also a lot of hiring going on.
Before we get in this article I’ll go back to the downstream, and we’ve talked about this a million times. But one of the constraints in downstream globally is there is a lack of skilled labor, there was not enough skilled labor to fill all the jobs. How cool is that, right? Literally, if we need more welders, pipe fitters, machinists, that sort of stuff, so the people that have those skill sets are guaranteed jobs for a very long period of time.
The US and Europe, nobody went to trade school for those things in 20 or s0 years. So now you’re looking at a lot of the third world economies who have a proliferation of welders and pipefitters. You can see the boost in their economy because their people are going to be able to be employed, have well-paid jobs. That money is going to flow back into those local countries’ economies which can increase prosperity for everybody. So this industry does a lot of great stuff, including keeping a lot of people employed which then drives prosperity and good times to a lot of countries.
This is the article about if you look at the net losses in the UK oil and gas field and the net gains that basically you’ll be up 8000 jobs. So that’s a little bit lower than what’s normal, but net, we’re increasing the number of jobs in the oil and gas industry in the UK even in this low crude price market. I think that’s awesome.
James: That’s a great find. I got to just give you props for that. That’s a really great find. Number nine, gas prices could keep falling as oil prices reach lowest levels since the recession.
Mark: Yes. And in this article, when they’re talking gas, they’re talking about gasoline. So anybody in the US, if you filled up your car in let’s say the last year or so, you’ve noticed that gas is dirt cheap.
I run premium in my car because I have to, and I have filled up just the other day and it was $2.05 a gallon, regular is going for I think $1.77. I haven’t seen those prices in almost 20 years. The nice thing about that is you’re basically given — every American — a pay raise because you reduced the price of their gasoline consumption.
And a couple of things were happening. We predicted that you were going to see the US economy going a roar because of this because people who take that cost savings that basically that raise and go spend it, and I was wrong which I was surprised at. What people are doing in the US are paying all debt with that money. They’re not spending it. They’re using it to get out of debt, which is actually better than spending it.
So the boom in the economy didn’t happen, but the economy is picking up at a good pace, at a very good pace. So you’re seeing it increase in things like manufacturing jobs because the cost of transportation is much less, people are actually driving more, people are doing more short vacations. Because of these low crude prices driving low gasoline prices, it’s actually good for the US economy in a lot of ways.
James: Yes. So I’m caught off because we’re not supposed to talk about how low gas prices are a good thing on in this industry, right?
Mark: Yes. But no, I disagree with that. People like to stick their head in the ground like an ostrich, and no, that’s not real. The reality is there’s benefits to these low crude prices. I do not like to say you might lose your job, anybody being laid off, I’m not promoting that. But there are benefits. People see both sides of this low crude price environment.
James: That’s a really great point because it is the elephant in the room that we don’t talk about, that I have neglect — not neglected but how bad I’m bringing up. And there are certain places in terms of LinkedIn groups or Facebook groups or things like that where people would be really angry at you because you see so many, oh, give us another boom, we won’t waste this one or whatever, right?
Mark: Yes, I understand that. I wonder how much they bitch while they’re filling up their car.
James: Let’s be honest. It’s not a car, Mark.
Mark: Yes, in Texas, it’s a truck.
James: It’s a big ass truck.
Mark: It’s an F350 full drive dual car that probably gets three miles a gallon, so yes.
James: Right. Okay, number nine, Mexico energy bill to and Pemex’s monopoly on oil huge story.
Mark: Yes, this is a major new story of 2015 in the oil and gas industry. There’s two parts of this, so we’re going to hit part one here. The first thing, if people don’t know, Mexico nationalized its oil field about freakin’ 75 years ago. And basically only the nationalized oil company Pemex was allowed to get oil in the ground and sell it.
That didn’t work out very well. There’s a lot of corruption at Pemex, so you have the majority of the people in Mexico live at the poverty level. They have a very small percentage that live at the rich level because of the corruption of oil by Pemex. People don’t like me saying that. It’s the truth. I’ve dealt with Pemex, I know Pemex, and it’s not fair to Mexican people. That oil and gas is theirs. It’s in the land that they’re walking on. It doesn’t belong to a few rich people.
So Mexico’s production started to decline, because quite honestly, between the corruption, the stealing of crude, and the lack of talent, they didn’t know how to keep production high from their reservoirs. And eventually it got to the point where the government had to go look, we need some help because we can’t do this. The Mexican party that was against this did a very good job in the media. Mexico trying to portray that prices in Mexico was selling out to US and was going to sell Pemex to the US, then there would be no jobs for Mexico which is not true. It’s not what the president is trying to do.
We got the government reform passed which was historic. Basically, what he’s doing is saying the prime reservoirs we still own that. The subprime reservoirs, we can lease those out to people like BP, Chevron, whoever wants to drill here, and we can actually now broker deals with the service companies which we desperately need. We need Halliburton and Schlumberger and Baker to come here and help us with our well stimulation before they could do that.
So the intent behind this was pure. The battle was fierce in Mexico because of misguided public opinion, and the president actually won and they actually moved forward in very historic legal documents to end Pemex’s monopoly on the oil in Mexico. So that’s the first half of the story, which is a major news driver for 2015.
James: What’s the second half?
Mark: The second half is when they went to implement it, nobody would bid on anything. I can’t remember what the numbers are, but to me it’s was a horrible turnout. Typically, like in the Gulf of Mexico when the federal government opens up a block for bidding, you may have 20 to 50 people bid on it. I think in Mexico, when they opened up one of the blocks to bid, I think they had I think 14 companies expressing interest and I think only two actually bid, and of those two one pulled their bid back because they’re basically left with one person bidding on the block.
The reason is multifold. The reason is even though they passed these reforms in Mexico legally, the oil gas business in Mexico is still full of corruption. So if you’re BP or Chevron, you’re not going to work in that world. That’s not going to do that. So the Mexican government and the Mexican people have another step in order to make this. They need to start cleaning up the corruption.
And they’re starting to do it. Unfortunately, the politics are a little bit different in Mexico than they are here in US. Basically, regardless of whether it’s judicial or the federal government or the state government, we have police of the police, right? So whoever is enforcing our laws, there’s another organization that’s not related to them that make sure they’re doing it right. That doesn’t happen in Mexico. It doesn’t exist.
For instance, the local police department can become corrupted by the drug cartels and there’s no federal marshals or FBI that come check and see if that’s happening, the same way with the federal government, the federales. If they buy into corruption, there’s no federal bureau that goes to check into that.
So the Mexican people have to realize, and they do realize that they need to reform this corruption environment of their business world in order to get the major players in Mexico.
James: Number 10 is also from Mexico. So let’s jump right into that one. I don’t know if it’s overlap or…
Mark: No, that’s just what I was talking about, number 10, is the fact that the Mexican market went from being excited to being anxious because nobody bid on anything.
James: And so it’s corruption, its prices, it’s all of these things tied into one?
Mark: Yes, I love Mexico. I have spent a lot of my youth in Mexico especially the west coast from Puerto Vallarta to Acapulco. At that time it was probably the safest country in the world. They’re all devout Catholics. You could be dropped off as a complete stranger and the people wouldn’t let anything happen to you.
I’ve got one of my favorite stories about Mexico. My wife and I, who wasn’t even my wife at that time, she was my girlfriend, we were actually stay in Puerto Vallarta which is just a vacation. We were in a little cantina and we met this group of guys and girls who were there for their cousins wedding and we start talking with them, we start drinking, having a good time.
And by the end of the night not only had we been invited to their wedding. One of the women loaned my wife a dress. How friendly is that? Where else in the world could you be where you meet total strangers and they invite you to a family wedding at the end of the night? It was wonderful.
Unfortunately, that has changed. The people were still the same people but because of the violence from the drug cartels that, don’t go to Mexico anymore, and that needs to change.
James: It definitely needs to change. We have to change stories because we’re going to bump up against our time here. We’re going from drinking on the beach in Mexico up to the Arctic, Shell ready to begin drilling for oil in the Arctic. This happened and then didn’t happen, so let’s talk about it.
Mark: Yes, this is a major new story in oil and gas for 2015. You saw a lot of stuff in the press. Shell spent a lot of money. The reality is Shell was looking at is it economically viable to get crude in the Arctic. The reservoirs are there. They caught a lot of crap from the environmentalists which were just ridiculous because they were protesting in kayaks made from the plastics made from gas. They went out and they put the infrastructure in place, right?
They put all the capping, all the containment vessels. They’ve spent the money to have that in place in case there was an accident. And then they went out and did some test wells. Twelve months later they figured out that it wasn’t economically viable, and so Shell asked to withdraw their permit from the US for Arctic drilling.
The permit being granted wasn’t surprising to me. Obama’s administration granted it. But at the end it was a typical Democratic administration. So when Shell pulled their permit, then the Democratic administration, after they pulled the permit, they said, “Okay, we’re denying your permit.” Well, you’ve already pulled their permit. They’re going to drill there. But at least they figured out what they need to do to drill there environmentally responsibly and economically.
Would it happen anytime soon? Not in this low crude price environment. Their Arctic drilling is more expensive than oil sand. So if oil ever gets back to $90 a barrel, then maybe you’ll see some Arctic drilling by us. Right now it’s just not economically viable, but it was a major news article for 2015.
James: It was a major news article because, as you know, I listen to a lot of podcasts and all kinds of media consumption on my end, and there were so many environmentalists, not even environmentalist activists but just even people that are environmentally conscious, left-leaning, not that I want political but they’ll just mentioning passing like, “Oh, that was a big victory for us.
I think we won that.” Like — oh, who was that? Oh, you know, who it was? It was Thom Yorke who is the lead singer of Radiohead. He was on Alec Baldwin’s Here’s The Thing show, which is a phenomenal show by the way. You can podcast it. But yes, he was majorly involved in that and I just had to chuckle a l little bit because I’m like, “Oh, Thom, you just don’t understand how the world works.” But you make great music. Thank you buddy.
So all right, number 13, update two, oil bosses to meet in latest climate change offensive.
Mark: Yes, so a lot of the top oil companies, especially the European oil companies, met in Paris actually this month — all of these would be going on for about 18 months — to talk about climate change and what they’re going to do to help limit the impact that oil and gas industry has to climate change. Now, one of the things that’s noteworthy, if you actually read the list of companies, BG Group, BP, Shell, Statoil, Total, they are missing a couple of big players. There’s no Chevron there, there’s no Exxon there.
And in their own unique ways, both Exxon and Chevron said, “Look, this is bull. You’re just trying to pacify the public and environmentalists. That’s not how you affecting climate change. You do it by right engineering. So we’re not joining your climate thing.” And that tells me a huge story about the validity of this. When Exxon and Chevron intentionally refused not to participate, that means this is bogus.
So the climate change went on, the talks went on. If you actually go read the transcripts, they agreed to nothing.
James: There was a lot of song and dance is what you’re saying?
Mark: Yes. And I like being transparent and honest. I wish these European oil and gas companies would go, “Look, this whole two-degree Celsius warming, the amount of CO2…”
A lot of people know this. The amount of CO2 during the Jurassic period, think of the movie Jurassic Park, those dinosaurs, was four times what it is now. So it’s normal for us to have a higher CO2 level. Now, whether man is influencing that amount, we haven’t figured that out yet. But man is influencing that, the way to fix that is with engineering, right? Pull carbon out of the air, pump it in the ground or whatever.
And so I just really wish that these other oil and gas companies would be open and transparent and talk about the reality instead of caving in to their environmentalists and worry about public opinion. And I get it. They have shareholder value you have to worry about. And nobody in this industry wants to damage the environment. Nobody does. But I just think this is a little left based. But this is one of the major oil and gas news stories of 2015.
James: And this one I have to give a tip of my hat, and I’m going to go ahead and call it on my own and I’m going to say the number one oil and gas book to come out in 2015 was Alex Epstein’s The Moral Case for Fossil Fuels. And as soon as you said that about the climate or the CO2 levels and the Jurassic period, it immediately brought up one of the quotes.
I can’t remember who it was and I won’t be obliged to just be paraphrasing here, but it was from the late 1800s and it was not an unimportant person I guess I could say. And he was writing saying, “How great would it be if everything got warmer because then we could farm more and we could do this more and we could do that more.” And now we had this perception. It’s sort of an antihuman philosophy not to go too far down that road.
Mark: Yes, we’ve got to be very careful with that. So global warming is a fact. So we have Ice Age, right? Well, what’s the opposite of an Ice Age?
James: Global warming.
Mark: Right, that pendulum swings back and forth. What the environmentalists are saying is that man’s activity is speeding up the swing of that pendulum and there is no scientific proof that’s happening. The swinging of the pendulum is natural, but there is no proof that we sped up the swinging of the pendulum.
James: Right. All I’m saying is that, and this goes on with the next article maybe in terms of thinking of it, the way that we think about it, right? Now we think about it as catastrophic, but there are people, very intelligent people from past times who were excited about that actually.
Mark: Yeah, my big thing is in the ’80s what everybody was talking was the great global freeze, and the same weather environmentalist forecasters are now talking about global warming. It’s like really? Were you wrong then or you’re wrong now?
James: I always just remember it’s an old Dew Carey bit from way back even before his sitcom and everything like that. And he’s of course, from Cleveland, and he would say there’s that — what was that back when they were talking about the ozone layer and everything like that in the ’90s a lot, and he’s like, “I just stand out there with a can of aerosol. I don’t care about my grandchildren. I’m cold now.”
So global fossil fuel emission is predicted to decline for 2015. Number 14 of 2015, so take us through this.
Mark: Yes, so this is the one of the top news stories of 2015 that naturally rules off what we were just talking about. So the experts say that our CO2 emissions are going down globally. Our emissions in the US are actual pollution peaked in 1979. So think about things like acid rain, the smog over LA, all that is gone, and it’s gone because the oil and gas industry cleans stuff up. Our air and our water is much cleaner now than it was in 1979.
Our CO2 emissions, which is what everybody is talking about as far as climate change, are going down. We’re over that hump, right? So if you’re worried about CO2 emissions, you have to worry about the developing economies, India and China specifically. Here in the US and in Europe, we’re going down and we’re doing it every year. So this is a great article showing how our impact to the environment is less and less because of the oil and gas industry.
James: And unless anyone push back, this is not a Texas A&M story. This is not from the University of Texas. This is from Stanford University in California of all places.
Mark: Yes. And they’re very pro-environmental, so for them to actually admit that the science says that our emissions are going down, they’ll probably try to bury the story somewhere, but it’s the truth.
James: Yes. So we put it up in lights as number 14 of the 2015.
So those are all of our stories. I hope you enjoyed them. I hope you’ve enjoyed this year. This is episode 43, so we’re under 10, we’re going to be at a year here pretty soon, Mark.
Mark: Yes, how awesome is that? It’s been a long journey, but it’s been a great journey.
James: Yes, especially for you because you’ve actually made me do something consistently once a week. So it’s especially taxing on you. So thank you for that. This has been a great year. Thank you to everyone for listening. We are only going to keep growing and having a great time.
Of course, we have the new show that we released a few weeks ago by now which is Oil and Gas Careers Podcast. If you haven’t heard of that one yet, go ahead and Google that or search for it in iTunes. It’s the show for anyone looking for a carrier in the oil field or in the oil bidness as I say on the show.
Much prosperity to everyone in 2016. What are your closing remarks?
Mark: Yes, let’s do something special for our listeners before we get out of here. Courtesy of Red Wing, our sponsor, we have these awesome offshore bags that we’re going to give away. We’re going to give away one a week. We’ll give it away every Friday, and all you have to do is go enter your name, your company, your email address to win. James will give you a link. These bags are super cool. We’re going to have some video out pretty soon so you see what they look like.
Now, they’re designed to fit in a helicopter, but their work is equally behind the rear seat of your F350 or carrying supplies to your office. So take a look, great bags, easy to win. Go to the link James gives you, and let’s put one of these bags in your hand.
James: Yes, so no purchase necessary to enter or win. See official rules at redwingshoes.com/podcast. That’s where you get to put in your info, redwingshoes.com/podcast. We can’t thank Red Wing enough for their support. We can’t thank you enough for your support in listening.
And I did all of that, Mark. You must have some other things you’d like to add before we get out of here for the year.
Mark: Yes, I just want to say Merry Christmas to everybody and Happy New Year. We love, love, love the fact that you’ve listened to us. Thank you so much for making this year a great year for both James and I.
So folks, do great work, pay it forward, and we will see you next time.
James: Go find some grease, guys.