#024: Where Crude Prices are Driving 2015 with Mark LaCour

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Where Crude Prices are Driving 2015 Interview Transcript

James Hahn II: Joining The Tribe on the podcast today is Mark LaCour. Mark is the founder of Modal Point, the oil and gas sales experts. He is coming off a record year in 2014. Even as oil prices plummeted he grew his business by 30%. He is our second repeat offender on the podcast.

In his previous episode, number 12. You can find either in the archive or you can just go to TribeRocket.com/12, was the most listened to episode and show that we had, until Alan Gilmer’s 2015 projections, which I will also link up in the show notes.

So, Mark LaCour is here to strike back with his 2015 business drivers and predictions. He’s got a lot of great things to say. Thank you for joining us again, Mr. LaCour.

Mark LaCour: James, it is such an honor to be a repeat offender. You know I’m a big fan of yours and to be back here again is just, wow. Let’s talk about 2015 and our predictions.

We published this back in December. One of the biggest drivers for 2015 is low crude prices. We predicted back in December that it would actually get below $50 a barrel, which it did today. So we at least got that one right.

Let’s talk a little bit about those low crude prices. There is so much misinformation out there.

James Hahn II: Let me jump in on that. So the narrative that I know, and shoot even people that I’ve given it to outside of the industry, is the OPEC narrative and you’re saying that that’s not the case. So tell me about that.

Mark LaCour: There’s two things going on wrapped around one thing that did not happen. People just don’t understand.

The first thing is that OPEC did nothing. Nothing. They did nothing. They just did not cut productions. They did that for two reasons.

For the followers out there that don’t quite understand what OPEC is. OPEC is a group of nations that control the price of oil and gas the same way DeBeers controls the price of diamonds. They do it by supply and demand. If prices get to low, they cut back production to get prices back up.

The two things going on, number one is OPEC’s sticking a knife in Russia’s back while Russia’s down. OPEC got really upset over the whole Ukraine thing. And Russia supplies a lot the arms to the radicals that threaten these monarchies in OPEC. That’s the first that’s going on.

The second thing that’s going on is there’s a handful of rogue OPEC nations. Angola, Libya, Nigeria, Venezuela. A while back when OPEC asked them to cut production, they did not do it. What OPEC is doing is punishing these rogue nations by pushing the price of oil so low these countries are going to suffer. It’s one of the things that were predicted, and it’s literally caused Venezuela’s government to be overthrown in 2015.

That’s the two things that are going on with these low crude prices. And it’s a short term thing. It’ll last all through 2015 and halfway through 2016. You’ll see it get back up to $80-$85 a barrel.

James Hahn II: For anybody, again I know we have several listeners that are outside of the business. So that we’re not talking all inside baseball, OPEC stands for the “Organization of Petroleum Exporting Countries”, which is basically an illegal cartel.

Mark LaCour: Yes. And, I’m sorry James. Go ahead.

James Hahn II: No, go ahead.

Mark LaCour: There’s a bunch things going on from a geopolitical point of view. OPEC, most of the OPEC nations that are highly productive nations like Saudi Arabia, they have a monarchy. The monarchy makes a lot of money from oil, but at the same time the monarchies in the Middle East have to keep the youth occupied. If they don’t the youth are the ones that will radicalize and threaten the monarchy.

Even though Saudi Arabia is making a lot of money, they spend that money on huge social programs to keep the youth employed. Right now Saudi Arabia is not making any money. What they’re doing is dipping into to their savings account to keep these large social programs running. And you can only do that for so long. That’s how we know the price is going back up.

James Hahn II: How do you come up with this radically different paradigm than the traditional storyline that’s in the press right now?

Mark LaCour: Because we know, the industry, knows what’s going on. Here’s something a lot of people don’t understand.

The reason OPEC is not trying to shut down US shale production is the US cannot export crude. It’s against the law. Our crude that our shale producers isn’t in the global markets, so it doesn’t threaten OPEC. Yes, we decreased the amount of crude oil that we import, but the rest of the world still consumes.

And there’s a bunch of things all figured into that. China’s consumption of crude has slipped a little bit, so we have a surplus. And once again OPEC knows what they’re doing. They saw this coming, just like we see it coming. And a lot of the really smart analysts with all the super majors and the majors, saw this coming. So second, we have insight that just nobody else has, just to actually know what’s going on in the industry.

James Hahn II: Got it. So give me a little background on the Russian issue. Because that obviously is a big deal here.

Mark LaCour: Absolutely. We’ll talk about a couple of things.

Russia’s economy basically runs on its ability to export oil, mainly to Europe. Russia needs around $80 a barrel to make money. So because of the Ukraine thing the US and Europe have imposed sanctions on Russia.

They stopped a lot of the technology transfer and a lot of the partnerships, like ExxonMobil, to keep Russia from being able to drill and use new technology to get more oil out of existing wells. That’s crippling Russia’s economy right there.

They also changed the way Russia’s oil and gas industry could tap into the global capital markets to finance these projects. That hurt Russia right now too. You have all that going on.

Russia’s not making any money. Their inflation is going to through the roof. In fact, Russia’s National Bank had to raise interest rates to, I think it was 17%. What was happening is the people that had money in Russia would take the money out of the banks to put in foreign banks. They had to try and stop that.

With all that going on while Russia is struggling and down, Saudi Arabia said, actually OPEC said this could this be a great time to stick a knife in Russia’s back. That’s what happened.

In crude prices, there’s a lot things that could happen.

On the service side of the house, yes a lot of the service companies that are serving frack fields are going to take a hit. A temporary hit. But what’s going to happen is the service companies that do work overs where they go back re-stimulate existing wells, that’s going to explode.

It’s much cheaper to get oil out of existing wells than it is to go drill new wells. There’s things going on like the frac companies, the good frac companies, are learning that they could put wells closer together without cannibalizing production. Which actually means if it plays out correctly, that you actually see some increase in well drilling because the price of crude is low. Which doesn’t make logical sense, but it does from a petroleum engineer point of view.

Make sense?

James Hahn II: It does make sense. I’m going to push back a little bit, though. Because we are already seeing a ton of layoffs. A TON of layoffs. We’re seeing hundreds from, who is it? I don’t know, it wasn’t Baker Hughes. It was Halliburton, maybe?

Mark LaCour: Yeah.

James Hahn II: But maybe that’s cannibalization of their pickup of Baker Hughes. Talk us through that, though. Even if there are the good times when we look at the headlines, it’s hard to see an opportunity.

Mark LaCour: Yes, a lot of that’s media spin. You had the big service company merger, and basically it was not a merger. Halliburton made Baker Hughes sell themselves to Halliburton at the price Halliburton wanted.

Of course you’re going to have plenty of layoffs because you’re going to have a lot of duplicity there. A lot of duplicate and shared services, legal, HR whatever. There have been some layoffs, if you actually track through the news.

The most expensive way to produce oil in the world is tar sands. There’s one company up in Canada that provides room and board for the employees of tar sands. They laid off about 600 people. By the time the news got that information the news headline read, “Oil and Gas Industry is Crumbling and Layoffs are Massive.”

There are no massive layoffs right now. In fact, there’s still a talent shortage in oil and gas right now. We could probably sit here and talk about this forever, you and I, because we’re both passionate about this. But we also have 9 other drivers to try and talk about.

James Hahn II: Oh my goodness, wow. What’s next?

Mark LaCour: The next thing is new geopolitical risk. The oil and gas industry always had political risk in the Middle East. Since I was a little kid with the Arab Oil embargo that’s been going on. Now you have changing laws in Mexico and Argentina. You have the sanctions imposed on Russian that impact Arctic drilling.

Then you have political unrest in Nigeria and Libya. All of this is new political risk in the oil and gas industry, and they’re going to have to, they’re going to struggle a little bit to try to figure out how to manage the risks. So that’s number two is new geopolitical risks.

Number three. Technology. And man, when I say technology, it is crazy to watch the old-fashioned oil and gas industry start to adapt technology very quickly. Big data, digital oilfield, security, analytics, and all that stuff is being adapted because of lower crude prices.

The oil and gas industry has to become more efficient. If you’re a technology company and you somehow impact operational efficiency you should be talking to the oil and gas industry because they want your stuff.

Number four. Shortage of talent. And y’all have heard of the Great Crew Change, but it’s unbelievable the shortage of talent. The talent that’s in short supply starts with something called STEMS, which stands for Science, Technology, Engineering, Mathematics. That type of talent is in such short supply that 10 years ago every major oil and gas company in the world partnered with universities to build because they knew they couldn’t grow it anymore.

I’m a member organization called Society of Petroleum Engineers. Now on Fridays I spend half a day volunteering at my local high school to help teach STEMS and talk about the oil and gas industry.

Think about that change. It is to the point now that the oil and gas industry is talking to kids in high school about coming to work in oil and gas. If this trend continues in a few years I’ll be talking to kindergarteners about how they should go work for Chevron when they get out of college. It’s just crazy.

James Hahn II: I’m glad you brought that up. As we made the transition into the into the rest of the drivers, that was really the next question on my mind. Tell us about this shortage. Because that’s not the, again just like oil prices, that’s not the traditional narrative that we hear.

Mark LaCour: Yeah, what happens is the news media, or the media as a whole is not structured to tell you what’s actually going on. They’re structured to sell advertising. And what sells advertising better; horrible news or great news?

James Hahn II: If it bleeds, it leads. I was in journalism school.

Mark LaCour: I suggest that when hear someone panicking, go back to the sources and read what’s really going on. It’s not doom and gloom. Low crude prices are going to ramp up the US economy like you have not seen in a long time.

It’s basically given every American a raise. The airlines all of a sudden are going to be very profitable. We’re going to see ticket battles. We haven’t seen that in 20 years. Manufacturing’s coming back because it is so cheap to manufacture in the US now. It’s all really good stuff.

James Hahn II: I saw that 70 billion is the projected number that Americans are going to save in 2015 because of low crude prices.

(complete transcript forthcoming…in the meantime, click play!)

The post #024: Where Crude Prices are Driving 2015 with Mark LaCour appeared first on Tribe Rocket Inc..

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