#063 Oil and Gas This Week Podcast: Oil Questions and Answers

 
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Mark answers your oil questions on Trump vs. Hillary’s industry impact, offshore Virginia drilling, and how mineral owners can master oil and gas.

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#063: Oil Questions and Answers

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Questions

Jeffrey Larson

Good Evening.

I’m sending some more questions for the First Friday Q&A.

First a question that I’ve asked before but has not been answered yet.

1) Offshore Wind is coming to the coast of Virginia Beach, VA. There are efforts to expand this to offshore drilling by some of the leadership in the state. What can you share about any knowledge you have on progress for offshore drilling off the East Coast of the US.

2) Your most recent Q&A mentioned that the US will be able to cripple OPEC due to how much oil we will be able to push out in the future. Will China be able to do something similar? Are they a nation full of untapped oil reserves? If so, would China be able to, or be willing to join OPEC to counter the US market dominance?

3) James, you mention books to read from time to time. My wife is getting her degree in Marketing, and I am looking to purchase a bunch of books for her. Barring me going back and re-listen to 70+ episodes to find each of your recommendations. Do you have a list already made you can share of books that are worth while and of benefit to marketers?

4) How much of an impact do you see the continuing rise of battery powered cars on the oil market? Should every car sold in the world be powered by batteries, would that result in another down turn in the market we are currently facing? Or is the % of gasoline sales minimal in the grand scale of things.

5) I have a number of fellow students that have previous oil field experience. The only company that comes to recruit at my school (Old Dominion University in Norfolk, VA) is Schlumberger. What can I do, as a student to increase the number of oil and gas companies to recruit on campus.

Love the show. I’ve been listening to you since episode 1. Glad I found you guys. Keep up the good work.

– Jeffery Larson

Nick Brasil, Student at Aberdeen University

Dear Mark and James,

Thank you very much for the excellent content delivered so far. I have been a vivid listener and since it you guys just started and I believe I have listened to all episodes.

I wonder if you could discuss about politics sometimes and it’s implications to the oil industry. I particularly would like to know what would a Trump vs. Hillary president scenario would look like after elections? Which candidate do oil pro’s back and for what reasons?

Once again thank you for all high quality content so far and keep the juice flowing.

Nick

Ola Wam, Journalism Fellow at the University of Toronto – Munk School of Global Affairs

Hi Mark, I’m a major fan of yours and James Hahn’s podcast. I listen to it every week; its a great way to take the pulse of the oil industry. I have one question you might want to raise on the Oil and Gas Careers Podcast – where are the opportunities for social scientists (political scientists, anthropologists etc.) in the oil and gas industry?

I have a background in Political Science and Security Studies, I did my thesis on the security risks faced by Shell’s E&P operations in the Niger Delta, and I’ve written quite extensively on security related issues in the Middle East. I’m looking to get into security risk management in the oil and gas industry, but have find it really difficult to find any venues in – how would I go about doing it and do these positions even exist..?

Thanks a million!! Best regards from a massive fan of your Podcast, Ola Wam

Cris Vega

Hello, I have some questions for Mark concerning the factors that would influence supply and demand of crude based on pricing.

BARRIERS TO ENTRY / ARE THEY HIGH OR LOW?

In economics, we access that barriers to entry are a determinant of new supplier being able to easily, or not so easily, enter a market where excess demand is not met.

My question is, if the price of crude will rise, as Mark predicts, then, how easily can producers that are currently dormant jump in? Is there a lot of supply that can be switched on easily?

Or, are there long lead times that will delay their ability to participate in supply? Especially for producers that have shuttered their operations because they could not afford to produce.

Kelsey Fatland, Teacher and Mineral Owner

I am an Elementary School Teacher, however my family has been lucky enough to own land in Texas that we have leased out for oil drilling for several generations. As my parents’ generation is ready to hand over the land management responsibilities to me and my sister, I am trying to learn as much as possible about the industry so I can understand all the industry terms, the key players, the current trends, etc. so I can make educated decisions about our land.

I have enjoyed listening to your podcast, but I’m wondering if there are other resources you can suggest to help me understand the most important and relevant information for my situation. I’m also looking for resources to help connect me to other land owners/managers?

Thanks in advance for your help.

Carter Newman, Student

Dear Mark and James,

First, I sincerely thank you both (and whoever works behind-the-scenes) for the high quality content and audio of This Week in Oil & Gas Podcasts.

What oil & gas career possibilities exist in North Carolina, South Carolina, or Tennessee?

By December, I will be completing my Finance & Entrepreneurship majors at Elon University, a small liberal arts school in North Carolina. Since January, I have fallen in love with the oil & gas industry.

Between my school work, boxing training and being in a mediocre band that covers free bird too often, I have been working through two books: Energy Finance & Economics and Oil & Gas Company Analysis. I’ve also incorporated what I have learned into all of my finance class projects.

However, there is not a single professor at my school involved in oil & gas, nor any nearby internship possibilities. Also, I have my heart set on anywhere “around” Nashville to be near my brother and a good music scene.

Frankly, I’m not quite sure where I would fit in the oil & gas industry.

Any advice is appreciated,
Carter

Bart Critser, Sales Manager at Terra Guidance

If Chevron is drilling north at 90 ft per hour, and Exxon is 1.5 miles north drilling south at 200 ft per hour, but Exxon will need to take a 16 hour bit trip, which rig will the wells be closer to when they collide?

Just kidding, here’s the real question:

One of our clients is drilling as usual despite the price crash because they had barrel prices hedged through 2018. What does this mean and what types of companies would an operation be hedged with?

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#063: Oil Questions and Answers

Transcripts Courtesy Of

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[0:00:00]

James: I’m James Hahn II.

Mark: And I’m Mark LaCour.

James: You’re listening to the Oil and Gas This Week Podcast, Brought To You By Red Wing. This is the show for busy oil pros who want to quickly keep their finger on the pulse of the industry. Bonus Episode 63. Welcome, Mark LaCour. Why are we recording a bonus? What’s going on here? Tell the folks.

Mark: James and I, in our infinite wisdom between the two of us accidentally recorded the wrong show. We forgot to record the First Friday Q&A. So you get an extra show this week because we’re just a bunch of knuckleheads sometimes.

James: Big shout out to our friend Mark Pillsbury over at ConocoPhillips who I was texting back and forth yesterday. I said, “I can’t wait for the Q&A show.” Thankfully Mark’s schedule was clear this morning. We are recording and releasing these things at the same time. So bonus episode for you all. We have way, way too many questions. Thank you to everyone who submitted. I love the First Friday Q&A.

We’re going to start it off with Jeffrey Larson. He didn’t give us a company or a position but here are his questions. We’re going to take them one at a time if that’s all right, Mark.

Mark: Yeah. Let’s do it one at a time.

James: All right. Cool. Good evening. I’m sending some more questions for the First Friday Q&A. First, a question that I’ve asked before but haven’t got an answer.

Mark: We apologize, Jeffrey. I don’t know how it slipped through the cracks. It happens. So if you don’t hear a response from us, whether we read it on the show or not, send it again.

James: Yeah. Thank you very much for resubmitting. First question, and we’ve got five, offshore wind is coming to the coast of Virginia Beach, Virginia. There are efforts to expand this to offshore drilling by some of the leadership in the state. What can you share about any knowledge you have on progress for offshore drilling off the East Coast of the US?

Mark: Basically it’s a mess. There are reserves out there. Whether they’re recoverable in today’s crude price environment, nobody knows. There’s been some drilling out there. South of Florida going toward Cuba, there are some reserves. Up north of going toward Canada in Atlantic, there are some reserves. We know it’s there. The issue is that those Atlantic states did not negotiate their mineral rights as well as the Gulf Coast states. On Atlantic Coast each state only owns three nautical miles, that’s their territory.

James: What’s it like in the Gulf Coast?

Mark: I’m sorry.

James: What’s it like the Gulf Coast?

Mark: A hundred.

James: Okay. Yeah. Definitely. Big difference.

Mark: Yeah. So from 300 to 200 miles, the federal government owns. So most of the reserves are in that federal water that’s off Atlantic Coast. Now, if companies would drill and go into production of course those states would receive some revenue and they would also receive all the revenue from the people and the industry that would move to their states. The problem is that our Interior Secretary, Ken Salazar, announced a ban on any federal waters in the Atlantic Coast through 2017. So nobody can drill from a federal point of view until after 2017. So nobody’s actually going out there and exploring anything.

There are probably a lot of jobs and a lot of money that could be made out there. We’re at the point now where we can do this safely and effectively but it’s just become a political nightmare. There’s a lot of opposition that was unexpected from those states. In some of those states, their economy’s really suffered. You think they’d want the money and the prosperity. I think part of it is a bit of a political spin by the anti oil and gas movement. Unfortunately a lot of the public buys into some of the stuff out there which is not true. That’s what’s going on in East Coast of the US.

Shout out to Jeffrey. I spent a little bit too much time in Norfolk, Virginia years ago. Beautiful, beautiful, beautiful state.

James: Very beautiful state. My sister lived out in Washington DC for a while. She fell in love with it out there. One of the things that I’m a little concerned about obviously is the ban but one thing that comes to mind is the story that we talked about a few episodes ago, more than a few I think, where there was 100 million barrels discovered in Gulf. All I can think is how much oil is there and how much prosperity could be driven if only not for the political environment.

Mark: Honestly that oil is going to come from somewhere. If your state doesn’t want to participate, we’re happy to punch holes in the ground here in the Gulf Coast and make money.

James: All right. Kicking off with number two. Your most recent Q&A show mentioned that the US will be able to cripple OPEC due to how much oil we will be able to push out in the future. Will China be able to do something similar? Are they a nation full of untapped oil reserves? If so, would China be able to or willing to join OPEC to counter the US market dominance?

[0:05:26]

Mark: This is a good slant I’ve never thought of before. The first thing is China has a lot of reserves. How much? Nobody knows because China doesn’t tell the truth and they don’t have the seismic technology that we have, and also because the government owns all the minerals versus here in the US where people own the minerals. There’s not the economic incentive to go out there and survey from a seismic point of view the entire country but they have reserves. They actually have a lot of shale reserves. Now, whether they’re recoverable or not, we don’t know because once again, we can’t get the truth out of China.

Would they join OPEC? No. It’s just too different political cultures. It would make no sense. Now, if China really starts developing its infrastructure — that’s the other part too. Even though they have reserves they don’t have the infrastructure to get out of the country or even to use it internally. They don’t have the pipelines and the rail, the highways that we have here. But if they would go down that route and if they have the level of reserves that most experts, including myself, think they have they actually could counter Russia and OPEC and the USA. So you’d have four huge oil producers out there that could actually swing prices if they need to.

Just a little quick correction. Hopefully I never said that US can cripple OPEC. I don’t think we can cripple OPEC. I just think we can take away their ability to control oil prices in the very near future here in US. Will China join OPEC? No. That won’t ever happen. Could they actually become major producer? Yes. Do I think it’s going to happen anytime soon in the next 50 years? No.

James: The national oil company over there is Sinopec. Is that right?

Mark: China National Oil Company or CNOC and there’s Sinopec. There are two NOCs over there. I think there are actually three. I just can’t remember what the third one is. They’re predominately looking at reserves in other parts of the world, not in their backyard.

James: The thing I’m driving in asking that question is that we know a lot of Chinese companies and Chinese investors have come to Texas in terms of shale. Are they trying to do some sort of a knowledge transfer in doing that?

Mark: This is not the show to get too deep on how our cultures are different. In the US and in Europe regardless of what your religious preference is you’ve been exposed to Christianity, to Judaism, to Islam, and all three religions have right and wrong. If you do the wrong stuff you’re going to end up, after you die, somewhere bad. If you do the right stuff you’re going to end up somewhere good. China doesn’t believe any of that. They believe in reincarnation. They believe they’ve done this 100 times or 1,000 times. So for them to steal intellectual property, techniques to reverse engineer stuff, they don’t see anything wrong from a cultural point of view.

There are a bunch of very smart Chinese people here in the US trying to figure out how you economically produce oil from the shale place. Can they do it themselves? Not yet and I’ve seen no indication that they’ve actually figured out because quite honestly, a lot of this information is not written down so much in people’s heads. Will they get there somewhere in the future? Yeah. Do I think they’ll get there anywhere soon? No.

James: All right. Now on to the question for me. James, you mentioned books to read from time to time. My wife is getting her degree in marketing. Awesome. I’m looking to purchase a bunch of books for her. Barring me going back and re-listening to 70+ episodes — we’re almost there — to find each of your recommendations. Do you have a list already made that you could share of books that are worth while and beneficial to marketers?

I do have a list. I will put it in the show notes triberocket.com/tw63. The two that I always start people with off the top are, first of all, Jay Baer’s book Youtility: Why Smart Marketing Is about Help Not Hype. It’s a phenomenal book. It’s very short read. You can probably knock it out in an evening or an afternoon. But it gives you a really good idea from a strategic and philosophical standpoint what modern marketing is all about and how it’s all about helping, not selling, just like we talked about NOV doing on the show that we recorded and that you’re getting at the same time as this one.

The other one would be from Mark Schaefer. I’m completely blanking on it right now. The Content Code. It is by far the most thorough execution book in terms of teaching you exactly how to execute and build what he calls your alpha audience. In the context of this, we would call it your tribe.

[0:10:15]

So those would be the two that I would start with. I have a whole bunch more that I can recommend. I will put it in the show notes at triberocket.com/tw63 for you.

Moving on to number four. How much of an impact do you see the continuing rise of battery-powered cars on the oil market? Should every car sold in the world be powered by batteries? Would that result in another downturn in the market we are currently facing or is the percentage of gasoline sales minimal in the grand scale of things?

Mark: This is a great question. Let me start with something a lot of people don’t know. In Singapore when you import a car that’s never been imported to the country before, they look at the total impact that car has on the environment, everything from manufacturing, to transportation, to how much fuel it uses, and they assign in the number.

Recently somebody just imported a Tesla, a 100% battery-powered car. In Singapore when they do this math on your car you’re either given a tax break if it’s a very efficient car as far as total impact in the environment, or you’re not given anything if it’s an average car, or you’re penalized if it’s worse for the environment. Once again, total impact from cradle to grave. The Tesla got a fine because it was so negatively impactful to the environment when you look at it from cradle to grave.

Let’s not say battery. Electric-powered cars make a lot of sense. The reason they make a lot of sense is a gasoline or diesel engine waste a lot of energy as heat. It has to because it has to be small enough to power the car. Whereas if you take a conventional electrical power plant they can recapture that heat which means they’re much more efficient in turning fuels into electricity. The issue is actually the battery technology. We need a little bump in battery technology and then electric cars would make 100% sense.

Now, I’m not dogging Tesla. I’ve actually driven one and I drool over. It is not electrical car that’s cool. It is a really awesome car that just happens to be electric. I think that’s the route we’ll eventually go. Will that affect the oil and gas market? No, not at all because you know what. Most of what’s in that Tesla is made from oil anyway, all the plastics, all the rubbers, all the elastimers, insulation, all the wires, the computer circuits, all of it comes from oil and gas.

We’ve talked about this before. As we go through time our energy mix will change but our use of crude oil and natural gas will continue to be high in demand. Usually we use it to make other stuff other than fuels.

James: Very good point. Number five, I have a number of fellow students that have previous oilfield experience. The only company that comes to recruit at my school (Old Dominion University in Norfolk, Virginia) — I wish I knew Old Dominion’s mascot so we could give them a shout out but shout out to all Dominion. What can I do as a student to increase the number of oil and gas companies to recruit on campus?

Mark: This is an easy one. Schlumberger is out there. You need to get in touch with the college recruiting arms of Schlumberger’s competitors. Baker Hughes, Weatherford, FMC, Cameron, GE Oil & Gas, Aker, all those service companies would go “Hey, look. Schlumberger is recruiting here.” When they find out Schlumberger is recruiting there they’ll send their college recruiters there too. That’s an easy, easy fix.

Now, I don’t think that will happen this year. The upstream service companies are hurting right now but I do think you should get in touch with them. As soon as the price of crude comes back and they’re struggling to hire a talent they will send drones of recruiters to your university in Virginia.

James: He finishes off by saying love the show. I’ve been listening to you since Episode 1. Wow! You’ve heard quite a progression in quality because things weren’t that great back in Episode 1. Glad I found you guys. Keep up the great work. Jeffrey Larson.

Jeffrey, we are not correcting you. We do have to say something right now because I’m looking down at the timer, Mark. We are 15 minutes in on one question.

Mark: This is the first time we’ve had this happen. I think we’re going to have to limit the number of questions. We don’t mind you submitting multiple questions every month but we’re going to have to limit people to one or two questions just so we can keep other people’s questions in the show and not run for two hours.

James: Yeah. We would because I could talk that long, Mark. If you send us five or six maybe we’re going to pick one or two of the top ones and be able to handle it that way.

Let’s move over to Nick Brasil, student at Aberdeen University. Here’s his question. Dear Mark and James, thank you very much for the excellent content delivered so far. I’ve been a vivid listener since you guys started the show. I believe I’ve listened to all the episodes. That is amazing. It probably has to do with that binging spike that we saw and we talked about on the last episode that you get today.

[0:15:14]

Mark: It’s also the first time I think I’ve heard somebody described himself as a vivid listener.

James: A vivid listener. Fantastic. I wonder if you could discuss about politics sometime and its implication in the oil industry. I particularly would like to know what a Trump versus Hillary president scenario would look like after the elections. Which candidate does oil pros back and for what reasons? Once again, thank you for all the high quality content so far, and keep the juice flowing. We love the juice. It’s Google juice that we’re hooked on. We’re going to keep it flowing. What do you have to say about this, Mark?

Mark: Nick, I’ve actually spent a lot of time in Aberdeen. It is one of the most picturesque places in the world. It looks like a postcard. Unfortunately Aberdeen is suffering right now because of low crude prices. For everybody in Aberdeen, our hearts go out to you. We have the careers podcast, go check it out.

We try to stay away from politics but this is a good question. Hillary’s already come out and said that she supports more regulation for fracking and for the oil and has industry as a whole which only hurts the industry. So we know where that’s going to go. Trump has not really come out and said anything pro or con about the oil and gas industry but he’s a businessman. If he gets elected president and he looks at the amount of money that the oil and gas industry gives to the federal government which is enormous — the federal government is the biggest profiting agent in the oil and has industry in the US, not the oil companies. When he sees the amount of money I cannot see him touch any of that because he wants that cash flow to run the federal government. I would suspect that the oil and gas industry would be better off with Trump in office.

Quite honestly, neither side does a good job of supporting the industry. The leftwing Democrats try really hard to hurt it. They’ve tried to make us look like bad guys. The rightwing conservatives don’t do anything to support it. I’ve been saying this for a long time. There’s been other thought leaders in oil and gas that have been saying this for a long time. We need to take the oil and gas and energy, all of that, out of the political arena and build a board that looks at it from a long term point of view and doesn’t look at it from political point of view.

James: There’s a lot we could go down that road but we’re not near an election. We are coming up on one but it’s awhile away. We’ll just let all that unfold and we’ll talk about it later.

All right. We’re going to move over to our mutual friend, Mr. Ola Wam. He is a journalism fellow at the University of Toronto – Munk School of Global Affairs. Hi, Mark. I’m a major fan of yours and James Hahn’s podcast. I listen to it every week. Again, thank you, Ola. It is a great way to take the pulse of the industry.

I have a question you might want to raise on the Oil and Gas Careers Podcast. Where are the opportunities for social scientists (political scientists, anthropologist, et cetera) in the oil and gas industry? This is a very interesting question.

I have a background in political science and security studies. I did my thesis on security risks faced by Shell’s E&P operations in the Niger Delta, and I’ve written quite extensively on security related issues in the Middle East. I’m looking to get into security risk management in the oil and gas industry but have found it really difficult to find any venues. How would I go about doing it and do these positions even exist?

Thanks a million. Best regards from a massive fan of your podcast, Ola Wam.

Thank you for being a massive fan first of all. Second of all, Mark, what do you have to say on this?

Mark: It’s interesting. The need for those social scientists in oil and gas was zero 20 years ago, and now it’s actually rather large for a whole bunch of reasons. When the oil and gas industry goes to different countries they have to learn how to work within that business culture, and so they need social scientists to help them understand that. When they go to recruit people from different countries, they have to understand how to manage those people. So once again, they need social scientists to help them with that.

When they have to deal with different political entities that have different drivers, once again, they need social scientists to do that. Even things like wildlife management which is what my degrees is in, there’s actually a need for that in oil and gas because now they want to make sure when they go to an area that they can mitigate any damage they do and they can actually measure how they impact the environment. That part of the industry is growing. It’s huge.

My suggestion for Ola is to look at the super majors, the majors and then the large national oil companies. They’re the ones with the biggest need. You can see less of a need in the independents and the service companies. Companies like BP has a huge, huge social science arm that helps them navigate different countries and different cultures. So the need is there.

[0:20:03]

Now, how do you get to those needs? Follow the Oil and Gas Careers Podcast. We’ll talk you through how to get in front of the right person and pick up the job that you want.

James: I’m very curious to hear. Social science is, again, another thing I have not thought of in terms of the oil and gas industry. What other types of non-technical positions in terms of geology, geophysicists, rig hand, so forth are out there in the industry that someone wouldn’t naturally think of?

Mark: How about space scientist? The super majors all have somebody that understands aerospace knowing that maybe somewhere in the future we might be drilling oil on another planet.

James: What? They’re thinking about that?

Mark: Yeah. They run a business. They have to look out into the future. If you’re looking out into the future, at some point that may be a possibility. I mentioned the wildlife management. Another good one is executive leadership coaching. We talked about this on the Oil and Gas Careers Podcast. The leaders in this industry need to make the right decisions, and so they need coaches. So to be a coach for an executive at Chevron you have to know your stuff. This isn’t somebody that’s got some diploma online from taking a couple of courses. These are organization development psychologists that have spent years understanding how people think and make decisions.

There’s a bunch of stuff in this industry that you would think is there. Chevron has a whole business unit that’s all aviation. When they’re not flying the corporate executives around their jets they use those airplanes for logistics to move parts and pieces around the world. There’s a bunch in this industry that you would have never thought of.

James: One that I learned from you that comes into mind right now is meteorologist.

Mark: Everybody has meteorologist on staff, especially if they operate in the North Sea and Gulf of Mexico. They have to know the weather. They don’t trust the weather channel. They want to do it themselves.

James: You as an operator, as a service company, whatever you’re doing out there, you have to be operationally efficient. INTECH Process Automation can help you with that. They created a free white paper just for our listeners. Why don’t you tell them about it, Mark?

Mark: I almost hate to call it the free white paper. What it is is they wrote a step by step guide for our listeners, for our operators and our service companies out there in the field on how to decrease your cost. That’s really important in this low crude price environment. So if you got some production going on, if you’re out there punching holes in the ground, if you’re a service company that deals with the guys out in the field especially out in all the different basins in the US, go download this white paper. This is an awesome resource. INTECH did it for free for our listeners. James, if they want to download it where do they need to go?

James: It’s intechwww.com/podcast. Moving on to Cris Vega. Again, we don’t have a company or position but let’s go ahead with the question. Hello. I have some questions for Mark concerning the factors that would influence supply and demand of crude based on pricing. BARRIERS TO ENTRY/ARE THEY HIGH OR LOW?

In economics we assess that barriers to entry are a determinant of new supplier being able to easily, or not so easily, enter a market where excess demand is not met. My question is if the price of crude will rise, as Mark predicts, then how easily can producers that are currently dormant jump in? Is there a lot of supply that can be switched on easily or are there long lead times that will delay their ability to participate in supply especially for producers that have shuttered their operations because they could not afford to produce?

Mark: I’ll have two different answers to this. I will talk to you about the theory. I will talk about what’s really going on here in the US.

James: Before you do that, shout out to Cris for the unbelievably intelligent question. This is fantastic question.

Mark: Here in the US parts of the oil and gas industry have a very high barrier to entry, specifically subsea manufactures, the guys that make the trees and the blowout preventers that sit on the ocean floor. Just the tool to be able to make those things costs so much money that it’s almost impossible to have another supplier enter the market. That’s why there are only a handful of companies that do that, the FMCs and the Akers and the GE Oil & Gas and the Cameron. So there’s a barrier to entry that actually restricts a number of competitors in the subsea market.

Now, in the industry as a whole there’s really not that much barrier to entry for operators even the ones that have shuttered their production because all they need is cash, all they need is capital. Investors will give them the money when it makes business sense. So whether that money is $1,000 or $100 million, if it makes sense for the investor they’ll write the check, and then the guy goes in production. That’s the theory.

[0:25:01]

Let me talk about what’s actually really going on. What people miss is here in the US when you have mineral rights and you lease those mineral rights out to an operator you put clauses in that contract where you have to keep producing no matter what the price is because if you’re a mineral rights owner you want to make your money. People sign those contracts. Right now in the US even though we’re in a low crude price environment people are still producing because they have to contractually. What they’re trying to do is just break even.

So when you asked is there a bunch of supply that can be switched on, billions of barrels can be switched on at a moment’s notice right here in the US because we have a bunch of wells that are drilled but are not completed. They’re producing what they have to produce by the contract. They could easily inflate that production. They don’t want to right now because of low crude price but the moment that crude price comes back to open that faucet wide open, all of these wells that are drilled or completed, you’ll see a huge jump in the output. The good thing here in the US is we can now export that because we had some law changes recently.

Hopefully, Cris, that answers your question. There are two parts to it but there are also some other pieces in it that you have to think through like the contractual obligations of the operators.

James: One thing I’m curious to hear your thoughts on is how the shale revolution plays in to all of this because back in the day when you were just drilling vertical wells you’d get a gusher if you hit but the number of dry holes versus wells drilled was much higher. Nowadays it’s not guaranteed that you’re going to produce but it’s a lot more likely. Am I wrong?

Mark: You’re right but it has nothing to do with shale. It has to do with the evolution of technology, especially geoscience. Before wildcatters would go out there — they were called wildcatters because people thought they’re crazy. They’re just drilling holes in the grounds and see if they hit oil. It literally was a guess. Now with the geoscience you know there’s 75% or 80% chance of probability. Not only will you hit oil and gas but that it will be producible. That change is because of the geoscience.

Still operators both on land and offshore will hit a well. It won’t necessarily be dry but it won’t be producible. There’s oil and gas but it doesn’t make financial sense to get it out of the ground. They’ve gotten much better at it because the geoscience got much better.

James: All right. Cool. You mentioned mineral owners. We have a question from a mineral owner. This is Kelsey Fatland. She’s a teacher and mineral owner. Here’s her question. I’m an elementary school teacher, however my family has been lucky enough to own land in Texas that we have leased out for oil drilling for several generations. Good on you, Kelsey. As my parents’ generation is ready to hand over the land management responsibilities to me and my sister I’m trying to learn as much as possible about the industry so I can understand all of the industry terms, the key players, the current trends, et cetera, so I can make educated decisions about our land.

I’ve enjoyed listening to your podcast but I’m wondering if there are other resources you can suggest to help me understand the most important and relevant information for my situation. I’m also looking for resources to help connect me with other landowners and managers. Thanks in advance for your help.

I have a couple of responses on this one, Mark, but why don’t you take it?

Mark: It’s a great question. The good thing is you’re actually doing your research. In my experience most people that have land that have recoverable minerals on it just sign a contract every three years or five years and just take whatever. When I was young living in Louisiana we actually lived on a big piece of property that we had the mineral rights on. We actually got approached by a company that wanted to lock up the mineral rights. My dad did something very smart.

He knew nothing about it but he went out and did research around it. He ended learning that what they wanted was a block. So they wanted our land, other people’s lands to get that entire block of land. My dad went out and contacted other landowners and they negotiated as a group. They doubled the amount of money that they were making.

James: Boom!

Mark: My dad went out and understood. Kelsey, you’re going on the right road. James has some resources to talk about. One place, Kelsey, you need to reach out to, you need to reach out to the newfrackers.org. We’ll put a link in the show notes for you. Thomas Clay is a buddy of mine. He wrote the book. He has a great website. He does a lot of this stuff for free because he’s trying to help. So reach out to Thomas Clay. Use my name and just have a chat with him. He’s going to be a great resource for you. What resources do you have, James.

James: He’s a great resource. Tom is a good man. Back in the day I was a newbie. Believe it or not, listeners, I do know some things about oil and gas that I didn’t know six years ago. We are the first people that started a blog and started inbound marketing thanks to Allen Gilmer giving me the green light on that.

[0:30:09]

The first blog I wrote was an answer to my frustration in not being able to find any information out there in terms of oil and gas. I have a blog that’s still up over there at drillinginfo.com. It’s called 7 Free Resources for Newbies in Oil & Gas. I go through seven free resources. Schlumberger has a fantastic, fantastic oilfield glossary online. You can also access Drillinginfo’s glossary for free in their Help Text. You can get that link in the show notes at triberocket.com/tw63.

The other one I would definitely strongly encourage you to get involved in is the Texas Independent Producers & Royalty Owners Association. They are all about exactly what you’re trying to accomplish here which is to learn about the industry and connect with other mineral owners. They have annual meetings. They have local chapters. It’s a fantastic organization. They are set up just for you as the independent royalty owner that you are. If you Google 7 Free Resources for Newbies in Oil & Gas you’ll get that. It’ll be in the show notes. It’s tipro.org. The link will be in the show notes.

All right. Let’s go over to Carter Newman. Carter, you don’t have to give us the frowny face. He says just a student with a frowny face.

Mark: That should be a super smiley face. Students are some of our favorite people.

James: I think maybe he just really wants to get out in the field. As I said when I replied to you on the email, Carter, just keep grinding, brother. You’re going to get there.

All right. Here’s his question. Dear Mark and James. First, I sincerely thank you both (and whoever works behind the scenes), Paige and Mark Pillsbury and other people that help run the show, for the high quality content and audio of This Week in Oil and Gas.

What oil and gas career possibilities exist in North Carolina, South Carolina or Tennessee?

By December I will be completing my finance and entrepreneurship majors at Elon University, a small liberal arts school in North Carolina. Since January I have fallen in love with the oil and gas industry. I know the feeling, Carter.

Between my schoolwork, boxing training — wow! We got a boxer — and being in a mediocre band that covers free bird too often — play free bird! Sorry. I had to do that. I have been working through two books: Energy Finance & Economics and Oil & Gas Company Analysis. I’ve also incorporated what I’ve learned into all my finance class projects.

However, there is not a single professor at my university involved in oil and gas nor any nearby in internship possibilities. Also, I hadn’t I have my heart set on anywhere around Nashville to be near my brother and a good music scene. I can appreciate that being from Detroit. Great music scene. Frankly, I’m not quite sure where I would fit in the industry. Any advice is appreciated. What do you have for Carter?

Mark: I got you covered, brother. Go check out BP in Morristown, Tennessee. They have a big office there. They’re kind of a big oil and gas company. You may also want to look at Beach Oil in Clarksville, Tennessee and Cumberland Oil also in Nashville. There are oil and gas companies there. You just have to search for them.

How would you fit there with the finance background and entrepreneurship? I’ll tell you what you need to do. You need to first apply at BP and see if you can get in their finance department and learn what they do, and then start thinking about starting your own business.

James: What would you have him do as his own business?

Mark: Once he learned let’s say Ford’s future crude’s accounting or whatever, he can then start his own business doing that for other oil and gas companies.

James: He can do it from anywhere just like myself. A lot of people don’t know. The entire first year I was in business I didn’t even live in Houston.

Mark: You were in North Carolina?

James: I actually was in North Idaho and then I was in Greenville, South Carolina. That’s a really, really great plan. Think of that. Start your own business.

Mark: First work for BP or one of the oil companies I mentioned. You need to get that education experience. You can’t fake that. You can’t buy that. But while you’re learning that look at other business opportunities since you have that entrepreneur education, and start thinking about doing your own thing somewhere down the road. Do it while you’re making money at BP so you don’t have to be stressing over cash.

James: The Nashville Predators are doing well in the playoffs. So you’ve got that hockey tie in there as well.

[0:35:16]

All right. Let’s wrap things up with our good friend and always submitter of fantastic questions, this time holding off on stumping, Mark. Bart Cristser. He’s a sales manager at Terra Guidance. He’s really one of main guys that started the company. Here’s his question.

If Chevron is drilling north at 90 feet per hour, and Exxon is 1.5 miles north, south at 200 feet per hour, but Exxon will need to take a 16-hour bit trip, which rig will the wheels be closer to when they collide?

Just kidding. Here’s the real question.

One of our clients is drilling as usual despite the price crash because they had barrel prices hedged through 2018. What does this mean and what types of companies would an operation be hedged with?

Mark: Bart’s question as we go through time makes my head hurt more and more and more. He’s sort of asking easy questions, and now he’s asking some extremely complex question.

All right. Hedging is basically when you sign a contract guaranteed a price in the future. The person that owns that contract can trade that contract on like the New York Stock Exchange. So there are six types of energy future contracts you can trade, one of which is hedging. Basically what Bart’s client did is they guaranteed a price contractually through 2018.

Now, you would go “Well, how does that help or hurt a company?” Just imagine. So if you’re an operator and you think the prices could be around $40 a barrel but you need cash, you can then hedge at $39 a barrel which means you sign a contract, say, for the next three years or two years, whatever, you’ll sell at $39 a barrel. Well, somebody will buy that because they go “Okay. It’s going to be $40 a barrel. And you’re committing to sell it to me for $39. I’ll make money.” See how that works? But then the operator gets the cash for the next two or three years at that price point.

It’s a bit like playing poker, there some gambling involved in this, but future contracts are huge. People make billions of dollars trading future contracts. It’s part of the financial risk assessment model of the oil and gas industry. You hedge things so that you can have guaranteed cash flow for X amount of time. Does that make sense?

James: It makes sense. Myself being from the Midwest, just to bring it even more practical, farmers do this all the time.

Mark: Yes. It’s not just an oil and gas thing. Even like automobiles manufactures hedge raw components, steel, aluminum, whatever. It’s a way to minimize financial risk in almost any type of business.

James: All right. So those are all of our questions. Thank you, everyone, for submitting. We still don’t have a voicemail. We’ll get to that in a second. Mark gets to tolerate a second Weekly Onion. How cool is that? Let’s hear him cringe right now. The Weekly Onion 2 for the week, Coworker Wondering if Anyone Interested in Laying Bare Their Physical Shortcomings in Basketball League this Year.

The question I have for you, Mark, is did you ever get any MMA leagues going back at BellSouth. Did they allow that at BellSouth?

Mark: Back when I was at Bell I was hot and heavy because I was much younger. It was very common for you to come to work with one or two black eyes. Eventually these people got used to it.

James: I’ve heard you say more than once that the recovery time is just too much, that’s way.

Mark: It’s way too much. I’m 50 years old. Literally, it takes me months to recover,

Mark: Probably an HR issue doing it in the office though. All right. So we don’t have a winner because we announced the winner on the show that you’re getting at the same time as this one. But Red Wing is still a fantastic company. We still have an amazing interview coming with them next week. I will let you talk about Red Wing for a moment.

James: Everybody knows Red Wing for their boots, even I own a couple of pairs of their boots. Red Wing also is a fantastic supplier and manufacturer of protective clothing, PPE. So if you’re out there in the field, offshore and land, whatever, and you require protective clothing, flame-resistant clothing, hardhats, whatever, look at Red Wing. If you run a company that your people need that, you really need to check Red Wing out.

Not only do they have an eye for quality like nobody else has, but they also are one-stop shop which saves you time and money to make sure that your people are safe. James and I both have a very good personal and professional relationship with Red Wing. We know they’re legit. So if you have a need for their stuff, go check it out. If you don’t have a need for their stuff, still go check it out. They’re a great community. They’ve been around forever. We really take pride in doing a good job.

[0:40:18]

James: One of the things that I learned from Tito, actually, just walking up at the end of one of his interactions with someone walking through the booth is the fact that even when things are manufactured offshore they still get shipped back to America for quality control. They’re still sourced from here.

Mark: That is their competitive differentiator. Quality is the number one thing they look for. If it doesn’t meet their quality standards it will go off the door.

James: Since we are pushing out two shows on the same day today, then you get double the chance. You can’t enter more than once but if you hear this one but not the last one you can register to win one of their Red Wing offshore bags. Mine is amazing. I carry all my podcast equipment all over OTC. It’s just a rugged bag that works well. There is no purchase necessary. You can see the official site for rules and detail. That’s redwingshoes.com/podcast. We usually go into events but you already heard that on the show that we just pushed out.

Mark: Let’s back up to the bag. Do you know how many people at OTC offer me money for one of those bags?

James: Really? I didn’t hear that part?

Mark: It’s crazy. I had somebody offer me $500 for it. They’re in high demand in oilfield. So if you want one, register. It’s free if you’re registering. If you win you’ll have something that you can go turn around and sell on eBay if you really need some cash.

James: That is hilarious. I didn’t know they were in such high demand. I was surprised when the people from World Oil stopped by and thanked Chris for sponsoring the show. That was super, super cool.

Mark: Think about that, people. The head of World Oil flew in for OTC from the UK. He went to the Red Wing booth and thanked them for sponsoring our show. That’s awesome.

James: It’s just really fantastic. It wouldn’t happen without you listening. So thank you. We already covered events so we’re going to skip over that. I’m also going to cut the First Friday Q&A part out of the show that we’re pushing out today because we said it’s the last call. Well, it turned out we recorded the wrong show. So you now have one month to leave me a voicemail. Come on. Leave me a voicemail.

Mark: If you can’t do it from your own desktop go to the website, click on leave a voicemail, and leave us a voicemail. Come on, people. I’ve actually had a bunch of people tell me they don’t want to hear their voice. Stop it. Just leave us a voicemail. You might be discovered by Hollywood.

James: Or maybe we’d have a good .5 episode interview based of your question. The LinkedIn group, I gave an update on numbers in the regular show that we recorded. Even since then we’ve had — I don’t even know — dozens and more at joining. So the LinkedIn group is blowing up, Mark.

Mark: Go join, people. If you listen to the podcast and you haven’t join the LinkedIn group, you are missing out. It takes 10 seconds. Go join. You’ll be glad you did.

James: Everybody that is in the LinkedIn group, please, by all means, share your links there in terms of stories because I’m getting a lot of people sending me private messages, a lot of people sending me emails and so forth. The LinkedIn group is the best place because then we can get a conversation going around these topics, and then I can also Twit those out and we can see how they perform on Twitter, and maybe they get talked about on the show.

All right. We have three new reviews, Mark, which as you know, always makes me very, very happy. We’re going to kick it off. We have five stars. Very Informative from JAD Green. I like to stay updated on the highlights of the industry. James and Mark do a great job covering the happenings in oil and gas in a way that’s easy to follow. It’s nice to find a place in media that has a positive outlook on the oilfield and the people in it. Keep it up, guys.

Mark: Amen, JAD Green. We agree with you. There’s not enough positive stuff out there about our industry, and we need more of it.

James: I’m just really excited. He said that we’re part of the media. That can be a good or a bad thing but since we’re putting a positive spin on things, that’s a great thing.

We have five stars as well from I Think You’re Great. Great resources for software pros. This really speaks to your sweet spot, Mark, in terms of helping technology companies, software companies sell in the oil and gas. Taking a minute to highly recommend this great podcast, keeping us all up to speed on everything going on in the oil and gas universe.

[0:45:09]

Pairing your technology with oil and gas business drivers isn’t easy. Being a Silicon Valley vet living in Houston and trying to learn about the industry, I found this podcast particularly useful, and use what I learn every day to communicate better with my customers. To top it off, the two hosts of the show are incredibly generous with their time and always willing to answer any questions you have.

Mark: We promise to audience, we didn’t pay this guy to do this.

James: We promise.

Mark: What a great compliment. Awesome, awesome, awesome by I Think You’re Great.

James: Awesome stuff. I didn’t include it because it’s not a review, but you got another — I think it was a LinkedIn message. The guy said, “Hey, I don’t even work in oil and gas but some of my clients do. I’m loving the show.” It’s great to see the reach grow.

Our last one, President is the name of the review by Tanks and Vessels. Five stars. This podcast is a great tool to keep up on an overview of the oil and gas industry news of the week. I developed a great respect for Mark LaCour’s commentary on the industry. Keep the episodes coming. Well, as you can see today, we got two coming up. So we’re going to keep them coming. If they want to leave us a review, why should they do these things, Mark?

Mark: You should leave us a review because it helps us reach more people. You may not know this but you should if you listen to the podcast because I say this every week. The reviews help us rank higher in the search engines and in iTunes. Do me a favor. Take the minute and a half, leave us a review. It helps us reach more people which means we could help even more people learn the right things and the correct things and the good things about the oil and has industry.

James: Absolutely. You can do that by going to triberocket.com/twreviews, takes you straight in the iTunes Store where you can leave that review. If you’ve made it this far in the show, please share it with your friends, your coworkers, anybody that might give us a download. We love all downloads. Triberocket.com/shareli will share it on LinkedIn, /sharetw will share it on Twitter, /sharefb will share on Facebook.

Mark, I usually ask if you’re ready to go. Personally, I’ve sot some shows to produce and some blog posts show notes to put together. So I’m ready to go. How about you?

Mark: Yes. Folks, do great work. Pay it forward. We will see you next time.

James: Go find some grease, guys.

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66 episodes available. A new episode about every 12 days averaging 40 mins duration .