>>Becky>> $50 per barrel of oil.

That's President Trump's stated goal.

Early on the morning of January the 3rd, the United States launched a large scale military operation to capture the Venezuelan president and his wife.

Shortly after the successful operation, President Trump explained the reasons among them to reclaim oil, said to have been illegally taken by the Venezuelan government.

The president announced plans for the U.S.

to oversee the Venezuelan oil industry for an indefinite period of time, with the goal of driving down the price of oil to $50 per barrel.

How has the seizing of Venezuelan oil affected the Permian Basin?

What are the implications for the Permian Basin?

Should the president realize his goal of $50 per barrel of oil?

Here to answer those questions are Ray Perryman leading Texas economist and CEO of the Perryman Group, and Kirk Edwards, president of Latino Petroleum and former chairman of the Permian Basin Petroleum Association.

I'm Becky Ferguson, and this is One Question.

[Intro Music] Thank you guys so much for coming today to talk about these important issues to the Permian Basin and to Texas, to the United States, maybe the world.

It's been about a month since the United States invaded Venezuela and captured their president.

Uh, one of the reasons that the president gave for doing that is to take possession of their oil, which he says has been had been stolen from us.

Um, and his goal is to drive the price of oil down to $50 a barrel, um.

Before we drive dive into the implications of that, would you give us a little bit of history of the oil industry in Venezuela?

Ray .>>Ray>> Sure.

I mean, they they found oil there in the early 1900s.

There was a blowout well not unlike the Abrams oil in the Permian Basin in 1922.

The Permian had theirs in 1920.

They kind of started this going, which was a particularly good time, because that's about the time the airplane in the car were really coming into their own.

So it was no longer just a demand for kerosene.

It was demand to use oil for a lot of other things.

And, um and they continued to ramp up and build production normally on a concession basis.

The companies came in there right away., um.

- The American companies.

- That over a hundred years, you know, they came in right away and they would pay royalties and fees to the government, taxes to the government in exchange for producing the oil, um Beginning in the Perez administration, they had and in particularly and starting in 1998 with the, um, with the Chavez administration, Hugo Chavez administration before the current one, uh they began to get a little greedy, [Chuckles] but to say the least, and started, um, basically virtually nationalizing the oil.

I mean, in essence, I said, you're going to pay us at least 60% that sort of things are all the majors left and in essence, lost control of a lot of oil that they had legitimately developed and move forward with.

And in the process, Venezuela spent the rest of the time since that time last 25 years or so, proving to us I know absolutely nothing about how to produce oil.

And and lowering.

Their production fell from 3.7 million barrels a day, which was at that time by far the largest producer in the world down to now.

Somewhere in the well, under a million, somewhere several 100 million barrels a day.

Kind of a thousand barrels a day, kind of max is the most they can do right now.

And so it's, you know, it's gone through a lot of that.

And now maybe there's a hope you can restore it.

I think there's can be a lot of complications in trying to do that any time soon.

But nonetheless, it's a type of crude that's used by some Texas refineries.

It's not the type of all we have out here, but it is something that it's going to have its implications on the oil market in various ways going forward.

Well, Kirk, let's talk about that.

What do you think the implications are for the price of oil?

>>Kirk>> You know, to me, um, its it's kind of a nothing burger right now, as Ray was saying, it's they've they're down to probably 800,000 barrels a day.

Chevron's got probably a third of that themselves.

Um, but the implications of not tens of billions, but maybe $100 billion has to be invested in Venezuela to get their production back up, you know, to double and triple what it was.

So in that just takes years and it's going to take a lot of political, um continuity that they don't have right now.

And nobody's going to send their people over uh to work in Venezuela without those protections and guarantees.

And as Ray was saying, everybody's been kicked out with Chevron.

And so I think Exxon's been kicked out twice.

- Right.

- And so why would they want to come back for a third time when after a Trump administration is going to end in three years, and who knows what the next administration's going to do with Venezuela.

And they may just take it back over again.

So to me, that's not it's not going to be much of a place for people to invest right now because the uncertainties are still so big over there.

- There's also another aspect of that too.

I mean, at this point in time, exactly what you said.

But you know, all these large oil companies have to answer to shareholders.

They have to answer to analysts.

They have to answer to activist investors.

There is no one in their right mind who would say, this is a good place to go invest money right now.

I mean, because of the state of the infrastructure, the risk and everything else, um they have much better places, including right out here, that they can spend their money.

- So you don't think that the seizure of the Venezuela oil is going to be a threat to the industry in the Permian Basin, or do you?

- I-I don't think so.

And even beyond that, it's primarily what we call heavy crude, has a lot of sulfur in it, a lot of carbon in it.

[clears throat] And that that crude it works very well in some of the refineries on the Gulf Coast.

And they get all like that now from Canada and Mexico, among other places.

It's going to affect their industry because we will probably start getting that oil in.

But you can't substitute West Texas crude for for Venezuelan crude and refinery.

You certainly, obviously can't capture the natural gas, which is a big part of what's happening out here right now.

Kirk, certainly an expert on that.

But, uh, but no, I don't I don't see the oil itself is not a substitute for the oil that's out here, except in a very, very broad, general sense in a world that we're not living in right now.

- Well, Becky, that's what's so important to.

It's a sour.

It's a heavy crude in the Permian, produces a light crude.

And these refineries require two thirds light and one third heavy to make a cocktail so they can make asphalt and diesel and jet fuel and things like that.

So again, it won't affect us.

[Microphone muffle] But he's exactly right.

It's going to affect Mexico and Canada to compete with um the Venezuelan crude.

That's who's going to worry ahead.

- So the president has indicated that the US is going to run the oil industry, um for the foreseeable future.

What does that mean?

What would that entail?

- That's a good question.

I don't I don't think any of us know exactly what that entails, because it's not an it's not an industry right now that's conducive to running.

I mean, obviously we can put resources over there.

We can do some things.

We can sell the market the oil they have.

There's things like that we can do, but there's not anything we can do realistically, in the next 15 or 20 years to bring that back to where it was.

I mean, there's I mean, we can manage it in the way it's been managed and, and probably a little bit better.

But I don't think there's anything that's going to happen to suddenly it's going to do anything.

It's certainly he's he wants the major uh oil companies to be the investors in that.

And I don't see a world answering to their shareholders when that happens, I really don't.

- Well, that was going to be my next question is that I understand there was a meeting shortly after the seizure of the oil with some of the major oil company executives.

And what did they say after that meeting about going back into Venezuela?

- uh the policies are not there for them to safely go back in.

Chevron's perfectly situated to go to not only be there, but to double what they've got right now because they're people.

I think they they employ some 3000 people there right now.

So they're going to be in good shape to do what they can do, but maybe only a couple of thousand barrels a day.

But again, it's as Ray was saying, you know, if you're going to make it investment, you want to make it here in the United States at the Permian, where it's safe, politically safe.

And, uh and you've got a certainty for your shareholders of what you're going to be making.

Venezuela is not going to be it.

- Not going to be it, uh, lowering the price of oil is good for consumers in the short term, but not good for the Permian Basin.

Um what do you think are the implications for driving down the price to $50 a barrel, if that indeed happens?

- Well, first of all, it's just bad policy, period.

Market should be determining the prices of these things.

And while it may be and you said exactly the right words, Becky may be good for consumers in the short run.

But the bottom line is, if you look at the world demand that we're seeing right now for energy going forward in the developing countries, in the advanced countries, now that we have A.I.

going to require a lot of natural gas to power that we've got growing economies.

We're going to need these resources.

You've got to get the price to a point that it makes sense to invest in what's going to sustain that production, and a market will drive that if you just leave it alone.

But what's happening right now is not in the interest of the Permian Basin.

It's not in the interest of Texas, and it's really not the interest of consumers, because you're just going to put them in a different situation later as as things continue to evolve.

So, I mean, I don't I don't I'm not known for mincing words, but I just it's just bad policy and policy.

- Well, we've talked a lot about Venezuelan oil, but there's some other challenges facing the industry.

Uh and that the steel tariffs, as I understand them, um, Kirk, could you talk a little bit about steel tariffs and what the implications are for the oil and gas business?

- Well, against that, we use so much steel and everything we do.

The drilling rigs have steel pipes.

We run steel pipes in our wells.

We have a lot of aluminum.

We have everything the valves, all the stuff that's built in foreign countries too.

We've got a lot of it coming over from there.

But the tariffs put just another level of uncertainty on what it was going to cost to drill.

And you could see it earlier in the year, uh March, when this thing started coming in, I we're out here trying to drill.

And the people that are quoting us or pop prices are saying, okay, here's, here's what's going to cost plus whatever tariffs on it.

And you're still thinking, well, wait, wait a second, I need to put this in.

- What would that be?

What that tariff where's your pipe coming from.

So it's just such a level of uncertainty that it put on our business.

Again we probably saw ten I think the Diamondback people the best to to quote saying they probably saw 10 to 15% increase in a lot of their steel goods that they had, uh, and I'm sure they bought a whole lot more than I do.

So that was probably a good number.

And again, you're putting a tariff, you see, you're spending more money to drill a well than what we did in, say, January of last year.

But then you're receiving 15 to 20% less for oil price.

Again, we don't need the practice out here drilling in the Permian.

Everything's built kind of on a manufacturing model.

But when it cost more and you're getting less, - It just doesnt work - the economics are going the wrong way.

- As I understand it, the tariffs were designed to cause people to buy in America.

And I've also read that the particular pipe that is used in the oil and gas industry is not available in America.

Is that accurate?

- Pretty accurate.

I mean, there's a limited amount here, but very limited.

I mean, basically, you know, people specialize around where we've had essentially free trade for a long time, and that's allowed countries to specialize and do the things they do well, uh thus far, a recent study came out from the Kiel Institute, a very good think tank in Germany, that said, so far, uh Americans have paid 96% of the cost of these tariffs.

I mean, they're, you know, a few people have bargained with their suppliers and that type of thing.

But but no, basically, tariffs are bad economic policy.

The, the, the logic of that was literally enunciated in 1815.

It's never been contradicted.

It won't be contradicted because it's high school algebra.

Okay.

I mean literally, so it's a bad policy.

It's certainly had an impact here and all sorts of things.

I mean, we we do certain things very well in this country.

They're mostly things that involve technology.

Look, the way we drill wells in the basin right now compared to the way people drill wells 25 years ago.

I mean, we do technology very well, other things other people do well.

And in an open market they get to do those things.

We do those things.

We do our things.

We buy from them at competitive prices.

And tariffs just kind of break that chain down.

- Well, I understand that there have been some, uh granting of informal tariff exemptions - Right - to certain oil companies, among them, Energy Transfer Partners, Occidental Petroleum, Continental Resources.

Are there industry wide exemptions or are there is the industry working on exemptions, trying to get exemptions?

- Oh, I haven't got any.

So yeah.

[Laughter] And everybody you mention has been very close to the administration.

So I wonder I don't know how they're doing that, uh, I don't know what exemptions they would be getting, but I'd be interested to find out more on it.

- Our company's done a few of the project to studies to help different companies get tariff exemptions.

And it's a one on one individual process.

And in essence, the challenge is demonstrating to the administration that the country makes more money if they get the exemption than if they don't.

And on a case by case basis.

And that makes it very difficult for smaller operators.

I'm sure the industry is trying to get a global exemption, and I'm certainly if they're not, they should be.

But that's those kind of things are very difficult, particularly in the current political environment.

- So they're making their case company by company.

- Absolutely.

- And these are big companies that are getting the exemptions?

- Thats right.

- Okay.

Um, we talked a little bit earlier about how the situation in Venezuela is just sort of one piece of a very complex puzzle internationally related to oil and gas.

Uh could you all talk about some of the other international challenges, I guess Iran would be one, uh the unpredictability of OPEC, uh the weakening global demand.

Although a minute ago you spoke of it increasing global demand.

- Well, it's weakening today.

- Today.

Okay.

- But long term, if you look at what's happening and how these countries are emerging tend to increase dramatically.

I mean, every forecast, including the one from the from the last administration to U.S.

Department of Energy shows we're gonna need a lot more oil and gas in the future, then we're going to need that then we need today.

But but yeah, temporarily in the current situation, it's bad.

I'll let Kirk speak to Iran, and some of the other hot spots if he wants to.

I know he's been he's been looking at some of those.

Uh the other thing I would point out about OPEC is right now they're increasing production.

And that's one of the things that's putting downward pressure on price.

They can't do that for forever.

Their their production cost is relatively low there.

They still have some oil.

It's relatively easy to get out of the ground in some parts of the Middle East.

But they have anchored their economies, own social programs to benefit their citizens that are literally guaranteed to them with every barrel of oil.

They can't perpetually drill at 55 $60 a barrel in the marketplace and survive.

They need 80 90 to to even it to just to make their economies work in the way they've got them structured.

Well, they have to work.

And that's true of over half the OPEC countries.

- So they're trying to drive down the price of oil to hurt the American oil and gas business?

- It wouldn't be the first time.

- Wouldn't be the first time.

- I'll answer that one.

I think they're doing it because they were asked to do it - Yeah - by the Trump administration.

So uh it's its very easy for them to make friends with him by doing what he asked.

And again, they've got the ability to hedge their oil just like I do.

And if I was asked to go flood the market, I would certainly just go hedge on oil for a few years and and then go to work as far as they wanted it to be lower, uh.

But I would we need to look at Iran, the Ukraine, - Yeah, - Russian situation.

Um.

Ukraine took a tack this last couple of years, uh to go attack Russia's, mil uh petroleum infrastructure, their refineries, their ships, their ports.

And it's making a damaging effect.

Again, I don't know Ray if you know what the uh percentage uh reduction in Russian oil has been.

Again, they used a lot of their own oil for their own purposes, but their refineries are damaged.

But they put the oil back on ships and just sold it to China or somebody else.

Iran's going to be a big wild card.

So I think our ships are headed there right now.

A lot of saber rattling going on with us and them, um I think that's going to be the big issue because they produce 4 million barrels a day.

And, uh to me, you know, something can happen in that country.

You lose 4 million barrels a day or 2 or 3 million barrels a day.

Then the extra barrels - Yeah - marked right now come into play.

- Yeah, that's that's where it becomes important, because they are a big producer and there's a lot of uncertainty right now.

We don't know what's going to happen.

And the markets fluctuating day to day given the day the day's headlines about it.

But, uh the world uses a little over a hundred million barrels a day of oil right now.

So 4%, you know, or more of that production that's significant.

That's very significant in the overall balance of supply and demand.

The 200,000 that Chevron might be able to do in Venezuela is not you.

I mean, it's it's just not the right quantity.

Plus they have the type of oil you have over there is a more universally usable oil.

It's a bigger percentage of what goes in the cracking towers around the world than than what's in Venezuela.

So so there's a lot of there's a lot of dynamics to this industry that, that are really, uh complex.

And it's very hard to keep track of everything that's going on.

In fact, you know, a real simple example of that.

One of the reasons, once we got the new technologies and begin to ramp up production in the Permian about a decade ago, one reason we could start that so quickly is because our oil composition was very similar to Nigeria's, which was already in the cracking towers in Houston.

So they literally Nigerian importing from a million barrels a day to zero.

And we and we took its place.

Had it not been for the fact those towers already had that, uh capability, then it would have taken a lot longer.

I mean, it's there's always very complicated things going on in the industry.

- We talked about the volatility in the marketplace now.

And you've talked about the president's goal of lowering the price of oil to $50 a barrel.

Is that hurting investment in the oil and gas industry?

- Well, it will hurt it domestically.

I mean, we all have friends in the Permian Basin, friends and family that are in the business.

Uh, you've seen we've probably seen a reduction of 70 uh drilling rigs for oil, just here in the Permian Basin.

And there's 100 people per rig or 7000 people that are out of work.

Uh and it's going to have and I think is probably happening right now, a plateauing of our production in the Permian.

And that's got to come down because I can't see the companies just continuing to do this for fun, uh.

And you saw uh Harold Hamm spoke last week.

He was at our PBPA Top Hand event this week, the first time I've ever got to meet him.

Its a thrill to meet him, but he saw that he's going to quit the market right now.

And just he's he's going to take his chips down and and let the price come back up.

And they don't get busy there again.

But when you see a Harold Hamm do that in our country, and you're going to see a lot more of that happen here in the Permian, because, again, the the price they've got to have the right return on investment out here.

- Yeah, an an another dynamic of this is back when we used to get all the old fashioned way find after it got out of the rocks before we started doing the the - The fracking.

- the fracking.

Um, you know, you got a good well in the right spot.

It could make it could produce at a steady level for decades.

Sometimes the wells that have to go in the rocks and find this stuff that's buried inside that dense slate, like rock, they, you know, they their production declines very quickly.

So we're at a plateau right now, about 6.7 million barrels a day, something like that.

Very high.

If we don't perpetually rework those wells, drill new wells, that sort of thing, by probably mid 2027, you'll see that number start to come down and because there is really there's a dynamic here, you have to drill, not you.

And not only have to do, you have to drill often and continuously to keep production up, which is different than it was you say in the 1950s or 60s out here.

- And Becky, that hurts the the local counties.

It hurts the tax bases, uh hurts the United States for energy security.

We're not putting anything back in our, strategic petroleum reserve, which we should be filling up right now, especially at this cheap price.

But yeah, it hurts.

It's going to hurt the country.

It's going to hurt Texas.

It's going to hurt the Permian Basin.

Uh, just because the lower price is going to break down a lot of the taxes that um everybody's been enjoying out here.

- I think you addressed it just a moment ago, but I have read that, uh of course, the president's, one of his mottos during the campaign was drill, baby, drill, and understand.

Your motto now is wait baby wait.

[Laughter] - Were that's what we're doing.

Wait, baby wait.

Yeah.

I read a quote today Ray uh, he said we're drilling more than we've ever drilled in the country before [Laughter] with the rigs running right now.

That's just not.

- No, thats not right.

It's not at all.

- Yeah.

They're completely it's just completely opposite of that right now.

But yeah, everybody's going to kind of have a little wait and see attitude.

But the more the longer the price stays down, the more people are going to start doing that.

- Yeah.

The you know, there have been some good things.

I mean getting rid of some of the regulations is help.

We have we did the study that that led to getting rid of the moratorium on LNG facilities for example.

Now we've helped several more get permitted, but that's a 10 or 15 years down the road move.

But if we can do it, use enough of the natural gas and we have it in abundance out here, if we can get the pipeline capacity, get to get the LNG capacity, we can we can literally have huge geopolitical consequences because one of two things happened with that LNG.

It goes to Europe, which reduces Russia's power to do mischief over there, or it goes through the Panama Canal and goes to Asia.

And every and every, uh cubic feet foot of it is, is replacing coal in power generation, which is having enormous positive climate effects as well.

So there's there's a lot of there's a again, it's a complex issue.

There's a lot of things going on all the time, but there have been a few good things that happen.

But on the whole, this idea of trying to drive the price down is not good for the industry.

It's not good for consumers, it's not good for the long term stability of the country.

- You alluded to the deregulation that the industry has countered is wins, deregulation in the opening of federal lands and the rolling back of electrical vehicle mandates.

But the downside is the lowering of prices.

How do you see it, Kirk?

- Well, I think.

- The upside versus the downside.

- Well, again, you remember at the end of the Biden administration, he put a moratorium on LNG facilities in Louisiana and that set the industry back a couple of years because the Permian has so much gas, we're flaring so much gas.

We've got to get it in of pipelines.

But nobody would build a pipeline.

No would build LNG facility.

If you couldn't permit it.

So I think that's going to be our supermarket in the future.

Is the natural gas business again as Ray was saying the more we can take people off of, Russian, oil and Russian energy and have those markets going forward, I think it's going to be phenomenal for the United States on the natural gas side of things.

- And you just here in Texas, if you look at the data centers, AI and all that, and everything is happening there, the most energy ERCOT has ever used at one moment was about 94 gigs.

Their predicted demand for 2030 is 150.

If every single um air facility that's asking for a permit got a permit, lets help me.

But if they did, it would be about 250.

We'd never had any.

We'd never had 40% of it before.

There's no other place we can get the electricity quickly enough and effectively enough as natural gas.

I mean, it's going to have to and this is happening all over the country.

It's not unique to Texas.

We're leading, but it's happening all over the country.

There is no other way to supply the electricity we're going to need.

It's also happening in a lot of the other developing developed countries in the world.

And so you're going to need a lot of natural gas, and fortunately, I mean, for years and years and years, gas was a market geographically defined by pipelines.

Now that you can put it on a boat, it's a global market, just like oil.

We just got to get the scale up.

- Um Ray, I've read that you have described the combination of $50 oil and steel tariffs as the perfect storm.

Uh, what did you mean by that?

And what are the implications for the Permian Basin, for Texas in the United States?

- Well, you're lowering you're lowering uh profits.

You're lowering prices and you're raising cost.

I mean, I mean, you know, you're lowering revenue.

You're raising cost, you know, profits, price minus quantity, product price minus cost, and you're getting lower price, higher cost.

And then that in turn leads to significant investment decisions.

I mean, this this oil is going to be produced.

It's going to be produced sometime.

This gas is going to be produced.

All the majors have made major acquisitions out here.

Four of the five major acquisitions out here in the last 2 or 3 years, four of the major independents emerging in pairs to give them more access to the resource.

They know it's going to be used.

They know the demand is out there, but we're delaying it and we're breaking down the infrastructure that supports it and the and the systems.

And, you know, we've recently been reinvesting in this last era and things like our schools, our health care facilities, things like that, that that make the area more sustainable for the industry.

All that ceases to be as easy to do if, if the if the revenue is not there to support it.

And so it it it has a lot of implications, a lot of tentacles that go out there.

But basically it's a perfect storm in the sense that uh that you're trying to get price minus cost and you process lower costs higher.

- Well, the State of Texas depends on the oil and gas industry a lot.

- A lot.

So what are the implications for Texas going forward?

- Well, a number of implications.

Um severance tax is one, it's very obvious, but also sales tax, property taxes for your for your local governments.

I mean, that's all very significant.

We do studies every year looking at the economic impact.

If you put all the multiplier effects in, you're talking about about 900,000 jobs in Texas supported in one or another by the industry.

We employ 14 million people in Texas.

Almost a million of them are related in some way to the oil and gas industry.

And, you know, and we have to adapt.

We have we have to do things, you know, emissions have come down.

We've been up.

We have to do a lot of things to adapt to other situations in the world.

But basically, if you start creating artificial reasons not to do it, which is what we're doing right now, uh then you're then you're just exacerbating some problems and really causing some long term potential harm to the United States.

I've been doing this a long time now, almost 50 years.

I my first a little bit of reputation I got was when I saw the oil bust coming in the 80s.

And it would have it's amazing to me back in 19 uh seven, in the 70s, when I first started doing this as a baby economist, that we could even be talking about U.S.

energy independence.

I mean, we were so far underwater.

I mean, you know, OPEC cut its production 5%, and we had an eight year economic downturn, one of the worst we've ever had.

I mean, and now we have the capacity to do this.

We have the technology to do it.

We have to know how to do it.

And people just need to get out of the way and let's do it.

- Final words from either of you - Well, I was just going to say, um you know, the talking about Texas and your local economies, just like Midland County is going to have 20% less taxes, probably because the price has gone from 70, and they're evaluating it at 55 for next year.

And this just has big implications for all of us with the lower prices.

But again, we've got data centers, we've got natural gas.

And we do have a silver lining ahead.

So it's not going to be all bad.

- I'm going to end on that silver lining note.

Thank you guys so much for coming.

You'll have such expertise and we appreciate you sharing it with us so much.

- Thanks, Becky.

- Thanks, Becky, enjoyed it.

- Thank you for joining us for this edition of One Question.

We will be back from time to time with special interest interviews.

I'm Becky Ferguson.

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