In November 2014 the leaders of Saudi Arabia made one of the biggest bets in
history. They bet against Texas, and they've already lost, so writes Glenn
Hegar in an audacious editorial in the Wall Street Journal. You may recognize
Mr. Hegar's name. He is the Comptroller of the state of Texas. Mr Hegar, welcome
to The Texas Standard. Great to be with you today. Thank you. You know I say
audacious here because the charge you seem to be leveling at the Saudi Government
is that the Saudis kept pumping oil in hopes at best killing off sort
of the expansion in energy production here in America but perhaps even killing
off the Texas energy boom directly. Do I understand that correctly? That's
definitely a part of this op-ed that if you look at the continued increase
production and the Saudis have not scaled back that OPEC made a decision not
to scale back their production to, in essence, drive prices lower. That was
directly targeted in part to try to kill the renaissance of fracking and the continued
explosion through the United States of fracking and oil production. And
particularly, that falls squarely more so on Texas because Texas is the largest producer
here in the United States.
You admit that on one level it made sense. I mean, if the Saudis could drive down oil
prices by keeping their production up, they'd make it so that they could stop
this U.S. energy comeback. And the economics of oil extraction and
production, certainly here in Texas, would no longer makes sense, right? I mean,
that's a sense... Absolutely, that's one of the parts of this strategy
is that how do you how do you put a stop to the higher cost producer. And a lot of
these higher-cost producers are those that are in the shale formations.
And really if this would have been done four or five years ago, I think the strategy
would have had a much more significant consequence on the long-term impact of
fracking production here in the United States. But in essence the renaissance of
this technology is unbelievable, and and my point is this: we see lower prices
today,
significantly lower prices. There will be a lot of further consolidation of companies. There will
be further bankruptcies. But in the end, this this fracking boom is not going to
go away.
But let me ask you about that, because we've been hearing a lot, reading a lot
in the paper about about falling rig counts and the like, and in fact oil prices
have in fact fallen below where you projected they would fall by this time
of the year, down below $40. And everyone else's projection too at the time. That's true
isn't this though precisely what the Saudis in OPEC were generally
trying to force? I mean in a sense haven't they succeeded? Well they've
succeeded in lowering the price of production in the rigs falling down, but
on the other hand, what is going to cause the prices to go back up? And the point
of my op-ed that the Saudis took a historical gamble, and they lost. And that
is really looking out into the future. I'm not saying that that's going to
happen tomorrow, but that's going to happen
out in the future years. And the reason is this, because if you look at
Saudi Arabia today, yes their cost of production of getting oil out is
extremely cheap, but they're a one-stop economy. Oil and gas is it. As much like
the middle east, of all the economies, and so therefore the point being is they
can't sustain these lower prices. And that's where they've ultimately lost is
because from an economy, they're losing billions of dollars every single month,
and their digging into their reserves to help subsidize their economy. In the
meantime, we have a more diverse economy in Texas, and so you see cities like
Dallas and Austin bragging about the growth and the comeback of
jobs and that sort of thing that are unconnected directly to the oil
economy. And that's one of the other points of the op-ed, is that a lot of
people at the end of last year, as oil prices were falling, several mentioned that
Texas is going back to the 1980s, the oil bust is here.
Texas is not in the 1980s. This is a much more diverse economy. And you pinpointed
Austin as well as the Metroplex. Those two economies, at least if we look at
sales tax collection, and sales tax collection is the biggest source of revenue to our
state government, and our announced numbers every single month in those two
economies have continued to do extremely well over the course of the last several months.
He's the chief financial officer of the state of Texas. He's the Comptroller, Glen Hagar. His
editorial, his op-ed appears in the Wall Street Journal on August 31st. We're gonna
have
a link to it at TexasStandard.org. Comptroller, thank you very much for
taking time to speak with us. Great to be with you today. Thank you.