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DAVID: OIL SUFFERING A HISTORIC COLLAPSE AFTER SAUDI ARABIA
SHOCK THE MARKET WITH A PRICE
WAR AGAINST ALLIED RUSSIA.
THE KREMLIN’S DECISION NOT TO
AGREE TO PRODUCTION CUTS LED THE
SAUDI’S TO MASSIVELY INCREASE
AND THIS CAME AS A HUGE HIT TO
U.S. PRODUCERS MANY OF WHOM
CANNOT MAKE A PROFIT AT THE LOW
PRICES.
PRICES. LET’S BRING IN FORMER SHELL
PRESIDENT JOHN HOFMEISTER, YOU
THINK THIS IS A DIRECT ATTACK BY
PUTIN AGAINST OUR SUCCESSFUL OIL
PRODUCERS.
PRODUCERS. MAKER K.
MAKER K. >> YES PUTIN IS VERY ANGRY AT
THE SUCCESS OF THE UNITED STATES
PLUS COMPOUNDED BY THE SANCTIONS
THAT THE U.S. HAS PLACED UPON
HIM.
HIM. HE IS ALSO INTOLERANT OF THE
CROWN PRINCE HALF HIS AGE
TELLING HIM WHAT HE SHOULD BE
DOING WITH OPEC.
SO PUTIN IS ON HIS OWN HERE AND
HE IS NOT AFRAID TO CHALLENGE
THE UNITED STATES SHALE INDUSTRY
NOR TO EMBARRASS THE CROWN
PRINCE OF SAUDI ARABIA, SO WERE
IN FOR A PRETTY ROUGH TIME IN
THE COMING MONTHS.
>> WE HAVE SEEN AN AWFUL LOT OF
THE OIL PRICE WARS IN THE PAST,
ONE THING THAT HAS NOT CHANGED,
RUSSIA IS VERY DEPENDENT ON OIL
REVENUES, 40% OF THEIR BUDGET IS
FROM OIL AND GAS EXPORTS, HOW
CAN THEY SURVIVE WITH ATTENTION
IN RUSSIA AND THE NEED TO SOCIAL
PROGRAMS ET CETERA, CAN THEY FIX
THIS OUT?
THIS OUT? >> I THINK THEY STAND FOR
SEVERAL MONTHS BUT WERE NOT MUCH
LONGER THAN THAT.
YOU ARE RIGHT, THEY NEED THE OIL
REVENUES FOR MUCH OF THE
NATIONAL INCOME BUT NOT AS MUCH
OF SAUDI ARABIA.
SAUDI ARABIA IS MORE DEPENDENT
ON THE REVENUES TO KEEP THE
STATE RUNNING AND TO PROVIDE THE
SUBSIDIES SAUDI ARABIA OIL
PRODUCES.
PRODUCES. >> THAT’S INTERESTING BECAUSE
THE LONGEST AWAITING OP YOU CAME
OUT AND YOU GET THE SITUATION.
WITH RESPECT TO THE U.S. OIL
COMPANIES, AND OUR U.S.
SITUATION AND YOU LOOK AT SOME
OF THOSE COMPANIES TODAY,
ABSOLUTELY BLASTED, LET’S TALK
ABOUT THE DIVIDEND INCOME THAT
FOLKS RELY ON.
FROM BALANCE SHEET AND AS YOU
KNOW FROM BEING WHERE YOU BEEN
IN YOUR CAREER, CAN OIL
COMPANIES HELP TO COVER WITHOUT
DIVIDEND INCOME, CAN WE TALK
ABOUT THE CAPITAL FLOW THAT THEY
CAN CHANGE TO WEATHER THE STORM
AS THINGS CRATER?
>> YOU HAVE TO DIVIDE THE
INDUSTRY INTO TWO CAMPS, ONE
CAMP THANKS IN ADVANCE AS TO THE
DIVIDENDS AND MANAGES CAPITAL
PLANS IN ORDER TO SUPPORT THE
DIVIDEND POLICY AND THEY WILL
HAVE THE CASH FLOW TO MAINTAIN
THAT EVEN AT LOW OIL PRICES,
THERE’S THE OTHER CAMP THAT’S
HIGHLY LEVERAGED, MANY PRIVATE
EQUITY FIRMS GOT INTO THE SHALE
BUSINESS, YOU HAVE THE OILFIELD
SERVICES FOLKS WHO MAKE THE
EQUIPMENT AND SO FORTH, THEY
WILL STRUGGLE WITH LOSS OF
VOLUME AND PRICE REDUCTION
TRYING TO SERVE WITH THE
INDUSTRY IS STILL TRYING TO DO.
CAPITAL SPENDING WILL BE
REDUCED, THOSE FOLKS IN THE
SECOND CAMP ARE GOING TO HAVE A
TOUGH TIME IF THEIR PUBLIC
COMPANIES ARE MAKING DIVIDENDS.
>> JUST A QUICK QUESTION ABOUT
MOHAMMED BIN SELMAN WHO SHARES
THE BLAME ALONG WITH PUTIN GIVEN
THAT HE’S IN THE MIDDLE OF
ANOTHER COUP THAT IS GOING ON 17
USUALLY.
USUALLY. I KNOW YOU’RE PUTTING A LOT OF
THE ONUS ON THIS ON PUTIN BUT
WHAT ABOUT THE ALLIES IN SAUDI
ARABIA.
ARABIA. >> THE CHALLENGE THAT MOHAMMED
BIN SELMAN HAS, HE FIXING IS
MORE THAN HE KNOWS.
WHEN HE GETS UPSET, HE IS A
TENDENCY TO THROW HIS TOYS OUT.
SO HE GETS UPSET AND INTOLERANT
AND THEN HE MAKES VERY BAD
JUDGMENT.
JUDGMENT. REMEMBER THE WHOLE SETBACK FOR
THE OIL INDUSTRY BEGAN IN 2014
WAS MOHAMMED BIN SELMAN AT THE
TIME TRYING TO PUT THE SHELL
INDUSTRY OUT OF BUSINESS IN THE
UNITED STATES.
UNITED STATES. HE FAILED MISERABLY IN CHEWED UP
A WHOLE LOT OF SOVEREIGN FUND IN
SAUDI ARABIA.
SAUDI ARABIA. THEY HAVE NOT FULLY RECOVERED
THEIR SOVEREIGN FUND AND NOW
HE’S BACK AT IT AGAIN.
HE DOES NOT LEARN VERY QUICKLY
AND I THINK THAT’S A BIG PROBLEM
FOR THE KINGDOM.
>> THIS IS GERRI CALL GARY KALTB
NOTICING OTHER NAMES HAVE THEIR
BOND CRATERING IN STOCKS TRADING
BELOW $5, THAT TELLS ME
SOMETHING ABOUT WHAT THE MARKET,
ARE YOU WORRIED ABOUT THESE
COMPANIES GOING INTO BANKRUPTCY
BECAUSE WHAT WE SEE ON PRICE
NOW?
NOW? >> WE HAVE TO, AND THE 2014
AFTERMATH, WE LOST 150 COMPANIES
TO BANKRUPTCY.
TO BANKRUPTCY. THIS IS GOING TO SET THEM BACK
EVEN FURTHER.
EVEN FURTHER. THE BANKS HAVE GONE VERY STINGY
WITH LOANING MONEY TO PEOPLE IN
THE SHALE BUSINESS, PARTICULARLY
THOSE THAT HAVE WEAK BALANCE
SHEETS.
SHEETS. THIS WILL BE A DRYING UP OF
FUNDS AND WITH ALL THE OTHER
COMMITMENTS, I THINK WERE IN FOR
SERIOUS RATIONALIZATION IN THE
INDUSTRY.
INDUSTRY. DAVID: HOW IMPORTANT IS A
SLOWDOWN TO THE CHINESE ECONOMY
BECAUSE OF THE VIRUS TO THE OIL
BUSINESS.
BUSINESS. THEY WERE REALLY DEPENDING ON
CHINA TO EATING UP THE OIL AND
THEY WILL NOT BE DOING IT.
>> NOT UNLESS CHINA AND INDIA
HAS BEEN REPORTED START TO STOCK
UP THEIR STRATEGIC RESERVES,
THAT WOULD HELP A BIT AND AT THE
LOW OIL PRICE, IS A GOOD TIME TO
STOCK UP YOUR STRATEGIC
RESERVES.
RESERVES. DAVID: JOHN HOFMEISTER, BUT THE