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all right good morning everyone and welcome to the fifth installment of our Acadiana business resource webinar series my name is Andre bro and I work on the team at one Acadiana Arkady Anna business resource webinars are brought to you by business resource partners from across the Acadiana region including one Acadiana leta opportunity machine the Downtown Development Authority the Louisiana Small Business Development Center at ul Lafayette Acadiana workforce solutions the United Way of Acadiana and other local chambers and economic development offices from around the Acadiana region we have come together to support a KTMs business community particularly our small businesses in response to kovat 19 hosting a series of webinars on timely and relevant topics today's webinar is presented by Gifford Briggs president of the Louisiana Oil & Gas Association and representative jean-paul kuso state representative for district 45 and Lafayette will be presenting ANCOVA 19 and the oil and gas industry and Acadiana after the presentation we will use the remaining time for Q&A you have questions please enter them into the chat pod which can be accessed using the chat bubble icon we'll be recording the questions as we go we do not have time to get to your question during today's webinar we will try to follow up with you as soon as possible afterwards without further ado I will now turn it over to give her Briggs to kick off our presentation good morning everyone good morning Andre and thank you for the opportunity to speak with everyone this morning and I hope everyone is safe and healthy and taking the necessary steps to combat this horrible pandemic that we're all dealing with today we're going to talk a little bit about oil prices and energy prices generally what the the impact is for the oil and gas industry and look a little bit about what the impact is on Acadiana we know that that Lafayette Nicotiana have over the years diversified their economy but the oil and gas industry is still remains the heart of Acadiana and the challenges that we're facing is an industry will certainly be faced there so we go to the next slide Andre so what what we're dealing with here for the industry is is really it's a perfect storm you know the challenges that are coming out of Co vid 19 are significant but they aren't the only issue that we're facing as it comes to oil and gas prices if it was just coated 19 it would still be a serious issue but it's more than that all right Andre we go to the next thing we say a perfect storm we what we're dealing with is a complete destruction of supply and demand economics on the old side and it really started before kovat 19 with the on the supply side on March 6th we were finishing up our annual meeting in Lake Charles first joint meeting with the Mid Continent Gas Association three days of celebration of the wind and gas industry in preparation for an incredible upcoming legislative session in which major legislative initiatives we're going to be moving forward to propel the Willing gas industry forward as we were coming out of that our board meeting that day Russia and OPEC and opec plus announced that they were breaking up if you will and this I think and no longer maintain the production cuts that they put in place in 2016 that's price crash we have started in November a 14 over a period of three or four months the prices declined from 65 to I'm sorry from 75 down to 45 the last crash that we had in the industry that continued for a year and a half almost two years when OPEC Russia got together having destroyed much of the u.s. sale and production industry and decided to cut production and drive prices back up well those those cuts were scheduled to be renewed meeting they decided that they were not going to reach a production cut agreement with Russia and Saudi Arabia walked away from the meeting signaling they were going to be increasing production that drove costs down or price of oil down from $45 down to $30 over the course of a weekend following that the u.s. began its efforts to deal with kovat 19 and begin sheltering home people began to cancel vacations began to cancel travel plans and we saw what happened in Italy in China and and so we saw this global demand for energy start to decrease in the month of March it's expected that the global demand for oil went down about 10 million barrels a day which is about a 10% hour decrease in global demand and when you've got supply going up by millions of barrels per day demand going down by 10% the only place for prices to go is down and that's why this is really a perfect storm because we're fighting both the supply side and the demand side oil over the next night and so what we've seen this prices were already falling a little bit through the beginning of the year but we have now seen for oil since the beginning of the year a 66% decrease in the first quarter from from basically from January 1 till till April 1 there's not many industries that can survive this type a price decline in such a short period of time and you know if you if you can look at your household income now or your own businesses that you all have many of you are dealing with some of these challenges because of this the the shelter and home orders but the challenges that come out of a sixty six percent decrease in effectively income in just one quarter are very difficult for companies to deal with you know they've begun making adjustments already the other challenges is not something that that you know we ever really talked that much about we talked about Oh cack and their ability to control prices and they can open the vows but we're talking about the difference between supply and demand generally talking about two or three million barrels maybe in either direction that maybe supply is outpacing demand by a few million barrels or demands outpacing supply by a few million barrels nothing we we haven't seen anything like we're talking about today and so if you look at those the two points at the end those are the months of March and April where we've got a 10 million barrels per day predicted surplus for the month of March and for the month of April it's being predicted in anywhere from 15 to 30 million barrels per day of excess demand I mean excess supply and when you have this much surplus it's got to go somewhere it can't go to the refiners because the refineries have there they're sitting on stocks of gasoline but they don't have a market for they don't have a market for their jet fuel they don't have a market for for the regular transportation fuels and so they can't refine the product so we're having to find storage facilities to be able to put it well when you're doing 10 million barrels a day globally or 20 million barrels a day globally you begin running out of storage capacity very very quickly so if you just think about it if we're doing 20 million barrels a day surplus and we've got to find a place for it in 50 days that puts a billion barrels of oil in storage and that's really what we're looking at for the month of April and beginning parts of May we only have about 1.6 billion barrels and globally of total available storage so it doesn't take into account the extra storage that we had in the month of March already but between March and May we can totally fill up any usable capacity for storage and that includes tankers floating around in the oceans every available storage facility all the strategic reserves and when that happens and there's no place for the product to go it can't be next slide so one of the things that's very difficult for us that for everyone to understand and know there may be capacity for storage at a global level that doesn't necessarily tell the story at a local level so when we're seeing prices that are trading and on the futures market doesn't necessarily reflect what's really going on in different localities and so while we've seen you know West Texas Intermediate even today and 25 26 dollar range we have already seen negative prices in the United States which means that not only not only do you have to pay someone to transport the oil you're actually going to pay them a per barrel fee I saw this with natural gas in the Permian Basin and in 2019 and in some places in the United States we're seeing it we've seen Wyoming oil for a dollar 60 home here to Louisiana we've started to hear from producers for the oil that they are producing to bring to market in months of May and not only are they not maybe going to be able to purchase all of the oil that the producer was pretty was producing but that the price for that oil has been as low as ten dollars eight dollars six dollars and so we are seeing significantly lower prices locally for the month of May than what we're seeing what's being traded at the stock exchange lovely so what's next is that if there isn't any broad scale global agreement to reduce demand by enough to bring the market into balance and we're going to see prices for oil that we would not have imagined and that's well below $20 in this particular article on corn on up from IHS a market research said brutal unadulterated market forces and that's what we're going to see when oil hits $5 and every all the well start getting shut in and that's that that is one way for supply to get disrupted if there's not a global agreement put in place in order to address the challenges that we're facing with just global decreasing demand and it's it's got to be a international agreement you know it used to be that when we were talking about a supply and demand bouncing and supply is outpacing demand by two or three million barrels that the Saudis could go in there and they could turn the spigot a little bit and bring everything back into balance when we're talking about 30 percent or 25 percent decrease in global oil demand to get to 20 million barrel Saudi Arabia and Russia both would have to not pump another barrel of oil to make cuts of 20 million barrels and that's just not possible we know the president Trump sent out a tweet that said prices climbing last Friday that says that Saudi Arabia and Russia have agreed to 10 to 15 million barrels per day and then sort of like sort of walked that back a little bit and when they're considering in the 15 million barrels a day which Saudi Arabia and Russia both walked back because for Saudi Arabian Russia to agreed in 10 to 15 million barrels per day cut each have to reduce their production of oil by 50% and these are companies that countries that a month ago said that they were ready to wage war on US shale producers to drive them out of the market by putting more oil onto the market not less so you know the reality of an international agreement to reduce productions to the levels that would be significant enough to impact pricing those are very real challenges it's and it's not something that's going to happen very easily and certainly not very quickly yesterday and that meeting got cancelled and that meeting got moved to April 9th and this is a meeting of OPEC plus Russia Saudi Arabia all the OPEC producing countries as well as representatives from the United States Canada Venezuela Mexico and other non OPEC traditional allies in Arabia and Russia have both signaled that they are willing to discuss production cuts however that is only possible if the United States and other producers join it and so if you know we want to get to 15 million barrels a day that means that we need 15% reduction from every country across the board and for some countries they can make that happen the United States it doesn't work that way antitrust laws and and you know the rules and regulations that what we have here in the United States impossible for companies to come together this kind of force on the market to agree to these cuts so unless the federal government is going to come down and say that and mandated or then the reality of the u.s. being able to participate in this international global production cut or very slim which means it's less likely for for all of the rest of the countries and Saudi Arabia and Russia in particular want to cut their production if we're not going to do it it certainly seems they're not going to it conversations in Louisiana right now about what what does that look like for us well this is looking at some of the laws they have to maybe enforce a production cut if Texas does it and Louisiana does it in a Gulf of Mexico doesn't or Oklahoma doesn't and North Dakota doesn't it doesn't really work because the prices might rise on those kind of those states that are not participating will receive the benefit from it they'll increase production and it doesn't work so for the United States for Louisiana we can participate in that through the office of conservation look at it and say this is something that we are going to force down upon every state and and the reality of making that happen in the next three days and dealing with the challenges that we're already dealing with co19 you know there's a lot of necessarily optimism right now you know for us Saudi Arabia they can't they can through this God they've got the reserves to be able to weather the storm before the demand side of the equation collapsed they were modeling two years or longer at $20 and $10 oil to understand what it would look like for their country to be able to survive because they want to get market share back and if they can crush the shale producers again their market share back and the impact long-term from them both from a financial side and a political power and political influence side which is what they're they're aiming for would be significant if the US was reduced from million barrels a day back down to five price challenges while a lot of the energy is focused on the oil so we're still do a lot of natural gas production in Louisiana in the Haynesville Shale also in south Louisiana and in servicing the Gulf of Mexico you know sometimes you get a little bit of support like oil goes down gas stays up or stays you know a sustainable rate we've seen the same 60% reduction in the price of oil we've seen it in gas they just started in November and has gone pretty much straight down it's traded as low as $1 55 and mcf and the challenges are with natural gas which is good but with little as low it as it is LNG markets going to struggle we've already been told of multiple LNG projects that either been put on hold or companies that pulled out of them because you know the economics right now with oil being slow the and so in addition to the perfect storm and supply-and-demand falling apart we also have both of the commodities that we produce and that we rely on here in Louisiana and oil and natural gas both seeing significant price destruction with with not a lot of optimism for any short-term rebound at all so really man like 2 to 9 weeks ago a survey out to our membership talking about the price decline at that point it was really focused on we hadn't really gotten the full grasp of the demand side of the equation collapsing and what does it mean to our members and we asked a lot of questions about what what does this mean to workforce what does this mean for your production what is what are the needs that you need to you know be able to have a breakeven price of oil breaking price on natural gas and what is your wish list one of the things we could do if given the opportunity to provide a lifeline to you and your company and the results were staggering besides that that that oil we need the oil to be at 37 dollars for a break-even standpoint if you look at where we are today we're not even we're close to that $2 for natural gas again not not where we need to be but the workforce reduction numbers were staggering where they were expecting and predicting a 60 to 70 percent reduction in workforce over the next 120 days with many of those layoffs already having started and then the same thing for production where at these prices are 60 70 % shutting in production over the next 120 days and the challenge with that side is is that this production in our production Louisiana gets shut in much of it may not be able to be brought back with certainly not in you know if we get back to a break-even and wells have been shut in for six months the cost to bring those back
in to productions might why are a higher break-even point so we would need prices to be even higher and all of that goes to say that it makes a recovery for the industry for our communities for our state for our families much more difficult if if we lose the production that we have now once we if prices rebound that we can't get all that production that has lost revenue so we're really focusing our efforts on what can we do to keep as many people working keep as many wells flowing as possible so that if prices recover and when they do recover because eventually they will that we've got as many active wells flowing in in the state as possible when we asked our members what was the what were the the ideas that they can do and we'll talk a little bit more of those in details but it was very clear that the two most important things that that can happen to industry right now in order to provide a lifeline you keep people working and keep Wells flowing would be one to do a suspension of the severance tax we know particularly on oil we have the highest severance tax rate in the nation at twelve and a half percent if we can suspend you know a large portion if not all of the severance tax then we that's cash that goes right into the operators pockets and brings their breakeven cost down it allows them to continue producing wells for a longer period of time it keeps people working and then it better positions us for recovery there's a challenge there that we know that we have to deal with and we can work with Jean Paul on is that local governments depend on a share of the severance tax and so there are ways that we can do that to ensure that local governments are made whole with with what should be their share given the price reduction and the environment that we're in but also provides a relief to the operators and the other one is suggest that coastal lawsuits these lawsuits that are that are government sponsored lawsuits by local governments and district attorneys across south Louisiana continue to be a drain on everybody's pockets we have over 214 different defendants and all of these lawsuits they're spending tens of thousands of dollars on a monthly basis defending these lawsuits those are dollars that can be used to to make payroll and to take other actions and there's legislation that can and that is that if we get back in a session could be considered in Senate bill 359 there's also actions that the governor and the Attorney General can be taking if they want to be able to step in and bring in you know bring a responsible end the other ones really circulated on a regulatory standpoint easing restrictions at the office of conservation which the Commissioner conservation sent us a letter letting us know that you know if anybody needs relief that they're they're ready to provide it and then so you know some issues that the state mineral board is considering right now to suspend lease maintenance requirements and maybe a possible reduction of royalty on state land next question so what is the impact from taking our survey results and looking at it from a labor standpoint and a workforce standpoint across the state so these are the workforce commission numbers that came out of the most recent one which is the third quarter of 2019 oil and gas mining and employments around thirty three thirty four thousand people with wages of about 3.2 billion we continue to be one of the largest wage paying industries in the state if you look at our seventy sixty to seventy percent number that that puts in about twenty three thousand people at risk statewide and about two point two four billion people are wages at risk now again we're talking about kovat nineteen here because that's the demand side but first the governor lifts stay at home work order that doesn't mean that all of a sudden everything is okay for our industry it is going to take a long time for global demand to move back up it is going to take a long time for for the storage is the built-up storage oil to be able to be expended and so these numbers aren't going to magically fix themselves on May 1st just because we can go back to work and so until we see some significant long-term improvement in pricing I would seek to assume that these employment numbers are and what we have at risk are going to be realized the Acadiana MSA e we've got about 15,000 people which is 1.3 billion in wages and again that's about 10,000 people that that could be lost according to our survey results and right at close to a billion in total wages next slide the number of wells that potentially could be shut in it gets us right at about 17,000 wells with the current year almost 34 thousand wells that could be shut in across the state and again these would be varying in different levels of production some BRE ones that don't produce a lot some would be some that are more significant it just depends on each individual company's ability to withstand and really for how long this downturn continues next so what can we do about it and this is where it's really important and appreciate one Akkadian and all the other partners for getting on because you know there there are things that we can do and the more voices that that can be added to the effort the the higher likelihood that we've got a chance of success and so certainly we would appreciate anyone that wants to lend their voice to to these solutions are trying to position the industry so that once we get through all of this that we're prepared to help Louisiana move forward at the federal level we can increase access to the Strategic Petroleum Reserve so in part that's already happening originally we had 77 million barrels that were available and a storage capacity at the Strategic Petroleum Reserve the stimulus package was supposed to provide three billion dollars to be able to buy the oil to fill up the Strategic Petroleum Reserve unfortunately Senator Schumer and the Democrats and DC blocked that effort Senator Schumer sent out an email to his colleagues claiming success for blocking a three billion dollar bailout of big oil unfortunately that is not accurate at how that would be portrayed the Strategic Petroleum Reserve part of which is located there hackberry would have been a lifeline is a lifeline to smaller producers across Louisiana and across you know really the country to be able to find a place to be able to put their product and so through continued negotiation with our federal delegation and the administration they've made 30 million barrels per day available through an RFP I'm not thirty available through an RFP where companies that are looking for the ability to sell their product or put their products so that they can produce it we can fill the strategic petroleum reserves up that thirty million barrels there's also commitment although it's not done yet to expand the remaining 47 million barrels and make it available basically through a leasing program as a commercial storage facility if you will for for producers across the US and so we're going to continue to monitor that but it's certainly right now where storage is extremely tight is definitely a lifeline that we need I'm working with our partners in the Gulf of Mexico again very similar what we talked about severance taxes but if the Department of the Interior has the ability to reduce royalty rates in the Gulf of Mexico which will bring the break-even cost of those wells down and allow our Gulf of Mexico operators to continue producing 4kd anaphor from for Lafayette for South Louisiana home at Terry Bank you know keeping these platforms in the Gulf of Mexico active is extremely important because it keeps a lot of people it works or anything they can that can ease the financial burden the these operators are facing right now will be very well received and will keep people working is expediting any regulatory relief the administration has done a good job working with you know our members of our delegation our industry and identifying regulatory challenges we have companies right now that are trying to build storage facilities and whether it's the Army Corps of Engineers or other departments that are sort of putting up roadblocks we need to do everything we can to try and get those roadblocks out of the way to make sure we're still doing everything in an environmentally and safe manner but if we can get more storage constructed and available for producers that again that's going to help offset some of those particularly local challenges that we're facing here we're just running out of storage the state side obviously suspending severance taxes representative bill yeh has legislation he has both a bill to reduce the severance tax rate that he filed before all this happen as well as a resolution is to spend the severance taxes we're gonna you know obviously the state is gonna have some financial challenges but you know those challenge is only going to be exacerbated if we have an industry that's shutting in production across the state of having an opportunity to work with Jean Paul on this and some degree but that remains the most important issue addressing the coastal lawsuits issue is extremely important and then continuing to identify regulatory relief where we've got fines or we've got deadlines that need to be pushed back things that that can be done in a safe manner to to ease the burdens that producers and many times many of our smallest producers are facing and we encouraged and welcomed the administration and secretary Robinson's the Department of Revenue they've done they've taken steps there with extending deadlines limiting fines and other things so that to the degree that the Department of Revenue can be involved and support the industry they're trying to do that and then lastly at a local level next slide you know the biggest challenge that we have will be property taxes and we're starting to go through those and we've been working with the Louisiana sasser's Association on solving a property tax dispute that's going on now for the better part of 30 years and Representative Mike q-ball has legislation a constitutional amendment to do just that however it was not considered in the in the context of what we're dealing with now and so you know companies are going to be we going and paying property tax rolls and looking at what they're doing next year when they're seen well it shut in so we're gonna be working with our local governments and our Assessors on on looking at the property taxes to try and ensure that we have as fair evaluation of our property taxes as possible right now that Paul talked a little bit what the legislature with what they're seeing right now Gifford thank you this is John Paul cusan you really teed it up nicely that's exactly the kind of detailed analysis that we as policymakers need in in a very short amount of time to make some absolutely critical policy changes at the state level and I realize how in-depth you just went on the state and federal changes and I'll give everyone a little inside baseball as far as what we're looking at from from a state level procedurally right now we're at or in an extended adjournment the speaker and the president of the Senate basically at some point will come to an agreement and I assume that'll be in line with any any of the governor's executive orders from a stay at home standpoint but right now we're in an adjournment and although earlier this year the questions night of the speaker me as as chairman of House natural resources and environment at this point it's kind of incredible that I think the more important task that he's given me is as part of an economic recovery task force in the house basically I've been tasked with asking all of the industry's upstream midstream downstream all the stakeholders what are their number-one priorities that we need to put in place in either a regular session or in a special session to get an immediate impact on jobs and growth in the economy and that does include the for the bottom line of the businesses and the bottom line of the state so the task force which was put in place a few weeks ago is a is a fluid situation I've gotten response responses from Giffords group logo I've gotten responses from lamoco Louisiana Mid Continent Oil & Gas Association Louisiana Chemical Association and various individual businesses who also wanted to submit white papers to me I'd invite anyone on this call to email me or to contact my office to make sure that your input is heard if you have ideas relative to policy issues with the state I'll be submitting the work product to the speaker and then you know we'll decide from from a standpoint of which legislation has already been filed like you for just mentioned we do have several bills already filed and what may need to be filed in any special session and what will be heard and prioritize from an industry standpoint at this point we know that the governor stay-at-home order is still in place we've heard you know circulated that may 1st date may be an opportunity if we flatten the curve to lift the stay at home order I would expect that if the stay at home order is lifted then the speaker and the president will call us back in to session if our session was constitutionally supposed to end by the first week in June which would basically give us four weeks and I would say weeks because it might be a seven day work week for us to get through an entire session consisting of around 1,500 bills that have already been filed this year that is probably what would be the the boldest move to try to get through every bill that every legislator has filed many of which are priorities of individual legislators that are districts back home their their local governments and an individual constituents so that would be best case scenario is that we've got four week window to to get through as many bills as possible if the stay-at-home order and and the adjournment were to extend into the month of May then we'd be making some very difficult calls about which bills would be heard in the time frame that we have allotted basically we know that there are about 10 to 11 constitutionally required bills such as the the appropriations budget and our capital outlay budget and and all of the bills that are associated with with those issues so we may have to come in for a five-day session if that's all we were allotted in order to get ten bills through to satisfy our constitutional requirements prior to June 30th if we were not to be able we were not able to come in at all the month of May then we'd be looking at a special session more than likely only to do the the ten constitutional bills prior to June 30th which is our at the end of our fiscal year following that we'd be looking at a special session in the fall that would be governed by the call of either the governor or a call of the legislature which we could call ourselves into session so we'd be able to define the parameters of the call into the special session I spoke with speaker Schick Snyder this morning he does recognize the challenge that were that we're facing in the hole in gas and energy sector and I think you know from a local standpoint or in Acadiana we understand that the kovat issue we'll come to pass and once we get the healthcare crisis settled or stabilized that we have another crisis right here in our back door with with the low prices so speaker shakes not who recognizes that he is you know confirmed to me that these suggestions these priorities that we've laid out and specifically some of the ones that Gifford mentioned in his in his slides will be part of our priority list to get people back to work and as I mentioned the quote that he continues to use will have that is that these bills will have an immediate impact for job growth for the bottom lines of businesses and the bottom line for the state so we'll be going to the state fiscal office to get fiscal notes and all of these issues and I do realize that with the severance tax like different just said if we have a severance tax reduction it may have an impact on the state for a very short amount of time but with the with the prospect of these wells being shut in that it will be probably a win over a little bit longer term if we can continue to keep you know these these these w
lls from being shut in so besides that we had the the issues with the local governments dealing with the severance tax reductions the royalty relief given from the state standpoint what does the state going to look like if we're not receiving the royalties if we're adduct if we reduce the royalty rates across the board and from from a chemical and petrochemical standpoint we're going to be looking at detailed tax policy for property taxes that are being paid on inventory with iTap contracts in place sales and use taxes on electricity and the manufacturing process and then looking at pilots and the net operating loss deductions so obviously when you're looking at a changing policy in the state we're looking directly at the tax policy so it's going to take a significant amount of substantive tax review and and like I said it's going to take the real the professionals provide us with the detailed analysis to present it to the remainder remainder of our legislators these are not easy asks at the legislature now it may seem like it's a no-brainer for us here locally but a lot of the state does not have the type of oil and gas industry that we have here in Acadiana but it's hard to argue with the fiscal notes for the for the entire state budget when you're looking at the amounts that the reduction in our oil and gas prices have cost the state over the last four to five years to put it in context and basically in about forty five years ago we were looking at around seven hundred and fifty million dollars in severance taxes coming in and now we're looking at somewhere less than two hundred million coming into the state so from a broader perspective we'll also be looking at what what's it going to look like if we took our our oil and gas production and payments to the state completely out of the state budget and and used it as a and basically holding it in escrow so to speak what would that look like for our future in planning for the future increase in prices and dedicating those funds to something along the lines of infrastructure and education this may be the time for those types of bold moves but we're going to cross that bridge when we get there it will be presented but it may not have that direct impact and immediate impact that the speaker wants at this point but we are looking at those major changes as well and having those discussions with with all of our stakeholders if there's any questions out there I'm happy to answer like I said the main thing that I came away from this morning with with the speaker was that number one we are still looking at all of the 1500 bills that have been filed so there are very there are bills that you know with very specific issues across the state for our constituents all of them have been deemed important important enough by legislature to file the bills so we're not just just dismissing all of those bills yet we're still holding out who that we hear and listen to all of them which includes the general tort reform bills and also tort reform relative to the oil and gas lawsuits on the coast that Gifford mentioned so with that I'll turn it back over to our our host Thank You Gifford and Thank You Jean Paul at this point we have about 15 minutes left for Q&A Marie Santini founder of Santini communications and co-chairman of one akkadian as governmental affairs committee will be helping to moderate the Q&A portion please continue to enter your questions into the chat pod and we will get to as many questions as we can if we do not have time to get to your question during the webinar we will try to follow up with you as soon as possible afterwards Marie I'll turn it over to you good morning I'm just gonna go through a few of the questions that I've received through the chat first or Russia and Saudi Arabia trying to deliberately tank the US oil industry and why did their actions take the oil industry seemingly by surprise say thank you for that question you know I guess the first part is is that you know it's almost impossible to predict what OPEC and Russia are gonna do on a daily basis but you know prices weren't weren't weren't high it's not like they were $80 an industry was out there you know thriving we'd seen prices if when they made this decision to come down to $45 and so certainly not at a price level where you know printing money over here in the US and so I think that's part of the reason why it was a little bit of a shocker that they came along and made the decision to do that but they did come out of that those meetings and using language such as waging war on us producers you know it's a fight for global market share and the u.s. used to produce about 5 million barrels a day and we used to import all the rest now we're 11 12 13 million barrels a day and so that we have shifted because of hydraulic fracturing and horizontal drilling and being able to produce the shale plays with you know 15,000 foot laterals and things that were just technologically not possible we have taken control of our own energy security of our own economy and you know taking a large portion of market share away from both of those countries and so there they don't have the same view of the free market that we do and so their their their approach is well we can produce well much cheaper than you can and we have much larger reserves than your companies do and so we'll just drive you out of the market by lowering prices flooding the world with oil and then when prices collapse your companies will go bankrupt we'll get all of our market share back and things will be back the way that we like them so you know that's just that's their approach to managing the global market and and their approach towards you know global politics okay I have another question related to Russia and Saudi Arabia with demand being so low why wouldn't Russia and Saudi reduce their output wouldn't they eventually have difficulty finding their thought is is that they can job to produce the US producers out of the market I do think that their willingness to start discussing production cuts is significant in that I think they realize that storage is filling up faster than they thought it would and demand is this falling sharper and faster than they thought it would but again they're only going to do that provided that there's a corresponding reduction by US producers and again the challenge there is is that it's just almost impossible for us to do that without a mandate from from the federal government but what's interesting is is that the production cuts being discussed by Saudi Arabia and Russia right now particularly by Saudi Arabia we don't know what the starting point is Arabia has already ramped up production and so if they're gonna reduce production by there the number that they've ramped up to all they're doing is going back to what their original production levels were and so there's not a really clear understanding if they're going to reduce production eliminate the increased production and then further reduce production as well and so again if yeah if we're only talking about the part where they've increased and they're just gonna not increase any more it doesn't really do anything to eat into the global demand destruction next question what are the best strategies that oil and gas players can use to cope with the low oil price environment you know it's a it's an interesting question and it depends really on the producers we've talked to you or you know the first steps obviously they're reducing any capital expenditure and new drilling activities focusing on the wells that are to continue to produce and bring revenue in um ideally you want to keep the wells flowing for as long as possible because it keeps some revenue coming in the door it's just a difficult balance of how much time and money do you have to spend working on that well in order to keep the well flowing and so they'll reduce capital expenditures they're gonna focus their efforts on on their on the production that that brings in the most revenue with the least amount of work they're gonna look at their their team and figure out can we reduce ours you know can we do we need to reduce employees do we have a stage down approach where if prices are here may 1st then we do this if the prices are still here at June 1st and you know these are the next steps kind of what we're hearing on the product and the producer side is that we are we need prices you know back above $40 by June 1st with confidence they're going to be there where else is going to be devastating to the industry and to the economy locally and Acadiana service companies depending upon where you are in the value chain you know it could be the companies are focusing on maintenance working so you're good but if you're you know in the land business and you're out there doing leasing on the front side chances are that it's going to be a very difficult time because if you're not making capital expenditures and looking at new investment and buying that new property right now and you're focusing on the core acreage you have it's not necessary for you're not building pipelines you're not going out there and finding new acreage then that second or the service industry really is going to suffer so you know a lot of it's the same same steps that everyone else takes and every other business and if you look at your employees and you look at your team and you look at your expenses and you you figure out how you can tighten your belt the challenge for industry is a lot of that happened between 2014 and 2016 we've been able to hire some people back we haven't gotten back to the levels that we were before and so there's not as much ability to reduce expenses and to cut payroll as there was maybe in 2014 we've had a couple questions about the impact of tariffs on imported oil and one asking I understand the USA refining capacity may be able to switch gears and run only USA produced crude yeah so that's the tariff question is an interesting one so the the the challenge and I'll answer the first part first so if everyone remembers congressman Boustany was instrumental and working with the federal government to eliminate decade-long bans on us being able to export oil and we needed to do that because the crew that we begin to produce is not really our refineries are not really set up to be able to refine that type of crude and a lot of the shale crude and what's coming out of the Permian is not the type and in quality that our refiners are set up to refine in the United States and so in order to be able to have a market for it we need to send that over to Europe where their refiners are set up to that type of crude and so you there's not a switch there's not like a you know you can't go to the X refinery and say okay we're gonna go with you know Permian Basin crude today and switch it all over so unless there's a mandate to force all of the refiners to go invest billions of dollars to retrofit their facilities to refining air this this new type of crude we won't have a market for all of the crude that we produce here in the USA to be refined in the USA so we need to be able to export so that's one thing that we have to be very careful about tariffs because if we begin placing tariffs on crude that we import first of all you're gonna have the refiners and they're gonna be you know probably strongly opposed to that but additionally for the producers that means that it's very likely that we're gonna see tariffs placed on the crude that we're trying to export so the very thing that we're wanting to do to make our crude you know more competitive by placing a tariff on foreign oil weakening that with the same the same tariffs being placed on our product that we're trying to export and not be able to produce because of that so potentially long term maybe some of the refineries will began looking at you know is it you know we have we don't really build new refineries is there an opportunity to to make some adjustments and their existing refinery but we haven't seen any indication at this point in time that the the refining capacity is going to be updated or changed in a manner that would allow us to refine them across the country across the globe all right I have pathetical suppose that all oil storage is full by mid May at this point we will see significant oil bankruptcies say 20% permanent reduction in oil production your from now oil demand is back at historic levels we will see a 20% shortfall in supply at this point oil will surely go to record highs and drilling will take off and will the industry see a boom that's the roller coaster that we all ride right you know the question is is is you know if we get to full storage capacity and we have a billion for easy math we had a billion barrels and demand comes back up at some point in time and I think it's really you know an interesting question about when will we see demand rise again and and you know when I kind of posed that question I I said when when will people feel comfortable getting on an airplane with their grandparents or going on a cruise ship with their grandparents you know that's gonna be the question and they can answer probably is when we we feel that we've got a cure for two vid 19 because otherwise and come wintertime maybe it rears its ugly head again and demand goes back down but if demand outstrips supply by five million barrels a day which if we remember if we when we were looking at that slide we didn't see demand outstripping supply by five million barrels really ever demand outstripped supply by five million barrels which would be historic in many ways it would still take almost 400 days to eat up a billion barrels of oil and storage and so I don't know that we're necessarily gonna see that big swing you know realistically it's going to take some time this goes along for much longer but it really depends on how fast the economy wants to get going again and how much globally there is can confidently you know may come around to cure and it may be changed forever but it's I don't think it's we're not gonna see we never very rarely see a steep and incline and recovery prices as we do a decline I have a question about deep water in the Gulf of Mexico I saw this morning Exxon cut capital expenditures 30% operating expenditures 15% and in particular focused many of its cuts in the Permian and mentioned they are focused on more long term plays like deepwater and other ventures given that do you feel other operators will do the same and what impacts do you see if so on the Gulf of metter Gulf of Mexico deepwater activity the Gulf of Mexico is very different than the Permian right so or the Haynesville Shale where you know you go at least a bunch a courage and move some rigs out there and you can you know drilling you well every 30 days the golfers that's not the way it works these are super large deep water plays elephants is good it's often described and so you know if you're gonna go invest and it's in a deep water platform and a drilling project you're not worried about where the prices are today you're looking at 10 years from now where do you think the prices would be what is the long-term demand for energy going to be in global demand for oil that's not going away we you know there's pretty much every economist you look at you're seeing the global demand energy continuing to rise as China and India and other countries continue to develop and so for those few companies that can withstand this downturn and still have the ability to invest billions which really you're you're limiting yourself to many cases are the super majors the older deep Gulf of Mexico will continue to be a viable play for some of the independents and others that we've talked to the you know they're looking at shutting in their production as well because they just can't survive it in this price environment and so how far and how long the these decline of prices go will determine a lot about what happens in the Gulf of Mexico how much activity stays here but again every time we see one of these downturns we end up with fewer and fewer companies that are able to withstand the challenges and come out on the other end and so you know we look in the crash in the 80s and it was transformative for Louisiana he lost many of our great
companies that moved and relocated their headquarters from Houston from New Orleans over to Houston and it sort of redefined what the industry looked like the crash we had and and recently when 14 did the exact same thing down to 200 and we never got back up above it really for a sustained period of times above a thousand you know industry we're going to come out on the other side whether it's in the Gulf of Mexico we're on shore the demand for energy is absolutely still going to be there and you know in many ways the companies that come through in the industry when it comes from the other side will be stronger and better and in position to take advantage of the next of the next cycle and energy prices the challenge for Louisiana is is that are we going to have a partner besides being the service company that helps out in the Gulf of Mexico but even still we were we've taken in some cases at local levels through local Assessors and attorneys certainly through local governments filing the lawsuits that we're having you know our tax policies our auto insurance rates we consistently have policies that make it more difficult for businesses and oil and gas companies to want to do business here and so when prices rebound which they will and industry recovers which it will you know we're gonna continue to tax inventory that's destined for the offshore Gulf of Mexico than those companies when they when they're starting to rebuild their operations are gonna rebuild them in Mobile Biloxi or Beaumont and they're going to get away from you know the wind same policies that we have here which is what John Paul and the other legislators working on it how can you position ourselves to be able to take advantage and make this an opportunity for recovery as opposed just another story where there's a downturn in oil prices and we lost all our EMP companies and now we're losing all of our service companies and so I mean it's a real challenge that we have to so on that note I have a final question and it's it's more for Jean Paul as we do toward solutions at the louisiana level in the legislature what can we do what sort of advocacy do you need from us to support these efforts what I've heard from individual constituents and businesses I've asked them number one I've given them by my email address to send me their ideas but I've also asked them to work within the associations at the part of whether it's la la' Moga Louisiana Chemical Association and and local local like one Acadiana so that you know we have the strongest voice moving forward so when we're trying to pass legislation if we've got the fire pyro power behind us then we have a much better chance of being some of these initiatives across the the Gold Line so contact your associations email your legislators I saw that there was a question about all of the emails for legislators find out who your local legislator is your your house member your Senate member send them an email and and then we'll all work together as a team to basically put a lobbying effort forward to get some of these major priorities across the finish line I did see another question in there Marie about whether we were going to hear you know somebody has a butterfly bill filed well in fact you know I went from the possibility of hearing 1500 bills all the way down to only hearing ten bills I think we're gonna fall somewhere in the middle of that the speaker has already asked us to individual legislators to pull non-essential bills and so that they're not heard at the committee level but our committees which we have 16 of in the house the committees are set up to kill bills whether because they're bad policy or not being important at this time at this juncture so you know we're prepared as chairman to kill or pass bills that fit these the criterion that the speaker has set up for us but I don't tend on letting any butterfly bills through and hopefully that the legislators have taken it upon themselves to remove those so we don't waste any time on them so I agree a hundred percent all right well that brings us to the end of today's webinar thank you again to Gifford Briggs of loga representative Sean Paul coucil and Murray Centanni for leading today's presentation and QA thank you all of our participants for joining us we are going to be sharing the video and other materials from today's webinar within the next 24 hours you can access the materials as soon as they're available at one Acadiana org backslash kovat - 19 - resources and all of the partner organizations like loga and others who made today's webinar possible will be sharing the video and materials as well we hope today's webinar was helpful and we look forward to offering additional Acadiana business resource webinars going forward stay tuned for follow-up emails from us and our partners this concludes today's webinar thank you all again and please stay safe
