Running On Empty ft. Wil VanLoh

I want to focus in on something you said there about the energy markets, because last I checked, oil was trading at something like twenty two dollars a barrel. It is very, very low, and I think for most people the interaction we have with the oil industry is when we fill up our gas tanks. So low oil prices are not necessarily a bad thing when we look at it. What are we missing here? Well, I think right now we're facing three different crises all the same time. We've

got a global pandemic, the Corona virus crisis. We're all familiar with the cases, the deaths, and we're taking extraordinary steps to try to stop the spread of that virus. There's an economic crisis, say a disaster seventeen million people in last three weeks have filed for unemployment. We've seen

entire industries decimated and that's producing enormous damage. But at the same time, you've got energy markets, and in particular, the global price of oil has dropped more than in half, and the consequence of that is it potentially risk bankrupting most, if not every, American energy producer, and particularly in my

home state of Texas. That's devastating. But if you end up seeing American energy producers driven out of business, that also has massive implications in terms of you and me paying higher prices at the pump in years to come, and also geopolitically making us dependent on foreign countries in a way that we just now managed to yet free

and independent front. So what you're saying is we shouldn't be celebrating maybe a little dip in the gas prices right now because in the long term, financially, that could really hurt us. And also it has these national security implications that look pretty bad down the road. I just want to point out something you said center. You said you flew out and met with the president. You met with the president specifically because of this energy crisis that's

how bad it's gotten. No, that's exactly right. On Friday, I got on a plane on a United commercial flight that was practically empty. They were there, only maybe ten fifteen of us on it. Flew up to Dcent, went to the White House, had a two hour meeting, and we're all from states that are big energy producers. And we started by writing a letter to the Saudi ambassador. Then a couple of weeks ago we did a conference

call with the Saudi ambassador, nine of us. I gotta tell you it was the most bare knuckled, candid conversation really I've ever had with a foreign leader in eight years in the Senate. Can get cursior, I can. So we're on a conference call with the ambassador. Here's what I said. I said, Listen, no state in the Union does more business with Saudi Arabia than Texas. And right now you're taking advantage of a global health pandemic to try to screw and bankrupt people across Texas. And it

is devastating. And the thirteen of us who signed on to the letter is a matter of national security, have consistently been allies of the Saudi Saudia is an important counterpart to Iran. Iran and the Ayatola are really dangerous for national security. But I said, listen, you know we've we've been with you, but you're now trying to bankrupt people in my state and that is not going to stand. Now,

here's the Saudi ambassador's defense. But Russia. But Russia, And it sounds like three media for the last three years. Well they do they And I said, listen, Russia is our enemy. We know that they behave like our enemy. We treat him as our enemy. You're supposed to be our friend. You want us to treat you like Russia? Fine, you want to be our enemy, how about we pull up all our soldiers out of Saudi Arabia, we pull

our Patriot missiles out there. Because every time someone screws with you in the Middle East, you pick up the phone to call the American military and say save our asses. Well, then don't bankrupt people in my state. And I was pissed. Yeah, I gotta tell you it was interesting that call. I think it got the e fact, I know it got their attention. So you and I we've invited a guest. It's it's a long time friend of mine, will Van Lowe. Will is the CEO of Quantum Energy Partners Now that

is an eighteen billion dollar private equity energy fund. Quantum is the third largest driller in North America. And I gotta tell you Will is someone who knows the energy markets as well, if not better than anyone I know.

And so in the last couple of weeks, as I went up to meet with the president major energy CEO's last week, Will was someone we literally spent probably six seven hours on the phone trying to unders and what's happening here and the real threat to jobs and energy security O country, and so well, welcome to verdict Will.

For so many years we complained about how we're dependent on the Middle East for energy, we are totally trapped for energy, and yet this technology helped to lead us away from that and get us to what I guess we'd call energy independence until maybe five minutes ago, that's right, And I think that is a huge when you think about the United States has had more wells drilled in it than the rest of the world combined. That's a pretty amazing statistic to think about. When it comes to shale.

Do we have a lot of it here? Yeah? Oh? Well, for sure. Probably ninety five percent of all shale production in the world is in United States. Part of that's due to our geology, right, so they've tried it. For example, in Europe, they don't have the same rocks over there. Now there's other parts of the world where there's a lot of shale, but those are parts of the world that typically have a lot of conventional oil and gas

as well. And if you don't need to drill, it calls more money to drill wells unconventionally horizontally and put the big fracts on them. So places like in the Middle East where they have a lot of conventional production, they don't need to drill horizontal wells. So last ten years we have this technological innovation. We discover how to access massive reserves that were there but we didn't know how to get to it right. And suddenly America passes everybody.

We pass Audi Arabia, we pass Russia, We become the top producer in the world. Who is it that drove that? And is the energy industry? Look, I think a lot of people think of energy and they think of big oil. They think of a couple of you know, giant companies Xon and Shell, and you know these giant companies, is that who did this innovation? No, And that's you know, that's the interesting thing because so much the dialogue right now in Washington is involving the Xons and the Chevrons

of the world. And there're certainly big players in Shell today, but they didn't drive the innovation. It was actually the independence that drove that innovation in the United States. So what's an UM. Well, an independent is basically an oil and gas company that's not a major. So the majors are typically integrated companies. They're the largest companies in the world in terms of publicly or privately owned outside of government owned oil companies. And these majors, I mean, they're

they're massive. I mean some of them they have GDPs that rival company so well they do like that's on for example, they produce over four million barrels a day. Right, there's only a couple, there's only a handful of countries in the world that produce over four million barrels a day. But the shale revolution was started and driven by independence and independence you're talking. You and I both spent a

lot of time out in Midland, Texas. You're talking sometimes five ten twenty guys in a little office who were raising some money and going out and drilling holes and innovating. That's what drove this entire revolution and change the entire geopolitics. It did. And to be fair that the technology is probably driven more by the larger public independence companies like Chesapeake,

companies like Pioneer, those types. They drove the technology, but the smaller independence were very quick to get in and really take that and they're much more nimble than the public companies. So they take the big, the big technology revolutions, and they do a lot of evolutionary changes in that technology, and they get it out there very quick. They're and

they're able to access large amounts of land. And so the independence, both the public, the larger public independence as well as the thousands of smaller kind of mom and pop independence, they're really the ones that have made this independence of energy possible as well. I don't want to reign on your parade here, but this sounds too good.

This sounds too good to be true right now because you've you've got this great energy revolution here, you're empowering so many people American ingenuity, and then the prices all plummets so I understand how it worked out. So well, what went wrong? Well, let's back up a little bit and you think about prices plummeting. Prices plummeted from about sixty dollars a barrel at the beginning of the year down about twenty dollars a barrel a few weeks ago.

Now they're up in the mid to high twenties now. But let's not forget before the shell revolution started in two thousand and eight, Well, it was one hundred and forty seven dollars a barrel. Okay, wow, so hold on, hold on a second, one hundred and forty seven dollars a barrel, and then it came down to fifty sixty dollars a barrel. And now it's plummeted to the twenties right right, And through American innovation and ingenuity, we were

able to get the cost. Initially, these shell wells were very expensive and you didn't recover a lot of hydrocarbon. And through a lot of science, through a lot of just innovation and trial and error, we were able to meaningfully perfect, if you will, the way we drilled and completed these wells, and we got the cost down to a level where at fifty to sixty dollars, the US on gas companies can make a respectable profit, and the industry for the last four or five years has been

chugging along. And fifty to sixty dollars. Look, most of us don't buy a barrel of oil, so that number doesn't mean anything to us. What does that mean fifty sixty oil? What does that mean in terms of a gallon of gas? Gas? And understanding a lot of the cost of gas is actually taxes, right, and those don't change. So three three to four dollars, depending on the state and city you live in, is what fifty to sixty dollars oil. So Michael will pay a lot more in

California than dollars. He will absolutely pay more. Although I don't know that you need to fill your electric scooter, Michael, so that hell, that's the thing. We actually just run on moonbeams out here, so we don't need any sort of energy. So what I'm hearing though, is you don't want the price of oil to be so expensive that it's going to kill us all at the pump. But you also don't want the price of oil to be so low that you put all of these companies out

of business. You want there to be some meat m in there. What are the odds that we're going to be able to get back to that before the American energy industry is just destroyed. Yeah, you know, right now it's not looking good. It's not looking good for two reasons. One was Saudi and Russia have decided they we're going to basically launch a market share war on the US. And as Senator Crew said a minute ago, you know,

the US went from being a huge energy importer. You know, we imported more than twelve million barrels a day less than a decade ago to literally over the last six months or so, we given on any given week, we will export or import a few hundred thous you know, so we'll be a net export or a net import or maybe one hundred or two hundred thousand barrels, right, And so that if you think about that and you think about the impact on our economy. That's depending on

the price of oil. But say at fifty dollars oil, that's about two hundred and fifty billion dollars a year that stays here in the US. That US oil and gas industry has created additional revenue. The taxes that come off of that, the millions of jobs were created. What does that mean for jobs? How does that Whose jobs are we talking about here? Well, we're talking about very high paying middle and upper middle class jobs. We're talking

about engineers, geologist, geophysicist, production engineers. We're talking about a lot of jobs out in the field, so for both lots of of blue collar job but also a lot of white collar jobs. So if we lose American energy production, if these companies go bankrupt, we're still going to need energy when the economy comes back, right, We're still going to drive our cars, We're gonna fly airplanes. And so if the American companies are bankrupt, where are we going

to get our energy? We're going to get it where we used to get it, and that's from foreign sources like the Middle East, like Russia. And that's really to me, Senator, that the key question the US has to ask itself is do we want to be energy independent or not? In the answer to that question, all policy will flow from whether the answer is yes or no. Sorry to interrupt, will because most people, I think want that energy independence.

That's what we always hear our politicians talking about. Certainly, what I want for US, But what you're describing is the problem here. I just assumed it was all the coronavirus that's upsetting all the global markets. You're saying there's something else in play, which is this price war between Russia and Saudi Arabia going after the United States. What does that mean? I mean, is that related to the

virus or is that a totally separate issue. Totally separate, and to be fair, the demand destruction that's associated with coronavirus is a much bigger issue today in the near term, if I understand it. Globally, the demand for oil in normal times four months ago was between ninety five and one hundred million barrels a day, about one hundred million

barrels a day. As a result of the economy slowing down and grinding to a halt in the US and globally, it's dropped to about what about seventy million barrels a day. There's a lot of different estimates out there, but I'd say they range anywhere from a twenty to as much as probably thirty five million barrel a day demand destruction, So that would say somewhere between sixty five and eighty million barrels a day is currently what the globe is

using today. So that had a big negative impact on price. When when when a third or more of the demand disappears, right, that it's never happened. That that's it's it's beyond without precedent. That is, well, that's everybody's car sitting in their driveways and everyone's airplane staying parked at the hangar and nobody nobody flying, and very few people drop. And to put that into context, during the Great Financial Crisis, total global demand dropped by only about two and a half to

three million barrels a day. Wow, so we're looking at ten times as much reduction in demand now as as during the financial meltdown. That's exactly right. So but then you've got a second component, which is you have the Saudis and the Russians right as coronavirus is breaking. Yes, decide this is a great opportunity to screw the Americans, to bankrupt the American energy business. And listen what you're

doing drilling in in West Texas shale. The Saudis and Russians have hated it because you pass them up with America as the top producer and so they're sitting there. If I understand this right, they're taking this as an opportunity. All right, we've got a crisis. Let's put these guys out of business. Let's bankrupt them so that when all is said and done, we're the only players left in

the game. Senator, if you think back to when the oil shell revolution started and you look at total global supply growth since then, about eight or nine years ago, eighty percent of total global supply growth has come from the United States of America. Okay, that's a country that today produces about thirteen fourteen percent, maybe fifteen if you had in all the NGLs and other liquids. What's an I'm sorry, natural gas liquids. But let's say the US

today produces about fifteen percent of global liquid supply. Yet we've accounted for eighty percent of total global liquids growth over the last decade. That's extraordinary, and that challenged OPEC supremacy, and it challenged russ A supremacy. And it also helped, if I understand right, drive the price down quite a bit, by two thirds. It drove prices. If had the US share revolution not happened, think about we were one hundred and forty seven dollars a barrel, and that was pre

oil shells. Prices probably would have gone a lot higher

from there, and so that that huge drop. And what Russian Saudi I actually think that they may not have chosen to launch this price war had it not been for coronavirus, because both countries if you look at their ability to how long can they go and with low oil prices, you know, Saudi today is much worse equipped for a long price war than they were back in twenty fourteen during the last big collapse in prices, right, because they've they've deployed needed a lot of their sovereign

wealth funds and their their break even costs today is probably eighty dollars a barrel. And what I mean by that is they fund their entire government out of their oil revenues, whereas Russia's is only about forty to forty

five dollars a barrel. So Russia, but they're doing it used to be what we would call an antitrust law predatory pricing, right, and that they're when they flooded the market with oil and they announced they were going to do that and drove the prices way down, they were taking a big hit themselves, but they were doing it to bankrupt their competitors and then sweep in and dominate the market. That's right. Let me let me pause for

a second and kind of play Devil's advocate. You mentioned two technological innovations that helped us access all these massive shale reserves. One was horizontal drilling, but it was combining that with hydraulic fracturing fracking. Look, fracking, I've heard a lot of scary things on the internet about that. I've heard it messes with the water table. You can light the water on fire, that's what they say. So is that is that for real? Should I be worried that

fracking makes it dangerous to drink the water? No? You know, there's probably not a bigger set of environmentalists in terms of people that like the outdoors, that like the water, that are you know, really love the earth than people the good people you'll find any on gas business, right, and I think there is. Uh. You gotta remember, when we frack a well, these wells are anywhere between eight

and fifteen thousand feet below the air's surface. The surface water that people drink is anywhere from fifty feet to maybe three or four hundred feet below. So let me make sure I understand that you got the surface fifty to three hundred feet down. That's not that far down. That's the water table. That's where the water is that we get our drinking one. That's correct. So that's not where you're fracking. No, you're fracking ten thousand feet below that and ten thousand feet if my math is right,

that's two miles two miles of rock downlow. So where you're doing this is two miles away from the water, right. Um, let me ask a different question. So my daughter Caroline, you know Caroline, she's eleven. She actually said to me last night, she said, you know, everything that's that's happened in this crisis has been really good for the environment. The environment is cleaning up right, And listen, it is true if we have no production, if if all human

activity stops, that would be good for the environment. It's just not very good for people, It's right. Let me ask you something. What happens if all these independent energy producers go out of business, the economy gets going again after the crisis, and we're dependent once again on the Middle East for oil. Is that good or bad for the environment? You know, it's a great question because I think so many people think, you know, hey, let's let's put the US on gas producer out of business, and

because oil and gas is bad for the environment. But that doesn't mean people are going to stop driving your cars. It doesn't mean people are going to stop flying in airplanes. It doesn't mean people are going to stop buying iPhones, which, by the way, take hydrocarbon energy and the plastics, a lot of the parts everything we have in our modern life, Senator is revolves around hydrocarbons in some form or fashion. So they're not the need. Form is not going to

go away. We will just shift the source where we secure those from, and we'll go back to where we were a decade ago, which is sending hundreds of billions of dollars overseas to people that quite frankly don't like us very much. We will lose significant geopolitical and if I remember right, an awful lot of the nine to

eleven terrorists who attacked us, we're from Saudi Arabia. They've had their funding stores from there, and so fueling the Middle East with billions of American dollars is not good for keeping America say it's not, and it will also

cause the loss. If you think about the biggest growth engine in US jobs coming out of the Great Financial Crisis was the energy industry and the tens, if not hundreds of billions of dollars in taxes that the energy industry pays every year to school districts, to other municipalities, hospitals, building roads, bridges, infrastructure. Right there. But this is just Texas, right,

I mean, we're only talking Texas jobs. There's none anywhere else in the cold There's there's a number of other places throughout the United States, both like where Uh, well, you've got the baking it's in North Dakota. Uh, You've got the dj that's in Colorado, the powder that's in Wyoming. You've got the Permian which is New Mexico. You've got several plays in the scoop stack in Oklahoma. That's just

on the all side. In Pennsylvania, as I say, on the gas side, the largest gas field in the United States, really one of the largest, maybe the largest in the world sits under Pennsylvania, West Virginia, Ohio, and New York. So California. California is a huge producer, right, they are a huge producer in many ways. I can speak to California. It's a completely lost cause. But of course we don't

want the industry to go out here. I just I see will your point that this is all over the United States, that we're talking about a lot of jobs and a lot of history all over the place. So what do we do now? I mean, looking down at this crisis, you've got the markets collapsing. Rather, how do we fix it? What are our options before it's too late? Well, you know, I think we have again we have to

start with. We got to decide we want to fix it, because that is part of part of the issue is obviously the Saudian Russian what they've done and tried to flood the market with additional barrels um to drive down prices. But the other, but the much bigger issue in the short term is obviously demand destruction associated with coronavirus. And so you know, at these prices, the US independent cannot

make money. Okay, they just flat can't make money. So there's there is there is that fact they're just revenues will not exceed their their expenses UM. But the other thing we have to also look at as an industry is and that's just simple math that that that that it costs a US producer, what about forty dollars a barrel to produce, and so twenty dollars a barrel. It doesn't work. If it costs twice as much as the price to produce, you're out of business at these prices.

There's not probably you know, less than five percent of all locations in the United States are economic at these prices. Okay, that's uh, well, Michael, you know one of the things I mean, you asked, what do we do about it? There's there's both a component of it we get our economy going again, but there's also a component of it, the foreign policy component. I'll tell you, and you and I have talked about this. That's something I've been really active in is taking on the Saudis. In my office,

I brought my national security team in. I said, all right, I want a list of steps we can take to ratchet up heat on the Saudis to make it more and more painful. We looked at things like sanctions on individual officials in the Saudi government that had directly targeted American businesses and said, if you're going to weighe economic warfare on us. Well, well, welcome to the game, and

you better be prepared for the consequences. Rewind it last week Friday in the Oval Office meeting with the President. The President had spoken in the preceding week both to Putin and MBS, the head of Saudi's. He had leaned in hard, and it's interesting the President didn't start out that way. I talked to the President a couple of weeks ago, and his instinct is actually where you started this show, Michael. He was like, well, you know, aren't low oil price is good? And then a good thing?

He was thinking of it. He's a real estate guy from a consumer's perspective. Until I and others started explaining, Listen, we're looking at millions of jobs that go away, and if we destroy America's producing capability, it makes the bad guys who hate us more powerful. Yes, and it makes America weeker. That's a bad outcome. Well, what the President said is that MBS at Putin had agreed to stop

flooding the market to reduce their production. He tweeted out two weeks ago they were reducing their production ten million barrels a day. That resulted in oil, just that announcement going from twenty bucks a barrel to twenty seven in the White House, what he told us is he said it's actually going to be more more than ten. It's going to be more like fifteen million. And just today the news broke that they're talking about twenty million. Now the proof is in the pudding, and we'll see if

they actually do it. Yeah, but if they stop flooding the market, if they pull back, that will help. It won't solve the problem. Problem won't get solved until the economy comes back and people are able to drive their cars and fly airplanes. But but but if Russia and the Saudis follow through and stop flooding the market, stop taking advantage in the meantime before the economy comes back. If they're talking about cutting daily production by twenty million barrels, okay,

that's great. How much do we need to actually see an impact on the American energy sector? Right? So, you know, going back again, I think there's somewhere between twenty five and forty million barrels of demand destruction right now. And so look, is ten or fifteen or twenty million barrels a lot? It is? It's nowhere close to what we need to really balance supply and demand. And the fact

is is prices were cratering long before this. You know, it became apparent of how bad because most of the price drop happened when people were thinking demand destruction was three to five million barrels a day. Historically, if a producer like if Opec were to flood the market, even with a couple million barrels a day of excess supply, meaning only a million or two million barrels difference in

supply and demand, prices would drop in half. Okay, So what we're talking about here is it's it's a number that's really irrelevant. Number one. Number two, there's a conditionality on everything Saudi, and Saudi and Russia both have said in order to enact these cuts, So for the ECON walks out there, there's high price elasticity. There's very high

price elasticity. And and if you and Saudi and Russia both said, if if we're going to do these cuts, we want contributions from all the major exporting countries in the world, including the US, including Norway, including Mexico. So there's all these other countries that they want to participate in this and I think the President has been very clear the US is not going to deliver a production cut. Now.

He has talked about there's going to be natural shut ins and declines, and that is going to be the case. The question is is that going to be good enough for the Saudis and for the Russians. The other thing, though, to keep in mind is every time or OPEC plus has said we're going to make a cut, there's generally speaking not great adherence to those cuts. So they may say they're going to make a cut, but the actual cuts usually are much less. To trust, but verify, and

maybe even don't trust. Let me bring out one other issue, because it's an important issue to understand, and this is something you and I have talked a lot about it and it was the one deliverable that came out of the White House meeting last week. So we spent two hours talking about energy. We talked about pressuring the Saudis and Russians that seems to have produce some results, But we also talked about access to capital. And this is a piece where I think a lot of people don't

understand what's going on, but it's really important. Wall Street. The last couple of years has been cutting off more and more capital to energy. There's a movement called the SG movement, which you're putting pressure on Wall Street to say we're not going to fund American energy producers, and the consequence of that has been really significant. So, well, I want us to understand it. Let's say you're a

small independent producer. You're in West Texas, you're in New Mexico, you're in Colorado, and you're in Pennsylvania, and the banks decide to cut off your capital. How does that happen, How does that work? Why, why does capital matter? And what would that how would that impact you? So in any only gas business companies obtain capital from banks and what's called rbl's reserve based loans, and those rbls are redetermined every six months. Okay, so think about public companies.

They go issue debt and it's fifteen twenty year debt. They don't have to think about refinancing or having that debt called for a very long time. The independent producers in this country, the vast majority of them, can't access that kind of public capital to turn out their debt, and so they go to banks and the bank loans

if they get redetermined every six months. So historically it's been a very symbiotic system, and the banks understand the importance of the business and they understand, you know, they loan companies money, and they're not going to change it

a lot quickly in terms of the amount they're loaning them. Well, what's happening now, Because prices have dropped so much and the banks have actually had some significant losses on those rbls, they've made the decision they are going to significantly tighten the amount of credit to the sector. But they had made that decision really before this price drop. They'd made that. To your point, they've been getting a lot of pressure

from you know, esg centric groups. So the pressure is energy is bad, it's you know, the killing the climate, and so don't invest in energy companies. Here's the fallacy of that, Senator, is, as we said earlier, unless people are going to quit driving cars and flying in airplanes and buying products, they're going to keep consuming the energy. You were talking about reserve base lending. And I want to make an analogy to to say a home mortgage. Let's say you've got a home that's valued at four

hundred thousand dollars. So you get a mortgage, let's say for three hundred and fifty thousand dollars, you're paying your mortgage, and it's based on the value of the home. Now, drawing that analogy too, if you get an energy producer, they get a loan based on the value of their reserves, the reserves that they're they're producing and going to produce. But you said in the energy business, every six months they come readeterminate. So what that would mean if you

think about your home mortgage. You got a three hundred fifty thousand dollars mortgage on what you think is a four hundred thousand dollar house. Suddenly the bank comes to you six months later and says, Michael, you're four hundred though thousand dollars house we now think is a two hundred thousand dollar house. You borrow three hundred and fifty thousand, so write me a check for one hundred and fifty

thousand now. And that's what's happening, Senator. That is literally we're hearing stories now every single day about banks going to companies and saying you need to put equity in and pay down this loan or we're going to throw

your loan over to the workout group. And so in terms of deliverables from the White House meeting, what I suggested to the President on Friday, said, mister President, there is a real problem with the banks cutting off capital to these American energy producers and ending American energy production, and we need to make sure that that energy is

not discriminated against. And so I suggested to him, as to President, you should ask the Energy Secretary, Dan Bryette, who is a Texan and a good friend, ask him to work with Stephen Manuche, the Treasury Secretary, to work with the bank regulators to make sure that the banks are not discriminating and bankrupting these energy companies in America and causing millions of people to lose their jobs. And the and said, I'll do it. He directed Dan, Dan

was sitting in the meeting, make it happen. I can tell you I've spoken with Dan almost every single day since then in order to make sure that we just have the capital so these guys can survive. Well, that's great news, because it does seem from what I'm hearing like it's one damn thing after another that the American energy industry has to face and This leads to my last question. We're running out of time here, but I suspect we're running out of time to solve this problem.

Will do you have any sense of the timeline here before we reach a point at which we can't turn this around anymore. Well, if you think about the amount of capital that it took to basically get the show revolution to where it is today, it's about a trillion and a half dollars, okay, And that capital, a lot of it was not spent very efficiently, and public investors lost a lot of money over the last decade on

their investments in energy space. The problem is today is that magnitude of capital will never come back to our sector again. And so if we lose the momentum. The problem with shale wells is they come on at prolific rates, but they decline very rapidly. And so what's going to happen over the next twelve to eighteen months is US production will decline probably two to two and a half million barrels a day. Okay, that's off a base of

thirteen million barrels. That's very significant, and we'll never be able to recover that. And if you shut in those wells, we don't know if you could open up again. Well, you'll open them up, but there's a big chance you've damaged the reservoirs. Okay, so they'll come back on less productive. But the bigger problem is is that in shale is very expensive to develop. It's like a treadmill, and the more you produce, the faster the treadmill goes. And you've

got to keep reinvesting and reinvesting and reinvesting. And as soon as you break that cycle of reinvestment, you can never get back up unless you put a lot of outside capital back into the system. Again. So for every dollar that came in the door, the energy industry was spending about a dollar fifty. Okay, that's how we grew production from five million barrels a day in twenty ten to thirteen million barrels a day this month. But now that that cycle has been broken to thirteen million in

ten years. Ten years. But now that cycle has been broken. So you asked the question, how much time do we have? Not much? And that's that really is the critical, critical question in terms of this crisis that's hitting the energy sector and the American energy producers. I gotta tell you for me. This is very personal and real. As you know. I grew up in Houston. Houston's my hometown. When I was a kid, my parents owned a small business and it was in the oil services world. It was a

seismic data processing company. So my parents are both mathematicians, computer programmers. And in nineteen eighty six oil collapsed. It dropped to seven dollars a barrel. Texas went into a full on depression a high school at the time, and I still remember my dad. It was one Monday. Now this was his was a small, small business. He had twenty five employees. I still remember the Monday where he had to layoff nineteen of the twenty five employees. He

came home. I've never seen my father look as unhappy. He looked like he'd been beaten with a stick, and he had employees arguing with him, going Raphael, I'm not gonna leave. No, I'm gonna stay that. This company is my home. And he said, look, I don't have the money to pay you. You have a family. And so my parents went bankrupt. We lost the company, We lost our home, the home I grew up in. And it's look,

I've lived through that firsthand. Well, you know, it really shows you that in the price of oil, there is a whole lot more going on. There are a lot of jobs, there are a lot of families, There's an entire sector of the American economy that's being destroyed. It has implications for national security. There's so much more to talk about. Unfortunately we were at a time, but thank you will thank you so much for giving your insight

and Senator I had never heard that story. I mean, it really brings it home on a personal level, and we'll see. Thank you by the way for your leadership and going to the president trying to turn this around. We will just have to wait and see in the coming days. Hopefully we turn it around before it's too late. In the meantime, I'm Michael Knowles. This is Verdict with

Ted Cruz. This episode of Verdict with Ted Cruz is being brought to you by Jobs, Freedom and Security Pack, a political action committee dedicated to supporting conservative causes, organizations, and candidates across the country. In twenty twenty two, Jobs Freedom and Security Pack plans to donate to conservative candidates running for Congress and help the Republican Party across the nation