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Putin may challenge US shale industry: Former Shell Oil president - YouTube
Channel: Fox Business
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Boyle's suffering a historic collapse
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today after Saudi Arabia shocked the
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market by launching a price war against
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its one-time ally Russia the Kremlin's
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decision not to agree to production cuts
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led the Saudis to massively increase
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their production which sent oil prices
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plummeting and that this came as a huge
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hit to US producers many of whom can't
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make a profit at these low prices now
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let's bring in former shell oil
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president John Hofmeister he's on the
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phone with us so John you think this was
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a direct attack by Putin against our
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successful oil producers make your case
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yes
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Putin is very angry at the success of
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the United States plus compounded by the
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sanctions that the US has placed upon
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him now he's also intolerant of a crown
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prince half his age telling him what she
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should be doing with OPEC so Putin's on
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his own here and he's not a not
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afraid to challenge the United States
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shale industry nor is he afraid to
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embarrass the crown prince of Saudi
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Arabia so we're in for a pretty rough
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time in the coming months Jon question
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for you we've seen an awful lot of these
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oil price wars in the past one thing
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that has not changed is that Russia is
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very dependent on oil revenues 40% of
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their budget is from oil and gas exports
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how can they really survive with all the
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tensions in Russia right now the need to
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up social programs etc can they really
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stick this out for several months I
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think they can for several months but
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not for much longer than that because
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they you're right they do need the oil
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revenues for much of their national
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income but not as much as Saudi Arabia
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Saudi Arabia is even more dependent on
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those revenues to keep the state running
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and to provide all the subsidies to the
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Saudi Arabian people that the oil
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produces yeah which is interesting John
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because Aramco which was like the
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longest awaited IPO in almost history
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finally came out and now you get this
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situation with respect John you know to
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our US oil companies in our US situation
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I mean look at Exxon marathon some of
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those companies today absolutely blasted
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let's talk a little bit about the
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dividend income that a lot of folks rely
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on from these stocks I mean from
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balance sheet machinations and as you
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know from being where you've been in
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your career can oil companies helps a
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cover even dead instruments with some of
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that dividend income if they have to
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cover me we talked a little bit about
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some of the capital flows that they can
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change to help kind of weather the storm
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as things crater I think you have to
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divide the industry into two camps one
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is the camp that really thinks in
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advance as to their dividends and
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manages their capital plans in order to
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support their dividend policy and then
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we'll have the cash flow in order to
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maintain that even at low oil prices
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then there's the other camp which are
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the highly leveraged many private equity
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firms got into the shale business you
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got the oilfield services folks who make
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the equipment and so forth they're gonna
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struggle with both loss of volume and
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price reduction trying to serve what the
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industry is still trying to do capital
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spending will be reduced those folks in
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the second camp are going to have a very
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tough time if their public companies
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making their dividend hey John it's
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Zachary karabell just a quick question
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about Mohammed bin Salman who shares I
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think some of the blame here along with
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Putin particularly given that he's in
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the middle of it yet another it seems
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like palace coup that's going on
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simultaneously so I know you're putting
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a lot of the onus of this on Putin but
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what about our erstwhile and suppose
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that Ally in Saudi Arabia and Mohammed
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bin Salman well well the challenge that
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Mohammed bin Salman has is that he
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thinks he knows more than he knows and
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when he gets upset he has a tendency to
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throw his toys out of the pram and so he
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gets upset and he gets intolerant and
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then he make very bad judgments remember
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the whole set back to the oil industry
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began in 2014 with Mohammed bin Salman
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at that time trying to put the shale
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industry out of business in the United
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States he failed miserably and he chewed
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up a whole lot of sovereign fund in the
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so in the Saudi Arabia a sovereign fund
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now they haven't fully recovered their
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sovereign fund and now he's back at it
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again so he doesn't learn very quickly
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and I think that's a big problem for the
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Kingdom Gary John this is Gary Cole bomb
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I'm not worried about the big guys but
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I'm noticing in the market some of the
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other names have their bonds crater
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and a bunch of stocks trading below $5
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that tells me something about what the
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markets think are you worried about some
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of these companies uh going into
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bankruptcy because of what we're seeing
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on price now well we have to in the 2014
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aftermath we lost about a hundred and
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fifty companies to bankruptcy this is
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going to set them back even further
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remember the banks have gotten very
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stingy with learning money the people in
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the shale business particularly those
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that have weak balance sheets so there's
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just going to be a drying up of funds
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and with all the other commitments I
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think we're in for some serious
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rationalization in the industry John
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very quickly we got to go but how
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important is a slowdown in the Chinese
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economy because of the virus to to the
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oil business I mean they were really
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depending on China to be eating up that
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oil and they're not going to be doing it
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not unless the China and India as has
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been reported start to stock up their
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strategic reserves that would help a bit
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okay at the low oil price it's a good
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time to stock up your strategic reserves
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John Hofmeister I bet the airlines are
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doing exactly that right now thank you
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very much John appreciate it
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