8/19/2005

FSO Transcription - Matthew R. Simmons "Twilight in the Desert"� August 6, 2005

“you know I really wonder whether in fact we’re sitting on an illusion that Saudia Arabia has all this vast amount of producible oil.”

TRANSCRIPTION OF INTERVIEW

August 6, 2005
Matthew R. Simmons, President
Simmons & Company International
Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy

Editor's Note: We have edited the interview in this transcription for clarity and readability.
The original real audio interview may be heard on our Ask The Expert page.


Book Info

JIM PUPLAVA: Joining me on the program is Matthew Simmons. He’s Chairman and Chief Executive Officer of Simmons & Company International, a Houston-based investment bank that specializes in the energy industry. Mr. Simmons serves on the boards of Brown-Forman Corporation, The Atlantic Council of The United States, he’s also a member of the National Petroleum Council and The Council of Foreign Relations. He has an MBA from Harvard University. And he’s here to discuss his new book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.

Matt, I want to start out the discussion from the back of your book in Appendix B. Several years ago you did a study of the world’s major oil fields. What did you find?

MATTHEW SIMMONS: It was really an incredible exercise of trying to collect the data no one had ever actually thought of doing before, and that’s, what are the top oil fields in the world – field by field. And the background for me doing this is that I’ve participated 2 years in a row in an energy supply workshop, conducted by the energy analysts of the CIA in Washington, where they got about 10 of the best oil experts together, and we’d spend a day doing a discussion of all the key countries, and how much oil capacity they had in place over the course of the coming 3 years. I sat there listening aghast at all of these experts with their laptops that kept looking at their supply models, and it’s how China will be producing 3,217,000 barrels/day this year, and 3,281,000 barrels/day. And I basically said: “how do you all even know that. What are the 3 or 4 top fields in China?” And no one had any answers.

So I decided it would be interesting and educational to see if you could actually put together a list of the top 20 oil fields by name. And I thought somebody must have done this before, and the more I dug the more I realized that no one ever had. So I basically decided – arbitrarily – 100,000 barrels per day [bpd] production was my cutoff of what constituted a giant oil field and all Fall of 2000, I believe this was, I basically took data from various areas and kept trying to hone in on the total list, and I decided once I got it done, I would circulate it widely to the 4 or 5 or 6 hundred people who really ought to know the areas a lot better, and that would flush out the real data. What I came up with was finding that there are about 120 oil fields in the world that still produced over 100,000 bpd, and that they collectively were 49% of the world’s oil supply. What I also found is that the top 14 fields that still produce over 500,000 bpd each, were 20% of the world’s oil supply, and on average they were 53 years old. The next thing I found was that in the Middle East you had basically, somewhere between 3-5 oil fields in each of the major Middle East oil producers that made up about 90% of their supply – and until I did that I had just assumed the Middle East had hundreds of oil fields – and all these oil fields were old. And then what I found was – because we made it clear that anyone who wanted a copy could get one, but the caveat was that if you have any better information, let me know – I probably shipped over a thousand of these copies out to people and I had about 5 responses of “here’s a field you missed, here’s a field you misspelled or here’s a field you said it was producing X, and I believe it’s probably producing Y.” Only about 5 responses, out of over a thousand people who got this. What I got from hundreds of people was “this is amazing, I’ve never thought about this before.” And these aren’t just sort of random people, these are people that are all passionate energy analysts. So that gave me the background, when I finally had my only trip I’ve ever taken to Saudi Arabia. I knew ahead of time that they had these 5 key fields that must still be producing 90% of their oil, and it was that knowledge and data that allowed me to just peer into presentations we were having, so that I came away saying, “you know I really wonder whether in fact we’re sitting on an illusion that Saudia Arabia has all this vast amount of producible oil.” And I also then had an idea of what issues I should start trying to research, and within months I had discovered this phenomenal database of technical papers at the Society of Petroleum Engineers, that I spent all Summer, two years ago in Maine, plowing through, and it was at the end of that exercise that I decided I was going to write a book. [5:24]

JIM: You know last year, Matt, the Saudi Oil Minister announced they could expand their oil reserves by 77% to 461 billion barrels. Is that a political statement, because their doesn’t seem to be – from looking at your data in terms of how their reserves were compiled – where do they get that number?

MATT: They assume it! What’s really astonishing is that I had a suspicion 2 years ago, when I’d finished going through 150 of these technical papers, that I might well have done an exercise no one in the world had ever done before, and that’s piece together these individual study-area problems and put them together until you had basically done a forensic pathology of their oil system. And I wondered whether anyone in Saudi Arabia had ever actually done the same amount of research. And now it turns out, I was apparently the first person in the world to ever actually challenge the assumptions of the unlimited amount of their oil supplies. And it hit a nerve I would never ever have expected because I wasn’t a household name – I think I am today in Saudi Arabia – I was just an investment banker in Houston. It was the same sort of reaction if someone went to the Vatican and said, “I hate to tell you all this, but there really isn’t a God, and there isn’t a Pope.” And out of that came a massive public relations campaign by the senior management of Saudi Aramco, the state oil company, and the Petroleum Ministry that effectively has said, “we can produce 10 million or 12 million or 15 million barrels a day for 50 to 100 years. Our 260 billion barrels of proven reserves, there’s this conservative number we can easily add another 200 billion, and we can still add another 200 billion we have yet to discover”. And I actually think that they believe that, which is far more dangerous than “it’s just a political statement.” [8:18]

FSO Transcription - Matthew R. Simmons "Twilight in the Desert"� August 6, 2005

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