Now, bear in mind carter was president in the 1970s but this has been going on for a long time. So i would suggest, cynthia to you and others, a government scientist who might be called the father of fracking is al joost of the National Energy technology laboratory. He was responsible for the appalachian basin by changes in government funding. They are several industry folks who might also deserve this title, the father of fracking. These would include keynote the epidemic overdesigned the early massive hydraulic fracturing experiment in colorado in the 1970s. And, of course theres George Mitchell whose company was the first to make fracking afghans shale coal sugar this is done in the 1990s. Then range resources, the first to put a massive hydroelectric fracture on the marcellus that all these people are deserving the academic types include physicists and engineers. While it is not fair to include me on the list of potential candidates for the title you did ask me to explain myself, is that right . Okay. I was blessed with funds from uncle sam and some of the early pioneering work on gas shells back to the 1970s. This is the same time George Mitchell was experimenting with the gas shale in ohio then using government funds. From the eastern correctional project. Then later egsp funding came to me to try to understand the state of stressing gas shells in the appalachian basin. That was in the 1980s. I was a small part of shells avenger which was on the first attempts at producing gas from a standard gas shale as we know it today. At penn state i had an Amazing Group of graduate students. This is very important. It was not the faculty members but the students that are associated with faculty members. All of these students contribute significantly to our present understanding of gas and oil shale. We came to understand which natural fractures regard my High Pressure gas. We came to understand the rate of fracture grows the timing of fracture growth impetus tradition of fracture growth. All of these are important elements that make commercial Gas Production possible. And, finally and most importantly, none of these are the discoveries of one person. Thank you. I stand corrected on that. I understand theres also a woman involved, a geologist as well back in the olden days . No. As a matter of fact there were two or three names interestingly enough, when the new york state survey, before it was called the survey, decided to understand and Mineral Industries of new york state this wouldve been 1843 a geologist with responsible for that and it just gotten married. I suppose his wife was looking for a honeymoon to go to europe, but rather they said youre coming to me to map in western new york. Now, she was a good artist, and on her honeymoon she drew pictures of these fractures and gas shells that still remain seminal. That was later matt by a cornell graduate student in 1912 and that still remains some of the seminal work in understanding fractures and gas shells. That allows you got to do whatever you do. Thanks. I understand that you met doctor englander early on after the calculation. How did you get involved in fracking . I guess my background is were just trying to find securities in growth industries. As we were talking at lunch we coincide with local shale was dying and thats what i got in industry is when the gulf of mexico shelf was where the hot ipos came from. That ended, and one of the First Companies i found thereafter was mutual energy, as referenced by terry. So we kind of got tired of the gamblers ruin in the shelf, and without some companies do very well, get bought out, some companies actually disappeared. When i saw Mitchell Energy it was an Onshore Company going sustainably every year on vertical crack at that time, had not gone horizontal. I was very excited about that but its also a curse in another way because after seeing george and his company at i guess right beforebefore the takeup at a very early stage of horizontal application of fracking, they sort of implied to me this would not work outside other acreage. I was too young to realize every company says that. Silent for quite some time going, while not okay guys this stuff outside here is just not going to work. That cost a couple of very, very Good Companies and ideas along the way. But i came around finally pick in 2005, was interesting about the fayetteville show from the barnabas with have unique characteristics that could not be replicated. As it so happened in the fayetteville they drove to wells, stock went up and those could not be replicated or what was exciting and got me involved with terry, population as a landmass was multitudes bigger than the fayetteville or the barnett and today for very Different Reasons it has a very unique place in the u. S. As an exporter of gas come as an exporter product as a net exporter. I think from a stockpicking perspective and very exciting place to be. So anyway, i went to the father of fracking, you know who needs a new title. To understand this basic, but it was Chesapeake Energy the body company and had to take a position there but it was tectonically to forget everything about it was a different man the other place. Thats where i found terry enter introduced me to a lot of work that is to attend pronounce and concepts i didnt understand but its been, what was amazing about the whole shield extremes was there was no book you could read. The education even now is a much realtime. Along the way clients asked why dont you write a primer. The primaries of historical. Theres so little i know. Every passing day or so little until yet i feel i have known a lot since we had our chat. Outside military and he helped us. Terry i think phrase the pennsylvania experience very well, and since then pennsylvania, and ohio. Increasingly able to West Virginia and iraq is getting more powerful, far more productive. The techniques that are using to exploit the rock art by the way of wells are capable of doing these astronaut greats that in the gulf of mexico where things that could happen are now being experienced in a single well per well in places like ohio West Virginia and pennsylvania. Is at the primer had not been written . A great introduction for mr. Gold and his book the boom. I understand that this may be a love it personal for you as well and i have just a personal for me its great to be on the end of asking you questions rather than answering them. Sabrosa, why dont you tell us a you got into . I will definitely get into the personal in a minute of my story is a classic example of how its better to be lucky than smart. When i was starting off at the wall street journal looking around for the become a joint the energy team. Not for any particularly good reason. Other than the fact i was in texas and a whether to stay there. They assign to this most companies mostly doing u. S. Domestic oil. Very few investors were really interested in because of renewed it wasnt much oil and gas left in the training. We were depleted and we were importing. There wasnt that much money to be made. Lets give it to the new guy. As a new guy i go off and start meeting with companies and one of the companies wants to talk to me about the new drilling that doing in around fort worth. I went to my first frac job in 2003. We didnt even call it fraud job acting. We didnt have the technology. It was unconventional gas. Really i got in on it very early on just listening to companies talk about how they found a way to drill lots of wells and get lots of gas. For several years thats what i did. I covered and what about the companies i wrote about what i saw something very specific in the United States. One day about those of the late i got a call from my parents, my mother specifically, and they on 100 acres up in northcentral pennsylvania. A place to get away on the weekend. She said which is got a strange call from a Company Called chesapeake. Want to inquire about leasing our land. Which caught me by surprise. I should have known about this but at the time there was a little drilling going on in the pittsburgh area but this was hundreds of miles away, clearly, clear across pennsylvania. So really i do go back and start learning about why chesapeake was leasing all the way so far across pennsylvania. And i did add a rula ghani onto the second stage of the of fracking and what was going on. It really brought me into these questions of should we be doing this . Asked the question my mother asked, should we sign a lease . And how can you get the benefits of all this oil and gas in the country come into United States, and minimize the risk and inconvenience and the downside to it . Those are very important questions, and i will posit that it dont think those questions have been answered into United States it. I think we are still grappling with them. Im based in texas and texas was about to pass a law which is look at that very issue, who should regulate it state or the citys . We are still negotiating. I think its important because one of the questions i know well get to it is why hassan shale taken off outside the United States . Its transformative inside the United States and canada but outside the United States it barely has started. I think one of the answers is because as much as the United States have struggled with these questions, we had one thing going for us. We had incentive. Americans into United States, we own our own mineral rights. So chesapeake wants to come and go on 100 acres of land they are going to make an offer and theyre going to they could offer thats sweet enough hopefully to overcome the inconvenience of having trucks driving all across your property for the next few months. Outside the United States thats not the case because much as were struggling in the United States with how to balance these questions and i think outside the United States its even more difficult because that incentive question hasnt been fully addressed because by and large its the government or the states on the mineral rights. When you go into the community can say we want to drill you are not also bringing large checks as they do in the United States. These are topics as i wrote in my book the boom, i wrote all about this. I wrote about ally yost. I wrote about terry come all the different people who greater this technology and also the questions were struggling with today. I see this as one of the most important question for dressing in the United States clearly in energy. And all these questions which we talk about and are talked about in washington exports, we allow exports, oil exports, keystone xl, all basically question data been set in motion by fracking and this enormous new production of oil and gas that comes from essentially an oilfield technique thats been around for several decades and then one day in the late 90s someone modified it slightly and completely changed his Countries Energy landscape. Let me put it to direct the. The title of the panel is can fracking survive cliques i think in the last week we saw the price of oil about 59. 50. The price of gas a little over 2. 50 per btu. I can july prices were a lot different last year. They have been even lower recently. Under the circumstances, weve already seen rig counts going down. Weetzie notices of job losses. Can fracking survive . If so what can companies would be the ones to establish themselves out of the and. I broke out into the last part first. I personally think an enormous change is happening right now as we speak but i think the productivity of shale oil because thats what the Global Market is what is hugely underestimated. Musical i remember clients asking the same thing happened to gas them which has fallen precipitously for me six to 10dollar range to what is never top 4 sustainably, its not about to happen in worth of oil . We have no way to tell. We understand that the oil molecule is a lot bigger. Terry can quantify exactly, a lot bigger than a gas molecule. Its a different beast and far more problematic. The world now understand that the u. S. Can grow at a rate of 1 million to 1. 5 Million Barrels are very close to it can grow in excess of that. They have made room for the. The irony of this is that if we were to express it this way is that okay so the u. S. Oil from every last barrel is profitable for matter what the cost was and was so that 90 100 each of marginal barrel made a profit, which is fantastic. Demand must have been great. You look at the numbers. Demand wasnt good at all. So what happened was that the Global Forces allowed u. S. Oil to have a place in the world at a rate of growth that they then decided ultimate looking at what was going on saying, wow, we are done at 32 market share. This is not just a little bubble that pops. To what was decided last november, we will not about. We will defend our market share so that is a sea change because what we have is an industry that initially was asked to gas but they trained for those dollars into oil thinking it can grow forever. When you have a business where every item you so marginally is profitable, what do you . You leverage that this is a. You hire lots of people. Leverage is great. Ut deleverage into that business. We may have built in your environment where million, 1. 5 Million Barrels will not be allowed to speak is too much excess capacity. That excess capacity exists in terms of land a lot of land would basically be returned back to the leaseholder not to be drilled again. You have way too much in capital. You dont love our business where, where your revenues are as, you know as influx as ours our. Where the rest are what they are pixel leverage will come out of the business. Talent and services. So the service aside youve already seen. Youve seen the halliburton, schlumbergers at all these people. What to do what it is this hardwon talent within his organization would hugely capable people. They want to retain that because you cant get it back. Thats probably your next stage. What we are about to enter is a phase where all that excess capacity is resized to the new place for u. S. Oil and that new place or use one of if not 1. 5 million or 2 Million Barrels to mib a fraction of that. We are still trying to grapple with it. My point is kind of backwards, it depends on the oil price. Oil price is a nerve signal, said all these forces come to bear. They can face its content to the oil price, through the produce and the producer says really frankly 65 we are done. But well start back at something closer to 70 which 70 75 or 90 or 100 anytime soon. If we were if new synagogue where every barrel is profitable which with and sustained growth about 1 Million Barrels a day. With an analyst your with a Washington Research group at guggenheim in d. C. She covers a lot of the iran topic and so on. Of course, iran is a hot topic. Whos going to make space for those barrels next year . Audits of a deal operated. So we are going to resize this entire sector. I did want to answer the first question, last question first. But what it means to me is that what we are already seen as its like an earthquake centered you have the core and the fringes, the French Companies already under huge stress if not on the verge of bankruptcy, et cetera. The core issuing a. Whos in the court is the best rock and i think it plays two things, the price of oil can thank out and then it will be the differential. Its going to be the cost of getting that barrel to the enduser that also conveys their places like the balkans which a been a huge Success Story is suffering a horrible differential. Its basically distance and thing that marginal barrel. Bakken. Yesterday 15 off the top of the cost of getting it to a sale of 70. Youre not getting 70. I think we want to get close to the end user market, closer to refining center, eagle for and its going to be a new play in oklahoma. The company like new field exploration and acquisition fiscal wakeup one company wanting eagle for buying another company for that reason. Russell. Isnt the boom now a bust . I dont think so. We have coaching as you put it and never come huge number of drilling rigs lay down and the commission. A lot of people laid off but weve also seen production remaining fairly steady. Witnessing a huge drop off in production. We are not political issue. Will probably shrink a little but we ran up to 9 Million Barrels a day and we will sort of we are sticky coming can pick one of the reasons is this is a really immature industry in the sense that is just learning how to do this. Its on how to make bigger wells for less money. To get more oil and gas out for less money to drill more wells, longer wells with fewer rigs. A lot of the shouting going on his company she is getting smarter. The era of rapid relentless growth i think clearly is over. Theyre so question in my mind about that. But also dont see any signals that production is going to drop off. In that sense, no we are not going through a bust. However, the are a number of companies. Wall street is very generous funding these companies and theres a lot of management teams that went out and bought a lot of, well, i will be generous, suboptimal rock. They just did not spend the money very well. And that those companies will be bust. They will not be able to survive. So we are going to see a lot of the. Im actually surprised we havent seen more already, but the expectation is the second half of this year you will start seeing companies headed towards firesale. However, the era of the u. S. As a major oil and gas producer which in my mind is what the boom is all about, thats not going away anytime soon