American Oil and Gas Reporter - December 2016 - 92

would drown any oil price rally above
$60 by flooding the market. "They cannot
all come on line at once, and a theory
circulating estimates half of them are too
old," Alhajji related. "That leaves 2,000
wells, all of which involve different costs."
He concluded by discussing what he
said was a lesser-known fact about Iranian
and Iraqi oil exports throughout the period
both during and after Iran was under economic sanctions. Alhajji pointed to a considerable discrepancy between the official
production statistics reported by the Iranian
government, which lagged the total volume
of Iranian crude that secondary sources
said they consumed. "Is someone lying?"
he posed. "Those two lines merge after
the sanctions were lifted, so they cannot
be lying. Where did that oil go?"
Alhajji then noted that Iraqi numbers
behaved in exactly the opposite manner
during the same period, with secondary
sources indicating Iraqi oil output outpaced
official government figures at a gap that
largely paralleled Iran's. The upshot, he
suggested, was a more balanced market
than many expected. While it was under
sanctions, he theorized, Iran exported much
of its oil as Iraqi oil or placed it in storage.
Moreover, he continued, the sanctions
the Obama administration placed on Iranian exports did not include electricity.
"So the Iranians continued to produce
high levels of crude, used it in power
plants, and substantially increased their
electricity exports. They exported the oil
embedded in electricity," Alhajji explained.
"Now that the sanctions have been lifted,
that oil is worth more on the international
market, so the Iranians reduced electricity
exports more than 70 percent, started exporting that crude, and began using more
natural gas in power plants."
Basically, he said, Iran's legal exports
have grown, but its production has not
surged as predicted. Meanwhile, he noted,
Iraqi oil production as reported by the
government surged the day Iranian sanctions ended, while secondary sources reported lower production. "There are
several possibilities," Alhajji posited.
"One is that Iraq is paying Iran back, so
Iranian oil production is exaggerated,
which is a valid theory. Another is that
when talk about a production freeze
started, the Iraqis wanted to have a higher
number to secure market share. Either
way, the numbers are inflated in both
countries."
Ultimately, he concluded, the market
is adjusting, demand continues to rise,
and non-OPEC supplies are trending
down. Moreover, he emphasized, even if
prices shoot above $70, limited drilling
and completion crews cannot respond
immediately everywhere they will be
92 THE AMERICAN OIL & GAS REPORTER

wanted. Service and supply costs are
likely to climb as well, he noted.
"Most of the industry's cost declines
are reversible and the marginal barrel is
still $80-$90," Alhajji estimated. "To balance the global market in the future, we
will have to get back to $80-$90 a barrel."
Middling Growth
Moore, a senior economic contributor
for FreedomWorks and former Wall Street
Journal columnist, spoke about the election
that would take place in fewer than two
weeks, as well as a number of economic
subjects. At one point he pondered why
so much of the American electorate
seemed "cranky," and attributed it to the
lackluster recovery that began in June
2009. Silicon Valley and Wall Street were
doing very well, Moore acknowledged,
but many other places, especially manufacturing communities in the Great Lakes
region, were in sharp decline.
"If you live in Washington, this is an
awesome recovery-three of the five
wealthiest counties in America are around
Washington," he related. "Washington
does not produce anything except laws,
regulations, politicians and lobbyists."
Moore said the U.S. economy had
grown 15 percent since the recovery
began, but noted that it had averaged 29
percent growth following the other eight
post-World War II recessions. "We normally get an economy that grows twice
as fast as it has under President Obama,"
he observed.
During the financial crisis of 2008,
the U.S. economy shed 7 million jobs by

the time Obama took office, he recalled.
"Obama's philosophy essentially has been
that there is a government solution, regardless of the problem," Moore characterized. "The last two years of the Bush
administration were a disaster as well, so
in the last 10 years, we have lived through
financial company bailouts, Obamacare,
an $800 billion stimulus bill, and three
minimum wage increases.
"We borrowed $10 trillion to infuse
the economy with a massive Keynesian,
so-called stimulus. We had tax increases
on the rich. Every page of the liberal
playbook was thrown at us," he mused.
"They have tried everything to improve
this meager recovery, and this year we
have had 1 percent growth."
He noted that Ronald Reagan also
took office during a severe economic distress, but cut taxes and regulatory red
tape, and the economy boomed. "If we
had had a Reagan-style recovery, we
would have had $3 trillion more of gross
domestic product, which is the equivalent
of having another Michigan, Ohio and
Pennsylvania in the U.S. economy," Moore
illustrated. "Yes, we created 11 million
jobs during the Obama years, but we
should have created 18 million. We are
about 5 million-6 million jobs short of
where we would be during a normal recovery."
Moreover, he said, the average middle
class family has not seen a real pay raise
in a decade. "More families have lost
ground in the last 10 years than have
gained," Moore reported. "That is why
two-thirds to three-fourths of Americans
want change."
❒

SERVICE RATES. . . . . . . . . . . . . . . . . . . . . . .
FROM PAGE 88
Although plans continue to include
targeting the central Midland Basin on
the east side of the Permian, he predicted
the company would add targets elsewhere
in the Permian as executives considered
an initial public offering.
Meanwhile, Brigham Resources is applying what CEO Gene Shepherd called
a proven template to replicate the success
of Brigham Exploration, which was sold
to Norway's Statoil in December 2011.
Founder Bud Brigham, Shepherd and the
former management team of Brigham
Exploration launched Brigham Resources
in 2013, Shepherd said. Already the new
company has amassed 77,000 acres in
the Delaware Basin, principally in Texas'
Reeves and Pecos counties, with plans to
continue drilling wells and building midstream infrastructure, he said.
The company has drilled 46 horizontal

wells, laid 150 miles of pipe in the ground
transporting natural gas and water, and
plans to address its oil infrastructure
needs during early 2017, Shepherd said.
The company intends to increase pad
drilling and 43 of the 46 wells it has
drilled are producing, Shepherd detailed,
adding that it has one rig working.
"We are producing about 8,500 barrels
a day, about triple production volumes in
early 2015, when we went from three
rigs running in the Southern Delaware
Basin to the one rig that we have been
operating for the last 18 months," he said.
As for whether he expects industry
conditions to improve, Shepherd expressed
surprise that a downward trend on pressure
pumping prices had not abated. "The
outlook for pressure pumping services is
a real concern of mine," he acknowledged.
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American Oil and Gas Reporter - December 2016

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