ASPO-USA’s Steve Andrews recently hooked up with Matthew R. Simmons, chairman of Simmons & Company, Int’l, for a lengthy interview.  The first portion is listed below; more will follow next week.

Question:  How has demand for your presentations and TV experiences moved up or down with the price of oil?

Answer:  The flow doesn’t seem to be as intense as it has been periodically.  There was one point late last May when there were five different programs doing something on oil and I just happened to be in New York for three days, so I’ve never had a busier back-to-back-to-back.  I’ve done three live interviews the last three weeks and I was interviewed six times last week in Europe. 

If you saw the story in [we’ll call it X] a few weeks ago, their bureau guy in Houston had finally gotten the green light to do a major story.  When he came over he said, “I can’t tell you how many times I badgered my editors to let me do a story about you and peak oil, but they didn’t want to touch it with a barge pole. ‘That’s just something we don’t want to associate ourselves with.’ Then, with oil prices collapsed, I got a call a few weeks ago saying, ‘okay, we’re finally going to let you do your story on Simmons.  We want to do a story on how much crow he’s had to eat since he was so wrong.’  Had oil prices collapsed, I could not have caught their interest to do the story.  And this story finally taught them something about what this issue was all about.”

Question:  The Economist, which ran their famously wrong story “Drowning in Oil” 10 years ago this March, recently did a story on you.  How did that go?

Answer:  The writer said that, “my editors were really quite surprised.” He did a very balanced job of reporting, and he said they had never really heard the peak oil story before. 

In the case of “Drowning with Oil,” I got a call in late February 1999 from their writer who introduced himself as being new at the energy desk but a long-timer at The Economist.  He said, “I’ve been working on a major story for the better part of a month, and people I interviewed said I ought to interview you because you would have an opposing view.”  He said, “the story is we’re going to have $5 oil for a decade or two because Saudi Arabia is sitting on a $100 billion war chest, and once and for all they’re going to lower the price of oil to $5 and keep it there long enough to knock out the Caspian and other stuff, including any form of alternate energy before it gets out of hand.  “What do you think of that?” And I said “it’s the dumbest thing I’ve ever heard of.  The oil and gas industry is suffocating on a price as low as $10-$12.  Saudi Arabia doesn’t have such a war chest.  Mexico and Venezuela are hurting.  If we keep oil prices this low for another year to 18 months, we’ll lose 4 million barrels a day of supply.   Then we’ll have an oil shock.”  And he said, “oh, you can’t be right.  I’ve talked to Shell, Exxon, Amy Jaffe, Dan Yergin-everybody.”

The next week in Europe, I spotted a kiosk with The Economist with “Drowning in Oil” on the cover.  I read it in the cab and realized this is twenty times worse than I ever would have thought.  That was on Tuesday.  On Friday, the oil ministers of Saudi Arabia, Mexico and Venezuela brokered a deal to take 2.1 million barrels a day off the market.  When they cut, they actually cut into a balanced market.  Within 18 months, oil was up around $30 and we were dumping 30 million barrels from the Strategic Petroleum Reserve into the market to cool it down before the election.

The writer didn’t start out with a hidden agenda.  He simply wondered what the implications of these low oil prices are.  This was the era when the majors believed that technology had brought the cost of oil way down for a decade or two to come. 

Question: Have the media treated you fairly?

Answer:  A few people have been trying to paint me into a corner for a long time.  But by and large, I’ve been treated unbelievably fairly by the media.  And I think one of the reasons is based on the feedback I get, which is “thanks for the easy way of describing these things so they aren’t so mysterious.  And you have facts-most people don’t.”  My thinking: do your analysis first; second, check it again; third, don’t rely on a third party; then, if that’s what you conclude, go ahead and speak out with the courage of your convictions.

Question: Do you recall when you started studying the peak oil story?  It was sometime in the 1990s?

Answer: I wasn’t studying the peak oil story then.  In 1989, I began pondering-as it was clear to me that the worst was over in terms of the smashed rig count-when it would have a deleterious impact on oil supply in the US.  At that time, it hadn’t had nearly the detrimental impact that I would have thought.  We started running correlations of wells drilled vs. reserves added.  It appeared that there was a two- or three-year lag; there’s almost a perfect correlation of when the decline starts… That’s when I realized how few people knew that if you don’t drill, it eventually shows up.  Then in the early 1990s I started hearing the first of what became a loud chorus of commentators about how modern oil-field technology had been the game-changer-that we only needed one rig for what we used to do with 8 rigs because of horizontal drilling.  And because of 3-D seismic we no longer drill dry holes.  Since our firm did all the investment banking in all those technologies, I felt ‘what an unadulterated bunch of baloney.  None of this is true.’  That’s when I started realizing that few people in the industry really appreciated what decline rates were.  So I spent an enormous amount of time during the 1990s trying to analyze depletion data: the rates of decline.  As the fields started using those technologies, the decline rates accelerated. 

At that point I still didn’t understand what the peak oil issue was all about because I automatically assumed that we had so much oil in the Middle East that we’ll never have peak oil.  But I thought if we don’t spend a ton of money in the Middle East, we’ll have peak capacity.  And what’s the difference?  We have it in the ground but we can’t use it.  So it was probably when I started doing the study on the world’s giant oil fields that I started glimpsing maybe the Middle East is an illusion too. 

Question:  When did you publish that giant oil fields paper?  We still view it as a ground-breaking paper in the long-evolving peak oil story.

Answer: December 2001, I believe.  I was speaking at a Council on Foreign Relations event in the winter of 2002 and Ken Deffeyes came up from Princeton and told me, “Your giant oil fields study is the most important work since Dr. Hubbert did his original analysis.  It’s the first time that anyone’s looked at flow rates.”  It certainly gave me some context for when I finally spent a week in Saudi Arabia; you hear about that handful of enormous fields…well, take note because that’s all they have. 

So it was the late 1990s [the interest in peak oil].  But again, my fascination was, how do we replace these decline curves?  As flows start to slip, unless you start spending a lot of money in the Middle East, I don’t care much oil you have in the ground.  And by then, I started to realize that I don’t think “reserves “mean anything.  Because I’ve watched, being on several boards of oil companies reporting 130-140% proven production additions than they produced over the years, while in five years production growth has gone to zero.  I asked, are you sure these numbers mean anything?