Q&A: Texas oil should keep booming despite crude prices

by Jordan Blum, reporter with the Houston Chronicle

Interview with Curt Taylor, President of Ralph E. Davis Associates, an Opportune LLP company

Curt Taylor worked for years researching whether oil and gas projects were worthy of investments. Now, he’s moving over to the consulting game as the new president of the 93-year-old petroleum engineering firm Ralph E. Davis Associates.

Taylor, a longtime managing director for the EIG Global Energy private equity firm, jumped ship in April to “retool and upgrade” Ralph E. Davis. He spoke about the state of the oil industry and the rapid changes of the past several years. Edited excerpts follow.

photo of curt taylor, president of ralph e. davis associates, an opportune llp company, sitting on a stool against a gray background

Q: The expectation is U.S. oil production will keep growing at least into 2018. Do you see the United States surpassing Saudi Arabia and Russia as the world leader?

A: It’s hard to say how it plays out. But I know this with these guys that drill in the United States. If the price is right and they can make money and the capital is available, then they’re going to drill. They’re not sitting there thinking about how this fits into world oil scenarios.

Q: Despite its internal feuding, do you see the OPEC production cuts making any more impact? Are any other OPEC shifts expected?

A: That’s hard to know. It makes a difference that they’re holding back. But if the U.S. producers are filling it up, then every barrel they’re holding back is one barrel U.S. producers are trying to make.

Q: Does that make U.S. producers their own worst enemy in a global oil glut keeping prices lower?

A: Probably, yeah. But all they care about, in particular with hedging, is if they can go out and lock in rate prices and completion prices, and they know they’re going to drill 100 wells or whatever over the next year, then they’re going to do that because they have every incentive. That’s what their business is, and they aren’t thinking of it in any other sense.

And they have the inventory. That’s the one thing we’ve never had in the U.S. It used to be we had to go out and find every field and take a lot of risk. Today, all these guys have massive amounts of inventory and tons of locations to drill in both oil and gas. We’ve never had that situation.

Q: How does your job fit into the equation?

A: What I’ve done for the past 40 years is looking at oil and gas projects and verifying whether they’re good or not. I would say most aren’t. Everybody who brings you a deal thinks it is great. My job was to punch a hole in it. But there were other ones that I probably missed because it was premature or high risk. My job was kind of helping take the risk of things and put it in a perspective so the financial people can understand it.

Q: What’s changed of late?

A: Back in 2008 or 2009, we just didn’t have all this information. Today, you have huge amounts of information. There’s tens of thousands of wells and lots of data. There’s not only the production data, but you have completions information and all the logs of where they completed these wells. If you’re looking at a project, the access to that data is very important. When you look at it, a lot of times you can see whether this is realistic or is it just a lot riskier than they’re portraying it to be.

Q: How is that playing out now in Texas shale?

A: Everybody knows the Permian Basin obviously is huge. In both the Midland and Delaware basins, slowly the picture is coming together and seeing predominantly that most of it is very good. The market recognizes that. You didn’t used to see announcements of guys buying just 3,000 acres. And today you see huge announcements of guys buying 3,000 or 5,000 acres just because they can drill a lot of wells on a small patch of acreage. It’s happening in the Permian, and it’s happening in (Oklahoma). The Eagle Ford really died out for a long time and has now come back quite strongly.