Wednesday, July 30, 2008

Drill, Drill, Drill: My Interview with Devon Energy CEO Larry Nichols

Stop all restrictions, just say no to cap and trade.

What follows below is an unofficial transcript of my interview last night with Devon Energy chairman & CEO Larry Nicols on the subject of oil shale. Devon Energy is a fabulous company. And I completely agree with Mr. Nichols. We should be lifting restrictions on oil shale and all of our energy sources.

Kudlow: All right. Drill, drill, drill. The incredible Barnett Shale on top of Dallas-Fort Worth is America’s biggest natural gas find. Here to tell us about this really great story is Larry Nichols, chairman and CEO of Devon Energy Corporation. He’s the one. He joins us now. Hello Larry. Thank you very much for coming on.

You know, I could talk about your stock which is up 270 percent over the last five years. Your profits are rising about 50 percent a year. But I want to talk about this incredible Barnett Shale. First of all sir, what’s shale? Describe to our viewers as quick as you can the shale story.

Nichols: Well the shale story—shale is a formation that is not like sand or limestone. It’s a dark, dense rock that historically the industry did not know how to complete. They knew gas was there, but they didn’t know how to get that gas out. In 2002, Devon established a position in the Barnett Shale, in the middle of Dallas-Fort Worth, the central part of Texas. And using technology that literally ten years ago did not exist have made ourselves the largest natural gas producer in Texas. We’re producing over billion cubic feet a day and using technology that did not exist ten years ago.

Kudlow: You know, I was reading—actually the first time I saw this sir, the New York Sun here in New York wrote a big story, a big editorial, about the Barnett Shale. So let me get this right. You’re sitting on top of Dallas-Fort Worth, schools, houses, airports. What’s the environmental impact? Because you know, a lot of greenies don’t want us to go after shale.

Nichols: Well most of it is actually not under Dallas. It’s more under Fort Worth in the western and southern and northern suburbs, and out into the prairie of Fort Worth. It’s an easy place to drill. It’s flat land. There are lots of oil and gas pipelines there. So it’s a very simple place to drill.

Kudlow: Have you decimated the local environment as a consequence of your exploration and drilling?

Nichols: [Laughter]. The local environment is as robust as anyplace in the world.

Kudlow: And you put a lot of money into it from what I gather.

Nichols: Our company alone will spend $1.5 billion dollars drilling wells in that area alone. That creates a tremendous amount of jobs; a tremendous amount of taxes for schools, and hospitals and roads. It really increases the wealth of that part of the world significantly.

Kudlow: The number that was in the editorial was 100,000 new jobs. That’s pretty hefty for Dallas-Fort Worth, central Texas.

Nichols: I have no doubt that’s a true number because there’s thousands of wells being drilled there. We’re up to about 3500 wells ourselves. The gas we’re producing is about 2 percent of the natural gas in the United States. It will heat something like 13,000 homes for an entire year out of that one field.

Kudlow: Now look it, even our friend Boone Pickens, who is sort of smooching with wind power, he says natural gas is essential to solving our energy problem. I want to ask you about that. Do you agree with Boone? You must because you’re doing this work. But can we convert the natural gas to transportation?

Nichols: That’s more challenging. However it’s used, natural gas is our cleanest burning fuel. It’s a fuel that we’re growing in the United States, even with all the restrictions we have on where we can drill. Our industry is still growing this fuel. And it’s going to be an important fuel for our country for a long time to come.

Kudlow: Now what about all the shale up in the Rocky Mountains? Some people are guesstimating that there might be 2 trillion barrels worth of oil up there. I think the low-end estimates are about 800 billion. Congress, in its wisdom, in late 2007, put a moratorium on extracting or drilling for oil and gas in the Rocky Shale. Isn’t that a dumb idea?

Nichols: All these restrictions we have on natural gas, on oil exploration, on coal, on nuclear, on wind, on all of our forms of energy, should not be restricted. We need to encourage all of them. We need to stop exporting jobs outside this country, exporting dollars outside this country to import oil and import gas. Our country has a tremendous amount of resources.

Kudlow: Finally, real quick. If Congress imposes cap-and-trade on your business, what will that do to it?

Nichols: It will have a very significant negative impact. Cap-and-trade is nothing more than a BTU tax. They don’t like to call it a tax. It’ll take dollars away from our industry. And that can only mean that we’ll drill less natural gas wells and prices will go up.

Kudlow: Larry Nichols, Devon Energy. You’re terrific sir. Good luck. Thanks very much.