API State of American Energy 2025 [Mike Sommers and John Hess Panel]

Thank you, honored to be here.

Right. Well, just focus on oil for a second. When we started the year, we started with negative sentiment. Between September and December of last year, China stopped growing. In fact, oil demand that you used to depend on China to be the engine of demand growth in oil every year, 3 to 500,000 barrels a day, actually we think year over year was negative. So their economy really was ground to a halt, and that had an impact on the psychology of the oil market. So we started the year with people looking at last year: there were inventory draws between supply and demand in the oil market, and people this year were saying there are going to be builds, maybe a million barrels a day. Fortunately, a couple of factors are going our way that have strengthened the market. First is weather. Weather matters. This is going to be the coldest January. I know Washington's feeling it, London's feeling it. When you see snow on the ground, but degree days matter. They matter for oil, they matter for gas. So we're starting the year for oil demand on the right foot, several hundred thousand barrels a day higher than a year ago because of it being cold, the coldest January in the last 10 years. Second factor: I wouldn't bet against China two years in a row. They're going to do everything they can to stimulate their economy, so I think their oil demand year over year will actually be on an upward trajectory this year. And then the United States, obviously with President Trump and the legislature being united, I think that's going to be a stimulus for the economy. Some people worry that that's going to mean higher inflation, higher interest rates, but the reason we have higher inflation and higher interest rates is because the economy is doing well. So we're going to have to learn to live with that inflation. But at the end of the day, I think demand's going to be stronger than people thought. So when you look out for 2025, I think the market's going to be in balance. I don't think you're going to have the builds that people think for oil that would depress the price. And then the other factor: geopolitics. The oil price just went up $4 a barrel in the last week. Sanctions on Russia, potentially sanctions on Iran, and that obviously creates some uncertainty about supply. So all these factors together, I think you're probably in a 70 to 80 market when it comes to Brent crude, and WTI a couple dollars less. But at the end of the day, I think we're going to have an equilibrium price. You have to adjust for the political risk factor, but hopefully that market will stabilize with time.

Yeah. The initial numbers that are out there are up to a million barrels a day of impact of supply that might have trouble getting into the market from Russia. That could be another million barrels a day of Iran if that happens. The market's going to tighten, prices are going up. You're already starting to see that. I do think there are producers, specifically in Saudi Arabia and some members of OPEC, that have excess capacity that could be brought on the market to stabilize the market. So I would imagine if those sanctions got sticky and stayed with us for a while, we'd be looking at that as a way of keeping prices under control.

Okay, well first, even though he knows this and he is a great leader for our country, President Trump wants to be energy dominant. He is the greatest champion of that. But I think the first point is just to remind him, his administration, and all of us in America that oil and gas are going to be here for decades. Oil and gas are a strategic industry for our country. You talked about the 11 million jobs, more jobs than the automotive industry and aviation industry, that's direct and indirect. Lower electric costs than most parts of the world by a factor of two to three, maybe even four when it comes to Europe in terms of what we pay for electricity here. And that we're totally energy secure. Our national security, we're independent of other countries. We're a net exporter, where China imports 70% of their oil and Europe imports 70% of their oil. So it's a real strong point. We're the largest oil and gas producer in the world, mainly because of shale. So at the end of the day, that energy dominance is a theme that we need to build around. And specifically, there are three suggestions I would make to President Trump. The first is putting a priority on making our country AI dominant in the world. And to do that, you need to focus on natural gas. Some people talk about nuclear. Nuclear is 10 years away from having an impact. To be the fuel that we need and the energy that we need to supply the electric generation in our country, it's got to be natural gas. So we need to streamline permitting, whether it's for electric plants, for transmission, for pipelines, or for distribution. So let's be AI dominant, and you can do that by being natural gas dominant. That's number one. Number two, and you know the API and you personally, Mike, along with Amanda and your team, have been outspoken on this: we need to focus on repealing and revising the tailpipe rules that the Biden administration put in, and also the CAFE standards. They are way tilted to electric vehicles, to where there's almost an EV mania. It's gotten to the point of ridiculousness where the Ford F-150, instead of pricing at about $80,000 a vehicle, is pricing at about $48,000 to meet the CAFE standards. So basically Ford is discounting their price just to meet their EV mandates. That's stupid. We're all for EVs, we're all for consumer choice. One of your five points that we need to get out there, but hybrid vehicles have a great role to play, and internal combustion engines. Let consumers make their choice. So at the end of the day, we won't be so dependent on EVs. China, most people don't realize, in terms of batteries, controls 75% of critical materials in the world for batteries, as well as the processing for those critical materials. So actually, if we were all EV vehicles in our country, we would be more dependent upon China for the EV vehicles, instead of using our liquid gold, as President Trump talks of the oil, to be our energy security. So at the end of the day, that's another area where repealing and revising both the CAFE standards and tailpipe standards, I think, would play to our energy dominance. And the last but not least is the SPR. The leader was just talking about not wanting to be dependent upon others. Henry Kissinger put the SPR in place in 1974 and the IEA in place in 1974 to deal with energy interruptions, oil interruptions. And what most people don't realize is, while it was absolutely right for us to use the SPR to deal with the vertical risk that we had in prices when Russia invaded Ukraine, we took our SPR reserves of crude from 600 million barrels to 400. Now we need to refill that, and the Biden administration was asleep at the wheel in terms of doing that. Two years ago, I found out that while we could take a million barrels a day out of the SPR, we only could put 150,000 barrels a day back in. Do the American people know that? I think it's very irresponsible that the Biden administration put us in that position. I said, you know, you got to do something, change your piping, change your engineering so you can put the million barrels a day back in that you took out. And they said, yeah, we're working on it. Well, a year later, I went back to them and talked to them about it, and they hadn't done one thing. So I think it's irresponsible. I think that's an area that we need to get on right away to refill the SPR to 600 million barrels for energy security, not just for our country but also the world. At the end of the day, energy policy is about three things: energy security, energy affordability, and energy transition. And most people don't realize that while well-intended targets and you have this in the climate policy for the API have been to reach net zero, at the end of the day, the carbon budget that the world needs to reach net zero is going to be used up in 2030. So we need to be clear-eyed to understand that we need to balance the three factors that I just said. And when you conclude from that, oil and gas are going to be needed for decades.

Sure. Well, shale: there's been a shale revolution, but people don't realize it's 20 years old. And it's taken oil production from 5 million barrels a day to 13.5 million barrels a day. The Permian's part of it, the Bakken where we operate in North Dakota's part of it, and obviously the Eagle Ford and also in Colorado. So it's been transformational. It's really a function of American ingenuity to take this tight rock that nobody thought could produce and frack it, which is very safe with a good safety record. And it's American ingenuity at its best. It also, at the end of the day, has made us more economic, have a competitive edge in our economics in the world. I talked about that earlier, and also secure. So as you've gotten more mature, it's gone from 'drill, baby, drill' to 'show me the money.' And basically, it's gone from a growth industry to a harvest industry. And I think there's probably 200,000 barrels a day increase year-on-year growth this year and for the country, as well as next year, and then it plateaus. But it plateaus for about 10 years. So the US, because of shale, is the number one oil producer in the world, the number one gas producer in the world. In terms of our own company, part of that ingenuity is there. We use lean manufacturing in the Bakken. So three years ago, spud to spud for a well would be 13 days. Two years ago, it was 12 days. And now it's 10 days. Other companies are doing similar things. Also on efficiency, people are drilling three-mile laterals. In fact, our company not only does three-mile laterals in the Bakken, where it used to be two-mile laterals as a standard well, we're also the first producer to do four-mile laterals. We just drilled in the Bakken, which will be completing soon. So I think American ingenuity unleashed is going to keep shale as a cornerstone of our energy dominance in the years ahead. Now, when you look at shale, I talked about it plateauing. If you assume, and we do assume, that oil will keep growing out to 2030, where's the oil going to come from? It's got to come from the deep water. And the Gulf of Mexico is a heartland for that. Between 2014, when oil prices were low, and COVID, when oil prices went low again, the Gulf slowed down quite a bit. Where there were 8,000 blocks that were licensed to companies, it's about 2,000 blocks now. So the Gulf wasn't getting the attention that it used to get. Now it's having a renaissance, and new production is coming on over this year. Oil production will go from about 900,000 barrels a day of oil production to 2 million barrels a day, and there's more to come. Our company's going to be part of that. We just drilled a well called Pick Roll that'll be adding about 10,000 barrels a day of production. Chevron, our merger partner to be, also is bringing new production on. So the Gulf is going to be a cornerstone of increased oil supply for our country and the world. And then you talk about Guyana. We've been very fortunate as a company to be in a joint venture in Guyana. Current production is about 660,000 barrels a day. That number in 2030 is going to be about 1,700,000 barrels a day. This oil is going to be needed. So I think the energy policy and the American public have to realize that oil and gas are going to be needed for decades, and we need to keep investing in it, and we need to have sound policies, like your five-point policy, to underpin that renaissance that we had starting 20 years ago to continue that for another decade or two.