No $5 gas until 2020? 'That scares me,' Breitling CEO says

In a a recent article. Mark Passwaters interviews Breitling Oil and Gas CEO Chris Faulkner explaining his concerns over the low price of gas in the near future:

Oil and gas producers will have to put up a stronger fight in the public relations arena if domestic unconventional plays are to reach their full potential, the CEO of Breitling Oil and Gas Co. said Dec. 9.

In a wide-ranging interview, Chris Faulkner said he believed that the world was “in the era of natural gas; the era of coal and oil is behind us.” The natural gas era, Faulkner continued, would be driven by unconventional resources.

“I believe that unconventional production will account for 50% or more by 2035; 25 years from now, it will be 55% or more,” he said. “I think there are three major shales that will have a big impact on U.S. production: the Bakken, the Eagle Ford and the Marcellus.”

One of Faulkner’s major concerns, however, remains the continuing low price of gas.

“Some of the big guys say they can break even at $1.50/MMBtu for gas. I have a hard time believing that,” the head of the Irving, Texas-based independent said. “$4/MMBtu, I think you can make money with that. For us in the Haynesville, it would be $4.90 to $5/MMBtu. Nobody thought the price of gas would still be $3.50/MMBtu in 2012. I don’t think we’re going to reach $5/MMBtu gas until 2020 and that scares me, and a lot of people as well.”

Faulkner said new uses for gas must be found, or it must be exported for the price to increase earlier.

“We’ve been given a gift of unconventional oil and gas, and we need to take advantage of it. But none of the options are quick and easy,” he said. “Can we do it as a country? Can we export LNG? I hope so. We also need to move towards natural gas vehicles and replacing coal generation with natural gas. It’s a long term deal. If those three things happen, the price will start to rise.”

Faulkner said there was one other issue that could send the price of gas soaring: increased regulations by the federal government on the industry.

“Like with any regulation, it costs time and money. It’s going to slow things down, cost more money, and both things are negative,” he said. “We need oversight and regulation, but I don’t think the EPA has any business in oil and gas regulation. I think the states understand it … better than anybody. I have an issue with the federal government on how they handled the BP plc spill, and I have an issue with the EPA.”

The biggest weakness that Faulkner sees in the industry is in the area of hydraulic fracturing, where he said the oil and gas companies are well behind the curve in the public relations battle.

“Perception is a reality, and that’s the problem the industry has right now. Thirty-five percent of wells being drilled right now are being fracked, so if it’s banned, it’s going to be a huge problem,” he said. “You’ve seen the TV ads, the newspaper ads, but that’s been the extent of our response. We gave the environmentalists a head start. They’ve always hated us, and we gave them a platform that’s partly believable in hydraulic fracturing. We’re the last to speak; we’re the last to the party.”

One way to sway the opposition, Faulkner said, would be for all producers to publicly disclose the ingredients of their fracking fluids.

“This stuff isn’t proprietary; we’re way beyond that. We need to get out there and have a conversation,” he said. “We need to tell people what’s in the fracking fluids and show that hydraulic fracturing fluid is being disposed of properly. I think it’ll speed up the industry, speed up the R&D because people will want to get the chemicals out. When they hear carcinogens, that’s when they stop listening and start freaking out. We’re way beyond secrets. People won’t put up with that.”

Clarity, Faulkner said, would disarm opponents of their major arguments.

“That’s how we get the teeth out of the environmentalists and get away from the Achilles heel of the industry. We’ve got a lot of roads to hoe with these people,” he said. “People are upset; we’ve got to change something. So we’re going to have to open up a little bit.”