San Antonio partner Peter E. Hosey, together with Former Sen. Kay Bailey Hutchison, who is senior counsel with Bracewell & Giuliani in Dallas, and Michael McElroy, an Austin partner with McElroy, Sullivan, Miller, Weber & Olmstead, participated in a discussion with Texas Lawyer in November 2016 regarding the effect of the continuing low oil prices and what the future holds for the energy industry.

“Historically, the oil industry has been countercyclical to the rest of the economy,” Pete points out. With prices low like they are currently, operators tend to buy reserves, otherwise known as “paper barrels.” As prices increase, operators begin drilling more. Conversely, operators tend to cease drilling when prices fall at which point if they are financially able, they may begin buying leases again in order to acquire more reserves. This can lead to some operators being heavily leveraged. Pete says, “These times are especially difficult for the operators who are heavily leveraged. I do not believe that we have seen an end to the bankruptcy filings. . . . We will eventually reach a balance between supply and demand that will be reflected in a higher price. This will create more drilling, resulting in additional production. The process s begins anew.”

As technology continues to improve, U.S. producers are able to be profitable at lower and lower prices thus lessening U.S. dependence on foreign sources. Eventually, according to Pete, “the use of oil and gas will be phased out,” not because we have run out of supplies, but because new technologies will reduce the price of renewable sources of energy as it has oil and gas and this will, in turn, revolutionize energy consumption. For now, Pete notes, “Oil and gas are to power generation and machines what food is to humans.”

Pete sees the use of hydraulic fracturing as a positive. “It was this marriage of horizontal drilling and hydraulic fracturing that produced the energy renaissance that we enjoy today. As a result, the U.S. energy industry has become more nimble and able to produce hydrocarbons cheaper, thereby diluting the ability of foreign producers to adversely affect our strategic standing in the world or to otherwise manipulate our economy. These new drilling and completion techniques have been a significant factor in lowering the price of oil and gas.”

As to future energy policies, Pete would like to see less ideology. “We cannot be strong and protect our interests in the world if we are not strong economically. Life is a balance. We need to be wise with our resources, spending where we are able to achieve the best results. . . . We must strike a balance between our economic prosperity, as well as our relationships in the world, and also meet the challenges of a clean environment.”

For more information, see the Texas Lawyer article “Surviving in Today’s Low Energy Price Climate.” A subscription may be required to view the article.

Meet Peter

Peter E. Hosey is a partner in our San Antonio office with nearly four decades of experience representing clients in the energy and natural resources area. Pete is  Board Certified in Oil, Gas and Mineral Law with the Texas Board of Legal Specialization and serves as chair-elect of the Oil, Gas and Energy Resources Law Section of the State Bar of Texas.