In your book you claim that Saudi Arabian oil production has peaked or is on the verge of peaking. However the Saudi authorities claim that they will be able to increase daily production to more than 12 million barrels per day in the near future.
If what you are saying is true then why would the Saudis claim that they can increase production?
Matthew Simmons: I suspect that they actually believe they can, and I would point to the unfortunate experience of almost all our major oil companies in the U.S. and England who five years ago were just as confident they could grow their production over the next decade by 5-7% per annum. And all of this turned out to be unjustified optimism. Today most of the major oil companies are witnessing production declines. It turns out that estimating future oil production is just as difficult as measuring future earnings per share. It’s an art vs. a science and it’s very easy to get fooled, especially when you’re dealing with old oil fields…
There are some people who say deep well drilling will provide the oil we need and cite several wells in Russia that are designed for deep drilling. I don’t think the flow rate or the quality from those wells is really going to help us, but I’m curious as to what you tell people when they talk about deep drilling?
Matthew Simmons: There are two elements of deep drilling that get bandied about-first is deep water oil, and second is deep formation oil (lower depths in the earth), and then there’s the combination. What’s interesting is from what we know of these virgin areas is that they are very expensive to drill, the expiration risk is very high (about 1 in 5 to 1 in 8 seem to work) and then most of the production, once it comes into stream, rapidly goes into decline. For example in the Gulf of Mexico where you have deep water oil being produced also from deep formations, once they come onstream they tend to peak within 18 months and they tend to decline by as much as 70-80% in a 5-7 year period of time, so it’s hard to envision that we could ever find enough of these to sustain an offset when Saudi Arabia’s production goes into decline.