KPMG expert explains why Saudi Arabia can't sink crude prices into oblivion

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Regina Mayor, an advisor for the energy consultant practice at KPMG, talked about oil prices and OPEC.

Nicholas Sakelaris

Staff Writer- Dallas Business Journal

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Despite last week's bold proclamation, Saudi Arabia cannot keep producing crude oil and drive the price into oblivion if it wants to maintain its social services.

Today, I talked with Regina Mayor, the advisor for the consultant practice at KPMG, who said she doesn't expect this price decline to continue.

"The real break even for a lot of these countries is not what they're finding in extraction and transportation costs," Mayor said. "The real price for oil is what are the expectations of their populace in terms of commitments the government has made in terms of subsidies."

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The fear has been that the Organization for the Petroleum Producing Countries (OPEC) would flood the market to reduce the price, sending its U.S. shale competitors out of business. That's especially of concern in North Texas where the shale boom was born and where many companies active in the shale have their headquarters.

While OPEC countries have reserves that can sustain them for a short time, the break-even could be as high as $100 or even $130 a barrel.

"You're going to run out of money very quickly," Mayor said. "Who's going to lend to countries like that because not all those countries will be able to bridge the gap with debt like the US government is able to do."

Overall, this price volatility could be a good thing for the industry, Mayor said.

U.S. companies that stand to lose will be those small oil field service companies and producers that are highly leveraged with debt. Winners could be those companies that planned ahead and could swoop in and purchase a struggling company at a bargain, Mayor said.

Nicholas covers the energy, manufacturing, aviation and transportation beats for the Dallas Business Journal. Subscribe the Energy Inc. newsletter