September 2010 Vol. 237 No. 9

Q&A

Truth Told With A Twinkle In The Eye

What do you get when you take an oil patch roughneck who has participated in the drilling of two dry holes, give him the talent and conviction that qualifies him to serve as a teacher and a lay minister in his local church and then train him as a microeconomist to the Ph.D. level?

In the case of Dr. Loren C. Scott, president of Loren C. Scott & Associates of Baton Rouge, LA, an economic consulting firm founded in 1981 when he was on the faculty of Louisiana State University, you get a keen-eyed interpreter of masses of economic data who can deliver honest assessments with a twinkle in his eye. The twinkle is there because he knows a thing or two about life after 40 plus years of working with energy people of all stripes and having observed a goodly number of fairly ordinary folks who have been given a gift that helps them either succeed – sometimes spectacularly – in tight situations, or at least to muddle though.

Dr. Scott is a retired academic star from the faculty of Louisiana State University who today shares his seasoned viewpoint with clients in several business lines while also indulging his talent and enjoyment of public speaking (which provides about half of his income). His public speaking style is described as delivering truth mixed with good-natured humor while emphasizing the positive outlook that is missing in the presentations by too many of today’s speakers and pundits who seem to have emerged from a darker academic atmosphere.

His clients have included a wide range of firms, many of them in the energy business, such as ExxonMobil, Placid Oil, Murphy Oil, Cajun Electric Power Cooperative, Cleco, Shell Chemical, and the Louisiana Department of Natural Resources, to name a few. Dr. Scott is on the 32-member National Business Economic Issues Council where he serves as an energy specialist. Last year, he gave 65 speeches across the country on the economic outlook for the nation with a special emphasis on the energy sector – especially the oil and natural gas markets.

P&GJ visited with him recently to discuss his life and his career and to hear him recite some assurances about America’s energy future. He did not pull any punches. However, as is his trademark style, he also did not pour too much cold water on P&GJ’s optimism about the industry’s future prospects.

P&GJ: What are some of the challenges facing the producing and pipeline segments of the petroleum industry?
Scott: The most immediate is its unpopularity in Washington – typified by the Obama administration’s proposed $36 billion tax on the industry.

The second is the general public’s lack of understanding of the industry and economics in general. A classic case is the proposed tax. The general public actually thinks this tax will be paid by the oil and gas companies. A sophomore who has finished a principles of economics class can tell you that most of the tax will be paid by the general public in higher energy costs and the remainder will be paid by stockholders of the energy companies – which again is them, via their mutual fund holdings, pension plans and IRAs. This tax is a great tribute to the economic illiteracy of our people.

A third problem is the public’s fixation with “green” energy without understanding how much more expensive it is. For those true believers in wind and solar, I say, check out your last utility bill. Now triple it. You still a greenie?

P&GJ: How do you see those challenges being handled? What ramifications does America’s energy policy today have on the future of the country.
Scott: Right now our energy policy will inevitably and unnecessarily raise energy prices and make us more dependent on foreign sources of oil. What will finally bring people to their senses is when gasoline and natural gas prices really spike. When people start getting hit directly in the pocketbook, suddenly its “drill, baby, drill.”

P&GJ: What do you think will be the most likely American energy picture in the next 10 years?
Scott: I think for the next few years there will be a noticeable switch to natural gas because the new supplies coming from the shale plays will make that product relatively cheap. There will be a greater movement toward natural gas-powered vehicles, though it will be tough for that fuel to make huge inroads into the transportation sector because of infrastructure issues.

P&GJ: Where did you grow up and what brought you into the energy industry?
Scott: I was raised in an oil and gas towns – Odessa and Wink in Texas – and when I was a youth, my father worked for Humble Pipeline Company. My first summer out of high school was spent working as a roughneck on two rigs on the western slope of Colorado. Both were dry holes. No one wanted to hire me after that because I was apparently bad luck!

I went to college and received bachelor’s, master’s and Ph.D. degrees and went to work at LSU in 1969 in the Economics Department where I rose through the ranks from Assistant Professor to ultimately holder of the Freeport McMoran Endowed Chair of Economics and the Director of the Division of Economic Development and Forecasting.

I retired from LSU in 1998 and hold the title of Professor Emeritus. I still write the Louisiana Economic Outlook which is in its 28th edition. One cannot forecast the Louisiana economy without becoming very familiar with the energy industry.

P&GJ: When and why did you become interested in your discipline as a career?
Scott: My training is as an economist and I am a pretty conservative one. The theories and modeling in economics and the purity of the models and their forecasting capabilities really drew me in. Then, when I came to LSU it was a natural thing for me, a microeconomist, teaching forecasting techniques to MBAs and executive MBAs to become interested in the energy sector.

P&GJ: What are some activities you enjoy sharing with your family away from work?
Scott: My wife is a master gardener (and also the No. 2 person at Blue Cross Blue Shield of Louisiana), so we play in the yard a lot. Individually, I enjoy (but stink at) golf. I am also very active in my church as a teacher and sometimes lay preacher.

P&GJ: During your travels, have you had any experiences that stand out?
Scott: Mainly just getting to meet new people, renew old acquaintances in the industry and learning new, innovative things that are going on and – when I am really lucky – enjoying golf fellowship in absolutely gorgeous places.

P&GJ: What are some important lessons you have learned that you would like to share with others?
Scott: First, be straight with people. My forecasts rely heavily on talking with folks about what is going on in their industry – be it energy, manufacturing, retail, or whatever. If they do not trust me to handle their information honestly, they’ll never return another phone call and word will get around.

Secondly, our firm conducts a lot of economic impact studies. For example, we just completed one on the economic impact of the ExxonMobil complex in Baton Rouge on the state’s economy. We tell clients that we will tell it exactly as the data show, with no extra enhancements. That way, when we appear before legislative committees, those committee members have confidence in what we have to say and we are not embellishing the results. We have never had an energy-oriented firm ask us to boost their numbers. They are all good folks.

Thirdly, about half my income comes from public speaking. To be successful (as an economist) in this field, you have to use humor to keep the audience, and you have to stay positive about the future.

Despite what we are going through now, our country has for years been a great place for capitalists to operate. I do not expect that to change over the long haul.

P&GJ: What impresses you the most about the energy industry over the past 40 years?
Scott: That’s easy: The incredible technological advances. When I started watching the industry, it was just beginning to drill in shallow waters and you had to drill 10 wells to get one producer. Today, firms are drilling through two miles of water in the Gulf and another five miles into the ocean bottom. The technology involved is in some respects more difficult than landing a man on the moon. Today, with 3D and 4D seismic techniques, firms have to drill fewer than three wells to get a producer. When I started, we were leaving 88% of the oil in a reservoir. Now with horizontal drilling and EOR techniques, only 50% or so is left in place. What a fun industry to watch!

(Dr. Scott can be contacted at 225-751-1707 or lorencscott@aol.com.)