AN INTERVIEW WITH STEVE BAKER

by Jon R. Welker

January 9, 2005

Steve Baker, an independent oil producer, also pastors River of Life Church in Odessa, Texas. I have known Steve and his wife Vicki for close to 20 years, and have been invited to speak in his church often. We enjoy his friendship and support of our Ministry, and I appreciate his time given to this interview on our recent visit to Texas. My wife and I wish to thank them both, and all the members of River of Life, for their warm hospitality during our time in the Odessa/Midland area. - JRW

Jon: I'm here with Steve Baker in Odessa, Texas. It's January 9, 2005 and I'm going to let Steve explain who he is and ask him some questions. I would like him to tell us something about why we're experiencing the rise in oil and gasoline cost, and how he has insight into this issue and other related subjects....

Steve: Thank you, Jon. I'm an independent oil operator here in west Texas in an area called the Permian Basin, and as such I produce oil and gas. Of course, everyone knows that in recent months, and especially in the last year, the price of oil and gas has gone up probably almost double. We, as independent oil producers, don't have really anything as individuals to do with the pricing of oil and gas; we only sell oil on the free market. So, the forces that are at work making the oil prices go up are, by and large, free market forces. What we have going on the world today is that we have expanding economies in India, China and the United States, as well as other western countries. Oil production, just by the nature of it, is finite. When you drill an oil well, and its brand new, it has its best production capacity. From then on to the rest of its life, it is in a constant decline. So, since in the United States our oil fields are pretty mature, some dating back to the 1920s and `30s for their discovery, these oil fields are mature and have been declining. They are in between 5 to 10% per year annual decline. About the best that we could do is hope to arrest that decline curve. Historically, however, we have not been able to arrest the oil decline curve. Therefore, domestic production, even with the increase in price and the increase in drilling in the last year, has been unable to arrest the decline. So, we don't even produce as much oil today as we did a year ago. We just can't overcome the natural decline of the existing fields. What we have, therefore, is an increased demand for a shrinking supply.

I don't see in the foreseeable future that the United States will ever be able to be independent of foreign sources for oil. The Middle Eastern countries have the largest recoverable reserves. There are some other areas in the world, around the Caspian Sea and such, where geologists and authorities tell us that there are tremendous reserves, but the political unrest in such areas is probably going to make their development slow, if not impossible. There's some oil production taking place in these regions now, but to think such developments will help us keep up with world demand is probably more than we can reasonably expect out of these things. It does seem that both in the United States and across the world, as the price of oil increases, exploration does increase, and so we can ease the pain "somewhat" with such increased exploration. But whether we'll be able to keep up with it so that we can all enjoy cheap oil into the future is doubtful.

God in His wisdom saw fit to put most of our present major oil reserves under the soil of Muslim nations in the Middle East, and those people constantly have political unrest - and many of those people hate us. Even the Saudis, who are supposed to be our ally and the number one producer of oil in the world, don't really like us. And if you look at the 911 terrorists, they were mostly Saudi Arabians. The Saudis want the United States to provide security for them so that they can live their lives as princes and kings. You know, they're the oil royalty. But in fact they don't like us. They don't like our way of life, they don't want our customs imposed upon their people and they'll do everything possible to keep us away from their country because they don't want us over there. So there's a paradox - because they don't have the expertise nationally to produce their own oil, they have to have American know-how to come in and produce their own oil. So they're in a bit of a tight spot; they can't produce their own oil, yet they need us. But still, they dislike or even hate us. Therefore, its kind of like the Bible states about "...upon the earth distress of nations, with perplexity..." (Lk. 21:25).

Some of such perplexities we see in the real world today. These people hate us, but they have to have us. And it's the same the other way around too, we don't like those people and their terrorist activities and "what have you," but we need them because they are a primary source of oil. So the reason we have high oil today is because the demand continues to go up and the supply continues to go down. And, while everybody likes to talk about "renewable energy sources," solar, nuclear (the environmentalists have about killed that), wind, power, etc., still, as long as there's cheap enough oil, these projects won't gain any wide acceptance. We've been able to burn hydrogen in engines for years and years but it's not economically feasible yet. So it all boils down to money. As long as there's oil at a price that we can somehow afford, we're going to have oil. We're not going to change the way that this country operates, we're not going to change what our cars burn and we're not going to change what our power plants burn, because those are life-altering changes. And, we are not going to do that. The price of oil is high today because there's not enough of it to go around, and as long as world demand stays strong, the price should stay up, and may probably go higher.

However, the thing that we've seen make the price of oil go down is something which quenches the world's demand. When there's some kind of a depression or terrorist activities, that can lessen the world's demand. The 911 attacks sent ripples all over the world and changed the countries' economies all over the world. Those kinds of things can change world demand by just changing the way people travel, the amount of items that they buy and the way they live their lives. If we could make people stay home and not buy things, then that would reduce the world's demand and the price of oil would go down under those circumstances. But, as long as everything is going along as it is, the price of oil will probably go higher than it is now.

Jon: Thanks. And Steve, as we were talking earlier, I asked you a question that might be on the minds of some of our readers, and that was: because events in the Mid-East, as you've referenced, often effect the price of oil, do you see any short-term or long-term effects of the recent earthquake and tsunami in the area called "the ring of fire," around the Indian Ocean? Indonesia has a lot of refineries, such as Dutch Shell. Will that effect the flow of traffic of oil to China and Japan and those areas? Do you see any importance associated with that at this time, or is that unrelated?

Steve: The tsunami of December 26^th did not, for some reason, send a ripple through the price of oil, at least anything significant, which makes me think that the refineries in Indonesia and perhaps even the production in Indonesia was unaffected by the tsunami. We'll see.... Anything that effects the production facilities, like the recent hurricanes in the Gulf of Mexico which took out about 700,000 barrels a day of oil production in the Gulf of Mexico, caused prices to spike by about $10 a barrel. But then, as those platforms came back on line after they were repaired, the prices softened and came back down to the $40 a barrel range. So anything around the world that effects productions and refining will immediately send a ripple through the price. Like I said, I was a bit surprised to see the recent tsunami did not do much to the price of oil, at least yet. Of course they're still discovering the death toll. I'm not sure that all those facts have even come out yet, at least I haven't heard that their oil production and refining capabilities have been crippled over there.

But, refining capabilities around the world are very vulnerable. If you take the oil refining capacity of the United States, you'd find that it's concentrated along the Gulf of Mexico, and a couple of well-placed terrorists attacks could effect a third of this country's refining capacity. It could even be gone. It would probably take several years to rebuild a refinery if it got bombed and really destroyed. Those refineries take years to build. So that's why I said we are very vulnerable. It's not so much in the production department, although we are somewhat vulnerable there; just as it is with transportation of oil. But we are extremely vulnerable in the refining process. If the terrorists were to attack, that's probably where they would attack, our refining capabilities, because its very concentrated and absolutely essential. Oil, as it comes out of the ground, is not very usable and therefore less valuable. You can't burn it in your car, etc. It's not usable until it goes through the refining process, and that's where the bottleneck is. So, around the world, anything that would effect refining, and to a lesser extent production, will effect the price.

Jon: That brings me to another thought. You and I were recently talking about the "fear factor." You mentioned to me how that effects the person's overall need or concern with oil and the markets. And you related that to issues within the life of people, and particularly Christians. You related the "fear factor" to how you see oil in regards to our spiritual life, our Christian life. Maybe you could express some of those thoughts now.

Steve: Fear has a very definite effect on the price of oil. Price is a measure of its value, so fear has a very definite effect on the value of oil. It's been interesting to have observed this over the past few years, say ten years ago. We were very sensitive to the whims of OPEC, because back then OPEC was, as they are today, a major oil producer in the world. And we felt back then that whatever OPEC wanted, OPEC could get. The fear was just tremendous. By this I mean that the "fear factor" several years ago would send the price of oil up or down $4, $5, $6 a barrel. And I often joked with some of my colleagues how the news media would pick up on the comments that some of the OPEC ministers would make which could have been just a silly comment. But it got to the point where if one of the OPEC ministers had a birthday party for one of his sons to go to, and he said, "Well I can't make the meeting because I've got a prior commitment," as silly as a birthday party might seem, the news media would pick up on that comment and perceive that as his unconcern about doing his part to control the production and keeping prices in line. And just by his perceived "indifference" to the process, oil prices could go up or down $2 or $3. Yet, he might have just made a silly comment to the news. So, back then the "fear factor" would send oil prices up or down rampantly. Nowadays, they've become somewhat calloused to such reports.

You mentioned the spiritual aspect of oil. As I just noted, our markets have become calloused to a certain extent. Nowadays, when oil officials make comments or OPEC says they're going to have a meeting and try to curtail production or stop the production cheaters, etc., the market has definitely taken a "ho-hum" approach to that. Now the market says, "Well we'll just see what you do." So the "fear factor" has gone beyond what the OPEC guys might say. Now the fear factor comes from things like a natural disaster, when something actually takes place, when the terrorists bomb a pipeline, when there's actually something done. Then the market traders, who ultimately set the price of oil, will take note and the oil price will swing. But we have become more calloused and it's more "show me." "If you want the oil price to move, you show me something now." So it's not as whimsical as it used to be, but fear definitely still has a great amount to do with the price of oil, because people are buying contracts out into the future,. Thus, everybody that's buying oil futures, are buying into the future. Therefore, they're trying to predict the future. So, anything that they see which they think might be a new trend in the market they pick up on, and probably magnify it.

Jon: I seem to recall you related this to the need of Christians in regard to the Spirit of God. Whenever people are in a crisis situation, something that's causing them fear or anxiety, they also have a greater demand for the "oil of God's Spirit." Would you comment on that, please.

Steve: Yes, it's a relatively short jump to see that the oil in the natural parallels the "oil of the Spirit." The value of oil is effected by the "fear factor" we've been discussing: fear does raise the price of oil in the natural. And any kind of a crisis in a person's life, whether they be a Christian, or whether they be a so-called atheist, effects us. Any kind of sudden, unexpected crisis in a person's life will make the oil of the Spirit, the spiritual oil, increase in value. You've usually never seen an atheist when they're in crisis; they always seem to find God or seek God when they're in a crisis. After the 911 catastrophe, we had a national revival _ people were seeking the oil of the Spirit because they were afraid. So, its very much a parallel with the natural demand for oil.

Jon: At another time, I was discussing with you the parable of the 10 virgins, and those that were seeking, but hadn't acquired the oil in their lamps (Matt. 25:1-13). You made some reference to your seeing that same thing in correspondence to the natural realm, and those who have stored up the oil versus those who did not store it up. You might want to comment here about that.

Steve: It goes back to the same parallel between spiritual oil and natural oil You know, as time goes on and we come closer to the end of time and the return of the Lord, we're going to want to have oil, we're going to want to have our lamp full of oil, and want to be one of the wise virgins. It seems quite parallel to the price of oil in the natural. As we've seen last year, prices have gone up, and those that own oil, and those that have assets in oil, seem pretty wise at this time. You could always buy oil and gas properties, but back in 1998 when the price of oil went below $10 a barrel, you seemed quite foolish to be going out and buying oil properties and acquiring oil assets. But now, at $40 a barrel and more, those people seem pretty smart. So, it's the same old thing, when you go against what everybody else is doing, they call you foolish. But then if it turns in your direction, you seem like a genius.

Jon: Well, thank you, Steve. I was wondering as you evaluate the circumstances regarding the increase of oil and the economy, and you look out upon the spiritual condition of our culture and our nation, what comes to your mind that stands out to you, which you would like to encourage our readers to think about right at this point.

Steve: America has become a society of "give me now, give me quick, give me cheap." They want instant gratification, and everything in our life-style is geared towards "more for less." That's not God's way. We have to go against that mentality. They want the same thing in oil; they want more oil and they want it cheaper. They don't care why, they don't care how. The American people, and really the people all over the world, want to run their cars up and down the roads cheaply. They don't care how we do it. They think somehow the President can all of a sudden make cheap oil. It's bigger than the President - it's a worldwide supply-and-demand thing. The President can't just go into the fray and demand cheap oil. Sure, he can make deals with the Saudis and other countries to guarantee their security if they'll guarantee certain oil output, but even that's wearing pretty thin. But we are a society that wants to maintain our present life-style, and we want it cheaply; we want to be able to be prosperous at any cost. We've come to expect that. But we're going to see in the future, as oil gets higher and higher and higher in cost, that we're going to have to make some hard decisions. Like I said, the people that own oil are going to be considered the wise ones. I think they're going to be sitting in a place where, at least financially, they're going to be able to survive and that's going to be the side of this equation that you're going to want to be on.

And it's the same way in the spiritual realm. As we close in on the events of the future, it's going to be more and more important that we focus on the oil of the Spirit so that we keep our eyes on the Lord Jesus Christ and allow Him to move us to where we can get through these events. We're going to need the oil of the Spirit, just as we're going to need the natural oil; it's an exact parallel. We're going to need both. I'm very thankful that I know the Lord because I see a lot of people in my business that are taking their prosperity for granted and just enjoying their lives, but they're getting further away from God. And that, of course, is the natural tendency. As your bank account fills up, you get further away from God. So there's a great responsibility for all of us that own oil, both natural and spiritual, to take special care to stay close to the Lord and keep our head on straight and go towards the mark.

Jon: Thank you, Steve. I like the parallel particularly of wanting things quick and fast. I think that's where people are in church and in Christianity today. Many want something fast and they want it cheap. And if it costs too much and they have to labor through it, to be patient, then they're not interested. They want it to consume it now.

So, thank you. And maybe sometime in the future, somehow, we can get some further comments from you.