• This is a partial transcript from "Your World with Neil Cavuto," August 22, 2005, that was edited for clarity.

    STUART VARNEY, GUEST HOST: High gas and oil prices (search) no surprise for my next guest. In fact, he has been warning that Saudi Arabia (search), among other countries, are running out of oil.

    Matthew Simmons is an investment banker who is also author of "Twilight in the Desert: The Coming Oil Shock and the World Economy." He joins me from Houston.

    Sir, let's focus on Saudi Arabia for a second. You say they do not have the oil reserves they claim to have, and that, instead of raising production in the coming years, they're actually going to be forced to cut it. Correct? Make your case.

    MATTHEW SIMMONS, FOUNDER & CHAIRMAN, SIMMONS & COMPANY INTERNATIONAL: Well, the reality is that, over the last 35 years, we built an illusion, encouraged by Saudi Arabia, but it was really an illusion created in the West, that oil in the Middle East (search) was virtually inexhaustible and that Saudi Arabia, more than any other company in the Middle East, had so much oil that was so inexpensive, that, as long as we used more, we could always open their taps.

    And we never had any curiosity to say, should we actually have some third-party inspector come in and just make sure that's right?

    VARNEY: Well, you're an investment banker. Have you done your homework? Do you know for a fact that Saudi Arabia does not have the oil reserves it claims?

    SIMMONS: I don't know for a fact at all, nor does anybody, but I did spend two-and-a-half years doing the most thoughtful, careful research I have ever done in my life before publishing this book, because I knew it was going to be highly controversial book and challenge energy conventional wisdom profoundly. And I really had no intention of making a fool of myself. I spent two-and-a-half years going through about 235 technical papers that had been written within the Saudi Arabian oil company about the technical issues that we're now facing, the five fields that produce 90 percent of Saudi Arabia's oil. And my fear is that all five of those fields, at the current rate of production, are at risk of a production decline or a production collapse.

    VARNEY: Well, wait a second. At the moment, Saudi Arabia produces 10.5 million barrels of oil a day. They say they want to produce 12.5 million by the year 2009. Are you saying that's flat-out not possible?

    SIMMONS: You can never say something is flat-out not possible. I think the likelihood of that happening is extremely low.

    VARNEY: Let's suppose you are right, though.

    SIMMONS: Extremely low.

    VARNEY: Let's suppose you are right that Saudi Arabia does go down and that we cannot supply the world's demand. I believe you're looking towards oil well in excess of $100 a barrel.

    SIMMONS: Well, if Saudi Arabia is now beyond sustainable peak oil production or if they can get to 10 million or 12 million barrels a day, I would assume that, today, they're producing in crude oil terms closer to 8.5 to nine million barrels a day. But if they're close to peak oil or maybe sustained, then so is the world.

    So, we have developed a situation where the world needed 120 million barrels a day 15 or 20 years from now, and we might have to get along with only 60 or 50 or even 75 million barrel as day. Therefore, the price is going to go way up.

    VARNEY: What about in our own hemisphere? What have you got to say about Hugo Chavez in Venezuela?

    SIMMONS: Well, Venezuela intentionally ran off all of their high- quality technical people. They're the oldest major oil producer on Earth. And they're running into very serious oil problems.

    Mexico, our neighbor right to the south of us, has one field that's been two-thirds of their production that's now entering irreversible decline. Canada's conventional oil is now in irreversible decline. And the United States is producing in the lower 48 less than half the oil it did 30 years ago.

    VARNEY: Is there no chance that new technology could get more out of the ground and find more oil? Couldn't technology bail us out of this?

    SIMMONS: You know, when you say no chance, the answer is, there's obviously a chance. The question is, the chance more than 10 percent or 15 percent? I would say that is probably the best case.

    VARNEY: All right, Matthew Simmons, thanks for being with us, sir. Appreciate it.

    SIMMONS: You're very welcome.

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