March 13

Did Biden kill the oil boom for good?

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By that I mean, once we shuffle off his immoral coils – God willing – can we get the boom times back? From everything I’m reading and hearing, man. It doesn’t look good for the home team.

Alaska prepares for Biden to deny Willow project: This is ‘the end of oil in America’
Alaska Gov. Mike Dunleavy expecting Biden to reject massive oil, gas project

As Alaska labor and political leaders plead with President Biden to approve America’s largest pending oil and gas project in his final deciding moments, the state’s governor revealed he’s expecting the White House to turn it down.

“We’re preparing for them to deny this,” Gov. Mike Dunleavy said on “Cavuto: Coast to Coast” Tuesday. “And it’s sad to say that, but their idea of a compromise, apparently, is to allow only two drilling pads for this oil play called Willow, about 180,000 barrels per day at peak, instead of the three or more that really the investors, ConocoPhillips, need to have to make this thing work for everybody.”

The Willow project – currently the largest pending oil and gas plan in the U.S. – is a proposal by ConocoPhillips to develop energy resources in a small portion of what’s known as the National Petroleum Reserve-Alaska on Alaska’s North Slope.

It’s not a cheery prognosis for the project. ConocoPhillips has to have at least 3 drilling pads operating for them to make it pay, so you can clearly see the games the Biden administration is going to be able to play. I’ll lay you dollars to donuts it sounds something just like this:

Not our fault. Once again, we gave them permission to drill, and they chose not to, in order to keep oil prices high and maintain their unholy record profits. This is why we MUST transition away from fossil fuels – so we are never at the mercy of predatory companies again.

As the governor says…

…”Alaska probably has more sanctions put against it by our own government than our government has against Venezuela,” the governor said. “So, this is not the end of oil, it’s just the end of oil in America.”

But Biden hasn’t just damaged the permitting, drilling, and pipeline-building aspects of the oil industry, and this is where the future rubber meets the road. He has singlehandedly destroyed their willingness to spend on exploration and capacity expansion in lieu of packing away money for a rainy day and keeping their fiscal houses in order. The money that would have routinely gone into more wells or maybe taking that chance on a new refinery will probably never be used with anywhere near the frequency it was in previous years, if at all.

Thanks to Biden policies, that money goes into stock buybacks and facilities maintenance.

While oil production in the U.S. will continue its return towards pre-Covid levels, limits on refining capacity and inventory mean it will not grow as much as some hope, according to Pioneer Natural Resources
CEO Scott Sheffield.

We just don’t have that potential to grow U.S. production ever again,” Sheffield told CNBC’s Brian Sullivan on Tuesday at CERAWeek.

To be clear, this doesn’t mean no production growth. Many oil companies have outlined production increases as part of spending plans this year, though oil companies are now in an era of greater fiscal discipline, not shy about signaling they will favor shareholder rewards like stock buybacks over higher production levels. Sheffield expects growth to top out at a level that was already reached pre-pandemic.

“We may get back to 13 million barrels a day,” he said, which would match the record high average recorded in November 2019 by the U.S. Energy Information Administration. But he added it will be at a “very slow pace,” taking two and half to three years to match that previous record level.

…“We don’t have the refining capacity … if we all add more rigs, service costs will go up another 20%-30%, it takes away free cash flow,” Sheffield said. “And secondly, the industry just doesn’t have the inventory.”

The industry listens to the administration, which from the Day 1 Keystone Pipeline cancellation has stymied every advance this country had made to remain energy independent. Big Oil will not risk another dime, or the years it takes for a project to come to fruition.

They don’t have to. Biden’s policies, for all his caterwauling, are keeping them rolling in cash. Remember, oil doesn’t set those prices – the commodities markets do. The market price is determined by who needs how much and is there enough to go around.

Now, about the stock buyback thing. A lot of people have oil stocks as part of their 401K or retirement portfolios, but the oil companies not playing Biden’s game is really eating away at him. So to hit back at them, Biden’s latest budget contains a proposal to quadruple the tax on stock buybacks.

President Joe Biden called for a 4% tax on corporate stock buybacks in his State of the Union address Tuesday night.

The proposal would quadruple the current 1% buyback tax, which was passed as part of the Inflation Reduction Act last August and took effect at the beginning of this year. But with Republicans controlling the House of Representatives since November’s midterm elections, it is unlikely the additional tax would receive approval from the Congress.

The proposal could still resonate with the American public, which see buybacks as yet another way that companies enrich themselves and their investors while minimizing taxes. In a buyback, a company will buy its own shares, which tends to push up the price of the shares still outstanding. Until this year, stock buybacks weren’t a taxable event until investors sold the appreciated shares.

Color oil executives “unimpressed.”

…The boom and bust cycles of the past when oil rig count exploded in line with the latest high price in crude oil are now seen as a cautionary tale. “We’ve seen that movie before,” Hess CEO John Hess said at the annual CERAWeek energy conference on Tuesday. That new fiscal approach from the energy patch has not made the White House happy, especially when oil prices and oil company profits were at a peak last year. The blowback from President Biden has continued, with recent buyback programs from companies including Chevron attracting renewed scrutiny. But when you listen to the way Chevron CEO Mike Wirth talked about its plans to increase the level of buybacks for shareholders, it seems the White House was an afterthought — if any thought was given to it.

Long-time energy sector analyst Paul Sankey put it this way after the recent Chevron earnings call: “I would be absolutely certain many in the White House own Chevron stock in their 401ks. In DC, it is clear that politicians have no comprehension of 1) what a buyback is and 2) how many Americans own stocks in their pension funds/401ks. The tone of Mike’s delivery, and he is a relaxed and confident guy, indicated that they were not really considering Washington, D.C.”

Wirth isn’t the only one sitting in the driver’s seat at a major oil and gas company who seems to have little time to worry about the way the White House views stock buybacks.

No matter what Biden does, his disastrous foreign and domestic policies are the driving force behind oil companies’ actions as well as their record profits. His butt in the Oval Office has proven to be money in the bank for them.

And what looks to be an unrelenting, unnecessary pain in the wallet for us.

The post Did Biden kill the oil boom for good? appeared first on Energy News Beat.

 

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