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By Robert Rapier on Nov 19, 2012 with 6 responses

President Obama Has Little Impact on Oil and Gas Companies

In last week’s Energy Trends Insider (ETI) I explained The Obama (Non)-Impact on Oil & Gas Companies. In addition to my article, Andrew Holland discussed How the Obama Administration Will Deal With Natural Gas Exports and Elias Hinckley concluded the issue with Increasing Talk of Climate Change and Carbon Taxes Impacts Energy Industry. As we have done previously, we would like to share a story from ETI with regular readers of this column. Interested readers can find more information on the newsletter and subscribe for free at Energy Trends Insider.

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The Obama (Non)-Impact on Oil & Gas Companies

Following President Obama’s reelection, a number of fossil fuel stocks sold off based on the belief that Obama’s policies would prove harmful to the fossil fuel industry. But will the President manage to push through tough new regulations that raise the cost of production for fossil fuel companies?

Although President Obama often took an antagonistic position with respect to the fossil fuel industry during his first term, the industry actually fared pretty well. U.S. oil production and dry natural gas production were both sharply higher during President Obama’s first term, but coal production fell slightly relative to President Bush’s second term.

To be clear, the production increases for oil and natural gas were not the result of President Obama’s energy policies. Rather, it was due to persistently high oil and gas prices during the latter part of the last decade, which led to record investments by oil and gas companies into the development of new projects.

A historical analogy of the recent oil production increase began during the Nixon Administration. In 1973 President Nixon pushed through the Trans-Alaska Pipeline Authorization Act, which cleared away legal challenges from environmentalists seeking to stop construction of the pipeline. But the pipeline didn’t start production until 1977, during President Carter’s first year in office. As a result, after a sharp decline in oil production under President Nixon, oil production rose for the first 2 years of President Carter’s term. But just like the production increase over the past four years, the production increase in Carter’s first two years was a result of events that took place during an earlier administration.

The lesson here is that in the short term, the energy policies that President Obama is pursuing today are unlikely to impact oil or natural gas production for several years. If he continues to adopt an antagonistic stance toward domestic oil and gas producers, the impact will be felt most strongly after an appropriate lag time.

In any case, fossil fuel companies fared well during Obama’s first term. Consider first the performance of the AMEX Natural Gas Index. This index is comprised of 20 companies involved in the production and distribution of natural gas such as Apache Corp. (NYSE: APA), Chesapeake Energy Corporation (NYSE: CHK), EOG Resources, Inc. (NYSE: EOG), Devon Energy Corporation (NYSE: DVN), and Kinder Morgan, Inc. (NYSE: KMP). During President Bush’s second term, the index rose sharply with the price of natural gas until mid-2008, at which time the index collapsed along with the price of natural gas. Because of this collapse in price, when President Bush left office, the index was only 21% higher at the end of his second term than it was at the beginning.

The rise in the index was not as steady during President Obama’s first term, but this was also a time of weakening natural gas prices. Nevertheless, the index increased by 85% between the beginning of President Obama’s inauguration and the present time.

This performance wasn’t limited to natural gas companies. During President Bush’s second term, the share price of Chevron (NYSE: CVX) increased by 48%, but it increased by 75% under President Obama. The share price of Schlumberger (NYSE: SLB) increased by 19% under during Bush’s second term and 98% during Obama’s first term. Even coal producer Peabody Energy Corporation (NYSE: BTU) performed slightly better under President Obama (22% increase in share price) than during President Bush’s second term (18% increase).

This exercise is not meant to demonstrate that President Obama is better for fossil fuel companies than was President Bush. What the exercise demonstrates is that external factors grossly trump presidential policies when it comes to the performance of these companies. Price is the most important determinant, but companies with superior management and good decision-making can make money even when prices are softening.

The other item to note from the above exercise is that in every case, the returns were positive across both administrations — during a period that saw oil prices swing between the $30′s to nearly $150/bbl. Over the long term, I have always believed that fossil fuel investments are pretty good bets regardless of the political climate.

Link to Original Article: President Obama Has Little Impact on Oil and Gas Companies

By Robert Rapier

  1. By Ed Reid on November 23, 2012 at 8:41 am

    The key here is “in the short term”. The EPA regulations on CO2 emissions per megawatt hour generated, combined with the impending Mercury rule, would almost certainly result in the closure of a large number of coal fired generators and prevent the construction of new coal fired generators until CCS becomes commercially viable. That would certainly reduce US coal consumption in the intermediate to long term, though coal production for international markets might blunt the effect on the US coal industry.

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    • By notKit P on November 23, 2012 at 10:00 am

      Ed

      A minor correction. CO2 rules are pending. It is unlikely that they will not stand in court because of the arbitrary nature. Obama is promoting natural gas over over coal-based generation. The best available technology (BAT) wrt to base load generation is nuclear.

       

      Also mercury rules were is place until the watermelon went to court to challenge them. Currently BAT to remove mercury is being installed which will effectively remove almost all the mercury.

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      • By Ed Reid on November 23, 2012 at 11:09 am

        NOTKIT,

        I wish I could share your optimism regarding the courts. The supremes apparently found “emanations and penumbras” in the CAA which allowed it to cover CO2, even though Congress chose not include CO2 in the CAA or the later amendments to it.

        I suspect that, “in the fullness of time”, we will discover that Obama was for natural gas before he was against it. (HT – John Forbes Kerry)

        EPA has not gotten around to “fracking” yet, though I am certain that will happen as well.

        Oh, don’t forget that “the Great Hansen” requires complete elimination of GHG emissions as the “price” of saving the future.

        Prepare for the “death of a thousand bites”.

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      • By Ed Reid on November 24, 2012 at 9:00 am

        • Energy. In the lead-up to November, the Environmental Protection Agency stood down under White House pressure, delaying rules for ozone air quality and industrial boilers, and deferring carbon standards. Now EPA chief Lisa Jackson has the run of the place.

        She will resume the Administration’s anti-carbon agenda through “new source performance standards,” which will set greenhouse gas emissions for new power plants so low as to prevent their construction. Look for this early in 2013.

        She’ll follow with standards for “existing” sources that make coal-fired plants uneconomic to run. Inside of a decade, Ms. Jackson may wipe out what used to make up more than half of U.S. power generation. Environmentalists will write books about it, even if her agenda has received almost no public scrutiny or debate.

        The oil and gas industry is also targeted, hydraulic fracturing (fracking) in particular. The EPA has already issued a rule on shale production emissions and has one coming on diesel fuel in fracking. The Interior Department is promulgating rules on fracking on federal lands, and other rules can’t be far behind, probably using the pretext of drinking water under the Clean Water Act.

        The EPA’s sleeper issue is the National Enforcement Initiatives agenda, which is designed to use the agency’s existing legal powers for inspections, requests for information, penalties and so forth to make new de facto rules. The EPA now blackmails businesses into “super compliance,” or settlements far more stringent than the law requires, or else risk years of expensive litigation.

        http://online.wsj.com/article/SB10001424127887324439804578115001809986588.html?mod=WSJ_Opinion_AboveLEFTTop

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  2. By notKit P on November 24, 2012 at 7:16 pm

    Ed

    Not to quibble, your second post was very well written, you should be a journalist … oh, never mind.

    The power industry does not have a problem battling government. It is part of the business. We even get to pass the cost on to our customers. It would be really funny if it was not so sad.

    Lisa Jackson is a lawyer and tried to shut down lots of coal-based generation when she was at the EPA under Clinton by various law suits. She failed!

     

    Now many small old coal plants are being moth balled for economic reasons. When demand for power increases again they will be reopened and then new ones will be built. Making power is a long term thing and POTUS is a temp job.

    Obama and crew brag about making coal too expensive, the forget what powers DC. We just pass the cost along to the government.

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    • By Ed Reid on November 25, 2012 at 12:36 pm

      Sorry, I should have put the entire text in quotation marks. My bad.

       

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