The Federal Reserve Bank of Dallas has released its Q2 2021 Energy Survey, and one thing is clear: oil and gas companies are struggling to find investors. The new report included special questions about expectations for a global crude oil gap, current and expected investments in renewables by oil and gas firms, and more. Oil and gas executives who responded to the survey noted that this sector “continued to grow strongly” in Q2 2021. However, two comments stood out.
“We have relationships with approximately 400 institutional investors and close relationships with 100. Approximately one is willing to give new capital to oil and gas investment. The story is the same for public companies and international exploration. This underinvestment coupled with steep shale declines will cause prices to rocket in the next two to three years. I don’t think anyone is really prepared for it, but U.S. producers cannot increase capital expenditures: the OPEC+ sword of Damocles still threatens another oil price collapse the instant that large publics announce capital expenditure increases.
“The inability to access credit from reserve-based lending is a current issue affecting our business.
“Our biggest fear is the administration’s executive actions. Inflation will cause higher oil prices. That will hurt demand over time. Dollar values will help domestic producers. Our foreign policy looks very weak. That may create issues that invite higher oil prices.”
These comments were from a survey of respondents whose identities were not mentioned in the report. Another comment mentioned that the Federal Reserve was leaning on banks to address climate change in their lending decisions — something that is not helpful to the oil and gas industry.
Another commenter referred to President Biden’s stance on clean energy as “the current mess in Washington,” and noted that this added an “unacceptable and adolescent level of challenge to strategic planning.” They claimed that the economy is dependent on the oil and gas industry to provide the energy to fuel it.
One executive stated that they have been monitoring potential changes to the tax code that could negatively impact the industry. They noted that they are “especially concerned about the elimination of intangible drilling cost deductions and flow-through entity taxation.”
Another oil and gas executive was so upset with President Biden that their company will not hire employees or contribute to economic growth. In essence, they are punishing the American people and themselves because they are upset with the current administration. The exec said that they were getting increasingly uncomfortable with what is being “forced” on American businesses — especially the oil and gas industry.
“With the environmental, social, and governance ‘green’ stuff — and now the federal government using the Treasury Department, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, and others to essentially ‘wage war’ against a legitimate and legal American industry — I’m pulling back on all investments in all businesses. I am beginning to take all of my chips off the table and sit this out as I do not like what I see Washington doing and planning on doing more of against the free-enterprise system.
“Rather than growing my businesses and hiring, I will not be hiring during this administration and will just maintain. I will not be investing in any industry during the rest of this administration. We’ll be spectators and start enjoying time that otherwise would have been put into growing our portion of the American economy.”
Yikes.
Another executive claimed that the Biden administration has not been a friend to the petroleum industry. Another one said that his company is barely hanging on, also noting that they own a Ford F-350 and a 28-foot flatbed trailer. They’ve only had one call since January and most companies are demanding more insurance. He’s applied for loans but hasn’t had any luck.
Honestly, my heart goes out to the smaller businesses that are struggling, but I’ve said this time and again. They need to find a way to evolve. This means considering renewables and creating a business that incorporates clean energy into its models.
One thing is clear: the oil and gas industry has noticed that clean energy is in high demand and it is terrified. Expect a rise in disinformation campaigns and lobbying over the coming months.
