During the energy crisis of last year, as oil and gas prices were steadily on the rise, oil and gas companies in the U.S. were constantly under attack by Democrats, accused of price gouging and all sorts of other allegations. Those companies were making major profits at a time when Americans were paying more and more at the pump.
Fast forward several months, and those “obscene profits” look like they’re going to be used for reinvestment that will ultimately bring prices down, and all despite the Biden administration’s best efforts to disincentivize such reinvestment. In fact, it could lead to a showdown the Biden administration can’t really afford.
The Wall Street Journal is reporting this morning that ongoing talks between Exxon-Mobil and Pioneer Natural Resources are a big deal that could lead to industry consolidation and ultimately more production, which would be good for the American economy and consumers.
Such a transaction would send the strongest signal yet that drillers in the Permian, the hottest U.S. oil field, are set to bulk up through acquisitions. Oil companies boast healthy balance sheets that give them the stomach and means to shop for targets.
The Journal reported there is no formal process between Exxon and Pioneer, and any deal, if it happens, likely wouldn’t come together until later this year or next year. On Monday, the first day of trading since the Journal’s story, Exxon’s stock dropped less than 1% while Pioneer’s stock jumped about 6%.
Investment bankers and analysts have said conditions are ripe for a deal frenzy in the oil patch this year.
Such deals and acquisitions can have immediate impacts, as the energy market is largely a futures market, and the promise of ramped-up production can mean near-immediate price drops. But it’s coming at a time when the Biden administration has repeatedly insisted that American oil fields are open, but also routinely kept up red tape that makes it costly to start up new production.
Since Biden came into office, his administration’s regulatory efforts have made it nearly impossible for oil and gas companies to set up any new, meaningful production facilities. While Biden has insisted there’s plenty of opportunity, he and his party have made sure that the environmentalism lobby gets what it wants first, and what it wants is zero new production.
While those regulations make it extremely difficult for oil and gas companies to make a profit on new production, it looks like the rising prices of the past may be used to invest in growth and production after all. Speculation that growth and mergers are on the rise means the companies will be spending their war chests on the very thing the Biden administration has sought to prevent.
This potential acquisition has to do more with natural gas than oil, but the implications here are huge. It would likely only be a matter of time before the oil and gas companies start re-investing in oil production as well as natural gas production. What’s more, it’s a politically convoluted problem for Biden. On one hand, there’s his continued effort to bring fossil fuel development in the U.S. down as much as possible, considering one of the loudest segments of his base is the environmentalist base. On the other hand, if he continues to delay and deny new production, he’ll end up bringing increased costs to American consumers, which would do a lot of damage to his upcoming re-election efforts.
Going forward, we’re likely to see oil and gas companies fighting back (without looking like they’re fighting back). The big question is going to be how the Biden administration handles re-investment and growth among oil and gas companies. Does his administration sue to block a merger between Exxon-Mobil and Pioneer Natural Resources? Do they increase the red tape?
Just how much will Joe Biden oppose investments that would ultimately make things more affordable for Americans? Especially considering the likelihood that we’re going to be facing a recession before too long.
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