Trump’s policies show a clearer road ahead for oil and gas

By Patrick C. Miller | February 07, 2017

A recently released report from Houston-based Wood Mackenzie examines how the policies of President Donald Trump’s administration might impact the U.S. energy industry.

Jonathan Garrett, a principal analyst with the company, offered insight on how the new administration’s policies could influence the oil and gas industry. The report covers such areas as regulation, opening federal lands for drilling and mining, tax reform, infrastructure development, carbon and clean energy policies, supporting fossil fuel demand and trade policy.

“First off, it’s really early to tell, but from some of the things that President Trump has said during his campaign and since he’s been in office, it appears that—at least for the oil and gas space—the road ahead is more clear,” Garrett said. “There’s less that producers and service companies seem to have to worry about then with maybe a different administration.”

For the lower 48 states, he believes that regulations, infrastructure development and tax reform will make the greatest difference to the oil and gas industry. Trump’s presidential memos giving instructions on how to proceed with the Dakota Access and Keystone XL pipelines provide a good indication of his infrastructure goals, Garret noted.

“What he’s shown with both of those pipelines paves a smoother path ahead for other infrastructure projects, even in west Texas,” he said. “There’s been some talk about the best economics and the greatest activity in the Permian Basin, but the question we’ve been wrestling with is if there’s enough infrastructure to take it away to market at a decent price? Or will it have to suffer a big differential?”

But the Trump administration’s executive order to expedite pipelines and other high-priority infrastructure projects removes some of the uncertainty.

“We’ve seen some infrastructure deals in the Permian as of late and our view is that they and future pipelines and extensions will go ahead smoothly because there’s support from the federal government,” Garrett explained.

On the regulatory side, Garrett said the president’s approach of not adapting new regulations until some are taken off the table is helpful from a development standpoint.

“You know what you’re getting,” he said. “From a planning standpoint, it’s a lot clearer what needs to be done. There’s not going to be something done that might throw you off course with respect to emissions at the wellsite or water handling, processing or disposal.”

Regarding tax reform, Garrett said the administration has discussed lowering the tax rate to around 15 or 20 percent. Although many E&P companies are currently paying the 20 percent rate, the greatest benefit of proposed tax reforms will come to international producers that would only be taxed once in the countries in which they operate.

“If you just tax it once, that’s a better deal for international oil companies, including the ones doing business here in the lower 48,” he said. “Hopefully, they should have more capital to put to work.”

Garrett said there is also interest in whether the Trump administration will open up federal lands for oil drilling and production. However, he noted that the most productive land has been on private acreage.

“If you’re looking at the Permian, there are some parts on federal land, but by and large, the best parts of the Bakken, Eagle Ford, Permian, Niobrara and Marcellus are on privately held acreage,” Garrett said. “If federal land is opened up, it will be more for more exploration and a few test wells. It will make the permitting process a bit easier, but we don’t think easing restrictions on federal land will move the needle that much from a development standpoint.”

Wood Mackenzie’s report cautions that much depends on which of Trump’s policies are successfully implemented and whether the economic realities of global energy markets prove to be an overriding influence.