After nearly two years of depressed commodity prices and a host of regulations and activist opposition, the U.S. oil and gas industry is hopeful a Donald Trump administration can help re-ignite growth in the sector, said industry sources.
The 45th president will likely remove regulatory impediments imposed by the Obama administration that have stymied oil and gas drilling and infrastructure buildout, said Frank Murphy, managing director, RW Baird.
One area of likely change is the opening up of more federal lands to drilling activities, said Murphy. A Trump administration is also added insurance against a general ban on fracking, said a midstream investor.
Trump’s election will put more emphasis on expanding U.S. oil and gas production, an industry banker said. The banker did not see Trump as being particularly helpful in the big-ticket offshore drilling projects. Yet the Trump administration could positively impact bonding in the offshore oil and gas sector, an industry lawyer said. The amount and type of bonding companies need to operate in the arena was set to rise under Obama administration efforts and a Trump administration could change that.
Industry observers believe a Trump administration represents a friendlier environment for the building of pipeline projects, which has the potential to improve the economics of numerous plays that are constrained by lack of takeaway capacity.
Both Murphy and the midstream investor believed more friendly federal agencies could benefit midstream players in the Bakken, such as Dakota Access-owner Energy Transfer Partners, said Murphy and the midstream investor. The Dakota Access Pipeline requires the input of the Army Corps of Engineers, for example, noted Murphy.
More broadly, Trump is seen as reducing the risk premium investors are imposing on midstream companies seeking to build a pipeline, said the midstream investor. In recent months, sector observers have been noting that pipe in the ground is worth more than a large inventory of organic growth projects.
Improving infrastructure will enhance economics for upstream operators like Hess Corp, which owns a substantial Bakken position, said Murphy. It could also help Hess’s plans to take public Hess Midstream, its Bakken-focused subsidiary, as an MLP, said Murphy and the midstream investor. Takeaway capacity alone will not push forward an IPO, however, and rising oil prices will play a critical role in showing the viability of Hess’s drilling, and by extension its midstream operations, said Murphy.
Harold Hamm, CEO of Bakken and Midcontinent operator Continental Resources, is in the running for Secretary of Energy in a Trump Administration, noted the midstream investor. Such an appointment is seen as benefitting the Bakken and helping operators there.
The Marcellus is another play with infrastructure constraints that could benefit, said Murphy, highlighting the Atlantic Coast Pipeline by Dominion Resources and Duke. It would help move gas south out of the southern Marcellus to the U.S. Southeast but is being held up by the U.S. Forest Service, said Murphy. The planned Constitution pipeline, backed by Williams, that could relieve congestion in the northern Marcellus by transporting gas into New England is stymied by state agencies, but could get a new look in a different regulatory environment, he said.
The Keystone project, owned by TransCanada could also receive a new lease of life as Trump is on record as being in support of the crude pipeline to move Canadian oil south to the United States, though Trump made comments about taking a cut of profits from the pipeline that have befuddled some in industry, according to published reports.
There will be no “free for all” where pipeline companies will be allowed to build wherever they want, however, said the industry lawyer. While a Trump administration would be “more accommodating,” pipeline opponents will likely redouble efforts to use lawsuits to slow down or kill pipeline projects now that they won’t have support from a friendly executive branch, said the industry lawyer.
Midstream companies should still expect a lengthy permitting and building process, said the industry lawyer.
What’s good for coal is bad for natural gas
With control of the House and Senate, Trump will likely be able to appoint a conservative Supreme Court Justice that will be “predisposed” to ruling against the Clean Power Plan, said the industry lawyer. The Clean Power Plan is being fought in federal courts and is expected to make its way to the Supreme Court next year.
Rolling back the Clean Power Plan would make coal more competitive with natural gas, however, which could negatively impact the oil and gas industry. Eliminating regulations that force the shut down or conversion of coal-fired power plants to natural gas could hurt natural gas demand, and natural gas prices.
Other areas of potential concern for oil and gas under a Trump administration include his protectionist stance with regards to American products, said the industry lawyer. Now that U.S. crude can be exported to other countries, it could be targeted by other nations in retribution for tariffs imposed on imported products, said the industry lawyer. The midstream investor shared concerns over potential global trade issues, but thought Trump would be open to trade that supports development of oil and gas.
Wilson Chu, an M&A lawyer with McDermot Will and Emery, thought Trump’s protectionist stance is overstated, noting that Trump is in favor of “fairer trade” and is expected to be “more practical than ideological.”