On the new White House website, the Trump administration lays out its America First Energy Plan, “recognizing the vast untapped energy reserves right here in America” and embracing the shale oil and gas revolution to achieve energy independence from OPEC.
With policy stating “for too long, we’ve been held back by burdensome regulations on our energy,” this sounds promising for Texas—home to the shale revolution. But will rolling back regulations really unleash a new wave of drilling in a world already awash in oil?
According to the Texas Railroad Commission, oil production nearly tripled between 2010 and 2015, reaching 1.2 billion barrels, while production of natural gas steadily increased from 7.5 billion mcf to 8.8 billion. Growth continued to occur in Texas despite the industry’s shift in resources from the Barnett field in North Texas to gas plays in other parts of the U.S.
The surge in oil production put Eagle Ford Shale in South Texas on the map and reignited activity in the historic Permian Basin in West Texas. But it also sparked a dramatic decline in global oil prices–from more than $100 per barrel in June 2014 to about $30 per barrel in early 2016–prompting producers to scale back and slash jobs. Late last year, OPEC also relented and pledged to cut production by 1.2 million barrels per day.
However, activity rebounded in West Texas before Donald Trump won the Oval Office. Thanks to new technology and its unique geology, the Permian Basin attracted billions in new investment in 2016, driving up land values and drawing back rigs. Exxon Mobil capped the deal-making with its $6.6 billion purchase of the Bass family’s holdings in January.
As the new administration took office, oil prices moved upward to $50 per barrel and West Texas’ industry recovered. The Federal Reserve Bank of Dallas reported oil and gas executives entered the year with an improved outlook, saying Texas’ economy was poised to shift into “second gear,” with job growth expected to expand.
Bruce Bullock, director of the Maguire Energy Institute at SMU’s Cox School of Business, says he believes actions by the Trump administration could boost oil production further and potentially generate hundreds of thousands of jobs the new president foresees.
“Relaxing regulations could free up capital for production,” Bullock says. “And expediting permits to drill on huge swaths of federal lands could spur new exploration.” He believes if Trump is able to get tax reform and other measures through Congress to boost economic growth from 2 to 4 percent, it “would have a positive effect on both the price of oil and demand for oil … we would see more activity as result of that.”
Others aren’t as hopeful. A Wood Mackenzie energy research firm report, released late January, predicted Trump policies would result in “marginal” changes to the oil and gas markets given long-term trends in energy usage, renewables, and environmental concerns.
Ben Shattuck, a principal analyst at Wood Mackenzie who closely follows developments in the Permian, says it is “relatively uncertain” what impact results from administration decisions.
But what is clear, Shattuck says, is drilling activity in West Texas will continue to increase. He predicted the region could see another 80 to 100 rigs this year, after doubling its rig count to more than 230 since May. Both he and Bullock expect oil prices to average in the mid-$50 range throughout 2017.
In its latest survey of energy executives, the Dallas Fed addressed concerns about rising prices being paid for oil assets in West Texas. Some said prices had reached “an exuberant level” and “multiples associated with a bubble or a Ponzi scheme,” while others were more measured, saying the field’s potential over several decades warrants the big-dollar deals.
Either way, a multibillion-dollar land rush is hardly a sign of an industry “held back by burdensome regulations.” Executives are best to take cues from global markets, not Washington.
Steve Kaskovich is the deputy managing editor of business for the Fort Worth Star-Telegram.