Can the Oil Industry Survive Obama?

I’ve been writing extensively about the new administration in Washington, and it’s die-hard opposition to the oil industry. In a word, the political party in power wants to do away with any derivative of fossil fuels by taxing in on both ends – on manufacturing and on consumption.

Nowhere in President Obama’s proposed $3.4 trillion budget is there room for aid to the oil industry. In fact, taxes raised on the energy industry amount to about $80 billion, and an onerous carbon emissions tax will do even more harm to the energy industry and to consumers. In that bill, about $120 billion is earmarked toward the energy industry – and that’s only going to companies that are green enough in the eyes of the energy experts in Washington.

So that begs the question. Can the oil industry survive Barack Obama?

Devon Energy’s chief executive officer J. Larry Nichols thinks so. In an interesting speech Nichols gave to the Petroleum Club of Fort Worth last week, Nichols said that the industry could withstand the $80 billion in energy taxes that the White House and Congress are proposing. In fact, he only gives the chance of all the new taxes at 50%, with Republicans and industry lobbyists furiously trying to knock some of the oil and energy taxes out of the new budget.

But there is no question that the taxes would crimp the ability of oil companies to create more oil and gas for consumer use – thus penalizing everyone. On the tax issue, Nichols told his Texas audience “If you take part of that cash flow, for whatever reason, the only response we can have is to drill less natural gas wells,” he said. Nichols emphasized that higher taxes means less cash and reduced drilling, fewer oil and gas wells provide less supply than demand necessitates, and therefore higher commodity prices ensue.

Nichols is a pragmatist, and that’s a good thing to see in an oilman these days. He welcomes the exploration of alternative energies like wind and solar, and is not afraid to say that public money should indeed go to the search for different kinds of energy.

“It’s a really exciting time in this country because for the first time we’re really getting down to a serious debate about energy,” Nichols said in his speech. “It had to happen sooner or later, and we’re finally getting down to that time. We’ve had a lot of sloganeering for a long time.”

As for so-called “clean” energy, Nichols says that new sources of energy are welcome, but oil remains the linchpin of the U.S. energy economy.  “We can harness the incredible technology we have in this country and in the Western world to figure out ways to use our energy in a more efficient manner, and to use it more wisely,” he said. “But while we’re doing that, we also need to recognize the fundamental, underlying, hard, cold fact: we’re going to need more oil and we’re going to need more natural gas. There is no study out there of any reputable source at all that says we’re going to replace oil and natural gas or coal and nuclear with renewable fuels any time in our lifetime.”

Nichols told his audience that he told a prominent Democratic U.S. Senator that, if taxes were raised, be prepared to tell your constituents that their energy costs would rise – and significantly. “The more (profits) you take, the more (prices) are going to skyrocket,” he told the senator.

Tough talk, but Nichols is on to something. Right now, we as an industry have ceded the public relations battle – and it is a battle -- to opponents of oil and gas exploration. We have let oil become a dirty word in the political lexicon and that has to stop. With guys like Nichols – a CEO of a major oil company – standing up for us in Washington, we stand a much better chance of getting our message across.

That message is a simple one. Oil is a critical staple of the U.S. economy. Consumer want it and we want to give it to them. It’s a free country and all viewpoints are welcome. But anyone who gets between consumers and their oil and gas will get the political lesson of a lifetime.

Posted 04-06-2009 5:46 PM by Bret Boteler